Who Can Help Me with Mortgage Problems?

A number of people have been contacting me about the work of people other than my company that produces reports and analysis and expert witnesses and my law firm, Garfield, Gwaltney, Kelley and White based in Tallahassee.

My first rule is that I don’t attack or smear anyone who might provide some service that has any chance of helping someone with a consumer debt, mortgage problem, foreclosure etc. Everyone is invited to the party and with more than 5 million foreclosures behind us and another 5 million projected into the future, there is plenty of room for everyone to take a share of the market.

My second rule is that this should be a collaborative effort in which anyone with an idea should have a platform to put forth their ideas.

And my third rule is that I don’t recommend anyone unless I have seen their work, examined their credentials (education, licenses and experience) and discussed their approach with them. Their are many approaches that work for a while then stop working because the banks change their tactics in response. There are many legal theories that are correct but the Judges refuse to apply them. What is important is that you develop a strategy for NOW, with those tactics and strategies, defenses and causes of action that are getting traction with Judges.

CAVEAT: There are many people and companies that are offering bogus relief programs — some with a lot of cash to do advertising and marketing. Be careful and ask questions. If you must take their word for it because they have no historical presence in the bank scam arena be extra careful. What I mean is how have they been contributing to the assistance of distressed consumers and homeowners?

With that in mind, here are some general guidelines for who can help and who might be well intended but ineffectual in achieving a satisfactory result. People that might possibly be of assistance include the following:

  1. LAWYERS: Simply because in the final analysis these are legal problems that usually end up in court where rules of procedure and rules of evidence usually determine the outcome. Within this category are lawyers with foreclosure defense experience, bankruptcy lawyers, property lawyers, and civil litigation lawyers. Anyone without a lot of trial experience should only be used for advice.
  2. HUD COUNSELORS: often overlooked, these people have relationships with the banks that neither lawyers nor forensic examiners have and can often ferret out facts that might not be available even through the process of legal discovery. The good ones have a pretty good track record of settling or modifying loans. AND they usually have relationships with lawyers, real estate brokers, appraisers, investigators, mortgage brokers, hard money lenders. They are licensed and regulated the same as lawyers, brokers, appraisers, and investigators.
  3. FORENSIC ANALYSTS: Very few of the people who perform this work can claim any credentials as an expert witness whose credibility will be accepted by the court. But on the other hand they often have become very adept at ferreting out information of value to your lawyer or whoever is helping you.
  4. EXPERT WITNESSES: Almost anyone will be allowed to testify as an expert witness these days because the rules are so relaxed. But the Judge is not going to give their testimony any weight unless the expert can clearly explain the facts, opinions and conclusions in a compelling way. An expert witness who is not licensed in any relevant field, possessing no academic degrees relating to a relevant field, who has no experience in the relevant field (e.g. a current or former banker, investment banker, broker etc.) might be allowed to testify but nobody is listening. On the other hand, such a witness can testify as a FACT witness rather than an opinion witness as to the results of their forensic examination of the loan, assignments or current status of the alleged loan. There are very few expert witnesses who can testify as to all aspects of securitization but many who can testify as to parts of it. You might need more than one. Lastly, even an unqualified expert witness with little credibility might give you or your lawyer an idea that had escaped your attention so there is no harm in talking or consulting with someone, even if they appear on paper to have few attributes of an actual expert.
  5. BROKERS: REAL ESTATE AND MORTGAGE: Firstly, as licensed, educated, experienced individuals they command some attention. They might have their own agenda they are pushing but when asked the right questions they can be worth the fee if they are able to describe past and current practices and their opinion of certain transactions alleged by your opposition. Keep in mind that real estate and mortgage brokers have a stake in the marketplace — to keep things moving, buying and selling, borrowing and refinancing.
  6. APPRAISERS: Usually licensed and experienced with many years behind them, they can provide very helpful insights as to whether the property was really worth anywhere near the loan value and the current fair market value. They could be a key ingredient, where it applies, to showing that that the originator was not acting as a lender because custom and practice in the industry was to take a lower appraisal righter than a higher one and that custom and practice was to “go back to the well” several times where the market appeared volatile — all things that were absent in the “underwriting” practices of the time. It was the the appraisers in 2005 who warned of the coming catastrophe and many of them suffered by getting no business because they refused to sign off on an appraisal that was misleading.
  7. INVESTMENT BANKERS: Lots of them exist, very few are willing to testify. But they obviously know a lot of shocking details if they were involved in the bundling and sale of mortgages. But remember there are several moving parts in securitization and some investment bankers might know nothing of value to your case. Only a few people at the top truly know what happened to the money and what decisions were made as to fabrication of paperwork to cover up the misappropriation of funds, title and rights to enforce.
  8. MORTGAGE ORIGINATORS: Lots of them exist, few are willing to testify. But there are some. They can tell you that they were never at risk on the Loan” and how the money came from a source outside the circle of parties at the loan closing table. TILA and RESPA claims can be corroborated with their testimony as well as questions regarding title and thee right to enforce.
  9. WHISTLE-BLOWERS: Like “experts” anyone can claim to be one. But if the person has information that can be corroborated they can be an excellent guide through the maze of curtains and obstacles that currently prevent most borrowers from figuring out and proving what is really going on.
  10. LOAN MODIFICATION PROGRAMS: As greater regulation and enforcement is starting to get some traction, so has the possibility of modification or settlement. Keep in mind that with so many successful illegal foreclosures behind them, the banks are more likely to seek finality to the situation since we have passed the half way mark and the possibilities of liability for buy-backs and refunds are declining. Be careful about anyone who tells you that you should stop paying the payments — a strategic default is something you should thoroughly examine and research and get advice before doing it. That includes especially the banks who are doing that as a matter of policy. If you do enter into a modification program make sure that the end result is going to be a modification and not just another excuse to foreclose on you with more information about you than they had before. And make sure you clear up title as well as the debt. Without that you are raising the probability that you will be fighting title issues later in court.

There are no doubt many other types of people who can or want to help. I can only mention the ones I know about. Be careful and don’t let desperation get the better of you.

FOOTNOTE: I am besieged by people trying to bait me into a “discussion” where I defend the strategies and tactics I use and describe on my blog. I won’t enter into such a discussion for the same reason that a judge would ignore what an “expert” says who has no credibility and no credentials. The only place where I will defend is in court for the benefit of clients. If someone doesn’t like my views because they think it discredits them or their services, then maybe they should do more research into what they are doing.

Lawyers cashing in on Class Action Lawsuits for Investors: What About Homeowners?

“I can’t predict the next scandal,” Mr. Berger said. “But I know that fraud is a growth industry, and so is greed.”

Editor’s Comment: Max W. Berger, partner of Bernstein Litowitz Berger & Grossmann, based in Manhattan has brought in over $1 Billion in damages for class action lawsuits filed ion behalf of investors. I’ve been predicting here that the amount of money that a lawyer can make correcting the malfeasance of the megabanks and servicers is staggering — far beyond profitable areas like personal injury and medical malpractice.

They are producing settlements rather than verdicts and judgments simply because the banks don’t really have a credible defense to what they did. They lied, cheated and stole. By diverting money from the securitization scheme that they said they were following and diverting the documentation away from the investors, as well as diverting huge payoffs and profits away from investors, the banks have screwed the investors (and all the pensioners and retirement account holders), screwed the taxpayers with creating false premises for bailouts, and screwed homeowners with false claims for foreclosures.

Is it time yet for lawyers to realize that even more money is to be made representing homeowners? The obstacles in the law create problems for certification of class actions but the possibilities remain. Any foreclosure pattern that REQUIRED the use of false documentation that was forged by unsophisticated clerks at the direction of the people who were claiming plausible deniability MUST be the target of such lawsuits and the answer to the problem of underwater mortgages, strategic defaults which are on the rise, and the limp economic recovery caused in large measure by the housing crash that cannot recover until the foreclosure scheme is stopped.

Lawyers for homeowners should be pouring through the discovery documents and pleading of the cases filed for investors, There they will find a treasure trove of information that drove the banks into offering billions in settlements of actions brought by civil action lawyers as well as government agencies. But the real question is why are the big name class action lawyers ignoring the horrendous damage to homeowners?

These lawyers have the resources and the knowledge that has been disclosed here on this blog and hundreds of other articles, mainstream news stories and bloggers across the country.

Iceland understood the problem and reduced household debt, bringing itself out from an actual economic depression into the fastest growth of western nations. Ireland is now about to require reductions in principal due to prevent the wave of foreclosures that has been hanging over that market as well, leading the way for other European countries to follow suit.

Each day thousands of lives are ruined by the false claims in foreclosures that dominate the “foreclosure industry” comprised of participants in a securitization chain to nowhere — the money wasn’t sent through that channel, the documents were diverted from that channel leaving the investors with nothing. Shareholders in the banks were misled and kept shares of the mega banks in their portfolios. Managed funds for pensions and retirement funds, have lost as much as 50% of their value endangering current pension benefits (a fact that will be revealed after the elections).

Why do I need to convince lawyers to make more money and do some good for society into action on behalf of homeowners when on the same facts, lawyers for the investors are making money hand over fist?

Business is booming for lawyers who care about investors, but not so much for lawyers representing the homeowners who were screwed worse than the investors. The homeowners in most cases have lost everything and more.

Their own pension benefits probably come from a managed funds that bought into the bogus mortgage bonds. Their pension benefits are in danger of being cut even while they lose their home and lifestyles from tricky defective mortgages that not even Alan Greenspan understood much less the unsophisticated home-buyer or homeowner refinancing homes that were in many cases in the family for generations.

Why is this so difficult for the lawyers and the judiciary to understand? Whose name would you put on the note and mortgage if you were lending money? Why wasn’t the name of the actual lender disclosed, much less shown as payee or mortgagee? If the REMIC trusts were real, no originator would have been allowed to place their name on the closing documents.

The money DID come from investors but did NOT come from the REMIC trusts that are alleged. The mortgage liens were not perfected and the underwriting process upon which the bank settlements with investors were based, was completely scuttled, especially where it came to intentionally inflated values of the property.

So where are the lawyers to take advantage of this huge opportunity where so much of the work has already been done for them by government agencies and class action lawyers for investors?

Investors’ Billion-Dollar Fraud Fighter

A few days after securing the largest shareholder recovery arising from the financial crisis – $2.43 billion from Bank of America – the plaintiffs’ lawyer Max W. Berger was not taking a victory lap.

“It makes me sad that in all of these scandals, no matter how good a job we do of getting results and inflicting pain, the government doesn’t seem to follow suit, and nobody learns, and it’s business as usual,” he said in an interview.

After a pregnant pause, Mr. Berger broke into a sly smile. He had another thought: “It gives us a lot of business, but it still makes me sad.”

With last month’s settlement with Bank of America, which resolved claims that the bank had misled shareholders about its acquisition of an ailing Merrill Lynch, Mr. Berger, 66, has now been responsible for six securities class-action settlements of more than $1 billion. His firm, Bernstein Litowitz Berger & Grossmann, based in Manhattan, has represented investors in five of the 10 largest securities-fraud recoveries. So far, it has recovered $4.5 billion for investors in cases connected to the subprime mortgage collapse.

“He is unquestionably one the giants of the plaintiffs’ bar,” said Brad S. Karp, the managing partner at Paul, Weiss, Rifkind, Wharton & Garrison, who represented Bank of America and has faced off against Mr. Berger in several other cases. “And what sets Max apart, beyond his talents as a lawyer, is that he’s a mensch, a person of real humility and integrity.”

There was a time, not too long ago, when the lions of the securities class-action bar were described in far less flattering terms. For decades, Melvyn I. Weiss and William S. Lerach, a pair of brash, crafty plaintiffs’ lawyers, dominated this lucrative pocket of the legal industry. Their firm, Milberg Weiss, revolutionized shareholder class-action suits by filing streams of cases against corporations, accusing them of accounting fraud. Critics called their aggressive tactics legalized blackmail. Congress passed laws aimed at reining in their practices.

The careers of Mr. Weiss and Mr. Lerach ended in disgrace in 2006, when their firm was indicted on charges that it had funneled illegal kickbacks to clients to induce them to sue. Mr. Weiss, Mr. Lerach and two other Milberg Weiss partners ultimately served prison terms. (It did not help the standing of the plaintiffs’ bar that at about the same time, Richard F. Scruggs, the Mississippi class-action lawyer, was imprisoned for trying to bribe a judge.)

“To be tarred by those brushes was very upsetting, but it was even worse to have everyone presume that we operated in the same way,” Mr. Berger said. “After they were charged, I can’t tell you how many people said, ‘Well, isn’t that what all of you do?’ ”

Yet a half-decade after Milberg’s downfall, there has been a shift in the public image and reputation of the securities class-action bar. The Bank of America settlement, which is still subject to judicial approval, comes at a moment when plaintiffs’ lawyers are being praised for extracting stiff penalties from banks related to their actions during the housing boom and the subsequent economic collapse. At the same time, resource-constrained government regulators have been criticized for not being tough enough.

In several cases, private plaintiffs have settled lawsuits for amounts far greater than the government received in similar actions. Bank of America, for instance, paid the Securities and Exchange Commission just $150 million to settle the commission’s lawsuit connected to the Merrill acquisition. Judge Jed S. Rakoff reluctantly approved the S.E.C. settlement, calling it “inadequate and misguided” and the dollar amount “paltry.”

“The securities class-action bar has come under relentless assault over the years,” said J. Robert Brown Jr., a corporate law professor at the University of Denver. “Yet these suits, especially the ones tied to the financial crisis, actually have had real value in the capital markets because companies need to know that there is a heavy price to pay for their misconduct.”

There are still detractors who scoff at that notion. These critics view securities class-action lawyers as bounty hunters who file nuisance lawsuits against deep-pocketed targets and then force them to settle rather than engage in costly litigation. They argue that the settlements have little deterrent effect because the payments almost always come from the corporations, not the executives and directors running the companies.

And questions have arisen over plaintiffs’ lawyers’ campaign contributions to local politicians who control the selection of legal counsel for shareholder lawsuits filed by public pension funds.

But even the most vocal opponents of securities-fraud class actions acknowledge that a variety of factors, including a combination of federal legislation and court rulings, have curbed abuses in the system. Many of the weakest cases are now thrown out earlier, and large institutional shareholders like state pension funds and insurance companies have taken greater control of the lawsuits.

They are also reining in the lawyers’ fees. In the past, plaintiffs’ lawyers received 20 percent to one-third of the settlement amount. Today the average fee award as a percentage of the recovery is much lower. In Bank of America, for example, Bernstein Litowitz and two other firms – Kessler Topaz Meltzer & Check and Kaplan Fox & Kilsheimer – are expected to ask for about $150 million, or 6 percent of the settlement.

“Things have definitely improved,” said Theodore H. Frank, an adjunct fellow at the Manhattan Institute and a longtime critic of abusive class actions. “Is it perfect? No. Is it better? Yes.”

Legal experts say the class actions filed after the financial crisis highlight the improvements. The lawsuits were far more risky and complex than the template “strike suits” that plaintiffs’ firms once churned out every time a company’s share price plummeted. And unlike large corporate scandals like Enron or WorldCom, there were no balance-sheet restatements or criminal convictions to use as evidence.

“We never viewed these cases as easy but felt we needed to be in them in a big way, so we really doubled down,” Mr. Berger said.

Bernstein Litowitz’s recent settlements read like a who’s who of the “too big to fail” era. Wachovia and its auditor paid its bondholders $627 million to resolve charges related to its mortgage holdings. Merrill Lynch settled claims that it had misled buyers of mortgage products for $315 million. Lehman Brothers’ underwriters paid $426 million to end a lawsuit over its stock sales. Washington Mutual’s underwriters and insurers paid $205 million to investors in the now-collapsed bank.

The big mortgage-related settlements are expected to add up to hundreds of millions in fees for Bernstein Litowitz, a 52-lawyer firm. Mr. Berger and his three founding partners started the firm in 1983 after splitting off from Kreindler & Kreindler, a plaintiffs’ firm best known for its aviation-disaster litigation.

The Bank of America settlement is a boon for the firm, ending nearly four years of bruising litigation and coming less than a month before it was set for trial. The lawsuit accused Bank of America of concealing from its shareholders, who were voting on the Merrill acquisition, the billions of dollars in mounting losses at Merrill, as well as billions in bonuses being paid out to Merrill executives.

Bernstein Litowitz and two other firms represented five plaintiffs: two Ohio pension funds, a Texas pension fund and two European pensions. Working with Mr. Berger on the case were his partners Mark Lebovitch, Hannah Ross and Steven B. Singer.

“This case will now serve as Exhibit A for corporate directors tempted to withhold information from shareholders,” Mr. Berger said. “The message isn’t complicated: Just tell the truth.”

New matters, meanwhile, are coming in. Bernstein Litowitz was appointed lead plaintiffs’ counsel in a lawsuit against JPMorgan Chase related to the bank’s multibillion-dollar trading loss out of a unit in London. And it is involved in the litigation against Facebook and Morgan Stanley over the social networking company’s botched initial public offering of stock.

Mr. Berger said finding cases had rarely been a problem.

“I can’t predict the next scandal,” Mr. Berger said. “But I know that fraud is a growth industry, and so is greed.”

Message on the Forensic TILA Analysis — It’s a Lot More Than it Appears

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No doubt some of you know that we have had some challenges regarding the Forensic TILA analysis. It’s my fault. I decided that the plain TILA analysis was insufficient for courtroom use based upon the feedback that I was getting from lawyers across the country. Yet I believed then as I believe now that the only law that will actually give real help to the homeowners — past, present and future — is TILA, REG Z and RESPA. Once it dawns on more people that there were two closings, one that was hidden from the borrower which included the real money funding his loan and the other being a fake closing purporting to loan money to the homeowner in a transaction that never happened, the gates will start to open. But I am ahead of the curve on that.

For those patiently waiting for the revisions, I appreciate your words of kindness. And your words of wisdom regarding the content of the report which I have been wrestling with. I especially appreciate your willingness to continue doing business with us despite the lack of organizational skills and foresight that might have prevented this situation. I guess the problem boils down to the fact that when I started the blog in 2007 I never intended it to be a business. But as it evolved and demands grew we were unable to handle it without help from the outside. If I had known I was starting a business at the beginning I would have done things much differently.

At the moment I am wrestling with exactly how I want to portray the impact of the appraisal fraud on the APR and the impact on “reset” payments have on the life of the loan, which in turn obviously effects the APR. I underestimated the computations required to do both the standard TILA Audit and the extended version which I think is the only thing of value. The standard TILA audit simply doesn’t tell the story although there is some meat in there by which a borrower could recover some money. There is also the standard issue of steering the borrower into a more expensive loan than that which he qualified for.

The other thing I am wrestling with is the computational structure of the HAMP presentation so that we can show that we are using reasonable figures and producing a reasonable offer. This needs to be credible so that when the rejection comes, the borrower is able to say that the offer was NOT considered by the banks and servicers because of the obvious asymmetry of results — the “investor” getting a lot less money from the proceeds of foreclosure.

And THAT in turn results in the ability of the homeowner to demand proof (a) that they considered it (b) that it was communicated to the investor (with copies) and (c) that there was a reasonable basis for rejection — meaning that the servicer must SHOW the analysis that was used to determine whether to accept or reject the HAMP proposal. Limited anecdotal evidence shows that like that point in discovery when the other side has “lost” in procedural attempts to block the borrower, the settlement is achieved within hours of the entry of the order.

So I have approached the analysis from the standpoint of another way to force disclosure and discovery as to exactly what money the investor actually lost, whether the investor still exists and whether there were payments received by agents of the creditor (participants in the securitization chain) that were perhaps never credited to the account of the bond holder and therefore which never reduced the amount due to the creditor from the homeowner. My goal here is to get to the point where we can say, based upon admissions of the banks and servicers that there is either nobody who qualifies as a creditor to submit a “credit bid” at auction or that such a party might exist but is different than the party who was permitted to initiate the foreclosure proceedings.

The complexity of all this was vastly underestimated and I overestimated the ability of outside analysts to absorb what I was talking about, take the ball and run with it. Frankly I am wondering if the analysis should be worked up by the people who do our securitization work, whose ability to pierce through the numerous veils has established a proven track record. In the meantime, I will plug along until I am satisfied that I have it right, since I am actually signing off on the analysis, and thus be able to confidently defend the positions taken on the analytical report (Excel Spreadsheet) etc.

Livinglies Posts $100 Reward for HERS Fabrication Index

Announcing the establishment of the Homeowners Electronic Registration System (HERS) to assist in mortgage negotiations, litigation, foreclosures and modifications. HERS v MERS, Get It?

We are looking for someone to go through the comments and blog posts that give the name of an officer or other person signing any paper involved in the mortgage or foreclosure of property and to create a index using EXCEL or ACCESS cross referencing the state, financial institution, actual employer etc. that was revealed. If you are successful we will set up a subscription site for people to pay for the inquiries and you will receive income from that site.

You must submit your resume and all relevant contact information to ngarfield@msn.com by March 31, 2010. And you must commit to having the project in final form, subject to continuing revisions no later than April 30, 2010. Upon your selection you will receive a check for $100 in advance.

Good Comment from Rand:

It’s a good idea but you should put a few more requirements for the database. It’s not enough to simply look at the affidavits of indebtedness. Any affidavit filed is worthy of note because if you can establish than any of them were signed by a questionable, including an affidavit by another law firm or attorney verifying the validity of the attorneys fees being sought as reasonable (requirement here in FL to get attorneys fees) then you can through the entire case in doubt.

Example, bad attorney who gets cited personally by a judge or the local bar, any case he’s signed an affidavit in is questionable. I don’t know say “Coucgh”ivd “hack”ern. or the elk.

Finally, there is no such thing as narrowing the focus to filings withing a state. With due respect Ian the person who signs for PA probably also signs for FL, CA and anywhere else that’s not within 100 miles of where they live in MO. However, it’s important to not only note who signs, but when and where. How else could the sign in two different states on the same day? Better be ready to show plane tickets.

Why We Do What We Do

 “Without your blog I would not have found the right lawyer in my state.”          

                                                                                                                   – Meghan in RI

“Some of the most rewarding work of my career.”

                                                                                                                  – Chris Brown Esq.

While we understand the many reasons borrowers pursue their cause on a ProSe or ProPer basis,  it has been our position since the beginning that people need competent licensed local counsel. Also, you must understand that no matter what anyone tells you, no letter or correspondence from anyone, no “loan audit,”  no promise of modification will stop a foreclosure particularly in non-judicial states, the only thing that will stop a foreclosure is a judge or court order. Our first mission here is education and the desimination of information to the public, judges, lawyers, legislators and homeowners. Unfortunately, the executive and legislative branches of government have dropped the ball and still don’t get it(with some exceptions like Marcy Kaptur D-Ohio).

The bottomline is that the Judicial branch is the only hope, Judges need to open their eyes, ask questions they may have never had to ask because the facts and circumstances are really unlike they have ever been in the past. Lawyers who do “get it” and are actively practicing in this area and succeeding we need to hear from you. People need to know how to find you. There are simply still not enough lawyers that “get it.” We also believe that if someone has the desire and financial wherewithal to hire a lawyer, we want them to give there money to someone that will be effective and is staying up to date on this everchanging area of practice. When we get emails like the ones below or other feedback it makes us feel like we are in some small part helping folks through what is and will be one of the most difficult period for our country in our lifetime.  Lawyers who are listed here are doing good work and quite frankly in many cases have practices that are expanding and thriving. If you or your law firm is interested in being listed here email your contact info to:  foreclosuredefensegroup@gmail.com Also, if you are a homeowner and have a lawyer who you think knows their stuff and has been doing a stellar job for you, let us know about them.

Hi Mr. Garfield, Mr. Keiser and the Livinglies team 

   I am writing to say thank you for starting this blog. Without it, I would not have found the right lawyer in my state. I was working with another lawyer, originally, and all he did was buy me some time. Otherwise, he took a lot of money from me for nothing…and continues to pursue me for more. It is also comforting to know that there are other people out there fighting for the same cause, whether they are victims or not. I know there are some naysayers presently posting on your sight but, anyone in my shoes, fighting like all of us are, all of us know when to read between the lines. I have learned so much from your blog and referred your site to others.   I would love to see you have another seminar on the East Coast sometime. Thanks for what you’re doing and let me know how I can help at anytime

Meghan in RI

From: Christopher Brown, Esq.
To: Neil, Brad

While I am at it, let me toss on some more praise for … you    I cannot thank you enough for the seminar I attended in August 2008, in Los Angeles, CA.  It has completely redefined my practice.  While we are still the only firm in Northern Virginia doing this, we are doing it well, and making HUGE strides recently .. it has taken a year to do it, but the foreclosing law firms are FINALLY beginning to concede they have a problem.
Every trial that has come up has been continued, or the case resolved with a “good” loan mod.  They have yet to put us to the test at trial, which we are eager to see happen, but our clients continue to accept the good loan mod offers that come before trial.  The client is the boss, and I can’t make guarantees, so they more often than not go for the mod, but I feel it coming.  We are making incredibly sound constitutional arguments (non-judicial foreclosure is violation of due process, no standing / article 3 injury for purported owner of the note/deed of trust), challenging title like no one else can (former 25 year in-house counsel for title companies on my staff since January), and raising all sorts of problems that were created by the securitization process (former NY securities atty on my staff as well).
This Kansas Sup Ct opinion closes the gap and makes us that much more confident in pursuing our clients interests. I am ecstatic about where my firm is right now and the work we are doing.  My staff, which is growing every few months, is ecstatic as well, as myself, my employees, and our families, are doing well in a recession, and we are helping families protect their homes at the same time.  I could not be happier – and with this Kansas Sup Ct opinion, things are going to get better even faster.
We have gone through several different strategies, and the one we settled on, ironically, is the one you espoused in the seminar (!!), file a suit claiming they can’t enforce the note, do discovery, and put the burden on them.  It is funny the trials and tribulations my office has gone through to get to this point, but it has also been some of the most rewarding work of my career.
Keep up the good work .. and …
Thank you.
Anything I can do for you, all you have to do is ask.
Christopher E. Brown, Esq.
Brown, Brown & Brown, P.C.

Michigan, Ohio, Texas Lawyers Wanted: We Know You’re Out There

The business case for taking, handling and litigating residential “mortgage” cases has been proven over and over again. Unfortunately most lawyers are ignoring this opportunity.

The latest estimates are that it will take 6-12 years to clean up this mess and I think that is very conservative. My analysis shows that it will take the better part of 30 years, and even then there will be cases that are still outstanding. One case, just filed, involves a mere $500,000 mortgage but alleges more than $27 million in damages (which could end up north of $81 million), credibly, the proximate cause of which was the eggregious, tortious behavior of loan originators and investment banks who gave the impression that normal underwriting standards and procedures were in place. The complaint alleges breach of Federal Statutes, State Statutes and common law including identity theft, slander of title, and fraudulent or negligent appraisal.

Lawyers who were starving are getting to understand that monthly payments from the client will cover them until the contingency fee kicks in and that there are clear ways to collect damage judgments. Some lawyers we know have $50,000 per month or more coming in from clients.

Let me spell it out for you. Most analysts agree with my estimate from 2 years ago: $13 trillion in erroneous, fraudulent paper was floated producing some $25 trillion in profits that was sequestered off shore. There appears to be some 60 million loans affected by this massive scheme. If your contingency fee is only 20% that means that around $5 trillion in contingency fees is sitting out there waiting to be pocketed. If every lawyer in America took these cases, they would each have around 40-50 cases involving title claims, securities claims defenses. But we all know that only a fraction of the 1 million lawyers are even doing trial practice. The short story is that for every lawyer there are hundreds if not thousands of cases that can be handled each averaging fees in excess of $100,000 per case.

We know there are lawyers out there some of whom are taking a few but not many of these cases. Livinglies takes in requests for services at the rate of 15-20 per day. And THAT is without any promotion. We don’t do any promotion because we have an insufficient number of lawyers to refer these prospective clients. WAKE UP LAWYERS! We have referrals for you and we require NO COMPENSATION for the referral and no co-counsel fee.

Send your resume:

eFAX: 772-594-6244

eMail: ngarfield@msn.com

Beating Lawyer Finesse: Is He/She a WITNESS or a Lawyer?

If the lawyer is not a competent witness with personal knowledge, then he should shut up and sit down.

See also fraud-on-the-court-reversing-the-tide

See also Judge Young:  federal-appeal-slams-lawyers-and-pretender-lenders-with-sanctions-for-misrepresentation-on-ownership-of-loan

See also modification-fraud-the-latest-game-in-town


So you sent a QWR and you know the loan is securitized. The orignating lender says talk to the servicer and the servicer declines to answer all the questions because they didn’t originate the loan. Or you are in court and the lawyer is trying to finesse his way past basic rules of evidence and due process by making representations to the Judge as an officer of the court.

He’s lying of course and if you let it go unchallenged, you will lose the case. Basically opposing counsel is saying “trust me Judge I wouldn’t say it if it wasn’t so.” And your answer is that the lawyer is not a witness, that you don’t trust the lawyer or what he has to say, that if he is a witness he should be sworn in and subject to cross examaintion and if he is not a witness you are entitled to be confronted with a real witness with real testimony based upon real knowledge.

First Questions: When did you first learn of this case? What personal knowledge do you have concerning the payments received from the homeowner or third parties? What personal knowledge do you have as to who providing the actual cash from which the subject loan was funded?

Only when pressed relentlessly by the homeowner, the servicer comes up with a more and more restrictive answer as to what role they play. But they always start with don’t worry about a thing we control everything. Not true. Then later after you thought you worked out a modification they tell the deal is off because the investor declined. The investor is  and always was the lender. That is the bottom line and any representation to the contrary is a lie and a fraud upon the court.

So whoever you sent the QWR to, always disclaims your right to ask, or tells you the name of the investor (i.e., your lender) is confidential, or that they have authority (but they won’t show it to you). That doesn’t seem to be a lender, does it? In fact they disclaim even knowing enough to answer your questions.

So AFTER THEY SERVE YOU with something file a motion to compel an immediate full answer to your QWR since under TILA service on the servicer is the same as service on the lender. You argue that everyone seems to be claiming rights to be paid under the original obligation, everyone seems to be claiming the right to enforce the note and mortgage, but nobody is willing to state unequivocally that they are the lender.

You are stuck in the position of being unable to seek modification under federal and State rules, unable to sell the property because you don’t know who can sign a satisfaction of mortgage or a release and reconveyance, unable to do a short-sale, and unable to refinance — all because they won’t give a simple answer to a simple question: who is the lender and what is the balance claimed by the real lender on the obligation? At this point you don’t even know that any of the real lenders wish to make a claim.

This is probably because they received TARP funds and insurance proceeds on defaults of pools that they had purchased multiple insurance policies (credit default swaps). But whether they are paid by someone who acquired rights of subrogation or they were not paid, you have a right to a FULL accounting and to know who they are and whether they received any third party money. If they were paid in part or otherwise sold their interest, then you have multiple additional unknown parties.

The reason is simple. They are not the lender and they know it. The lender is a group of investors who funded the transaction with Petitioner/Homeowner and others who purchased similar financial products from the same group of participants in the securitization chain relating to the subject loan.

The people currently in court do not include all the real parties in interest for you to make claims against the lender. Cite to the Massachusetts case where Wells Fargo and its lawyer were subject to an $850,000 sanction for misrepresenting its status to the court.

It is not enough for them to bluff their way by saying that they have already answered the interrogatories. When they lost and it came time to allocate damages and attorneys fees, Wells suddenly said they were NOT the lender, beneficiary or current holder and that therefore the damages and attorneys fees should be assessed against the real lender — who was not a party to the pending litigation and whom they refused to disclose along with their misrepresentation that they were the true lender.

It is not enough that the lawyer makes a representation to the court as an officer of the court. That is not how evidence works. If the lawyer wants to represent facts, then he/she should be sworn in and be subject to (1) voir dire to establish that he/she is opposing counsel that it came from some company.

The witness must be a competent witness who takes an oath, has personal knowledge regarding the content of the document, states that personal knowledge and whose testimony conforms to what is on the document.

There is no such thing as foundation without a witness. There is no such thing as foundation without a competent witness. So if the lawyer tries to finesse the subject by making blanket representations to the court(e.g. the property is “underwater” by $xxx,xxx and we need a lift of stay…yet, there is no certified appraisal entered into evidence with a certified appraiser that can be cross examined…just a statement from opposing counsel) point to Wells, or even point to other inconsistencies between what counsel has represented and what now appears to be the truth, and demand an evidentiary hearing. If the lawyer is not a competent witness with personal knowledge, then he should shut up and sit down.

File a motion to extend time to file adversary proceeding(in BK situation), answer, affirmative defenses and counterclaim UNTIL YOU GET A FULL AND COMPLETE ANSWER TO YOUR QWR so you can determine the real parties in interest and serve them with process. Otherwise, we will have a partial result wherein the real owner of the loan can and will claim damages and injunctive relief probably against all the current parties to this action including the Homeowner.

In short, the opposing counsel cannot just make statements of “fact”  and have them accepted by the court as “fact” if they don’t pass the sniff test of real evidence corroborated by a competent witness. …and with every pleading ask for an evidentiary hearing and attorneys fees. Follow rule 11 procedure in Federal Court or the state law counterpart so you can get them later.

Don’t Get “HAMP”ED Out Of Your Home!

By Walter Hackett, Esq.
The federal government has trumpeted its Home Affordable Modification Program or “HAMP” solution as THE solution to runaway foreclosures – few things could be further from the truth.  Under HAMP a homeowner will be offered a “workout” that can result in the homeowner being “worked out” of his or her home.  Here’s how it works.  A participating lender or servicer will send a distressed homeowner a HAMP workout agreement.  The agreement consists of an “offer” pursuant to which the homeowner is permitted to remit partial or half of their regular monthly payments for 3 or more months.  The required payments are NOT reduced, instead the partial payments are placed into a suspense account.  In many cases once enough is gathered to pay the oldest payment due the funds are removed from the suspense account and applied to the mortgage loan.  At the end of the trial period the homeowner will be further behind than when they started the “workout” plan.   

In California, the agreements clearly specify the acceptance of partial payments by the lender or servicer does NOT cure any default.  Further, the fact a homeowner is in the workout program does NOT require the lender or servicer to suspend or postpone any non-judicial foreclosure activity with the possible exception of an actual trustee’s sale.  A homeowner could complete the workout plan and be faced with an imminent trustee’s sale.  Worse, if a homeowner performs EXACTLY as required by the workout agreement, they are NOT assured a loan modification.  Instead the agreement will include vague statements that the homeowner MAY receive an offer to modify his or her loan however there is NO duty on the part of the servicer or lender to modify a loan regardless of the homeowner’s compliance with the agreement. 
A homeowner who fully performs under a HAMP workout is all but guaranteed to have given away thousands of dollars with NO assurance of keeping his or her home or ever seeing anything resembling an offer to modify a mortgage loan. 
While it may well be the case the government was making an honest effort to help, the reality is the HAMP program is only guaranteed to help those who need help least – lenders and servicers.  If you receive ANY written offer to modify your loan meet with a REAL licensed attorney and ask them to review the agreement to determine what you are REALLY agreeing to, the home you save might be your own.




The Elephant in the Room – Well One of Many…

By Brad Keiser

For those of you who have been to our seminars, (coming to Southern California next month) You have heard me ask about Hank Paulson and Ben Bernanke…”Are they stupid or were they lying when they said everything was OK through out all of 2007 and most of 2008?” You have seen and heard why Neil and I declare we are of the belief that there is simply “not enough money in the world to solve this problem.”

Fannie Mae’s (FNM) 8k has an interesting slide of their questionable assets in the supplement. It can be found below along with the complete 2009 Second Quarter filing. The report describes FNM’s exposure to problematic classes of mortgages on their book. That total comes to almost $1 Trillion. (that’s with a “T”) The total book of business is about $2.7 Trillion, at least 30% and more likely as high as 50% of their book is troubled. The report muddles with the actual holdings, as there are overlaps in the descriptions. The actual numbers they provide include:

  • Negative Amortization Loans: $15B
  • Interest Only: $196B
  • Low Fico: $357B
  •  LTV>90%: $265B
  • Low Fico AND > 90% LTV: $25B
  • Alt-A: $269B
  • Sub Prime: $8B

Those numbers add up to $1.13 trillion. They are troubled for multiple reasons. For example, $25 billion are loans that have BOTH  high LTV and a FICO score less than 620. While there are varying degrees of toxicity when it comes to “toxic” assets these would be considered highly toxic.

 What might all this mean? Some trends are emerging. Based on historical private sector experience with these types of troubled loans, particulary those 30 % of Alt A/No doc and Negative Am loans that are non-owner occupied properties, one could expect that 50% of these borrowers will go into default. On the defaulted loans the losses will be conservatively about 50% of the outstanding loan balances. In other words, losses of 25% on the troubled book are reasonable assumptions. That would imply a loss over time on these loans of $275-$300B. And that does not include losses on Prime loans. And that is JUST Fannie. The Obama Administration has an estimate of $250B over four years for the full cost of cleaning up the ALL the GSE Agencies. These numbers suggest it could be double that, triple that or more.


This is ONLY Fannie…not Freddie or Ginnie or Sallie, not Citi, not BoA, not Wells Fargo, not numerous community banks who owned preferred shares in Fannie or Freddie that had their capital severly eroded when those preferred shares were wiped out last fall. How about the dwindling balance of FDIC reserves? Ladies and Gents we have a veritable herd of these elephants lingering in the room.

Gee no wonder Mr. Lockhart decided now would be a good time to step down from running Fannie, Hank Paulson is getting a tan somewhere now that he has saved Goldman Sachs(for the moment)and something tells me Uncle Ben Bernanke would not be heartbroken if he was replaced by Summers or whomever this fall and could simply go back to pontificating at Princeton.

In the interest of full disclosure I hold no position in Fannie or any of the stocks mentioned….I am long 1200 shares of Smith & Wesson.

Fannie 8k August 2009

Double click chart below to enlarge

Fannie Mae 8k Sup August 09

Terrific resources to watch: These will help you

First From Comments: mers-info-excellent-submission-and-discovery

And second: take a look at this site, which is under attack by Goldman Sachs for telling the truth and raising good questions. Goldman Masters of the Unvierse are going to try to shut it down. www.goldmansachs666.com

MERS: 57 million mortgages on its Books: MSNBC Stuckey — Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party

Great Song says it All- Click to Play: Shuttin Detroit Down



D-Day vet’s tale parallels mortgage meltdown

Ex-corpsman, 84, blames ‘greed, greed, greed’ as he faces losing his home
By Mike Stuckey
Senior news editor
Feb. 17, 2009

CERRITOS, Calif. – Questions linger here, as ripe and nagging as the odor that once wafted over this former dairy capital: Who is trying to seize the home of Ray Vargas, child of the Great Depression, D-Day veteran and loving husband who just wanted to do right by his dying wife? And are they entitled to it?

In bankruptcy court documents, the party attempting to foreclose is identified as Mortgage Electronic Registration Systems Inc., or MERS, a small Vienna, Va.-based company employed by lenders to streamline the resale of mortgage loans and servicing rights. In that role, MERS claims an interest in tens of millions of U.S. home loans and the legal right to foreclose on those in default.

But MERS never gave Vargas a loan. It never collected money from him or recorded his payments. It had no ability to modify his loan.

What it did have was a copy of a document that named it a “beneficiary” of the mortgage on his home and a “nominee” for the lender and “lender’s successors and assigns.” But it has never identified the current holder of the loan.

‘It makes me sick’
While such documentation has allowed many foreclosures to proceed around the nation, the judge in Vargas’ case threw MERS for a loop, ruling that the company had no right to attempt to seize his home on behalf of unnamed plaintiffs.

“No such unidentified parties are permitted in a motion before the court,” wrote Judge Samuel L. Bufford. Bufford’s October ruling kept the foreclosure on hold and opened the door for Vargas to sue MERS in an action aimed at clearing his home of the $826,549 in debt he says is the result of fraud, forgery and abuse of process.

“It makes me sick,” said Vargas, 84, a deeply religious man who believes God is guiding him in a mission to expose wrongful foreclosure. “Greed has no bounds. That’s what the whole problem is: greed, greed, greed.”

Vargas’ case has captured the attention of hundreds of attorneys and others immersed in the nation’s mortgage meltdown, which saw foreclosure filings on U.S. homes hit 3 million last year. In the first six weeks of this year, foreclosure began on another 296,000, according to the Center for Responsible Lending.

Legal icon is a new and somewhat surreal role for Vargas. The Chicago native who got his first job at 8 in the depths of the Great Depression has always been a realist.

From World War II vet to painting contractor
As a Navy corpsman during World War II, he went ashore with the third assault wave at Utah Beach on D-Day to pluck his fallen buddies from the sand and patch them up as best he could. Later, he owned a painting business and took on big jobs, like the restoration of the Queen Mary, the steamship turned hotel, in nearby Long Beach.

But Vargas, hero, citizen and family man, has been sucker-punched along with millions of other American homeowners, taxpayers and the nation’s entire economy by the mortgage-lending debacle.

A series of loans from some of America’s largest mortgage lenders cost him nearly $200,000 in less than two years and destroyed financial security it took a lifetime to build. Documents reviewed by msnbc.com show that loans sold to Vargas by mortgage brokers on behalf of the lenders were loaded with features that federal officials say are the hallmarks of predatory lending.

Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party. Ultimately, he wound up in foreclosure proceedings. And, finally, bankruptcy court.

Vargas’ story is the Cliff Notes version of what has happened to the larger American economy. It is a story of greed, lax lending standards, lack of government oversight and the fantasy that real estate prices will always rise.

Now, Vargas’ story, like the larger epic, has become a nightmare. The final chapters in both will be written by judges and lawmakers who, many would argue, should have taken up their pens much sooner.

Vargas’ story is complicated but it begins simply, with love — the love for a woman with whom he shared 57 years of marriage, three sons, three grandchildren and a cozy life in this suburban oasis, about 20 miles southeast of Los Angeles. Raymond Vargas loved Ophelia Martinez and she loved him.

They married and set up house in Southern California in 1948, two years after Ray mustered out of the service, having earned a passel of ribbons and medals for service in the American, European and Pacific theaters.

In 1971, after the family had outgrown its first home, Vargas made a down payment on a sprawling stucco two-story yet to be built in one of the many dairy pastures that gave way to the city of Cerritos, now an upscale enclave of 57,000 with tree-lined streets and posh facilities like a titanium-skinned library.

Vargas’ business flourished and he became a well-known civic leader, serving seven times as commander of the local VFW.

“I got more than I deserved,” he said, his eyes wandering to Ophelia’s paintings of landscapes and floral arrangements that adorn his living room.

Medical needs force new loans
The happiness ended in 2000, when Ophelia was stricken with Parkinson’s, Alzheimer’s, brain tumors and a stroke that left her bedridden, unable to speak. She required expensive around-the-clock care, but Vargas was determined not to put her in a nursing home.

He spent the couple’s cash, closed out their retirement funds and tapped some credit cards. That left only the family home, which had been paid off for a dozen years.

After initially taking out a $50,000 loan with the family’s longtime bank, Vargas turned to a reverse mortgage in late 2003. Such loans, available to older homeowners, are attractive to retired, fixed-income borrowers because they require no monthly payments. Principal and interest are generally not repaid until the sale of the home, often after the borrower has died.

“I needed that money to pay my wife’s medical bills,” Vargas said. “I didn’t have to make any payments until I was deceased and then they would take their money out of my house and my sons would get the rest.”

Reverse mortgage maxed out
By the time Ophelia Vargas died on Jan. 4, 2005, the expenses for her care had maxed out the reverse mortgage. And Ray Vargas had become a target of services that cull through land records to provide sales leads to mortgage brokers. To anyone familiar with property values in Cerritos, the public information on Vargas’ loan might as well have been a banner saying, “Elderly homeowner with lots of equity to cash out.”

Vargas was inundated with offers to refinance, by phone, mail and in person. “There were so many mortgage brokers after me, it wasn’t even funny,” he said.

Vargas’ younger sister, Rebecca Deleon, said she often tried to shoo away loan officers during visits to Vargas’ home. “Every time I went over there, he had a new person that was trying to give him a loan,” Deleon told msnbc.com.

In need of additional funds for his own home care and a pair of car loans, Vargas finally agreed to a loan. He insists the salesman told him the deal would refinance his house with a new reverse mortgage requiring no monthly payments.

“They told me I didn’t have to send any money until I passed,” he says. “Then they started sending me all these bills.”

A refinancing merry-go-round
With that, he was trapped in a rapid cycle of refinancing that saw four lenders hold notes to his house in 2005 alone.

Vargas said he is still as sharp mentally as ever but admitted that he didn’t read all the loan documents and was sometimes confused about the terms of the loans, partly because he had medical issues that for a time confined him to a wheelchair.

But he insisted that he never signed up for any loan he did not believe to be a reverse mortgage. And while he acknowledged that his signature appears on many documents, he claimed it was forged in connection with at least three loans. He also said he never went to any office to conduct loan business and never signed any papers before a public notary, although many of the documents bear notary seals.

“I never saw them,” Vargas said. “It was all telephonic. I never signed anything with them. I knew something was wrong.”

Although he made mortgage payments once he realized he owed them, he said he was constantly assured by those who sold him the loans that each new refinancing would eliminate them.

“He’s very straightforward and honest,” said Vargas’ attorney, Marcus Gomez. “He’s a little old World War II vet. He has no reason to lie. He thought he was getting money through another reverse mortgage and he needed it.”

An examination by msnbc.com of hundreds of pages of bank statements, escrow and loan documents provided by Vargas showed that over 21 months in 2005 and 2006, Vargas’ home was refinanced five times through a total of six loans.

Huge fees, penalties, interest
In that time, his debt grew from $213,555 to $745,000. To tap his $531,445 in equity, Vargas paid at least $123,237 in loan origination fees and prepayment penalties. He paid at least $60,000 in interest as he struggled to make minimum payments on the loans, giving the money right back to the lenders he had borrowed it from. Thousands more in unpaid interest was added to his debt.

Appraisals justified the loans. When they were made, the loans on Vargas’ house likely never totaled more than 90 percent of its value, which peaked close to $850,000 in 2006.

Foreclosure was the lenders’ trump card and the equity cushion was their wager that they would not lose any money. Whether Vargas could make the payments was irrelevant.

Given the huge decline in California real estate prices, Vargas’ house today is worth hundreds of thousands less than the $702,506 currently claimed in connection with the first loan and the $124,043 claimed on the second.

Signs of predatory lending
After the reverse mortgage, all of the loans to Vargas had one or more signs of predatory lending, practices that are not illegal unless they cross the line into fraud. However, federal officials have long warned of their harmful potential. “Predatory lending threatens to turn the American dream of homeownership into an American nightmare,” then-assistant HUD Secretary William Apgar warned in congressional testimony in 2002.

Foremost, all of the loans were made with no regard for Vargas’ ability to pay them back. They were “option ARMS,” which gave him up to four choices each month of how much to pay. But  in every case, the lowest option, generally not enough to cover that month’s interest, was more than his $1,600 a month income from Social Security and a union pension.

In other predatory features, at least three of the loans had hefty prepayment penalties. And three earned the agents who sold them a total of $35,475 in “yield spread premiums,” commissions paid by the lender to steer Vargas into loans that would yield more profit.

The first four loans were made by Downey Savings and Loan, World Savings Bank, Washington Mutual and Countrywide Bank, respectively.

Lenders all failed or nearly did
Because they made so many loans like those provided to Vargas — and others that were even more reckless — Downey and Washington Mutual failed and were seized by federal regulators last year. The collapse of WaMu, with $307 billion in assets, was by far the largest bank failure in U.S. history.

The parent company of World was taken over by Wachovia in 2006 in a move that is now widely seen as a big contributor to Wachovia’s failure and seizure last year. Countrywide was bought by Bank of America last year while on the brink of failure. It was subsequently sued by a dozen states over its predatory practices before BofA settled.

Representatives who work for the successor companies of World, Countrywide and WaMu all said they could not comment on specifics of Vargas’ case because of customer privacy concerns. Some of them said it is now widely accepted that mortgage brokers, like those who handled all of Vargas’ loans, often lied about borrowers’ income and other aspects of the deals.

A WaMu spokeswoman said the company, which was taken over by Chase, no longer accepts loans from mortgage brokers. Downey, which did not respond to msnbc.com’s inquiries, last year filed dozens of lawsuits that accuse mortgage brokers, borrowers and appraisers of lying on loan applications.

The high cost of Freedom
The final two loans on Vargas’ house were made by Freedom Home Mortgage Corp. of New Jersey, a first loan of $630,000 and a second of $115,000. They were made Oct. 3, 2006, and obligate him to pay over $3,700 a month — well more than double his income. Within months, he was unable to keep up with the payments. By early last year, foreclosure had begun.

Vargas, who spends a good part of each day watching TV news, said, he only recently came to comprehend that side of the vast financial scheme he was caught up in.

“God opened up my eyes” about what lies beneath the mortgage meltdown, he said. “He showed me what they were doing. They got all these loans and put them in the stock market in bundles. It’s incomprehensible.”

Indeed, Vargas’ refinancing nightmare occurred during the peak years of mortgage securitization, the technique Wall Street used to turn home loans into bonds for sale to investors. Securitization in that time frame is now blamed for literally lavishing money on homeowners and buyers, often via predatory and subprime loans, and thus fueling housing inflation across the nation. And while lenders may not have considered Vargas a subprime borrower based on what mortgage brokers told them, his actual finances certainly made him one.

‘Securitization meat grinder’
“A lot of the subprime lending, particularly the predatory loans, would not have occurred if the lenders had not been able to dump those loans into the securitization meat grinder,” said Bert Ely, a Cato Institute scholar and an expert on financial regulation.

Millions of those borrowers, like Vargas, are in the thick of foreclosure proceedings. Millions more have lost their homes.

Vargas got word in a letter last April 4 that MERS planned to auction the house three weeks later in a bid to regain what it said was owed in connection with the first mortgage. He retained attorney Gomez of nearby Norwalk, who rushed Vargas into bankruptcy court, a move that automatically stops, or stays, attempts to collect debts, including foreclosure.

Creditors in bankruptcy cases are allowed to seek removal of such stays, and that’s what MERS did, retaining attorney Mark T. Domeyer.

However, Gomez and Judge Bufford of the U.S. Bankruptcy Court for the Central District of California wanted to know what right MERS had to demand the keys to Vargas’ house. After all, the loan in question had been made by Freedom, the New Jersey lender.

Domeyer’s court filings included copies of Freedom’s mortgage documents naming MERS as “beneficiary” of the deed of trust, or mortgage, on Ray’s house.

The use of MERS as a “nominee” of the lender and “beneficiary” of mortgages is key to the company’s business model, described on its Web site as “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. … MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”

In other words, when a loan in the MERS registry is sold by one party to another, instead of filing paper “assignments” at the local government office where the mortgage is recorded, the transaction is simply noted by MERS. Similarly, foreclosures and other events are supposed to be noted in MERS’ records on each loan.

57 million mortgages
With more than 3,000 member companies and 57 million registered mortgages covering about 50 percent of all new loans, the 45-employee MERS controls and disseminates information on loans made to a majority of American homeowners. MERS would not disclose how many foreclosure cases it is currently bringing.

In a press release in May 2007 when it announced the registration of its 50 millionth mortgage, MERS said it had saved the mortgage industry $1 billion since it was founded in 1996.

But consumer advocates see the company in a darker light, arguing that another purpose of MERS is to obscure ownership of loans, allowing investors to buy, sell and foreclose on them in unethical and illegal ways. Also unhappy are local government officials who miss out on assignments and recording fees.

Attorneys who defend homeowners in foreclosure say the procedure is reserved for the actual owner of the loan, also called a note. “The party who can bring a foreclosure proceeding has got to be the party that proves it actually owns the note and that note has been properly negotiated all the way up the line,” said O. Max Gardner III, a bankruptcy attorney from North Carolina and a dean of the U.S. debtor bar.

Mixed results in court
MERS officials and their attorney, Domeyer, declined requests from msnbc.com for interviews. MERS also declined to answer numerous questions submitted via e-mail, including who is actually the current owner of the loan, although it did provide a prepared statement that said in part, “Numerous state and federal courts have affirmed the right of MERS to be the mortgagee in the public land records and its ability to move for relief from stay and foreclose.” But Arnold’s statement also acknowledged that MERS’ guidelines for foreclosure appeared not to have been followed in Vargas’ case.

The argument that MERS lacks legal standing to foreclose has met with mixed results in court. MERS has won several such cases in Florida; debtors have won in Ohio, Connecticut and elsewhere.

Gardner said a nationwide ruling that MERS had no standing to foreclose would raise thorny issues. “What if a court really ruled that all these foreclosures that MERS has done are invalid?” he asked. “Can you imagine what would happen to the real estate and title business?”

Bankruptcy court rulings on MERS are being keenly watched because that is where many foreclosure cases are playing out and where many more could wind up.

So Judge Bufford’s ruling in Vargas’ case was greeted with enthusiasm by Gardner and his allies. In a withering opinion, the judge said MERS “presented no admissible evidence” in its case. And he found that sanctions should be imposed against Domeyer, the attorney representing MERS, for bringing such a sloppy motion to court.

The bottom line, Bufford said, was that the true owners of the loan — “highly unlikely” to be original lender Freedom — did not come forward in court and MERS failed to prove any right to act on their behalf. He would not comment to msnbc.com beyond his published ruling.

Bufford’s ruling opened the door for Gomez, Vargas’ lawyer, to file a new claim. This complaint airs Vargas’ allegations of fraud and forgery surrounding the origination of the loan. In it, he seeks $1.75 million in damages as well as to remove lenders’ liens and his obligation to repay them via “quiet title.”

Freedom, the New Jersey company that originated the loans now in foreclosure, did not respond to interview requests.

The loans appear to have been sold to Vargas on behalf of Freedom by Monta Vista Mortgage, a now-defunct Santa Ana, Calif., firm that has disconnected its phones and moved out of its offices.

Signatures disputed
Vargas said the signatures on the loans are not his and that he never met with anyone from Monta Vista nor received settlement statements explaining the transactions.

Among the few papers Vargas has from Monta Vista are a letter and two check stubs showing he received about $48,000 for cashing out $95,000 in equity. It is unclear where the rest of the funds went.

Msnbc.com located the owner of Monta Vista, Martha Lozano, in nearby Tustin. She said she was running a new company, Debt Solutions, which helps trouble borrowers seek loan modifications from lenders. She said she could find no records in her computer system indicating that her old firm, which employed 50 to 60 people, had done business with Vargas. She said any paperwork on Vargas’ transactions had likely been stolen during a burglary at a storage unit.

Lozano said many homeowners in foreclosure “now want to blame us for everything that is happening to them.” But she defended the option ARMs sold to Vargas and others, saying, “You sell what the lender is advertising.”

Asked if she would have sold such a loan to her father, Lozano quickly replied, “No way!”

As to the claim of forgery, when msnbc.com tracked down the public notary who swore that Vargas had signed the documents, he said he had no recollection of the transaction. Thomas Montaghami of Anaheim, Calif., said he is no longer a notary. He said he had lost records that notaries are supposed to keep to explain how they verified the identities of people whose signatures they notarized.

Montaghami said he had informed authorities of the loss of his records as required, but officials at the Secretary of State’s Office in Sacramento said they had no record of that.

Shown a signature that MERS claimed was his on the loan it tried to foreclose, Vargas laughed. “That’s not mine.”

His attention was diverted by the ringing phone, a telemarketer trying to sell Vargas on refinancing his home. “It’s an everyday thing,” he said. “They’re the vultures coming to pick over the bones.”

The gallows humor fits Vargas’ lack of bitterness at his plight. A guy who began adulthood carting the dead and wounded away from Normandy may have a greater capacity for forgiveness than most.

Even if he loses the house, he reckons, it was out of love for his dear Ophelia. “We were married 57 years,” he said, softly, his eyes lighting upon an urn on his mantle. “Her ashes are right there. She will be buried with me when God calls me.”

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URL: http://www.msnbc.msn.com/id/29198366/

“System is Broken” — there is no clear title and no clear answers, which is why most foreclosure actions should fail or be reversed

Mortgage market clouds who owns woman’s house

Submitted by Jose Semedey — Thank You


The Atlanta Journal-Constitution

Sunday, January 25, 2009

Twenty years ago, Zella Mae Green bought a modest brick ranch house in DeKalb County with an American ideal in mind. The single mother of four, who raised her children working low-wage jobs, wanted to own something someday. And she wanted to pass something on.

“I was thinking that if anything would ever happen to me, the children would have a place they could come and stay,” said Green, a seamstress who is 68. “Their father passed away when they were young.”

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LOUIE FAVORITE / lfavorite@ajc.com
Zella Mae Green has been in a stalemate with mortgage lenders for years trying to learn who holds the note on her Decatur home and how much she really owes.
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Green says she has done her part, making payments on the house she bought for $40,000 to the series of lenders who have managed her mortgage over two decades.

But Citigroup and Wells Fargo say Green has failed miserably as a homeowner and is nine years behind on her payments. And they want to take the house.

“Nine years? There ain’t no way,” Green said. “Ain’t no way you can stay someplace for nine years without paying anything.”

Determining whether a homeowner is truly years behind on a mortgage seems like a straightforward question.

But Green and a string of lenders have been arguing about the matter in court for years now — with no resolution in sight. Her lawyer says the lenders have not even proven who owns the mortgage, let alone established how much Green owes.

Citigroup and Wells Fargo and the lawyers representing them declined to be interviewed for this article, citing pending litigation.

Green’s case illustrates the complexities of the modern mortgage market and just how difficult it can be to unwind the history of a mortgage. Most mortgages are originated by one lender, then sold — often repeatedly — to other lenders or groups of investors. Other companies are often brought in to process payments and manage escrow accounts.

For the thousands of homeowners who are behind on mortgage payments or in a dispute about how much is owed, getting accurate information about a loan can be difficult. Negotiating a resolution — especially when a series of lenders and managers has been involved — can be even harder.

“Here is a homeowner who wants to get her mortgage worked out so she can pay it,” said Howard Rothbloom, Green’s attorney. “She can’t get it done.”

Question of ownership

Green picked out her house 20 years ago. It’s a two-bedroom, one-bath brick ranch with about 1,000 square feet. Green borrowed $40,250 from All Georgia Mortgage at an interest rate of 10 percent in 1988. She felt sure she could handle the $353 payments with her job at J.C. Penney.

“I was excited about it because I knew one day it would be mine,” said Green, now a great-grandmother.

The home’s interior today is a reflection of Green. It’s adorned with fancy curtains and pillows she made — the kind she creates in her seamstress job for an upscale decorating company. And it’s the place her family gathers to enjoy Green’s home cooking.

Trouble with the mortgage began years ago, she said, when she mailed in money orders that she says were applied to the wrong account — something she believes went on for at least seven months.

The mortgage companies involved with the loan at that time have since sold it.

Green said she sought help from several housing agencies and attorneys over the years, trying to get credit for all the payments she has made. “They told me it’s the biggest mess they have ever seen,” she said.

All Georgia Mortgage Co. originated Green’s loan, but it has been owned or managed by at least seven parties over the years. Citigroup now says it owns the loan and Wells Fargo is managing the payments.

Green acknowledged paying her mortgage late sometimes over the years, but she said she always made up for it. She has filed for bankruptcy four times since 1989 — usually when a lender threatened foreclosure.

Lenders in Georgia can proceed with a foreclosure without the involvement of any court. Bankruptcy automatically stops a foreclosure, and the court generally serves as the forum for resolving mortgage disputes.

Green said the bankruptcies were the only way to try to figure out what happened to her payments and to keep her house.

Complicated accounts

Green’s case sounds extreme. But lawyers who represent homeowners say most mortgage lenders rely on such complicated accounting systems that experts have to be hired to even read the history of payments and charges.

“The payment histories are designed by these servicing companies to be gobbledygook,” said William J. Brennan Jr., an attorney at Atlanta Legal Aid and national expert on mortgage lending. “Knowing what somebody owes is crucial. They will give you a number, but if you want to see if that’s right — good luck.”

A payment history provided by lenders in Green’s case is complicated. It shows numerous credits on the same day for relatively small amounts, listed as “payment rec’d,” but shows no change in the account’s balance.

The history also appears to show her account being within months of being current, then suddenly more than seven years behind and then current again in 2000.

Green filed for bankruptcy protection for a fourth time in 2004 with the help of Rothbloom, an attorney with a successful record of challenging mortgage lenders.

“I’m just trying to find out two things: What Ms. Green’s proper loan balance is and who she owes it to,” Rothbloom said.

So far, who owns the mortgage has not been resolved.

A lender proves ownership of a mortgage by producing the “promissory note,” the document signed at closing in which the borrower agrees to the debt. The note is valuable and can be bought and sold by lenders. But like a personal check, it is only valuable in its original form.

Green’s lenders have admitted in court documents they can’t find her note. Legal experts say that’s a big deal.

“There is no excuse for the inability of mortgage lenders to know where the note is,” said Frank Alexander, an Emory University law professor and a leading expert on real estate law. “Without the note, you have virtually nothing. That is the one thing that is always locked in a vault.”

The lender says everybody knows that Citigroup owns the note. If Green thought otherwise, they say in court documents, why would she send Citigroup her payments?

Rothbloom says that’s not good enough. “Their answer is, ‘We have a copy,’” Rothbloom said. “My answer is, ‘I have a copy, too.’ “

Katherine Porter, a University of Iowa law professor, found in a study that lenders routinely fail to file required documents in bankruptcy cases to prove what consumers owe. And their accounting systems, she said, make it hard for them to track the history of payments over the life of a loan, especially when numerous lenders are involved.

Porter said Green’s case illustrates how complicated these cases can become.

“If she can’t get this information through litigation and with a skilled attorney, what happens to people facing foreclosure who sent their check in and can’t get the lender to admit it?” Porter said.

‘System is broken’

In legal filings, the lenders say Green has never been able to keep up with the payments. They cite her numerous bankruptcies and the fact that Green participated in a federal program designed to help struggling homeowners between 1997 and 2000.

Rothbloom said payment records appear to show her loan was current in 2000, when under the management of the U.S. Department of Housing and Urban Development. He said it’s possible HUD’s program transferred past-due payments to the end of the loan to allow Green to stay in the house.

“Anything is a possibility,” Rothbloom said. “That’s why we sued. To find out what’s going on.”

What Rothbloom knows, he said, is that Green has made every payment since 2004. Still, he has made no progress getting lenders to agree to a settlement in a case involving a house that DeKalb County values at $67,000.

“Why do they want this house?” Rothbloom said. “The answer is the system is broken.”

The home you save could be your own: MSNBC Story by Mike Stuckey Quoting Living Lies Editor Neil Garfield

The home you save could be your own
In foreclosure crisis, more Americans representing themselves in court
By Mike Stuckey
Senior news editor
updated 4:25 a.m. MT, Wed., Jan. 28, 2009
Luis Molina is not a lawyer and he has never played one on TV.

But that didn’t stop him from putting on his best suit, marching into a Miami courtroom this month and going up against an attorney with 30 years of experience to stop a foreclosure proceeding against his family’s home. Molina did such a good job of representing himself that the judge in the case thought he was a lawyer and punctuated his ruling in Molina’s favor by tearing up the other side’s motion for summary judgment and throwing it over his shoulder.

“I felt like a million dollars,” Molina told msnbc.com, describing his day in Judge David C. Miller’s courtroom in Florida’s 11th Judicial Circuit Court. “I felt like if there was anything in my life that I had done correctly, it had to be that. Every single lawyer after the fight came over and shook my hand.”

Molina, a former car salesman and deli owner whose formal education ended with a diploma from Teaneck High School in New Jersey, is among a growing number of American homeowners representing themselves as what are called “pro se” — a Latin phrase meaning “for oneself” — litigants in foreclosure proceedings.

There’s no way to know how many pro se foreclosure cases are currently moving through U.S. courts, but anecdotal accounts from lawyers and others indicate the number is growing along with the nation’s mortgage crisis, which has reached unprecedented proportions.

A myriad of issues
Along with trained and licensed attorneys, pro se litigants are forcing courts to look at myriad foreclosure issues that go far beyond whether or not a loan is being properly repaid, including allegations of predatory lending practices and the fundamental question of who actually has the right to foreclose.

“There’s a surge in the number of pro se litigants,” said Arizona attorney Neil F. Garfield, who runs a Web site called “Living Lies” that offers information to homeowners facing foreclosure and lawyers defending foreclosure lawsuits. He said traffic to his Web site had increased from 1,000 hits a month at this time last year to more than 67,000 last month.

Eric Halperin, director of the Center for Responsible Lending in Washington, D.C., said, “I haven’t done any statistical study to know whether there’s an increase, but it makes sense given that there’s a lot more foreclosures.”

More than 2.3 million U.S. properties were involved in foreclosure proceedings last year, almost double the number in 2007 and more than triple the 2006 volume, according to RealtyTrac, an online foreclosure information service. Even more foreclosures are expected this year. While many occur in the states that normally handle the process outside court, including California and Arizona, many occur in the 20 states where foreclosure is only accomplished via a lawsuit, as in New York and Florida.

Driven by finances
The reasons that foreclosure defendants end up representing themselves are usually financial. “A lot of lawyers out there have been extremely reluctant to take homeowners’ cases,” said Garfield. “They figure if the person can’t pay their mortgage, they can’t pay their lawyer.”

Even when homeowners in foreclosure can show errors by their lenders and mortgage servicers, many lawyers still aren’t interested in representing them, according to Halperin.

“A lot of the time, what you’re getting is loan forgiveness,” he said. “There’s no cash for you to take a piece of. It’s challenging. … I don’t think there’s an adequate number of attorneys who both are trained and will take foreclosure cases.”

Molina and other pro se litigants told msnbc.com that when they found attorneys willing to take their cases, the lawyers didn’t know a lot of basic information about foreclosure defense that is available on Web sites like Garfield’s “Living Lies” and “Mortgage Servicing Fraud.”

Mario Kenny, another Miami resident who is fighting foreclosure pro se and writing about his experience online, said the cost of professional help is too high. “A lawyer wants too much money — … $5,000, $10,000, $15,000,” he said.

Besides, Kenny said, the legal profession is doing more to aid foreclosures than avert them.

“They are stopping us and getting in our way,” he charged, referring to what he described as a warning by someone with the Florida Bar Association that advice on his Web site bordered on practicing law without a license. “I don’t practice law, I don’t have any clients, I don’t charge anybody,” said Kenny, a 52-year-old fashion designer.

The bar association, which regulates the state’s 85,000 lawyers, had no record of Kenny being contacted or investigated, but said it could not rule that out. Lori Holcomb, the bar’s counsel for unlicensed practice of law, said the bar is much more likely to investigate “companies that have gone into business to do this, not individuals who say, ‘Hey, I’ve done my foreclosure, let me help you with yours.’”

Experts advise: Get a lawyer
The bar and other experts contacted for this story strongly advised any property owner facing foreclosure to consult an attorney.

“It’s better to be pro se than not to do anything at all,” said Garfield, the Arizona attorney. “But it’s better to have a lawyer than be pro se. A lot of this stuff requires knowledge of motion practice, civil procedure, evidence, proof that the average person never had a reason to learn.”

“Representing yourself should really be a last resort,” agreed Halperin of the Center for Responsible Lending, a nonprofit organization with a mission of protecting U.S. homeowners  from unscrupulous lenders. While legal help for embattled homeowners is scarce, “There are resources out there,” he said. Many bar associations, for instance, match up clients with volunteer lawyers, and his group has formed the Institute for Foreclosure Assistance, which recently received a $15 million grant to provide legal aid to homeowners.

Thanks but no thanks, said Luis Molina. He said he stopped making payments on a $416,000 home loan after discovering numerous predatory and illegal practices by the original lender and sought to have the loan rescinded, as is his right under federal law.

Doing it himself
After he was served with foreclosure papers over the summer, Molina said he had “so many meetings with so many attorneys and not one of them knew what they were doing.” So the 41-year-old husband and father of an 8-year-old daughter who had been forced out of a publishing business by the souring South Florida economy, started reading everything he could find online and elsewhere about foreclosure. He used Garfield’s Web site, self-help legal books and pleadings by foreclosure attorneys to fashion his own case.

He said he kept asking the other side for documents to which he was entitled under the legal process of discovery. The most important document he sought was the original loan note. To have standing in a foreclosure proceeding, a financial institution must show that it possesses the note, and can document the chain of sales and assignments by which it was obtained. In today’s financial world, home loans are sold and resold many times to various investors, often as part of highly complex securities transactions, and true ownership is often unclear.

Instead of providing the documents, Molina said, the plaintiff’s lawyers filed a motion for summary judgment in which they asked Judge Miller to simply declare them the winners of the case and grant the foreclosure. Molina showed up for the Jan. 6 hearing on that motion and told the judge that the plaintiffs had not complied with his requests for discovery.

Molina said he was very nervous as he presented his case. “This is a big fight for my life,” he said. “I’m going up against some lawyer who has been doing this for 30 years. Either I walk out of there with my house or I walk out of there homeless.”

He doesn’t recall now exactly what he said during the very brief proceeding.

Judge’s compliments
Neither does Judge Miller, who handled dozens of cases that day. But he remembers this: “It was a good argument. Whatever it was convinced me to vacate the judgment and stop the foreclosure.”

Even then, the judge said, Molina didn’t seem to understand that he’d prevailed. “He kept talking and I didn’t know why he was talking. I said, ‘Would it make you happy if I just ripped it up? Here, I’m tearing it up!’

“I don’t make a practice of that,” Miller said. “I don’t want people to think I’m some crazy judge tearing stuff up down in Miami, but that time I did. … It was a funny hearing.”

Molina made such a good case that Miller thought he was an attorney until informed otherwise during an interview with msnbc.com. “You’re kidding!” the judge said. “He was very good. He sounded like a lawyer, he looked like a lawyer. If he was representing himself, he was doing a good job.”

Molina, who emphasizes repeatedly in interviews that he is only representing himself and gives legal advice to no one, burst out laughing when told about the judge’s impression.

But he said many of the 30 to 40 observers in the courtroom who applauded his victory also mistook him for a lawyer, patting him on the back and asking for his business card.

“The guy from legal aid asked me where did I get my pleading from,” meaning his legal argument, Molina said. “I said I got it at Office Depot. I thought he meant, where did I get my folder?”

Deposition looms
Molina said the principal attorneys for the plaintiff, who did not respond to msnbc.com’s requests for an interview, appear to be pursuing the case despite the initial setback, requesting that he be deposed next month. But he said they have yet to produce the original loan note and that he believes they’re merely stalling.

“I still don’t see how they’re going to trial with this thing,” he said.

In the meantime, he’s pursuing the separate case to have the loan rescinded. He believes he’ll eventually wind up having the lien cleared from the title of his property without having to pay off the balance. And, for now, he’ll keep representing himself.

“It’s a straight-up job,” he said.

Foreclosures in U.S. Rose 81%, Topping 2.3 Million Last Year

Foreclosures in U.S. Rose 81%, Topping 2.3 Million Last Year

By Dan Levy

Jan. 15 (Bloomberg) — U.S. foreclosure filings jumped 81 percent last year as falling house prices, tighter mortgage lending and the longest recession in a quarter century battered property owners, RealtyTrac Inc. said.

More than 2.3 million properties got a default or auction notice, or were seized by lenders, the Irvine, California-based seller of default data said today. That’s the most RealtyTrac has documented in four years of recordkeeping. Filings rose 41 percent in December from a year earlier to 303,410.

The nation lost more than 2.6 million jobs last year, the most since 1945, and U.S. stocks had their worst performance since the Great Depression. President-elect Barack Obama has said the country needs to prevent foreclosures to revive the housing market and economy.

“If we don’t adopt a comprehensive national policy, we’ll have 5 million to 8 million new foreclosures in the next three years,” Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, said in an interview. “The single most important thing is making credit available for the average person.”

Obama may use part of the remaining $350 billion in funds from the Troubled Asset Relief Program to help reduce mortgage payments for people facing foreclosure, Lawrence Summers, his top economic adviser, said this week in a letter to congressional leaders.

Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said up to $100 billion may be allocated to curb homeowner defaults.

Relief Efforts Fail

Foreclosure prevention programs offered by U.S. banks and state laws that temporarily delayed property seizures “have not had any real success in slowing down this foreclosure tsunami,” James Saccacio, RealtyTrac’s chief executive officer, said in a statement. One in 54 housing units, or 1.8 percent of homes, received at least one filing in 2008.

About 55 percent of loans modified in the first quarter of 2008 were 30 days or more delinquent six months later, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a Dec. 22 report.

Proposed changes to bankruptcy laws that would allow judges to reduce the principal borrowers owe on their mortgages also may fail to stem foreclosures, according to Glenn Boyd, head of U.S. asset-backed securities strategy at Barclays Capital in New York.

Some borrowers will re-default while others whose income is too high to qualify for the plan will walk away from their obligations if neighbors get bailed out, he said.

Prices Plummet

Home prices in 20 major U.S. cities fell at the fastest rate on record in October and have dropped every month since January 2007, according to the S&P/Case-Shiller index. The gauge declined 18 percent after falling 17.4 percent in September.

“The biggest driver of the housing market has been the drop in home prices, but now it’s the economic risk of the job market collapsing and consumer sentiment,” said Sam Khater, a senior economist at the Santa Ana, California-based mortgage data firm First American CoreLogic.

December foreclosure filings rose 17 percent from November, RealtyTrac said. The total for the year reached 3.2 million, which includes multiple filings against some of the 2.3 million properties affected.

Nevada, Florida, Arizona

Nevada had the highest foreclosure rate in 2008, with 7.3 percent of housing units in some stage of default. A total of 77,693 properties received a filing, more than double the number in 2007 and a six-fold increase from 2006, according to RealtyTrac.

Florida had the second-highest rate with 4.5 percent of housing units in default. The state had 385,309 properties with filings against them, a 133 percent jump from a year earlier and up 412 percent from 2006.

Arizona had the third-highest rate at 4.49 percent. Properties with filings surged to 116,911, triple the number in 2007 and up 655 percent from 2006, said RealtyTrac, which collects data from more than 2,200 counties that are home to more than 90 percent of the U.S. population.

California, Colorado, Michigan, Ohio, Georgia, Illinois and New Jersey were also among the states with the 10 highest rates. New York ranked 35th with 50,032 properties receiving default notices.

California had the most properties with filings: 523,624, representing a 110 percent increase from a year earlier and a six-fold jump from 2006. Florida was second and Arizona third, followed by Ohio, Michigan, Illinois, Texas, Georgia, Nevada and New Jersey.

California also had the most cities among the top 10 metro areas with the highest foreclosure rates, led by Stockton, where 9.5 percent of housing units were in default, according to RealtyTrac. Riverside-San Bernardino ranked third, Bakersfield was fourth and Sacramento ninth.

Crisis May Deepen

Las Vegas had the second highest rate with 8.9 percent of housing units receiving a filing and Phoenix ranked fifth with 6 percent. Fort Lauderdale, Orlando and Miami, all in Florida, ranked sixth through eighth.

The foreclosure crisis will probably deepen this year as lenders put thousands of bank-owned properties on the market, said real estate broker Mike Novak-Smith in Moreno Valley, California, near Riverside. He said he expects one U.S. lender that he declined to identify to put 3,000 foreclosed homes on the market next month in Southern California.

“I think it will get substantially worse,” Novak-Smith, of the RE/MAX Results brokerage, said in an interview. “You’ve got people losing jobs right and left and the general business climate is bad. We’ve got an economy built on easy credit, and now it’s got to revert.”

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

Superb Complaint piercing the heart of Deutsch Bank’s authority to collect money, file suit, seeking recovery of property and money through receiver and damages against the lawyers who filed the foreclosure suits

Superb Complaint piercing the heart of Deutsch Bank’s authority to collect money, file suit, seeking recovery of property and money through receiver and damages against the lawyers who filed the foreclosure suits. whittiker_v_deutsche_bank_complaint

In the United States District Court for the Northern District of Ohio, eastern Division, Case no. 1:08CV300, Judge David D. Dowd, Jr.

Whitaker v Deutsch Bank et al First Amended Complaint with jury demand

Filed by James Rosenthal, 216-781-7956, William Novak, 216-781-8700, Kenard McDuffie 216-721-9227


DBNTC has routinely filed suit against potential class-members and on many occasions received distributions from the sale of their properties without possessing legally enforceable, recorded assignment of mortgages from the actual mortgagees. Under Ohio law {EDITOR: and the laws of virtually ALL states}, “before an entity would be entitled to receive a distribution from the sale of [real] property, their interest therein must have been recorded in accordance with Ohio law.” In re Foreclosure Cases, 2007 WL 3232430, *2 (N.D. Ohio October 31, 2007) (the “Judge Boyco Decision”).

DBNTC’s pattern and practice of filing foreclosure actions in state and federal courts without the requisite legal title, while falsely stating that it had such title, and while lacking the right to engage in trust business in Ohio, constitutes a “false, deceptive or misleading representation or means” in connection with the collection of a debt, in violation of the Federal Fair Debt Collection Procedures Act, 15 U.S.C. Sec. 1692e. It also constitutes an offense against justice and public administration in violation of R.C. Sec 2921.03, and therefore constitutes a pattern of corrupt activity as required to maintain an action for violation of Ohio’s RICO statute. The defendant law firms have independent obligations to the Courts in Ohio and to the plaintiffs not to engage in such misconduct, but they have nevertheless served as the vehicle through which DBNTC has perpetrated its deceptive and unauthorized conduct.

All of the defendants are “debt collectors” as defined in 15 U.S.C. 1692e, because they regularly use instrumentalities of interstate commerce, and the mails, in attempting to collect, directly, or indirectly, debts owed or due or asserted to be owed or due to another, namely the actual lenders, mortgagors, and certificate-holders under the above-referenced pooling and servicing agreements. Upon information and belief, the defendant law firms regularly represented defendant DBNTC in suits against potential class members to collect on notes and foreclose on mortgages.

Upon information and belief, there remains no record in the lawsuit of any assignment from First NLC Financial Services, LLC to Argent Mortgage Company, LLC and Defendant failed to establish a complete chain of assignment from the originator to the person assigning the mortgage to DBNTC.

Notwithstanding the patent defect in the chain of assignment of the note and mortgage, foreclosure was granted to Defendant DBNTC, and the property was sold to the Defendant at sheriff’s auction in January, 2008.

…From the perspective of the “least sophisticated consumer,” a lawsuit by a national banking association on a debt acknowledged to be owed would be presumed to be valid insofar as the bank’s standing and authority are concerned.

In foreclosing on plaintiff’s homes, the defendants:

  1. made false, deceptive and misleading representations concerning DBNTC’s standing to sue the plaintiffs and its interest in the debt;
  2. falsely represented the status of the debt, in particular, that it was due and owing to defendant DBNTC at the time the suit was filed;
  3. falsely represented or implied that the debt was owing to DBNTC as an innocent purchaser for value, when in fact, such an assignment had not been accomplished;
  4. threatened to take action namely engaging in collection activities and collection and foreclosure suits as trustee that cannot legally be taken by then; and
  5. obtained access to Ohio state and federal courts to collect on notes and foreclose on mortgages under false pretenses, namely, that DBNTC was duly authorized to engage in such activities as trustee in Ohio when in fact it was not. {Editor’s Note: In other words, that Deutsch Bank might have been registered to do business as a banker in Ohio but it wasn’t acting as a banker and it was suing as banker. It was alleging merely that it was a trustee acting as a trustee engaged in “trust activities” and had never qualified itself to do business as a trust.}

The defendants have violated Section 2921.03 by knowingly filing complaints alleging DBNTC’s ownership of the promissory notes and mortgages when in fact it did not own the notes and mortgages, and by knowingly filing complaints as trustee in reckless disregard of the fact that Defendant DBNTC was not authorized to engage in such activities as Trustee in Ohio

Under R.C. 2735.01(A), the Court may appoint a receiver in a case such as this, involving parties “jointly…interested in any property or fund, on the application of the plaintiff.”

Defendant DBNTC and each plaintiff are “jointly interested” in the foreclosed properties, and in the funds created or to be created upon the liquidation of the defendant’s interest. {Editors’ Note: I would have said “defendant’s alleged interest.”}. Plaintiffs not only have a right to cause defendant to divest its interest in their properties, but there are charges which defendants have collected and are attempting to collect against Class members’ equity that were charged or incurred in violation of the laws described elsewhere in this complaint.

Plaintiffs request that a receiver be appointed, who shall recover from Defendant DBNTC the charges it collected from the Class, as well as any interests in real property it acquired illegally, recover fees improperly earned by the law firms, and determine the proper allocation and ownership of these funds and property interests.

Indymac: federal banking regulator allowed the bank to backdate a capital infusion and gloss over its deepening problems, the Treasury Department’s independent investigator said Monday

December 23, 2008

Irregularity Uncovered at IndyMac



WASHINGTON — Two months before IndyMac Bancorp collapsed in July, at a cost of $8.9 billion to taxpayers, a top federal banking regulator allowed the bank to backdate a capital infusion and gloss over its deepening problems, the Treasury Department’s independent investigator said Monday.

In what industry analysts said was an example of the excessively cozy relations between high-flying subprime lenders and federal bank regulators, the Office of Thrift Supervision’s West Coast director allowed IndyMac’s parent company to backdate an $18 million contribution to preserve its status as a “well-capitalized” institution.

Investigators reported that similar officially approved backdating appears to have occurred at other financial institutions, though they did not name them.

IndyMac, based in Pasadena, Calif., was one of the nation’s biggest subprime mortgage lenders at the time. But analysts said it was already in trouble when the maneuver occurred, because of rising default rates and a big stockpile of subprime loans on its books that investors abruptly refused to buy.

The Office of Thrift Supervision’s western regional director, Darrel W. Dochow, allowed IndyMac Bank to receive $18 million from its parent company on May 9 but to book the money as having arrived on March 31, according to the Treasury Department’s inspector general, Eric M. Thorson. The backdated capital infusion allowed IndyMac to plug a hole that its auditors had belatedly found in the bank’s financial results for the first quarter. If IndyMac had not been able to plug that hole retroactively, its reserves would have slipped below the minimum level that regulators require for classifying banks as well capitalized.

Though the $18 million transaction was minuscule in comparison to IndyMac’s $32 billion in assets, it had tremendous significance. If IndyMac had lost its well-capitalized status it would not have been allowed to accept “brokered deposits” from other financial institutions. Brokered deposits are typically high-yielding certificates of deposit arranged by brokers and sold to savings and loans. IndyMac relied heavily on brokered deposits, which amounted to $6.8 billion or 37 percent of its total deposits last spring.

“This is very significant in terms of whether IndyMac was over or under the O.T.S.’s thresholds for capital,” said Bert Ely, a veteran banking analysts in Alexandria, Va. “But what’s really troubling is that it seems to have been going on elsewhere.”

The episode had a link to the savings-and-loan scandals of the late 1980s, which cost the federal government more than $100 billion.

Mr. Dochow played a central role in the savings-and-loan scandal of the 1980s, overriding a recommendation by federal bank examiners in San Francisco to seize Lincoln Savings, the giant savings and loan owned by Charles Keating. Lincoln became one of the biggest institutions to collapse. Mr. Keating served four and a half years in prison before his fraud and racketeering convictions were overturned. He later pleaded guilty to more limited charges, and was sentenced to the time already served.

Senator Charles E. Grassley, Republican of Iowa and the ranking member of the Senate Finance Committee, said the regulator’s behavior raised new doubts about the Office of Thrift Supervision, which has long had a reputation for being the most permissive of all the federal bank regulators.

“The role of the Office of Thrift Supervision, as the name says, is to supervise these banks, not conspire with them,” Mr. Grassley said in a statement. “If the Office of Thrift Supervision is turning a blind eye to capitalization requirements, Congress needs to know.”

John M. Reich, director of the Office of Thrift Supervision, said the $18 million maneuver was “a relatively small factor” in the collapse of IndyMac. But he said he had removed Mr. Dochow from his job as the agency’s western director pending the results of a separate inquiry.

Mr. Thorson, the Treasury’s inspector general, described an intricate process by which the Office of Thrift Supervision, or at least Mr. Dochow, had quietly helped IndyMac paper over its difficulties.

In a letter to Mr. Grassley, Mr. Thorson said that IndyMac’s auditor, Ernst & Young, had discovered several issues in early May that required IndyMac to retroactively adjust its financial results for the three months that ended on March 31.

Those adjustments would have reduced IndyMac’s capital to a level that would have deprived it of its classification as a well-capitalized institution.

IndyMac executives did not dispute the adjustments, according to Mr. Thorson. But they did meet with Mr. Dochow on May 9 to ask if they could backdate the $18 million capital injection by retroactively listing it as a “receivable” on IndyMac’s books as of March 31, Mr. Thorson said.

Mr. Dochow agreed, and IndyMac filed an amended report for its first quarter that showed a higher capital ratio., Mr. Thorson said. To investors, there was no sign that IndyMac’s capital had ever dipped below what was required to qualify for well-capitalized status. In fact, the amended report slightly increased the capital ratio above what the bank had originally reported.

William K. Black, a senior bank regulator during the savings and loan crisis and the author of “The Best Way to Rob a Bank is to Own One,” said Mr. Dochow’s lenience highlighted the longstanding unwillingness of the Office of Thrift Supervision to take charge.

“The O.T.S. did nothing effective to regulate any of the specialized large nonprime lenders,” Mr. Black said. “So what you got was what the F.B.I. accurately described as early as 2004 as an epidemic of mortgage fraud.”

Mr. Black said that the Office of Thrift Supervision had never put IndyMac on its watch list of troubled institutions before the Federal Deposit Insurance Corporation took it over in July and booked a loss of $8.9 billion to its insurance fund.

Another SEC Form to Look For: FORM 13F







13F FILE NUMBER: 028-11850



PHONE: 213-630-6406










The answer to your question is YES we have lawyers and the list grows every week. You can start with the “Lawyers Who Get it” at http://www.livinglies.wordpress.com. If you still have trouble then contact us again. In the meanwhile, allow me to point out that the process of defending your property is intimidating to many people. That is because the lenders’ lobbyists made it that way. The blog site and my seminars and workbooks untangle the apparent chaos and give the homeowner or the homeowner’s attorney the steps to prepare their case before going to a lawyer, if they don’t have some emergency because they waited too long to defend themselves. There are still steps they can take if they waited too long but they come in a different order.

Here are the basic steps that must be taken in order to effectively present a credible threat to your lender AND A CREDIBLE ORGANIZED PACKAGE TO A PROSPECTIVE LAWYER THAT MIGHT TAKE YOUR CASE. The goal is a substantial modification of the loan in which the principal and payments are reduced or eliminated. I have distilled the methods of everyone from the people who the very narrow “audit” comparing the Good Faith Estimate to the Settlement Statement, all the way through those who perform full forensic analysis. Since the cost can vary as much as between $200 to $20,000 and each company or person offering “audit,” “loan modification”, “loss mitigation”, performs a different set of services, I have created Garfield’s Continuum (1-2 day workshops for Lawyers and 1/2 day workshops for homeowners, and workbooks for each). The Continuum deals with legal strategies, theories and fact finding. Based upon what works and what doesn’t I have come up with the minimum menu of services that MUST be included if you are aiming to get a substantial modification and not one that merely extends your loan to 40 years and adds on your back payments to the principal due on the note.


  1. Documents to be examined:
    1. Promotional literature, correspondence and borrowers notes from initial contact with mortgage broker of “lender.”
    2. Any document purporting to give the terms of a proposed loan including but not limited to Good Faith Estimate
    3. The Good Faith Estimate and documents supporting affordability and benefits
    4. The settlement statement
    5. The name and contact information and appraisal report including the actual person and license number of the appraiser, the amount of the previous sale, any prior appraisals available to borrower, and the borrower’s estimate of current value decreased by 12% for broker’s fees (6%) and current average discount from asking price (6%).
    6. The name and address of the mortgage broker, and the specific person the borrower dealt with, whether the mortgage broker is still in business.
    7. Identification of the loan originator
    8. Determination if FNMA or Freddie MAC were actually involved or if the standard forms were used from those or any other (HUD) GSE.  (Government Sponsored Entity)
    9. Identification of title agent with name and address
    10. Identification of title insurance company with name and address
    11. Identification of the escrow agent with name and address
    12. Identification of the closing agent with name and address
    13. Identification of the Trustee with name and address
    14. The set of closing documents given to the borrower: the ones provided before closing, the ones provided after closing and any documents that were transmitted appointing servicer or substitution of Trustee or assignment etc.
    15. SEC reports and annual reports of any of these entities or affiliates
    16. If available, Sampling investigation to determine if Pooling and Services Agreement, Assignment and Assumption Agreement, Insurance, Credit Default Swaps, Cross Collateralizing, Over-collateralizing, reserves, and bailouts from Federal Reserve or U.S. Treasury can be produced for examination.
    17. Documents, if available, showing authority of any party alleging rights to enforce, collect or perform modifications, issue notices of delinquency, default, sale or file foreclosure actions, unlawful detainer (eviction) actions etc.
  2. Basic Required Services — For expediency and cost purposes, the initial “analysis is presumed to be using a “sampling technique” that identifies probably information that is applicable but does not guarantee accuracy or completeness)

    1. Retainer Agreement in Writing for analysis, collection etc., that allows for attorney tot ake over relationship on certain conditions.
    2. Written authroization form Borrower executed in triplicate and notarized (each copy)
    3. Analysis of disclosures and promotional literature to determine the nature of the deal the borrower thought he/she/they were getting and comparison with the actual result.
    4. Analysis of GFE etc. and comparison with actual deal, disclosures of third party funding, table funding, surprise fees, undisclosed fees, undisclosed parties, etc.
    5. Analysis of settlement statement to determine the representation of the parties at closing to the borrower and comparison with actual deal.
    6. Appraisal Sampling analysis to determine negnligence or fraud based upon comparables of time, geography and whether developer asking prices were used to inflate the appraisal. Calculation of potential claim for inflated appraisal. Determination of the expected life of the loan based upon adjustments, expected market conditions etc. Calculation of probable effect on APR over the expected life of the loan.
    7. Analysis of whether the closing conformed to GSE guidelines as industry standards
    8. Analysis of conduct of the mortgage broker to determine potential claim for negligence or fraud
    9. Analysis of conduct of the title agent to determine potential claim for cloud on title, negligence or fraud
    10. Analysis of conduct of the title insurance company to determine potential claim for cloud on title, negligence or fraud
    11. Analysis of conduct of the escrow agent to determine potential claim for negligence or fraud
    12. Analysis of conduct of the closing agent to determine potential claim for negligence or fraud
    13. Analysis of results of investigation for compliance with TILA, RESPA, HOEPA, RICO, Deceptive Business, Deceptive Lending, usury etc.
    14. Analysis of conduct of the Trustee or successor Trustee on Deed of Trust, if applicable to determine potential claim for negligence or fraud
    15. Sampling analysis to identify potential successor trustees (Pool, SIV, SPV etc.)
    16. Sampling analysis to determine where the borrowers payments have been sent and how they have been applied, if available.
    17. Sampling analysis to determine if the the named entity as Payee on the Promissory note has been paid in full by a third party — and preliminary abalysis as to whether the note became non-negotiable, whether the borrower owes anyone any amount, and if so who that might be and how much it might be, if it is possible to make such determinations in the preliminary investigations.
    18. Issuance of Preliminary Findings Report to be sent to servicer or whoever the borrower is sending payments to or otherwise in communication with.
    19. Challenge letter to each party seeking to enforce, whether lawyer or party, raising defensive positions concerning their authority to act.
    20. Extensive Qualified Written Request with suggestions for resolutions, coupled with Notice and contract for appointment of Borrower or Borrower’s designee as attorney in fact for reconveyance as per RESPA.
    21. Demand letter and notice if Lender fails to comply.
    22. Challenge letter if Lender denies claims or requires additional written authorization
    23. If available, counsel’s recommendation of next steps
  3. Extended Services:
    1. Appointment of agent for reconveyance
    2. Recording reconveyance
    3. Recording other instruments in property records
    4. Expert Affidavit
    5. Expert testimony
    6. Exhibits prepared for court
    7. Form complaints, motions and affidavits
    8. Legal ghost Writing
    9. Consultation with Borrower’s attorney
    10. Appearances in Court
    11. Forensic Review
      1. Basic, non sampling
      2. Full audit including examination of servicer’s ledgers etc.

Clearinghouse and Trustees Defined From Garfield’s Glossary: Some of the new entries

CLEARINGHOUSE: A company or government sponsored entity that either takes physical possession of transactional documents and records them on its own books. An accepted clearinghouse’s records is used as business records to prove ownership of a particular security or other transactional document. Cede and Company and others are the clearinghouse for quadrillions of dollars of transactions. It is unclear and indeed doubtful that the unregulated mortgage backed certificates sold investors are registered with any conventional clearinghouse, despite the fact that these certificates did have a secondary market in which the trading volume of these certificates was traded in low volume. Structured Investment Vehicles (SIV) created by investment bankers as part of the scheme to issue mortgage backed securities and other asset backed securities are a hybrid between a trustee and a clearinghouse. These companies, mostly offshore, were used as the “repository” for the alleged notes and mortgages and deeds of trust, assignments, assumptions and allonges in many transactions. It is believed that SIV’s may no longer be in use. However, those documents that were allegedly sent to SIV Trustees fall into the following categories according to SIV records (a) lost, never reached their destination (b) were intentionally destroyed at the request of the party transmitting the documents to the SIV Trustee or (c) were lost after reaching their destination. Virtually no documents are recorded as in “safe keeping” of the SIV Trustee in any SIV. The reason for this is presumed to be (a) plausible deniability and (b) direct coverup of the actual terms of the the notes. The true character of most of the loans (i.e., that they were doomed to go into default and that the nominal interest rate would never be reached) was hidden by a a multilevel pooling system creating obfisucation and confusion to all but persons with very sophisticated knowledge and understanding of deriviate securities projects to wit: By pooling the notes with a loan wholsesaler (aggregagtor), establishing a new Trustee over the pool (presumably superceding the SIV Trustee and the Trustee on the Deed of Trust), and then repooling the pools into tranches within a special purpose vehicle that issued certificates of asset backed securities, and appointing a Trustee to represent the owners of the certficates (note that it is unclear if this “trust arrnagement arose at the time of the transaction or was fabricated for litigation). Lastly MERS is an intended clearinghouse that appears to violate the state recording laws  of every state in the union. The purpose of MERS was to establish a recording system for assignments and transafers of various notes, allonges, and related documents parallel to the recording system in place in each of the states. State law in most if not all cases requires the transfer of an interest in real property to be recorded. MERS was used to avoid disclosure, payment of taxes, fees and stamps that were due to States and counties and to add to the obfuscation of ownership of the note or mortgage. The use of MERS in lieu of recording assignments split the note and the mortgage under the UCC, thus separating the security isntrument from evidence of the obligation — because the only legla act MERS could perform would have been trnasfer of the note. The Mortgage, which is an interest in real property could not be transferred without complaicne with the state’s recording laws, requiring the recordation and payment of fees and taxes. MERS has since been suspended from operating in California and many states are looking at the possibility of either suspending MERS or demanding that MERS and its constituent customers (banks, wholesalers, investment banks, SIVs, Trustees, SPVs, Investors) pay the recording fees and taxes, along with interest, and penalties and perhaps a fine.


A person or legal entity charged with owning, controlling and/or managing assets for another person or legal entity (beneficiary). Legal Trustees are created by a Trust Agreement or Trust Document which names the Trustee, described the duties of the Trustee and names the beneficiary(ies). Constructive or resulting trustees arise by operation of common law, statutory law or both. For example, the Trustee on a Deed of Trust is named as having certain powers and duties on behalf of a named beneficiary. However, under common law, and in certain states, statutory law, the same Trustee owes a fiduciary duty to not only the named beneficiary, but to the homeowner (Grantor) as well, thus requiring the Trustee to function in a transparent fashion to both the legal and constructive or resulting beneficiaries. Such a Trustee is under a duty to verify that the beneficiary has not transferred or otherwise disposed of the beneficial interest, or encumbered it under some agreement, hypothecation or guarantee. In non-judicial states there are four successive Trustees —- the Trustee on the Deed of Trust, the Trustee of the SIV, the Trustee of the Pooled Assets and the Trustee for the owners of the certificates of asset backed securities. It is unclear to what extent the original Trustee on the Deed of Trust is completely or partially replaced by the successive Trustees in the securitization process. Documents vary. However the boilerplate language we have seen from Deutsch Bank and other institutions utilize the standard language from form books that lawyers use in the creation of documents to protect the Trustee from being required to perform duties at the Trustee’s expense instead of being able to charge expenses to the corpus of the Trust or from the beneficiaries, to wit: in the case of Trustees for owners of certificates the Trustee is empowered to take legal action on their behalf ONLY if the investors agree to such action and agree to pay for it. The Corpus of the Trust is the certificates and not the “loans” that were allegedly pooled and re-pooled, thus there is no corpus  or res to charge. Hence, where one sees “U.S. Bank, as Trustee for holders of Asset Backed Securities Series 2007A-01”, one should seek proof of authority to represent from both the lawyer allegedly representing these certificate holders and allegedly representing the Trustee and perhaps others.Other Trustees arise in litigation as where a petitioner files for bankruptcy protection and the U.S. Trustee’s office gets involved or where a receiveer is appointed to conserve the bankruptcy estate and collect rents.

Clearinghouse for Paperwork: Cede and Co and Depository Trust Clearing Corporation: But are the Mortgage Backed Certificates There?

A CEDE &amp; CO partnered company.

Depository Trust &amp; Clearing Corporation
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Depository Trust &amp; Clearing Corporation

Holding company
Founded DTCC (1999) – holding company for DTC (1973) and NSCC (1976)
Headquarters New York City, U.S.

No. of locations 4
Key people Don F. Donahue Chairman, CEO
William B. Aimetti President, COO

▲ US$706,242,000 (2007)

Net income
▲ US$ 4,375,000 (2007)
Total assets
Total equity
US $242,920,000
NYSE, NASD, AMEX, banks, brokers
DTCC Solutions LLC
EuroCCP Ltd.

The Depository Trust &amp; Clearing Corporation (DTCC), based primarily at 55 Water Street in New York City, is the world’s largest post-trade financial services company. It was set up to provide an efficient and safe way for buyers and sellers of securities to make their exchange, and thus “clear and settle” transactions. It also provides custody of securities.
User-owned[1] and directed, it automates, centralizes, standardizes, and streamlines processes that are critical to the safety and soundness of the world’s capital markets. Through its subsidiaries, DTCC provides clearance, settlement, and information services for equities, corporate and municipal bonds, unit investment trusts, government and mortgage-backed securities, money market instruments, and over-the-counter derivatives. DTCC is also a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC’s DTC depository provides custody and asset servicing for 3.5 million securities issues, comprised mostly of stocks and bonds, from the United States and 110 other countries and territories, valued at $40 trillion, more than any other depository in the world.
In 2007, DTCC settled the vast majority of securities transactions in the United States, more than $1.86 quadrillion in value. DTCC has operating facilities in New York City, and at multiple locations in and outside the U.S.
In 2007 Chief Executive Officer Donald F. Donahue was named to the additional office of Chairman of DTCC and its subsidiaries, and Chief Operating Officer William B. Aimetti was named President.[2]
In 2008, the Clearing Corporation and the Depository Trust &amp; Clearing Corporation announced a public clearing facility for credit default swap (CDS) [3], which will be linked To DTCC’s Trade Information Warehouse.[4] [5][6]

• 1 History
• 2 Naked short selling; Litigation &amp; proposed Senate hearings
• 3 Subsidiaries
• 4 Competition
• 5 References
• 6 External links

[edit] History
Established in 1973, The Depository Trust Company (DTC) was created to alleviate the rising volumes of paperwork and the lack of security that developed after rapid growth in the volume of transactions in the U.S. securities industry in the late 1960s.
Before DTC and NSCC were formed, brokers physically exchanged certificates, employing hundreds of messengers to carry certificates and checks. The mechanisms brokers used to transfer securities and keep records relied heavily on pen and paper. The exchange of physical stock certificates was difficult, inefficient, and increasingly expensive.
In the late 1960s, with an unprecedented surge in trading leading to volumes of nearly 15 million shares a day on the NYSE in April 1968 (as opposed to 5 million a day just three years earlier, which at the time had been considered overwhelming), the paperwork burden became enormous.[7][8] Stock certificates were left for weeks piled haphazardly on any level surface, including filing cabinets and tables. Stocks were mailed to wrong addresses, or not mailed at all. Overtime and night work became mandatory. Turnover was 60% a year.[9]
To deal with this large volume, which was overwhelming brokerage firms, the stock exchanges were forced to close every week (they chose every Wednesday), and trading hours were shortened on other days of the week.
Two methods were used to solve the crisis:
The first was to hold all paper stock certificates in one centralized location, and automate the process by keeping electronic records of all certificates and securities clearing and settlement (changes of ownership and other securities transactions). The method was first used in Austria by the Vienna Giro and Depository Association in 1872.[10]
This led the New York Stock Exchange to establish the Central Certificate Service (CCS) in 1968 at 44 Broad Street in New York City.[11] New York Stock Exchange President Robert W. Haack promised: “We are going to automate the stock certificate out of business by substituting a punch card. We just can’t keep up with the flood of business unless we do.”[12] The CCS transferred securities electronically, eliminating their physical handling for settlement purposes, and kept track of the total number of shares held by NYSE members.[13] This relieved brokerage firms of the work of inspecting, counting, and storing certificates. Haack labeled it “top priority,” $5 million was spent on it,[14] and its goal was to eliminate up to 75% of the physical handling of stock certificates traded between brokers.[15] One problem, however, was that it was voluntary, and brokers responsible for 2/3 of all trades refused to use it.[16]
By January 1969 it was transferring 10,000 shares per day, and plans were for it to be handling broker-to-broker transactions in 1,300 issues by March 1969.[17] In 1970 the CCS service was extended to the American Stock Exchange.[18] This led to the development of the Banking and Securities Industry Committee (BASIC), which represented leading U.S. banks and securities exchanges,[19], and was headed by a banker named Herman Beavis, and finally the development of DTC in 1973,[20] which was headed by Bill Dentzer, the former New York State Banking Superintedent.[21] All the top New York banks were represented on the board, usually by their chairman. BASIC and the SEC saw this indirect holding system as a “temporary measure,” on the way to a “certificateless society.”[22]
Stocks held by DTC are kept in the name of its partnership nominee, Cede &amp; Co.[23] Not all securities are eligible to be settled through DTC (“DTC-eligible”).
The second method involves multilateral netting; and led to the formation of the National Securities Clearing Corporation (NSCC) in 1976.
[edit] Naked short selling; Litigation &amp; proposed Senate hearings
DTCC has been sued with regard to its alleged participation in naked short selling. Further allegations about DTCC’s possible involvement have been made by Senator Robert Bennett and discussed by the NASAA and in articles — disagreed with by DTCC — in the Wall Street Journal and Euromoney_(magazine).
While there is no dispute that illegal naked shorting happens, there is a fight as to the extent to which DTCC is responsible. Some blame DTCC as the keeper of the system where it happens, and charge that DTCC turns a blind eye to the problem. DTCC suggests that naked shorting is simply not widespread enough to be a major concern. “We’re not saying there is no problem, but to suggest the sky is falling might be a bit overdone,” DTCC’s chief spokesman Stuart Goldstein said.[1][2] DTCC General Counsel Larry Thompson dismissively calls the claims “pure invention.”[2] The SEC, however, views naked shorting as a serious enough matter to have initiated two separate efforts to restrict the practice.[3] And in July 2007, Senator Bennett suggested on the U.S. Senate floor that the allegations involving DTCC and naked short selling are “serious enough” that there should be a hearing on them — with DTCC officials called before the Senate Banking Committee. The committee’s Chairman, Senator
Christopher Dodd, indicated he was willing to hold such a hearing.[4] The North American Securities Administrators Association, representing state stock regulators, filed a brief saying that if the claims were correct, its shareholders “have been the victims of fraud and manipulation at the hands of the very entities that should be serving their interest.”[5][24][25]
Critics also contend that DTCC has been too secretive with information about where naked shorting is taking place.[3] In 2007, WayPoint Biomedical sued DTCC for DTCC’s refusal to comply with a subpoena request for documents that Waypoint needs to track trades in the company’s shares.[6]
[edit] Subsidiaries
The DTCC has several subsidiaries:
• The Depository Trust Company (DTC) – The original depository clearing corporation.[26][27]
Established in 1973, it was created to reduce costs and provide efficiencies by immobilizing securities and making “book-entry” changes to show ownership of the securities. DTC provides securities movements for NSCC’s net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker-dealers), as well as money market instruments. In 2007, DTC settled transactions worth $513 trillion, and processed 325 million book-entry deliveries. In addition to settlement services, DTC retains custody of 3.5 million securities issues, worth about $40 trillion, including securities issued in the US and more than 110 other countries. DTC is a member of the U.S. Federal Reserve System, and a registered clearing agency with the Securities and Exchange Commission.
• National Securities Clearing Corporation (NSCC) – The original clearing corporation, it provides clearing and serves as the central counterparty for trades in the US securities markets.[28]
Established in 1976, it provides clearing, settlement, risk management, central counterparty services, and a guarantee of completion for certain transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment trusts. NSCC also nets trades and payments among its participants, reducing the value of securities and payments that need to be exchanged by an average of 98% each day. NSCC generally clears and settles trades on a “T+3” basis. NSCC has roughly 4,000 participants,[29] and is regulated by the U.S. Securities and Exchange Commission (SEC).
• Fixed Income Clearing Corporation (FICC) – Provides clearing for fixed income securities, including treasury securities and mortgage backed securities[30][31]
Created in 2003 to handle fixed income transaction processing, integrating the Government Securities Clearing Corporation and the Mortgage-Backed Securities Clearing Corporation. The Government Securities Division (GSD) provides real-time trade matching, clearing, risk management, and netting for trades in US Government debt issues, including repurchase agreements or repos. Securities transactions processed by FICC’s Government Securities Division include Treasury bills, bonds, notes, zero-coupon securities, government agency securities, and inflation-indexed securities. The Mortgage-Backed Securities Division provides real-time automated and trade matching, trade confirmation, risk management, netting, and electronic pool notification to the mortgage-backed securities market. Participants in this market include mortgage originators, government-sponsored enterprises, registered broker-dealers, institutional investors, investment managers, mutual funds, commercial banks, insurance
companies, and other financial institutions.
• DTCC Solutions – DTCC’s subsidiary delivering information-based and business processing solutions to financial intermediaries globally, such as Global Corporation Action Validation Service (GCA VS) and Managed Accounts Service.[32]
GCA VS simplifies announcement processing by providing a centralized source of “scrubbed” information about corporate actions, including tender offers, conversions, stock splits, and nearly 100 other types of events for equities and fixed-income instruments traded in Europe, Asia-Pacific, and the Americas. In 2006, GCA VS processed 899,000 corporate actions from 160 countries. Managed Accounts Service, introduced in 2006, standardizes the exchange of account and investment information through a central gateway.
• DTCC Learning – Provides financial, technology, and career training and educational services to the global financial industry.[33]
• Loan/SERV – Provides services to loan syndicates and agents.
• Deriv/SERV – Provides clearing for credit derivatives, such as CDOs.[34]
It provides automated matching and confirmation services for over-the counter (OTC) derivatives trades, including credit, equity, and interest rate derivatives. It also provides related matching of payment flows and bilateral netting services. Deriv/SERV’s customers include dealers and buy-side firms from 30 countries. In 2006, Deriv/SERV processed 2.6 million transactions.
• EuroCCP – Will provide clearing on European exchanges.[35]
• Omgeo – Partnership with Thomson Financial that provides clearing automation solutions.[36][37]
Omgeo is as a central information management and processing hub for broker-dealers, investment managers, and custodian banks. It provides post-trade, pre-settlement institutional trade management solutions, processes over one million trades per day and serving 6,000 investment managers, broker/dealers, and custodians in 42 countries.
[edit] Competition
Euroclear (in Brussels, Belgium) and Clearstream (in Luxembourg) are the second and third largest central securities depositories in the world.
[edit] References
1. ^ Drummond, Bob (August 4, 2006). “”Naked Short Sellers Hurt Companies With Stock They Don’t Have””, Bloomberg.com. Retrieved on 25 December 2007.
2. ^ a b “”DTCC Chief Spokesperson Denies Existence of Lawsuit””, financialwire.net (May 11, 2004). Retrieved on 25 December 2007.
3. ^ a b Emshwiller, John R., and Kara Scannell (July 5, 2007). “Blame the ‘Stock Vault’?”, The Wall Street Journal.
4. ^ “Senator Bennett Discusses Naked Short Selling on the Senate Floor,” Website of Senator Bennett, July 20, 2007, accessed 32-2-2008
5. ^ “Letter from North American Securities Administrators Association to Jonathan Katz, Secretary of the Securities and Exchange Commission,” dated January 5, 2004, accessed 23-2-2008
6. ^ “”WayPoint Biomedical Holdings, Inc. Files Lawsuit Against The Depository Trust and Clearing Corporation (DTCC)””. GEN (Genetic Engineering and Biotech News (June 25, 2007). Retrieved on 2007-12-25.
[edit] External links
• DTCC corporate site
• Extensive description of DTC and its activities
• Extensive description of NSCC and its activities
• DTC corporate site
• NSCC corporate site
• Source for History
• Naked shorts
• “DTCC Calls Euromoney Article on its Stock Borrow Program and Naked Short Selling ‘Sloppy Journalism,'” DTCC, 31/03/05
• “Blame the ‘Stock Vault?’; Clearinghouse Faulted On Short-Selling Abuse;Finding the Naked Truth,” Wall Street Journal, by John R. Emshwiller and Kara Scannell, 05//07/07
• “DTCC Responds to The Wall Street Journal article, ‘Blame the ‘Stock Vault?,'” DTCC, 06/07/07
• “The Rise and Effects of the Indirect Holding System: How Corporate America Ceded its Shareholders to Intermediaries,” by David C. Donald, Institute for Law and Finance, 18/09/07
Retrieved from “http://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation&#8221;
Categories: Financial services companies of the United States | Securities | Self-regulatory organizations | Central Securities Depositories | Companies based in New York | Payment systems | Companies established in 1973 | Companies established in 1976

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