Wisconsin BKR Judge Orders Wells Fargo to Disgorge Payments It Received

For further information please call 954-495-9867 or 520-405-1688

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Hat tip to anonymous

The full case was 25 pages, I redacted to about 4 below, but very substantial topics and analysis on this similar to Rivera in full version.
– A win on recovery of mortgage payments made to Wells, $73,000.
– Loss on recovery of attorneys fee’s to Debtor, BUT, court stated these would be proper if circumstances met criteria, just not here, and
Very interesting analysis on return of note, which backs up your prior analysis; Note will not be returned to Debtor, as even though note is not enforceable by Wells or its servicers, real party in interest may show up at some point. Debtor also did not point to any prior case law that would require return of note.

I question whether the bankruptcy judge had the required jurisdiction to enter this order in all respects. But the analysis he presents is pretty much on target and once again Wells Fargo is shown to be making false statements and representations in court with virtual immunity even in this case.

Decision dated 10/21/14
http://stopforeclosurefraud.com/wp-content/uploads/2014/12/2014-10-21-In-Re-Thompson-.pdf

UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF WISCONSIN

In re Chapter 13 Dennis E. Thompson and Pamela A. Thompson, Case No. 05-28262-svk Debtors.

MEMORANDUM DECISION ON DEBTORS’ MOTIONS FOR CERTAIN RELIEF AGAINST WELLS FARGO

Since this case’s inception in 2005, it has been fraught with litigation, failed mediations, discovery disputes, accusations of attorney misconduct and otherwise tumultuous actions. In 2013, these proceedings eventually culminated in this Court’s disallowance of the proof of claim filed on behalf of Wells Fargo Bank after it was established that Wells Fargo was not the holder of the mortgage note underlying the claim. As a result, the pro se debtors filed a flurry of motions to effectuate the claim disallowance decision. This memorandum decision will hopefully end the litigation concerning the mortgage note, at least in the bankruptcy court………………

……..“On January 12, 2006, the Court confirmed the Debtors’ Chapter 13 plan. Under the plan, the Debtors proposed to make direct current mortgage payments and cure their pre-petition mortgage arrearage via payments to the trustee. On June 27, 2011, the Debtors filed a motion to enter into the Court’s mortgage modification mediation program with Litton. (Docket No. 142.) In preparation for the mortgage mediation, the Debtors hired an attorney and conducted a title search on their property. (Hearing Recording, Docket No. 164, at 10:53:15.) The title search revealed that Wells Fargo did not hold the title to their mortgage. (Id.) Mediation attempts with both Litton and Ocwen Loan Servicing, LLC4 (“Ocwen”), the current servicer for Wells Fargo, failed. (Docket No. 168; Docket No. 213.) On March 19, 2012, the Debtors filed a motion that the Court construed as an objection to the Claim. (Docket No. 159.) On April 2, 2012, Ocwen responded to the objection. After several preliminary hearings, discovery disputes, and a final evidentiary hearing, the Court entered an order disallowing the Claim. (Docket No. 217, 5.) The Court determined that neither Wells Fargo nor its servicers had standing to file a claim in the Debtors’ bankruptcy case. (Id.) Wells Fargo appealed. U.S. District Judge J.P. Stadtmueller affirmed the Court’s decision to disallow Wells Fargo’s Claim, holding:

“[E]ven if each version of the note self-authenticates under FRE 902(9), without testimony or other evidence from Ocwen to “‘connect the dots’” between the disputed allonge and the note, the evidentiary record contained only equally probable “authentic” versions of the note countervailing one another. Against that evidentiary backdrop, the bankruptcy court committed no error in finding insufficient evidence to confer standing on Ocwen to prosecute the disputed proof of claim.

Ocwen Loan Servicing, LLC v. Thompson, No. 13-CV-487, 2014 U.S. Dist. LEXIS 2109, at *14- 15 (E.D. Wis. Jan. 7, 2014).

Prior to the district court decision, the Debtors filed motions for reimbursement of mortgage payments (Docket No. 222) and attorneys’ fees. (Docket No. 223.) The Court entered an order determining that no action would be taken on the Debtors’ motions until after the district court entered a final order in the appeal. (Docket No. 225.) After the district court decision, the Debtors filed a motion to require the return of the original note to them. (Docket No. 239.) The Court set a briefing schedule. The parties have filed briefs. The motions are now ripe for decision.

 

ANALYSIS

Reimbursement of Mortgage Payments made on Disallowed Claim

Based on the disallowance of the Claim, the Debtors request a refund of all mortgage payments and trustee payments made to Litton and Ocwen since their bankruptcy case was filed in 2005. (Docket No. 222, 1.) Arguing that they “have every legal right to believe that they were or should have been paying the proper party,” (Id.), the Debtors calculate that a total of $146,972.45 should be reimbursed to them. (Docket No. 257, 4.) This amount includes $21,587.64 for “lost mortgage payments,” $106,167.91 for mortgage payments made outside the plan from July 2005 to December 2011, $11,716.90 for disbursements made by the Chapter 13 trustee on the disallowed Claim, and $7,500.00 for “return of sanction.”5 (Id.)

Wells Fargo raises only two objections to the Debtors’ motion for a refund of mortgage payments. First, Wells Fargo contends that the Court previously denied this motion at the March 14, 2013 hearing on the Debtors’ objection to Wells Fargo’s Claim……………….”

Second, Wells Fargo argues that the Court must balance the equities under the circumstances.6 Wells Fargo notes that Ocwen and Litton both expended funds during the course of the bankruptcy to prevent the Debtors’ property from going into tax foreclosureWells Fargo also argues that the Court’s decision disallowing the Claim did not alter the fact that the “Debtors borrowed money on April 14, 2000, and have yet to repay their debt,” and “[u]nder the circumstances, it would be inequitable to require Ocwen to take yet another loss on this account.” (Id. at 5-6.)

“The Court rejects Wells Fargo’s attempt to characterize the Court’s comments at the March 13, 2013 hearing as a definitive ruling on whether Wells Fargo should have to refund the payments it received from the Debtors during the bankruptcy case…………..

Wells Fargo’s second argument requests that the Court balance the equities under the circumstances. Wells Fargo cites one case to support its position, which notes that “[c]ourts exercising equitable powers must behave akin to doctors operating under the Hippocratic Oath: first, do no harm. We must do equity to all parties and not just the party seeking equitable assistance . . .” Briarwood Club, LLC v. Vespera, LLC, 2013 WI App 119, ¶ 1, 351 Wis. 2d 62, 839 N.W.2d 124. Wells Fargo suggests that if the Court grants the Debtors’ request, the Debtors will gain a free house. It notes that the Debtors borrowed money that they have not fully repaid, and as long as they are not required to repay it twice, the Debtors are obligated under the mortgage note. (Docket No. 246, 6.) Wells Fargo explains that while it may not have legal enforcement power under Wisconsin law, it does still hold physical possession of the note. (Id.)

And, according to Wells Fargo, since there have not been any competing claims for repayment on the loan, it would be inequitable for the Court to require Wells Fargo to take another loss on this delinquent account. (Id. at 7.)

A similar argument was made and rejected in Thomas v. Urban P’ship Bank, Residential Credit Solutions, Inc., 2013 U.S. Dist. LEXIS 59818 (N.D. Ill. April 26, 2013). In that case, Barbara Thomas filed suit against Urban Partnership Bank, alleging that Urban sought payments on a mortgage loan that it did not own. The central issue involved whether Thomas’s mortgage loan was included in an asset purchase agreement executed between Urban and Thomas’s original lender, ShoreBank. Urban moved to dismiss the complaint, arguing among other theories that there were no competing claims for payment on the note. But Thomas’s unjust enrichment claim survived the motion to dismiss. According to the district court:

Thomas clearly alleges that she owes someone money under the mortgage loan and that that someone is not Urban, and so it is irrelevant that no one else is currently making claims to her mortgage payments. If Thomas is correct that she owes money to someone other than Urban, then by paying Urban she has lost money without reducing the debt she owes to the loan’s true owner. . . . That amounts to the enrichment of Urban to Thomas’s detriment, since Thomas has lost and Urban has gained money for nothing . . . If, as Thomas adequately alleges, Urban had no right under the mortgage loan to the payments it received and Thomas made the payments on the mistaken premise that Urban was the loan’s owner, then fundamental principles of justice, equity, and good conscience require that Urban disgorge the payments . . . .

Id. at *27-29 (internal citations and quotations omitted).8

The district court in Thomas relied on Bank of Naperville v. Catalano, 86 Ill. App. 3d 1005, 408 N.E.2d 441, 444, 42 Ill. Dec. 63 (Ill. App. 1980), in which the court held,

“As a general rule, where money is paid under a mistake of fact, and payment would not have been made had the facts been known to the payor, such money may be recovered.”

The court also cited the Restatement (Third) of Restitution and Unjust Enrichment § 6 (2011) “Payment of Money Not Due” to the effect that payment by mistake gives the payor a claim in restitution against the recipient to the extent payment was not due, and a payor’s mistake as to liability may be a mistake about the identity of the creditor. The Restatement discusses two examples of payment by mistake that may be applicable here: mistake as to payee and mistake as to liability.9 Under mistake as to payee, the Restatement notes that “[a] mistaken payor has a claim in restitution when money is mistakenly transferred to someone other than the intended recipient.”…………..

Under mistake as to liability, the Restatement states that “[a] payor’s mistake as to liability may be a mistake about the identity of the creditor. In such a case, the payor believes that an obligation runs to the payee when in fact the obligation is to someone else.” The latter example applies here.10 The Debtors mistakenly believed that Wells Fargo was entitled to enforce the mortgage note. Wells Fargo’s servicers filed proofs of claim in the bankruptcy case, and they directed the Debtors to send their mortgage payments to Wells Fargo, in care of the servicers. The servicers accepted the Debtors’ mortgage payments on behalf of Wells Fargo, when in fact, Wells Fargo did not validly hold the mortgage note, and Wells Fargo was not entitled to the payments.

Although Wells Fargo has responded to the Debtors’ request for a refund with a plea for equity,11 in fact, the equities here favor the Debtors.

“A claim for unjust enrichment is based on the “universally recognized moral principle that one who received a benefit has the duty to make restitution when to retain such a benefit would be unjust.” Puttkammer v. Minth, 83 Wis. 2d at 689 (quoting Fullerton Lumber Co. v. Korth, 37 Wis. 2d 531, 536 (Wis. 1968))…..

 However, it is not enough to merely establish that a benefit was conferred and retained; the retention must also be inequitable. Id. This Court previously determined that Wells Fargo is not the holder of the Debtors’ mortgage note with legal authority to enforce it; that determination was affirmed on appeal. Without authority to enforce the note, Wells Fargo is not entitled to receive payments under the note. Only the party with a legally enforceable right to enforce the note is entitled to retain the benefit of the Debtors’ mortgage payments. Nevertheless, Wells Fargo, through its servicers, received voluntary payments from the Debtors and payments from the Trustee since the commencement of this bankruptcy case, subjecting the Debtors to the possibility of having to pay twice if the true owner of the note appears. Since Wells Fargo and its servicers have no legal right to the Debtors’ mortgage payments, retention of the Debtors’ mortgage payments would be inequitable.

 

Adding all of the entries for “payment” shows that the Debtors paid $97,979.68 from February 2006 to July 2011. (Docket No. 211, Ex. 11).12 Additionally, Wells Fargo should credit the Debtors with $7,500 for the sanctions awarded in the prior claim objection proceeding. (See Docket No. 103, at 10), for a total of $105,479.68. Wells Fargo points out that it made real estate tax payments on the Debtors’ behalf that should be deducted from any refund claim. The Court agrees. After subtracting $32,438.19 for the tax payments made on the Debtors’ behalf, the Debtors’ total claim for unjust enrichment is $73,041.49. Under the circumstances, Wells Fargo should be required to return this amount to the Debtors to avoid being unjustly enriched………….

Attorney Fee’s

“The Debtors also filed a motion for attorneys’ fees, arguing that Wells Fargo should pay approximately $12,500 in fees and costs the Debtors expended in connection with the failed mediations with Litton and Ocwen. According to the Debtors, “[u]nnecessary protracted negotiations have been ongoing since 2010. Starting with Litton Loan and ending with Ocwen. The plaintiff has misrepresented their standing, despite the efforts of the debtors to discuss this matter in the mediation process.” (Docket No. 223 at 1-2.) The Debtors also request punitive damages under 28 U.S.C. § 1927 for “vexatious litigation conduct” by Litton and Ocwen. (Id. At 2.) They note that Litton failed to attend several scheduled mediation sessions, and when Ocwen reinitiated mediation proceedings in 2012, there was a “delay to the debtors of 6 hours in the first and only scheduled mediation, with the debtors believing that progress was being established.”……………………… Although the Debtors have the right to be disappointed that the mediation did not succeed despite the attorneys’ fees that the Debtors expended, Wells Fargo’s attorneys acted under the impression that their client had proper standing. The Court finds that Wells Fargo’s attorneys did not unreasonably and vexatiously multiply the proceedings by their conduct in this case, and the Debtors’ request for attorneys’ fees is denied.

Request for Return of Note

The Debtors’ final motion asks the Court to order Wells Fargo to turn over the original mortgage note to them. Despite the Court’s ruling that Wells Fargo cannot enforce the note, the Debtors are concerned that Wells Fargo will somehow sell, transfer or trade the note, subjecting the Debtors to further litigation, emotional distress and financial hardship. Wells Fargo responds by attempting to discern the legal theories under which the Debtors are attempting to proceed, and then casting aspersions on those theories. The Court generally agrees with Wells Fargo that the Debtors could not succeed on a replevin claim or turnover action based on the note as property of the bankruptcy estate. However, the theory that the surrender of the original note consequently follows from the disallowance of Wells Fargo’s Claim warrants further analysis. The Court also takes this opportunity to clarify that, while not “undoing” any part of the Foreclosure Court’s judgment, Wells Fargo’s ability to enforce that judgment was never finally determined by the Foreclosure Court, and the disallowance of Wells Fargo’s Claim on standing grounds strongly suggests that Wells Fargo has no such ability………………..

Neither the Debtors nor Wells Fargo cited any case law supporting their position on whether the note should be returned to the Debtors after disallowance of the Claim, and the Court’s independent research uncovered no case directly on point…………………..Here, while the validity of the note and mortgage in favor of Provident was actually litigated and determined in the Foreclosure Case, Wells Fargo’s substitution as the plaintiff was summarily ordered without notice to the Debtors or any hearing on the issue. The Debtors were not afforded a reasonable opportunity to obtain review of the substitution order before the automatic stay intervened. That the party sought to be precluded had a reasonable opportunity to obtain review of the prior court’s order is a basic premise of the fundamental fairness prong of the issue preclusion analysis. Id. This Court previously denied Wells Fargo’s attempt to establish its standing to file the Claim based on the judgment and order of substitution in the Foreclosure Case. For the same reasons, issue preclusion does not act to bar the Debtors’ claim for return of the note……………..

“The court agreed with other courts that simply because a creditor lacks standing to enforce a note, the debtor is not discharged of her obligations under the note. Id. This Court has concluded (and the district court on appeal agreed) that Wells Fargo is neither the holder of the note nor a nonholder in possession of the instrument with the rights to enforce it. (Docket No. 233, 11.) Therefore, Wells Fargo (and its affiliates, servicers, successors and assigns) cannot enforce the note, but that fact does not cancel the note nor discharge the Debtors’ obligations to the true owner. In the absence of any authority for their request for turnover of the original note and analogizing to the cases requesting dismissal with prejudice, the Debtors’ motion to require Wells Fargo to surrender the original note is denied….

CONCLUSION

The Debtors’ motion for reimbursement of the payments made on Wells Fargo’s disallowed Claim is granted, subject to offset for real estate taxes paid by Wells Fargo. Within 30 days of the date of this Order, Wells Fargo must pay $73,041.49 to the Debtors and $11,716.90 to the Chapter 13 trustee. The Debtors’ motions for reimbursement of attorneys’ fees and turnover of the original note are denied. The foregoing constitutes the Court’s findings of fact and conclusions of law. The Court will enter separate orders on each motion.

Dated: October 21, 2014

BANK OF AMERICA ASSIGNS SAME NOTE TWICE AND GETS PAID TWICE!

submitted by reader

BANK OF AMERICA ASSIGNS SAME NOTE TWICE AND GETS PAID TWICE!

(To prevent further retribution to our family, I post this information under a pseudonym.)

1) In 2001, I closed on a refinancing loan, with XXXX Mortgage Company “A” (“MCA”).
2) “MCA” immediately thereafter assigned the loan to Bank of America (“BOA”).
3) According to the “journey” of the Note as indicated in the endorsement stamps (the Note was just produced last week, yes last week) and a recorded assignment – “BOA” assigned the NOTE to Residential Funding at some point within the immediate 12 week period following the “MCA” assignment to “BOA”.
4) At the time of the assignment “BOA” was paid by Residential Funding.
5) Residential Funding then assigned the NOTE to Bankers Trust Company, as Trustee, also at some point within the 12 weeks immediately following the “MCA” assignment to “BOA”.
6) Residential Funding was paid by Bankers Trust Company, as Trustee
7) Additionally during the same 12 week time frame, “BOA” also assigned the same aforementioned NOTE to Bankers Trust Company, as Trustee.
8) “BOA” at the time of that assignment, was also paid by Bankers Trust Company, as Trustee for the same NOTE.
9) Four years later, “BOA” returned a payment to me as “Misapplied Funds”.
10) I then received correspondence from Litton Loan Servicing indicating the servicing of the loan had been transferred from “BOA” to Litton Loan Servicing.
11) Litton Loan stated they were servicing the loan for “GMAC- RFC”.
12) I had never heard of either Litton or GMAC-RFC.
13) Two months after “Litton Loan” becoming involved, I received notice our home was going to be foreclosed by “Deutsche Bank Trust Company Americas”.

[Confused does not begin to state my concern as to whether our payments were being properly applied.]

14) I was fortunate to obtain a reinstatement of loan after payment of over $28,000 to the law firm representing “Deutsche”.
15) The attempts to obtain clarification were not successful, and the foreclosure advertisements continued.
16) In order to protect our home, I was forced to file a Chapter 13 “pro se”.
17) The case came to be converted to a Chapter 7.
18) Our family came to be evicted (despite our request to pay the first mortgage, which was denied) from our home by a real estate agent reportedly acting with the same power as vested in the Chapter 7 Trustee. The Chapter 7 Trustee sent me an email stating, “A failure to cooperate with her is the equivalent of a failure to cooperate with me.”

Any party interested in reviewing partially redacted copies of the Note and BOA assignment showing the transfers to confirm this story or any other comments or suggestions can contact the writer at alvinessel@gmail.com.

“KING” DEUTSCH CITED FOR DESTRUCTION OF CITIES

The article below was purloined from www.foreclosureblues.wordpress.com — the comments are mine. Neil Garfield

“According to the Federal Deposit Insurance Corporation (FDIC), Deutsche Bank now holds loans for American single-family and multi-family houses worth about $3.7 billion (€3.1 billion). The bank, however, claims that much of this debt consists of loans to wealthy private customers. (EDITOR’S NOTE: THUS ALL THE OTHER LOANS IT CLAIMS TO OWN, IT DOESN’T OWN)

The bank did not issue the mortgages for the many properties it now manages, and yet it accepted, on behalf of investors, the fiduciary function for its own and third-party CDOs. In past years, says mortgage expert Steve Dibert, real estate loans were “traded like football cards” in the United States. (Editor’s Note: This is why we say that the loan never makes it into the pool until litigation starts AND even if it was ever in the pool there is no guarantee it remained in the pool for more than a nanosecond). Sworn testimony from Deutsch employees corroborate that no assignments are done until “needed,” which means that in the mean time they are still legally owned by the loan originator. The loan originator therefore created an obligation that was satisfied simultaneously with the closing on the loan. The note is therefore evidence of an obligation that does not legally exist. Thus there are possible equitable theories under which investors could assert claims against the borrower, but the note and deed of trust or mortgage are only PART of the evidence and ONLY the investor has standing to bring that claim. Recent cases have rejected claims of “equitable transfer.”)

How many houses was he responsible for, Co was asked? “Two thousand,” he replied. But then he corrected himself, saying that 2,000 wasn’t the number of individual properties, but the number of securities packages being managed by Deutsche Bank. Each package contains hundreds of mortgages. So how many houses are there, all told, he was asked again? Co could only guess. “Millions,” he said.

The exotic financial vehicles are sometimes managed by an equally exotic firm: Deutsche Bank (Cayman) Limited, Boundary Hall, Cricket Square, Grand Cayman. In an e-mail dated Feb. 26, 2010, a Deutsche Bank employee from the Cayman Islands lists 84 CDOs and similar products, for which she identifies herself as the relevant contact person.

However, C-BASS didn’t just manage abstract securities. It also had a subsidiary to bring in all the loans that were subsequently securitized. By the end of 2005 the subsidiary, Litton Loan, had processed 313,938 loans, most of them low-value mortgages, for a total value of $43 billion.

EDITOR’S NOTE: Whether it is Milwaukee which is going the the way of Cleveland or thousands of other towns and cities, Deutsch Bank as a central player in more than 2,000 Special Purpose Vehicles, involving thousands more pools and sub-pools, is far and away the largest protagonist in the foreclosure crisis. This article, originally written in German, details just how deep they are into this mess, while at the same time disclaiming any part in it. It corroborates the article I wrote about the Deutsch Bank executive who said ON TAPE, which I have, that even though Deutsch is named as Trustee it knows nothing and does nothing.

SPIEGEL ONLINE
06/10/2010 07:42 AM
‘America’s Foreclosure King’
How the United States Became a PR Disaster for Deutsche Bank
By Christoph Pauly and Thomas Schulz

Deutsche Bank is deeply involved in the American real estate crisis. After initially profiting from subprime mortgages, it is now arranging to have many of these homes sold at foreclosure auctions. The damage to the bank’s image in the United States is growing.

The small city of New Haven, on the Atlantic coast and home to elite Yale University, is only two hours northeast of New York City. It is a particularly beautiful place in the fall, during the warm days of Indian summer.

But this idyllic image has turned cloudy of late, with a growing number of houses in New Haven looking like the one at 130 Peck Street: vacant for months, the doors nailed shut, the yard derelict and overgrown and the last residents ejected after having lost the house in a foreclosure auction. And like 130 Peck Street, many of these homes are owned by Germany’s Deutsche Bank.

“In the last few years, Deutsche Bank has been responsible for far and away the most foreclosures here,” says Eva Heintzelman. She is the director of the ROOF Project, which addresses the consequences of the foreclosure crisis in New Haven in collaboration with the city administration. According to Heintzelman, Frankfurt-based Deutsche Bank plays such a significant role in New Haven that the city’s mayor requested a meeting with bank officials last spring.

The bank complied with his request, to some degree, when, in April 2009, a Deutsche Bank executive flew to New Haven for a question-and-answer session with politicians and aid organizations. But the executive, David Co, came from California, not from Germany. Co manages the Frankfurt bank’s US real estate business at a relatively unknown branch of a relatively unknown subsidiary in Santa Ana.

How many houses was he responsible for, Co was asked? “Two thousand,” he replied. But then he corrected himself, saying that 2,000 wasn’t the number of individual properties, but the number of securities packages being managed by Deutsche Bank. Each package contains hundreds of mortgages. So how many houses are there, all told, he was asked again? Co could only guess. “Millions,” he said.

Deutsche Bank Is Considered ‘America’s Foreclosure King’

Deutsche Bank’s tracks lead through the entire American real estate market. In Chicago, the bank foreclosed upon close to 600 large apartment buildings in 2009, more than any other bank in the city. In Cleveland, almost 5,000 houses foreclosed upon by Deutsche Bank were reported to authorities between 2002 and 2006. In many US cities, the complaints are beginning to pile up from homeowners who lost their properties as a result of a foreclosure action filed by Deutsche Bank. The German bank is berated on the Internet as “America’s Foreclosure King.”

American homeowners are among the main casualties of the financial crisis that began with the collapse of the US real estate market. For years, banks issued mortgages to homebuyers without paying much attention to whether they could even afford the loans. Then they packaged the mortgage loans into complicated financial products, earning billions in the process — that is, until the bubble burst and the government had to bail out the banks.

Deutsche Bank has always acted as if it had had very little to do with the whole affair. It survived the crisis relatively unharmed and without government help. Its experts recognized early on that things could not continue as they had been going. This prompted the bank to get out of many deals in time, so that in the end it was not faced with nearly as much toxic debt as other lenders.

But it is now becoming clear just how deeply involved the institution is in the US real estate market and in the subprime mortgage business. It is quite possible that the bank will not suffer any significant financial losses, but the damage to its image is growing by the day.

‘Deutsche Bank Is Now in the Process of Destroying Milwaukee’

According to the Federal Deposit Insurance Corporation (FDIC), Deutsche Bank now holds loans for American single-family and multi-family houses worth about $3.7 billion (€3.1 billion). The bank, however, claims that much of this debt consists of loans to wealthy private customers.

More damaging to its image are the roughly 1 million US properties that the bank says it is managing as trustee. “Some 85 to 90 percent of all outstanding mortgages in the USA are ultimately controlled by four banks, either as trustees or owners of a trust company,” says real estate expert Steve Dibert, whose company conducts nationwide investigations into cases of mortgage fraud. “Deutsche Bank is one of the four.”

In addition, the bank put together more than 25 highly complex real estate securities deals, known as collateralized debt obligations, or CDOs, with a value of about $20 billion, most of which collapsed. These securities were partly responsible for triggering the crisis.

Last Thursday, Deutsche Bank CEO Josef Ackermann was publicly confronted with the turmoil in US cities. Speaking at the bank’s shareholders’ meeting, political science professor Susan Giaimo said that while Germans were mainly responsible for building the city of Milwaukee, Wisconsin, “Deutsche Bank is now in the process of destroying Milwaukee.”

As Soon as the Houses Are Vacant, They Quickly Become Derelict

Then Giaimo, a petite woman with dark curls who has German forefathers, got to the point. Not a single bank, she said, owns more real estate affected by foreclosure in Milwaukee, a city the size of Frankfurt. Many of the houses, she added, have been taken over by drug dealers, while others were burned down by arsonists after it became clear that no one was taking care of them.

Besides, said Giaimo, who represents the Common Ground action group, homeowners living in the neighborhoods of these properties are forced to accept substantial declines in the value of their property. “In addition, foreclosed houses are sold to speculators for substantially less than the market value of houses in the same neighborhood,” Giaimo said. The speculators, according to Giaimo, have no interest in the individual properties and are merely betting that prices will go up in the future.

Common Ground has posted photos of many foreclosed properties on the Internet, and some of the signs in front of these houses identify Deutsche Bank as the owner. As soon as the houses are vacant, they quickly become derelict.

A Victorian house on State Street, painted green with red trim, is now partially burned down. Because it can no longer be sold, Deutsche Bank has “donated” it to the City of Milwaukee, one of the Common Ground activists reports. As a result, the city incurs the costs of demolition, which amount to “at least $25,000.”

‘We Can’t Give Away Money that Isn’t Ours’

During a recent meeting with US Treasury Secretary Timothy Geithner, representatives of the City of Milwaukee complained about the problems that the more than 15,000 foreclosures have caused for the city since the crisis began. In a letter to the US Treasury Department, they wrote that Deutsche Bank is the only bank that has refused to meet with the city’s elected representatives.

Minneapolis-based US Bank and San Francisco-based Wells Fargo apparently took the complaints more seriously and met with the people from Common Ground. The activists’ demands sound plausible enough. They want Deutsche Bank to at least tear down those houses that can no longer be repaired at a reasonable cost. Besides, Giaimo said at the shareholders’ meeting, Deutsche Bank should contribute a portion of US government subsidies to a renovation fund. According to Giaimo, the bank collected $6 billion from the US government when it used taxpayer money to bail out credit insurer AIG.

“It’s painful to look at these houses,” Ackermann told the professor. Nevertheless, the CEO refused to accept any responsibility. Deutsche Bank, he said, is “merely a sort of depository for the mortgage documents, and our options to help out are limited.” According to Ackermann, the bank, as a trustee for other investors, is not even the actual owner of the properties, and therefore can do nothing. Besides, Ackermann said, his bank didn’t promote mortgage loans with terms that have now made the payments unaffordable for many families.

The activists from Wisconsin did, however, manage to take home a small victory. Ackermann instructed members of his staff to meet with Common Ground. He apparently envisions a relatively informal and noncommittal meeting. “We can’t give away money that isn’t ours,” he added.

Deutsche Bank’s Role in the High-Risk Loans Boom

Apparently Ackermann also has no intention to part with even a small portion of the profits the bank earned in the real estate business. Deutsche Bank didn’t just act as a trustee that — coincidentally, it seems — manages countless pieces of real estate on behalf of other investors. In the wild years between 2005 and 2007, the bank also played a central role in the profitable boom in high-risk mortgages that were marketed to people in ways that were downright negligent.

Of course, its bankers didn’t get their hands dirty by going door-to-door to convince people to apply for mortgages they couldn’t afford. But they did provide the distribution organizations with the necessary capital.

The Countrywide Financial Corporation, which approved risky mortgages for $97.2 billion from 2005 to 2007, was the biggest provider of these mortgages in the United States. According to the study by the Center for Public Integrity, a nonprofit investigative journalism organization, Deutsche Bank was one of Countrywide’s biggest financiers.

Ameriquest — which, with $80.7 billion in high-risk loans on its books in the three boom years before the crash, was the second-largest subprime specialist — also had strong ties to Deutsche Bank. The investment bankers placed the mortgages on the international capital market by bundling and structuring them into securities. This enabled them to distribute the risks around the entire globe, some of which ended up with Germany’s state-owned banks.

‘Deutsche Bank Has a Real PR Problem Here’

After the crisis erupted, there were so many mortgages in default in 25 CDOs that most of the investors could no longer be serviced. Some CDOs went bankrupt right away, while others were gradually liquidated, either in full or in part. The securities that had been placed on the market were underwritten by loans worth $20 billion.

At the end of 2006, for example, Deutsche Bank constructed a particularly complex security known as a hybrid CDO. It was named Barramundi, after the Indo-Pacific hermaphrodite fish that lives in muddy water. And the composition of the deal, which was worth $800 million, was muddy indeed. Many securities that were already arcane enough, like credit default swaps (CDSs) and CDOs, were packaged into an even more complex entity in Barramundi.

Deutsche Bank’s partner for the Barramundi deal was the New York investment firm C-BASS, which referred to itself as “a leader in purchasing and servicing residential mortgage loans primarily in the Subprime and Alt-A categories.” In plain language, C-BASS specialized in drumming up and marketing subprime mortgages for complex financial vehicles.

However, C-BASS didn’t just manage abstract securities. It also had a subsidiary to bring in all the loans that were subsequently securitized. By the end of 2005 the subsidiary, Litton Loan, had processed 313,938 loans, most of them low-value mortgages, for a total value of $43 billion.

One of the First Victims of the Financial Crisis

Barramundi was already the 19th CDO C-BASS had issued. But the investment firm faltered only a few months after the deal with Deutsche Bank, in the summer of 2007. C-BASS was one of the first casualties of the financial crisis.

Deutsche Bank’s CDO, Barramundi, suffered a similar fate. Originally given the highest possible rating by the rating agencies, the financial vehicle stuffed with subprime mortgages quickly fell apart. In the spring of 2008, Barramundi was first downgraded to “highly risky” and then, in December, to junk status. Finally, in March 2009, Barramundi failed and had to be liquidated. (EDITOR’S NOTE: WHAT HAPPENED TO THE LOANS?)

While many investors lost their money and many Americans their houses, Deutsche Bank and Litton Loan remained largely unscathed. Apparently, the Frankfurt bank still has a healthy business relationship with the subprime mortgage manager, because Deutsche Bank does not play a direct role in any of the countless pieces of real estate it holds in trust. Other service providers, including Litton Loan, handle tasks like collecting mortgage payments and evicting delinquent borrowers.

The exotic financial vehicles are sometimes managed by an equally exotic firm: Deutsche Bank (Cayman) Limited, Boundary Hall, Cricket Square, Grand Cayman. In an e-mail dated Feb. 26, 2010, a Deutsche Bank employee from the Cayman Islands lists 84 CDOs and similar products, for which she identifies herself as the relevant contact person.

Trouble with US Regulatory Authorities and Many Property Owners

The US Securities and Exchange Commission (SEC) is now investigating Deutsche Bank and a few other investment banks that constructed similar CDOs. The financial regulator is looking into whether investors in these obscure products were deceived. The SEC has been particularly critical of US investment bank Goldman Sachs, which is apparently willing to pay a record fine of $1 billion to avoid criminal prosecution.

Deutsche Bank has also run into problems with the many property owners. The bank did not issue the mortgages for the many properties it now manages, and yet it accepted, on behalf of investors, the fiduciary function for its own and third-party CDOs. In past years, says mortgage expert Steve Dibert, real estate loans were “traded like football cards” in the United States.

Amid all the deal-making, the deeds for the actual properties were often lost. In Cleveland and New Jersey, for example, judges invalidated foreclosures ordered by Deutsche Bank, because the bank was unable to come up with the relevant deeds.

Nevertheless, Deutsche Bank’s service providers repeatedly try to have houses vacated, even when they are already occupied by new owners who are paying their mortgages. This practice has led to nationwide lawsuits against the Frankfurt-based bank. On the Internet, angry Americans fighting to keep their houses have taken to using foul language to berate the German bank.

“Deutsche Bank now has a real PR problem here in the United States,” says Dibert. “They want to bury their head in the sand, but this is something they are going to have to deal with.”

Translated from the German by Christopher Sultan

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