Quiet Title — Not as Easy as It Sounds But It Could Lead to Successful Strategies and Tactics

The failures to disclose material facts providing the real context of the “loans” deprived borrowers of choice between lenders and deprived them of the opportunity of bargaining for terms that were based upon the economic reality — that the main point of the loan origination was not the loan but rather the sale of unregistered securities. THAT is where the profit is and was and without that the loan would never have occurred. None of that profit was disclosed.

Contrary  to popular myth quiet title is not a magic bullet.

It’s a good move only after you have destroyed the case against the homeowner and only if you direct it at only the parties who have made claims against the homeowner. So it’s really an action for a declaration from the court as to the rights and duties of the parties to the case.

You can’t file a case against potential creditors unless you do service by publication and that can be tricky. And you would need to prove convincingly that the mortgage should never have been recorded in the first place. Securitized mortgages are subject to possible reformation by the real parties in interest who paid value in exchange for ownership of the debt. And theoretically at least, they exist — even if they are currently legally unable to enforce the debt, note or mortgage.

And while I am at it, let me remind the reader again that the following terms are all different in that they all mean different things:

  1. Debt — a legal obligation defined by common law and the Uniform Commercial Code
  2. Note — a legal instrument which if facially valid creates a legal obligation separate and distinct from any debt
  3. Mortgage — a legal instrument which if facially valid creates a lien or encumbrance upon land as security for the performance of either (a) a debt or (b) a note or (c) both a debt and a note.
  4. Deed of trust — same as mortgage except that mortgage requires due process of judicial foreclosure whereas DOT is an agreement to skip judicial foreclosure. [My opinion, not accepted by anyone one the bench, is that as soon as the nonjudicial foreclosure becomes contested, the action MUST convert to judicial in order to satisfy due process. ]
  5. “Loan” means nothing. It is used in general references to mean something in relation to the above terms without ever being specified. However the loan agreement generally means the note, the mortgage, the disclosures and the Federal and State lending laws that are incorporated either expressly or by common law doctrine. The existence of a note and mortgage is generally regarded as raising the legal presumption that a loan of money has occurred between the named originator and the borrower. That is a rebuttable presumption that generally only occurs through discovery during litigation.
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Here is the way to look at it from a legal perspective.
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The mortgage or deed of trust generally expressly state that they secure the obligations stated in the note. And the note creates a liability even if there was no consideration. This liability (arising solely from execution of the note) can be defeated if you can reveal lack of consideration during litigation. But the problem is that most borrowers received a loan of money —- or received the benefits of payments on their behalf for example to prior “lenders”, sellers etc.
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Technically speaking the mortgage or deed of trust does not state that it secures the debt. It says that it secures the obligations under the note. So theoretically if the debt is not owed to the “secured party” (“lender”) then it secures nothing and the people who advocate quiet title are right that this could mean the mortgage would be expunged from the title record or canceled or both. AND that in turn would mean that the mortgage should never have been recorded in the first place.
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But in the real world, it is highly unlikely that — after receiving financial benefits under circumstances where the homeowner intended to use his or her house as collateral, that any judge would simply say that the mortgage or deed of trust was void ab initio (from the start).
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More likely the judge would issue a declaration that the parties who were seeking to use the security instrument were not entitled to do so but that the mortgage could be subject to enforcement if it was the subject of reformation in which the right name was recited as mortgagee under a mortgage or the beneficiary under a deed of trust. So given the bias of courts, it seems very unlikely that full quiet title would be granted because it would quash the rights of unknown third parties who did actually pay value.
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Which brings us to the hidden question. Although there were certainly people who paid value, what did they buy? If they (investors who bought certificates) didn’t buy the debt owed by the residential borrowers, then the fact that they paid value becomes irrelevant.
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And so we next move onto the investment bank that sold them the certificates. The certificates essentially were IOUs. They could be described as bonds or notes. They represent an unsecured liability owed by the investment bank (dba an implied “trust”) to the investors who bought the certificates.
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So investors did not buy any interest in the debt, note or mortgage and many times the indenture to the certificates expressly waives any such right, title or interest.
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That leaves the investment bank posing as underwriter but actually acting as issuer of the certificates. So the money from sale of the certificates is the money of the investment bank.
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Then through a variety of conduits, the investment bank puts just enough money on loan closing tables as is necessary to generate —at least on paper — the dollar liability that is owed by the investment bank to the investors. But the borrowers execute no documentation and receive no disclosures to the effect that the investment bank was the actual lender through table funding or otherwise.
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This money is generally 20%-30% less than the amount of money paid by investors for the certificates. So right away the investment bank has received a yield spread premium of 20%-30% on invested dollars — which is realized only when the loan is closed. That YSP is never disclosed which makes virtually all loan closings materially deficient in disclosures. That Is compensation arising from the loan origination. It doesn’t exist but for the loan origination.
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Back to our subject. So the investment bank does not get revealed nor is any note or mortgage or deed of trust executed in favor of the investment bank.
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And there is the kicker. The originator whom we all know is not funding the loan is NOT an agent for the investment bank so this doesn’t even qualify as a table funded loan. The reason it is not an agent of the investment bank is that the investment bank has expressly created veils that prevent it from being named as the lender and therefore subject to Federal and State lending laws.
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So the investment bank cannot claim to be the owner of the obligation or debt, nor can it plead for relief under the note and mortgage or deed of trust — unless it admits a scheme to violate Federal and State lending laws.
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So the answer to that “problem” is that the investment bank uses veils (sham conduits) and “designates” sham entities to serve as claimant in foreclosures or, better yet for them, names nobody as designee but nonetheless states a name as though it was an entity like “US Bank, as trustee on behalf of the certificate holders of SASCO Trust 2006-1. ” Although US Bank exists, there is no legal entity that could be called “certificate holders of SASCO trust 2006-1” even though it sounds official.
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Some analysts including myself had previously erroneously concluded at times that the note was split from the mortgage. It wasn’t. The ownership of the debt was split from the payment of value. Under all current black letter law that means that it is illegal for anyone to claim ownership of the debt.
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BUT as I pointed out above, that still leaves open an action in equity in which the false or deficient loan origination documents could be reformed in a way that designates a party who may act as owner of the debt — but only after all the interests of all the stakeholders are taken into consideration.
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This might include liability for disgorgement of undisclosed profits, among other things.
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The failures to disclose deprived borrowers of choice between lenders and deprived them of the opportunity of bargaining for terms that were based upon the economic reality — that the main point of the loan origination was not the loan but rather the sale of unregistered securities. THAT is where the profit is and was and without that the loan would never have occurred. None of that profit was disclosed.

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FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. IN FACT, STATISTICS SHOW THAT MOST HOMEOWNERS FAIL TO PRESENT THEIR DEFENSE PROPERLY. EVEN THOSE THAT PRESENT THE DEFENSES PROPERLY LOSE, AT LEAST AT THE TRIAL COURT LEVEL, AT LEAST 1/3 OF THE TIME. IN ADDITION IT IS NOT A SHORT PROCESS IF YOU PREVAIL. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.
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What Obama Still Has Wrong and Why the Recession Will Drag On for years

It is encouraging that Obama is the police trying to get the housing and foreclosure situation resolved. But he is starting from a premise that is faulty just as Florida and other states are passing legislation from a similar premise, to wit: that the blame for title corruption, litigation and the court that is clogging the system, and the housing market, together with the bogus mortgage bonds that were issued by nonexistent unfunded special purpose vehicles (“trusts”) is somehow the fault of borrowers.

In his weekly Saturday address, Obama made reference to reckless behavior without specifying that the reckless behavior was that of the banks.  The pervasive and insidious assumption is that 30 million borrowers woke up one morning and decided to enter into a conspiracy that would destroy the countries economy and financial system.  If anything is obvious it is that only the Wall Street banks had the capacity and sophistication as well as the motive and opportunity to ruin the lives of millions of people, corrupt a title system that had been working perfectly for centuries, and control the governmental response using the influence they had acquired through lobbyists and direct financial contributions.

The reason that is so important is not just that the bankers probably belong in jail just like they ended up going to prison in the savings-and-loan crisis of the 1980s;  the real reason it is important to start with the premise that the banks on Wall Street created a fraudulent Ponzi scheme that has not yet been addressed. Neither the economy nor the corrupted title system in our country can enjoy any serious correction without at least considering the idea that the entire bogus plan  of false securitization was premeditated and clearly intentional.

This is not to say that there was no fraud on the part of any of the borrowers. But it is quite obvious from news reports that any prosecutions for mortgage fraud have been directed at borrowers who merely used the same techniques, procedures, tactics and fabricated documents that the banks used when they caused the loans to be originated and caused the worthless paper from the “loan closing” to be assigned, sold, insured and hedged as though the loans were the property of the Wall Street banks who in fact had merely used the deposits of unsuspecting investors. Even a appraisal fraud is being prosecuted against small individual investors who merely followed the directions of the thinly capitalized” originator” and mortgage broker. The reason those loans went through was not because of the fraudulent intent of the actors who were prosecuted but because of the fraudulent intent of the Wall Street banks and their affiliates whose business plan called for the origination of loans in unsustainable amounts and the diversion  of the documents that were supposed to protect the investors whose money was used for the origination or acquisition of loans.

If the securitization of debt had been real, there would’ve been no need for MERS, or  any private system that was used in reality to track transactions that were a complete sham. The Wall Street banks made sure that they used the money of third parties and created “paper closings” in favor of entities, “originators”, and even banks who pretended to underwrite the loans but who never had any risk of loss and in fact in most cases never showed any bookkeeping or accounting entries reflecting the creation of a loan receivable. The amount of “money” in the shadow banking system of insurance, collateralized debt obligations, credit default swaps and other exotic instruments is now said to exceed one quadrillion dollars. It is universally accepted, and I agree, that this amount is geometrically larger than any real money in the system, with estimates of real value varying from $25 trillion-$70 trillion.

My point here is simply that the Wall Street banks entered into a relationship with investors wherein the investors were principles of the Wall Street banks were agents. Regardless of how many layers the Wall Street banks used in terms of the use of subsidiaries and affiliates, their actions were subject to the expectations of the investors and the written promises to those investors, all of which were breached nearly all of the time by the Wall Street banks. Hence their trading in the defect of loans and unenforceable paper created at the “paper closings” produced a volume of “trading profits” which were in reality the proceeds of transactions that should have been used to reimburse the investors.

Once you accept the notion that the above scenario is true, the legal question of whether or not a monthly payment is due or in fact whether any payment is due from the borrower becomes the front and Center question in all action seeking to collect or foreclose on consumer debt including but not limited to alleged “mortgages”.

PRACTICE note:  this is why you want to issue a subpoena or other discovery device that forces the party seeking foreclosure or collection to produce a live witness and documents that shows that there is an actual risk of loss by virtue of an actual transaction on a specific date for a specific amount of money which was paid by the party seeking foreclosure to another party who actually on the loan by virtue of another actual transaction on another specific date for a specific amount of money that was paid by check, wire transfer, ACH, or check 21. All the information that I have indicates that none of those transactions actually occurred, no money ever exchanged hands, and that the assignments and endorsements reflect transactions that were a sham —  including but not limited to the so-called “origination” or assignment or any other form of acquisition of the loan.  This is important not only on the issue of standing and subject matter jurisdiction in which there is no injured party, but on the issue of identifying a party who could conceivably submit a credit bid at the time of the auction of the foreclosed property. In judicial states the final judgment of foreclosure identifies the amount of the judgment awarded without there having been any actual  trial or hearing in which evidence is heard on the actual payment, proof of loss, and the dates and amounts in which money  exchanged hands.  this entitles the foreclosing party to submit a credit bid when in fact they never had paid any money toward the origination or acquisition of the loan. Thus it is important to bring the issue up very early by way of subpoena to show that the party seeking foreclosure lacks standing, and has filed an action for which there is no substantive jurisdiction, nor any remedy without  a financial injury.

Weekly Address: Growing the Housing Market and Supporting our Homeowners
http://www.whitehouse.gov/blog/2013/05/11/weekly-address-growing-housing-market-and-supporting-our-homeowners

NEW BOA SERVICING DEAL IGNORES LAW AND REALITY

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EDITOR’S ANALYSIS: The latest deal announced by BOA is between the bank and investors because they can’t announce a deal with regulators. Regulators are getting wise to the fact that BOA’s hold on the mortgages that are to be “modified” or “foreclosed” is tenuous at best. As case after case rolls in showing that the would-be forecloser lacks any semblance of ownership or even a financial interest in the mortgages, BOA seeks to enhance the illusion that those mortgages and mortgage bonds are their balance sheet are real. They are not, and the federal government is working hard to ignore the requirements of law and the realities of the money trail, while the states seem to be gearing up for indictments and voiding the so-called transfers of the loans supposedly subject to securitization documents that were routinely ignored.

No deal by BOA, except with homeowners, can ratify the invalid, unenforceable notes and mortgages that memorialized a deal that never took place. No deal can transfer non-performing loans into a pool for investors and no deal can transfer the loans after the cut-off date. There might be money due on the loan, but no deal will establish the amount without a full accounting. There might be money due on the loan, but only to the actual creditor, whose definition is crystal clear but completely ignored by BOA and its partners in crime. There might be money due on the loan but no deal, except with the homeowners, can perfect a lien in favor of anyone. The loan, if it exists, is unsecured. And the loan, if there is any balance due after accounting for all payments to the creditor with waiver of subrogation, is subject to set-off and counterclaims for fraudulent and predatory lending.

Just as the banks seek to further the lie of securitization by increasing the number of transfers of loans that were never transferred in the first place, BOA now seeks to validate its balance sheet with an investor deal that puts lipstick on a rock. Using the rock in lieu of a real live person who can give evidence according to the laws and rules of evidence, BOA seeks to have us embrace the rock as someone whom we accept as the savior. BOA can make all the deals it wants. Unless it addresses the fatal defects in the title chain, the fatal defects in the liens and transfers, and the fatal defects in the lending process, there is no deal with homeowners and thus NO DEAL at all.

Bank’s Deal Means More Will Lose Their Homes

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Tens of thousands of Bank of America’s most distressed borrowers could be evicted and lose their homes more quickly as a result of a proposed settlement between the bank, which is the country’s largest mortgage servicer, and investors in its troubled mortgage securities.

For struggling borrowers in better financial shape, the outcome could be more positive: the deal would include incentives for mortgage servicers to help homeowners who have fallen behind on their payments and whose homes are worth less than they borrowed.

“The goal is to reinstate as many borrowers in a modification that performs well,” said Tony Meola, a servicing executive with Bank of America. “It also is likely to lead to faster resolution in those unfortunate situations where foreclosure is inevitable. While not a desirable outcome, the recovery of the housing markets depends on moving through the foreclosure process as quickly and fairly as possible.”

While powerful investors stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities, the fallout for the nearly 275,000 borrowers who took out those loans depends greatly on how deep they are in the foreclosure process and whether they earn enough money to dig themselves out.

While no exact income qualification has been set as part of the agreement, which was announced last month, many servicers use a formula in which borrowers can qualify for a modification as long as the new monthly payment does not exceed 31 percent of their monthly gross income. For borrowers who are unemployed or lack the income to cover even reduced mortgage payments, foreclosure and eviction could be much more immediate.

With 1.3 million borrowers at risk of foreclosure, Bank of America has been overwhelmed by the surge in defaults, and the accord has raised hopes that this logjam will finally begin to ease. But skeptics say that previous arrangements, like another multibillion-dollar settlement by Bank of America in 2008, have barely made a dent in the problem.

“The mortgage servicers have repeatedly promised to do things and then not done them,” said Michael S. Barr, a former assistant Treasury secretary who now teaches law at the University of Michigan. “I think it’s positive in general, but I don’t expect it to be transformative of what we’ve witnessed from the mortgage servicers over the last four years.”

Matthew Weidner, a Florida lawyer who represents borrowers facing foreclosure, said he was skeptical of promises by the deal’s architects that lower monthly payments would be easier to obtain.

“It’s like giving aspirin to someone with cancer,” he said of the proposed assistance. “You had all the big players at the top of the pyramid negotiating but nobody was speaking for the homeowners who have far more at stake at the ground level.”

Still, for some of the homeowners now facing foreclosure who took out loans with Countrywide, the subprime specialist bought by Bank of America in 2008, the deal could bring a few quick improvements.

Under the terms of the agreement, Bank of America must now start transferring these borrowers to 10 smaller outside servicers, even without the deal being approved in court, which is not expected before November. The architects of the settlement say these subservicers will be far more efficient than Bank of America’s giant payment processing operation.

For example, an analysis of data by RBS prepared as part of the settlement found that Bank of America provided fewer modifications as a percentage of unpaid principal than JPMorgan Chase, Wells Fargo, Litton and other servicers. In addition, borrowers defaulted again within six months in nearly one in five cases when modifications were made by Bank of America, a higher rate than other servicers that were studied.

Officials at Bank of America contend the company has made nearly 875,000 modifications since 2008, more than any other servicer.

Under the new proposal, subservicers will have to provide an answer to homeowner modification requests within 60 days of receiving paperwork, and will get up to 1.5 percent of the unpaid principal balance as an incentive fee for each successful permanent modification.

“We wanted smaller, high-touch servicers who would consider every modification option at once, not try this and that,” said Kathy D. Patrick, a Houston lawyer who represented the 22 private investors in the settlement. “Servicers get more in fees for successful modifications than for any other kind of workout, including foreclosure.”

The first homeowners should be transferred out of Bank of America by early fall, with each of the 10 subservicers taking up to 30,000 cases. Borrowers with mortgages 60 days past due who have been delinquent more than once in the last 12 months will receive priority in the switch, followed by homeowners who are 90 days past due but not in foreclosure.

Homeowners already in foreclosure or who have been declared bankrupt will go to the back of the line, although they will also eventually be transferred, Ms. Patrick said. More than 75 percent of the nearly 275,000 delinquent homeowners have not made a payment in more than 120 days or are already in foreclosure.

One unintended consequence of the problems at Bank of America and other large servicers is that many borrowers have managed to remain in their homes despite being in default, and without the income to qualify for a modification. At the time of foreclosure, the typical Bank of America borrower has not made a payment in 18 months.

What is more, according to the analysis of RBS data, it takes 30 months on average for a subprime borrower’s property to move from foreclosure to a final sale with Bank of America, nearly a year longer than Wells Fargo, and 10 months longer than SPS, a smaller subservicer likely to be among the 10 selected to take over the former Countrywide loans.

“Countrywide made a lot of bad loans and borrowers with no money can’t afford a modification,” said Peter Swire, a former special assistant for housing policy in the Obama administration who helped oversee earlier federal efforts to promote modifications. He is now a professor at Ohio State University. “One discouraging problem is that only a small fraction of Countrywide borrowers will likely qualify,” Professor Swire said.

Delores Gosha hopes she will be one of the lucky ones.

It has been more than a year since she last made a mortgage payment to Bank of America, raising the risk that her bungalow in the Cleveland suburbs will end up in foreclosure. The bank, she says, has given varying answers as to whether she qualifies for a modification, telling her she did not at one point last week only to reverse course days later and say it was still under consideration. Ms. Gosha said she had had to deal with a multitude of representatives and submit the same documents over and over.

While a new servicer might not give her the answer she has been praying for, she said, at least she will get an answer.

“I’ve been up and down,” said Ms. Gosha, who is a clerk at a Cleveland hospital. “Can’t somebody tell me something?”

Mission Statement and Introduction to Blog

This is a developing resource for attorneys and borrowers to assist them in creating strategies and tactics in foreclosure defense and offense. Assistance and comments regarding bankruptcy jurisdiction is also covered. Bottom Line: The procedure invoked by the mortgage meltdown scheme defrauded investors (false ratings and insurance) in asset backed derivative securities, who were the source of funding for the fraudulent loans on residential real property (false appraisals, undisclosed parties, undisclosed fees, abandonment of underwriting standards etc.). 

 

We are finding that the notice of sale or filing of foreclosure starts with the wrong people using information that cannot be verified based upon authorization that is assumed rather than provable. we also find that there are good legal grounds for challenging any loan, whether in default or not, that was originated between 2001-2008, and in particular any such transaction in which the borrower is now “upside down” (negative equity, despite the down payment of as much as 20%-35%).

 

The central theme here is a SINGLE TRANSACTION consisting of many new players in the mortgage loan transaction, new roles for old players, and shifting of the risk of loss, right to receive payment, ownership of the note and ownership of the security instrument, all of which are usually vested in different entities or individuals, trustees, or divisions of had been conventional lending institutions and investment banking institutions. 

 

In a great many cases, if not the majority of cases, we find that the “lender”, while possessing all the attributes of a bank or Lending Institution is actually a mortgage broker or front for an investment banking firm. 

 

A summary of the starts with the source of funds (an investor in an asset backed security -ABS) who buys a share of an entity that possesses certain rights by assignment and certain guarantees by indemnification and indenture. This entity, like all capitalist structures is broken up into smaller shares that investors buy. 

 

The shares are sold to qualified investors through an exemption in SEC laws that allows limited disclosure and virtually no prospectus. The investors appear to have most of the rights to the stream of revenue generated by borrower payments along with guarantees, indemnifications and sue of proceeds allowances from the investment banker, the lender, or other third party insurer or guarantor. Thus the total revenue to the investor is partially from his own funds, partially from third parties and the rest from the payments made by the various borrowers whose mortgages and notes are the center piece of the overall transaction.

 

The shares are rated by conventional rating agencies who were corrupted by the mortgage meltdown scheme and the flow of funds is insured by one of a variety of insurers of revenue, default risk etc. 

 

The securitized entity appears to have the most rights (but apparently not the exclusive rights) to the mortgage notes that make up the portfolio of assets within the securitized entity. 

 

The investment banker that created the entity whose shares were sold to investors appears to have formed subsidiary of affiliated entities that (a) hold most of the rights to the  security instrument (mortgage) and (b) other entities that act as mortgage aggregators, lenders, mortgage brokers etc.

 

A perusal of the blog site will reveal that our opinion is that in all cases the “lender” should at best be identified as contingent, the mortgage and note should at best be identified as contingent, and that “John Doe” should be added to the list of Defendants and/or schedule of creditors, being the unknown person(s) or entity (ies) that own shares or bonds that are backed by the mortgages and notes of hundreds or thousands of people. 

 

Each party received a fee that could be called a transaction fee arising out of the real estate closing which included the loan closing in which the signature of the borrower on the loan documents on one end, and the signature and funding of the investor in the ABS on the other end. 

 

The point that needs to be made immediately to any sitting Judge is that the foreclosure process has changed from simple to complex litigation by virtue of the fact that securitization of loans introduced many new parties into the transaction, many of whom were not disclosed, each of whom received compensation that was not disclosed, each of whom violated Truth in lending laws, Unfair and Deceptive Trade Practices Acts, and Securities laws and rules, with multiple rights of rescission accruing to the borrower from a variety of applicable laws. 

 

Foreclosure has become far more complex and complicated that it was before the securitization of mortgages and other loans began, and before that financial model spawned a surge of predatory lending practices that changed the landscape of foreclosure litigation.

 

We have seen several cases around the country where the lender was found to have decoupled the security interest from the note, where the note was satisfied by Truth in Lending violations (TILA), and where the Trustee, Lender and/or mortgage servicer is unable to produce the original note and mortgage, unable to produce the actual assignment of the mortgage and note to a mortgage aggregator and unable to to trace a particular asset backed security that was sold somewhere in the world to dozens, hundreds or thousands of investors to a particular piece of property (in this case — YOUR property).

 

Our purpose here is to provide a beginning point for lawyers and non-lawyers in their quest to save their property and recover refunds, points, closing expenses, compensatory damages and punitive, exemplary or statutory treble damages. Secondarily we provide information generally on economic data and other stories of interest.

 

Many apologies for the typos. We now have the able hand of Tiffany Goldwater as proof reader and grammarian assisting us in keeping the verbiage correct and within the bounds of the English language. Many thanks to Tiffany.

Mortgage Meltdown: Strategies for Defense and Settlement: Short Sales

 

Mortgage Meltdown: Strategies for Defense and Settlement: Short Sales

 

Borrowers, whether they are in foreclosure or not, are advised to write letters to their lenders claiming violations of law and their closing documents. The various causes of action and the advice to get an “audit” done of your loan have been detailed here for several months and are available by scrolling, search, or find commands. 

 

I would add to the list a demand and potentially an offer for pre-approval of a short-sale based again on the lender’s participation to defraud you by collaborating in a plan wherein it abrogated its fiduciary responsibilities to you, actually acted against your interests and in so doing mislead you into thinking that the Fair market value of your home, your financial condition, or both were sufficient to justify the loan and loan terms.

Keep in mind that short-sales are coming into increasing favor with regulators even while the lenders and investors in CMOs/CDOs are balking. The dam will break in your favor.

A short sale is simply a sale of property that would carry a price less than the amount owed on the property. It is used mostly in cases where there was little or no down-payment, or where negative amortization was employed that resulted in a higher mortgage balance than the borrower started with.

However it can be used in other setting as well. The problem has been that real estate brokers now won’t touch short sales and neither will most buyers because of the ornate and and frustrating “approval” process from the lender, who has its own problem: the lenders have in nearly all cases, sold off the obligation to investment banks or in turn re-marketed them to government purchasers, pension funds etc., under the guise of AAA ratings that were procured by forming personal relationships with the people working for rating agencies and by providing financial incentives to the rating agencies coupled with economic duress of losing a “client” if the rating agency did not bend.

 

Thus the lender is frequently without leverage to or even authority to offer approval or permission regardless of its own assessment, because the true owner of the obligation is either not returning calls or is actually unknown to the lender. It is the fact that the true owner is unknown that is enabling borrowers to (a) challenge standing in foreclosures thus dismissing the foreclosure or stopping the judicial sale of the property and (b) sometimes getting the house for nothing. 

 

It is suggested that you demand pre-approval for a short sale that amounts to the cumulative total of the following list — and keep in mind that by combining this with allegations of TILA violations and the other claims we have suggested on livinglies.wordpress.com, you are threatening them with TOTAL loss of the loan and investment so you are more likely to get their attention:

 

  1. Your down payment
  2. Additional money you spent on the house as a result of taking ownership or re-financing
  3. Points paid on the loan
  4. All interest paid on the loan
  5. The loss in fair market value measured by the the appraised value at the top, minus the current value on sale, after a 6% real estate commission and various other seller expenses.

Example: 

  • You bought a house for $630,000 and you made a down payment of $130,000. (Fill in your own figures to figure this out for yourself). 
  • The house was appraised at $650,000. 
  • You took a loan for $500,000, paying 
  • $15,000 in points and thus far you have paid 
  • $35,000 in interest. 
  • You also made improvements to the house that you can’t take with you of another $25,000. 
  • If you sell the house now you can’t get more than $480,000, which after commissions and other costs will net $450,000 (loss of $200,000 from “benefit of the bargain”). 
  • In your letter or pleading defending or foreclosure or challenging the lender without foreclosure pending, you will ask for pre-approval for a short sale discounting their loan to you to $95,000. 
  • This will enable you to sell the house for a net of $450,000 if you choose to, give the lender $95,000, who will give the investing pool the $95,000 less servicing fees with a “sorry Charlie” letter. 
  • You will net $355,000 on the deal, which pretty much makes you whole after the entire sorry affair.

 

The lender will do one of three things: They MUST answer you within 20 days under Truth in Lending laws. They will deny your request and offer you something else assuming you cite specific violations of the  truth in lending laws and make the allegations we have recommended here. They will agree to your proposal. Or they will negotiate with you. If they start negotiating, realize that you hit a nerve and you are sitting in the driver’s seat. You might be very pleasantly surprised by the outcome. 

 

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