Hiring an Expert: What Are you Looking For in Foreclosure Litigation?

I have spent the last 7 years developing the narrative for an expert opinion that could be presented, believed and sustained in court. In writing to a probable new expert we will offer through the livinglies.store.com I summarized what attorneys should be looking for when they consult with an expert in structured finance (i.e., derivatives, securitization etc.).

Here  are some of the issues you want covered by the expert declaration and testimony in court. The basic rule of thumb is that the expert must have both the qualifications to testify as an expert and a persuasive narrative of why his conclusions are right. Without both, the testimony of the expert simply doesn’t matter and will be rejected.

If you are a proposed expert in structured finance, then here is what I would want to know, and what I think lawyers should ask, depending upon what fact pattern is present in each case.

One thing I need to know is whether you feel comfortable in talking about the ownership and balance of the loan.

In one example American Brokers Conduit was the payee on the note and mortgage. We alleged that they didn’t loan the money. Our narrative ran something like this: if you ask me for a loan, and I respond “Yes just sign this note and mortgage” AND THEN you sign the note and mortgage AND THEN I don’t give you a loan, ARE YOU PREPARED TO SAY THAT THE NOTE AND MORTGAGE WERE DEFECTIVE IN A BASIC WAY, TO WIT: THAT THE SIGNATURE ON THE NOTE AND MORTGAGE WAS PROCURED BY FRAUD OR MISTAKE AND THAT WITHOUT THE IDENTIFICATION OF THE REAL CREDITOR BOTH INSTRUMENTS ARE DEFECTIVE.

Would you, as a reasonable business person accept a note purporting to be a negotiable instrument under the UCC if you knew that the transferor neither funded the loan nor (if they purport to be a successor) paid for the assignment?

What is your opinion of your position if you found out after acceptance of the note and mortgage that there was doubt as to whether the obligation was funded or purchased for value? What would you do or suggest to a client in either of those positions — (1) knowledge [or “must have known] or (2) no knowledge [and later finding out that there is doubt as to funding and purchasing for value]?

Are you prepared to say that the fact that the borrower actually did receive money as a loan from another different party does not create a circumstance where the borrower is construed to convey any rights to anyone other than the source of funds or someone in actual privity with the lender — and that both note and mortgage are defective under normal recording statutes — and certainly not a commitment by the debtor to BOTH the source of the funds and the receiver of the signed promissory note and mortgage?

In the one case referred to above, the corporate representative conceded that ABC didn’t loan the money. He was unable to explain what was transferred by ABC to Regents and from Regents to 1st Nationwide and thence to CitiCorp by merger. He admitted that “Fannie Mae was the investor from the start.” You and I understand that neither Fannie and Freddie are lenders. They are guarantors and they serve as Master Trustee for hidden REMIC trusts. (Do you know or agree with that assertion?)

But the question is whether the note is actual “evidence of the debt” (the black letter definition of a promissory note when it contains a promise to pay) when the creditor is identified as a party who was not a lender. In the absence of disclosures of some representative capacity for an actual lender, are you prepared to testify that the note is unenforceable even if the debt is otherwise enforceable in relation to the actual source of funds?

Or would you say that it is not enforceable by the stated payee but it might still be evidence of the debt and evidence of the terms of repayment to the third party source? How does the marketplace treat such questions in valuing a note and mortgage?

The question is whether the expert actually believes and is willing to argue that these conclusions are true and correct.  The expert must earnestly believe these assertions to be true, logically and legally.
Is it acceptable to the prospective expert to see a result where the application of law and facts results in the homeowner getting his home free and clear — on the basis that the wrong party sued him or initiated foreclosure (in non judicial states), or that the notice of default, notice of acceleration, and statements of money due were wrong.
The approach is an attack on ownership and balance. The balance would be wrong, even if the ownership was established, if the payments were not applied properly. The payments include all payments received by the creditor.  That includes all servicer advances directly to trust beneficiaries, as well as insurance and loss sharing payments (i.e., from FDIC and others) paid and received on behalf of the investors directly or the trust beneficiaries.
Part of the reasoning here is that you really have an interesting problem. The Trust beneficiaries agreed to “loan” money to a REMIC trust in exchange for a complex formula of repayment under the indenture of the mortgage bond (contained in the Prospectus and Pooling and Servicing Agreement). Those terms are different than the terms signed by the homeowner.
So there are two agreements — the mortgage bond and the mortgage note. Different parties, new parties are in the PSA as insurers, servicers,servicer advances etc. all resulting in a DIFFERENT payment from an assortment of parties expected by the creditor —different than the one promised by the debtor whether you refer to the note as evidence of the debt or not.Add the complicating factor that without evidence that the Trust was ever funded (i.e., without evidence that the broker dealer sent the proceeds from the offering prospectus to the trust) how do we answer the basic contract question: was there a meeting of the minds? The expectations of the lender (investors) and the borrower (homeowner) are entirely different and the documents used are completely different.

How could the Trust have entered into any transaction for the origination or acquisition of loans without evidence of funding?

On what basis can the Trustee or servicer claim any authority if the Trust was not funded and was essentially ignored? Does the expert agree that avoiding or ignoring the trust means avoiding and  ignoring the prospectus AND the PSA, which contains the authority for ANYONE to act on behalf of the investors, who are no longer “trust beneficiaries” but just a group of investors without a vehicle for their investment?

ESSENTIAL QUESTION: Is the expert prepared to testify about this aspect of structured finance — i.e., how do you connect up the debtor and the creditor? As an expert you would be expected to be able to testify on exactly that question.

And finally there is testimony about the mortgage. If the mortgage secures the note (not the debt, necessarily), which is what is stated in the mortgage, then is the expert willing to testify that the mortgage was defective and should never have been recorded?

Would it not be true, in your estimation, that if a homeowner executes a mortgage in favor of a party posing as a lender, and that party is not a lender to the homeowner, that you could testify that the moment such a mortgage is recorded it probably clouds title?

Would you be willing to testify that based upon those facts, you would say that it is an unknown variable as to who to pay?

Would you be wiling to testify that if you don’t know who to pay, you have no basis for trusting a satisfaction of mortgage from any party including the the original mortgagee?

And lastly that if there is no basis on the face of the instruments or in recorded instruments to presume a valid creditor has been named, that no better presumptions would attach to any assignment, endorsement or other instrument of transfer?

For information concerning expert declarations, consultations and testimony from experts with appropriate credentials to be qualified as an expert, or for litigation support, please call 954-495-9867 or 520-405-1688.

Judge Buford Slams Mers for Its Own Confusion


Judge Buford in Bankruptcy Court has no problem seeing the real issues. Here he is again stating that MERS has no standing and that MERS is confused as to whether it is acting in is own behalf or as agent for the note holder. He further makes it clear that the loan is not secured by the real property where MERS is the “nominee.” Since MERS admits, indeed advertises it will never make a claim to ownership of the note (otherwise nobody would use their service) there is absolutely no basis under law or equity in any court where it should be allowed to foreclose.

But they have done exactly that. So now that we know all those foreclosures were done illegally not for some procedural reason, but because MERS is not a creditor, what does that do to the hundreds of thousands of foreclosure sales that took place using MERS as “nominee” as the base of the chain. The answer, as anyone with knowledge of property law will tell you, is that the foreclosure sale is void, not voidable.

That in turn means that whoever owned it before the “sale” still owns it. Which of course means in most cases that there are hundreds of thousands of people who were homeowners that still own the property that was “foreclosed.” It also means, if the house is empty that they have the right to re-enter it. So you see, it is on this simple fact and basic black letter law that the entire foreclosure mess is proved to be an illusion. There is no mess. There is just a lot of paper that doesn’t mean anything.

If a Judge signed an order setting the sale date (as opposed to lifting the stay) THEN it is highly probable that in order to regain possession of the house you would need to file a quiet title action and quite possibly an action for damages.



Dan has put together a list which frankly I would like him to expand. Following the money means determining the party to whom you MIGHT owe money. It certainly isn’t the pretender lender and if you can fill in the blanks on this list you will be able to show that. Remember the burden is NOT on you to prove it, the burden is on you to ASK for it in qualified written request, debt validation letter and/or discovery (interrogatories, request to produce, subpoena duces tecum, and requests for admission). If you ever get someone the pretender lender offers to answer your questions at deposition make sure you specify that you will want the person(s) who are able to answer questions about the following items on this list.

Your forensic review can only estimate the some of the data. But the closer you get to answering more and more of these questions by aggressively enforcing their obligation to answer under federal law, state law and rules of civil procedure, the closer you get to proving that the wrong party is servicing the loan, the wrong party is collecting on the loan, and the wrong party is enforcing the note, while the obligation has been altered by events outside of the report that the foreclosing party is reporting to the court. Each time they fail to give you the right person or the information leading to the names of the investors/lenders, the amount still owed on the obligation (not the note), you will get the judge increasingly interested as to why they can’t come up with information they should have had when they started foreclosure. Remember this is not about getting a free house — it is about getting answers to your questions. You might end up with a free house as others have done or you might end up with a re-structured loan on terms you can afford. One thing is sure — when you DO have all the answers, the amount due is bound to be far different than the amount they are claiming.

Laymen will be confused by my distinction between the obligation and the note. Under law, the note is only evidence of the obligation and is often confused, even in court, with the obligation itself. It is that confusion that the pretender lender are leveraging so they can keep everyone’s eye off the ball — the true amount of the obligation, not the indisputable amount written on the note. By distracting the Judge into looking only at the note, they finesse the proof requirement as to what is really owed. The fact that the real lender has been paid or settled through federal bailout, insurance, credit default swaps etc., is kept off the table as long as you fall into the trap of looking at the note (merely evidence of the obligation) instead of looking at the entire transaction through the lens of the creation and payment of the obligation from all potential sources.


– Original face value
– Beginning Notional / Principal balance
– Pass-through rate
– Principal distribution
– Interest distribution
– Total Distribution
– Principal loss
– Interest loss
– Deferred Interest
– Ending Notional principal balance

– The accrual period
– Acrrual methodology
– Optimal Interest Amount
– Interest loss
– Deferred Interest
– Interest shortfall amt
– Other income
– Accrued certificate interest remaining unpaid

Other income detail:
– Certificate class
– Prepayment charge
– Remaining excess cash flow and OC release amount
– other income distribution

Interest shortfalls, compensation and expenses (per Group)
– Current prepayment interest shortfall amt
– Compensating interest
– net prepayment interest shortfall amount
– Civil Relief act shortfall count
– civil relief act shortfall amount
– Compensation
– – subservicer
– – master servicer
Advances by master servicer
– Allowable expenses per governing document
– non-recoverable advances

Prepayment interest and Basis risk/net WAC shortfall amount (by certificate class)
– [I will leave out this section)

Collateral summary
– original laon count / scheduled principal balance
– beginning loan count / scheduled principal balance
– scheduled principal
– curtailment
– payoff
– matured loans
– repurchases (by the way this is 0 for all months reported)
– beginning aggregate scheduled principal balance of liquidations (and?) charge-offs
– ending loan count scheduled principal balance

there is more, but I will just leave it at that. None of the information is specific to any one loan as I had hoped. But, they have to keep that info somewhere (use discovery) …

Dan Edstrom

Foreclosure Defense: Lost Mortgage Notes — Nobody Knows!!!

Lost Track of Who Owns Your Mortgage? Chances are You’re Not Alone

In the confusing sea of paperwork transferring mortgage notes from lender to holder to securitized pool, many consumers aren’t at all sure exactly which entity owns their mortgage notes, or how one entity is related to another.  The surprising news that’s working to the advantage of many homeowners facing foreclosure is that the mortgage lenders and note holders may not know, either.

Florida attorney April Charney, Forbes magazine tells us, noticed that a lot of the mortgage foreclosure cases she saw involved affidavits of lost notes. An affidavit of lost note is essentially a sworn statement that says, “we own this debt, but we can’t find any paperwork to prove it, so please just take our word for it”.  A bit of investigation revealed that in many cases, the paperwork didn’t exist, or originated at the wrong time, or conflicting interests had been recorded.  In some cases, notes had been illegally purchased by pools after they were already in default.

These flaws can bring a mortgage foreclosure action screeching to a halt; Forbes reported on one such homeowner who is still in residence five years after foreclosure actions were commenced.

If you’re facing foreclosure, don’t assume the worst. Get the professional help you need to untangle the paper trail and find out whether you have valid defenses in a forecosure action.

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