Discovery Changes and Broadens After Hawaii Supreme Court Decision

Based on questions that greeted me when I got to my desk this morning, here are just some of the thoughts that apply — a case review and analysis for each case being necessary to actually draft the right questions and to close any trap doors.

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

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NOTE: Procedural questions should be posed to local counsel who knows local discovery rules and court procedure. My answer is based upon general knowledge and not based upon any experience in litigating discovery issues in your state.
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The effect of the new decision in the link above is most probably (a) a broadening of existing discovery requests (b) rehearings on recent decisions denying discovery and (c) an opportunity and a reason to ask the questions you really want to ask.
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The first question is whether the questions you would ask now are already within the scope of the questions you have already asked. If so, generally speaking, there is nothing to do. In this scenario you could send a letter, I think, that clarifies your questions in view of the new Supreme Court ruling. The letter would specifically address certain issues that were raised in questions already asked and tells them the details you expect. This could be done in a supplemental request for discovery citing the new Supreme Court decision. Check with local counsel.
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Second, and this is more likely, your case should be analyzed within the context of the new decision. It seems to me that the decision opens up some broader scope of discovery than had previously been submitted. Your opposition will fight this tooth and nail. Pointing to the Hawaii Supreme Court decision is not going to be enough even if the property is in Hawaii. You need to have a very clear narrative that explains why you are asking for the answers to questions and the production of documents and answers to request for admissions. Without a clear defense narrative your first Motion to Compel them to respond will likely fail. The general rule is that discovery, with certain exceptions, can be any request that could lead to the discovery of admissible evidence. By “admissible” the meaning is evidence that is relevant and “probative” to the truth of the matter asserted. It isn’t relevant unless it ties into either the case against you or the defense narrative. Lack of clarity can be fatal.
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The opposition is going to claim privilege, privacy, and proprietary information. You should force them to be more specific as to how the identification of the creditor is proprietary, or an invasion of privacy or some privilege. Tactically I would let them paint themselves into a corner, so you need someone who knows how to litigate. Once it is established that they can’t or won’t disclose the matters into which you have inquired, then the question becomes how they will prove authority from the creditor without identification of the creditor from whom all authority flows.
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That could lead to a motion for summary judgment wherein you allege that they have failed and refused to make disclosure as to the most fundamental aspect of pleading a case. Since their authorization to initiate and maintain a foreclosure action must relate back to the authorization of the creditor (owner of the debt) and they now have not or will not identify that party(ies), the presumption of authority must be considered rebutted, thus requiring them to prove their case with facts and not with the benefit of legal presumptions.
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Since they have admitted on record that they cannot prove they are acting on behalf of the creditor, it follows that they cannot prove authority to initiate or maintain a foreclosure action. Hence, the outcome is certain. They will not be able to prove standing although they might have made certain assertions or allegations that might pass for standing such that they can withstand a motion to dismiss or demurrer. The essential assertion of standing is either rebutted or barred from proof. Hence judgment should be entered for the homeowner.
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Some of this might come out in a motion for sanctions which is virtually certain to come from you when they fail to properly respond to your requests for discovery. This is intricate litigation that should be handled by a local attorney.
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Again don’t start a second front in the battle if you have already covered it in your previously submitted requests for discovery. I think you have asked most of the right questions, although now with this decision it becomes more refined.Among the questions I would ask in view of the new decision from the Supreme Court of Hawaii are the following presented only as narrative draft, subject to improvement by local counsel:
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  1. Does the trust exist under the laws of any jurisdiction? If yes, describe the jurisdiction in which the trust is recognized as existing.
  2. Was the trust organized under the laws of any jurisdiction? If yes, when and where?
  3. Does the trust own the subject debt? If yes, please explain why the trust is not claimed as a holder in due course.
  4. Does the trust allow the beneficiaries an interest in the assets of the trust?
  5. Please describe the manner in which the certificate holders are beneficiaries of a trust.
  6. Does the named Trustee of the Trust have any rights or obligations to monitor trust assets?
  7. Does the named Trustee of the Trust engage in any activities in which it is administering the assets of the Trust.
  8. Describe the assets of the Trust.
  9. Please identify the Trustor or Settlor of the Trust.
  10. Please identify the date, place and parties involved in any transaction in which assets were entrusted to the named trustee for the benefit of named or described beneficiaries.
  11. Please identify the date, place and parties involved in any transaction in which assets were purchased by the Trust or in which a Trustor or Settlor purchased assets that were then entrusted to the named trustee of the Trust for the benefit of named or described beneficiaries.
  12. Is the named Trust a fictitious name being used by one or more other entities?
  13. Do the certificates contain provisions in which the holder of the certificate disclaims any right, title or interest to assets of the Trust or any right, title or interest to the subject loan? If yes, please describe the provision, in what document it is located, the date of the document, and where that document currently exists in the care, custody and/or control of the Trust or any party doing business as or on behalf of the named Trust.
  14. Please describe the owner of the debt, to wit: describe the party currently carrying a receivable on its books that includes the subject loan, wherein no other party is ultimately entitled to proceeds of payments, proceeds or recovery on the subject loan.
  15. Is it your contention that residential foreclosure is legally allowed without ownership of the underlying debt from the borrower? If so, describe the elements of a party who would be legally allowed to foreclose on a residential mortgage without ownership of the underlying debt.
  16. Does the Trust have a bank account in the name of the Trust?
  17. Does the Trust have a bank account in the name of the named Trustee as Trustee for the Trust.
  18. If the answer to either of the two preceding question is yes, please describe the account, its location and identify the signatories on said account.
  19. Please describe the retainer agreement between the named Trust and current counsel of record including all the parties thereto, the date(s) of execution and date that the agreement became effective, the names of the signatories, and their authority to execute the instrument.
  20. With respect to loans attributed to or allegedly owned by the Trust please describe the parties who make decisions, along with a description of their authority, with respect to the following relating to the subject loan:
    1. Whether to foreclose
    2. When to foreclose
    3. What documents are needed for foreclosure
    4. Applications for modification
    5. Terms of modification
    6. Terms for settlement of the debt

Rescission and Moving to Strike Pleadings of “Holder”

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

This is for general information only. Get a lawyer.

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THIS IS REALLY DIRECTED AT LAWYERS WHO ARE DEALING WITH RESCISSION. NO LAYMAN SHOULD ACT ON THIS WITHOUT CONSULTING WITH A LICENSED ATTORNEY IN THEIR JURISDICTION.

Among the zillions of email requests I have been receiving are emails from lawyers who are trying to get their heads around rescission. It seems to me that their problem is one of procedure rather than substance. So here is the answer I sent to one such lawyer.

I keep wondering about something here with respect to rescission. To be consistent with your position that the rescission was effective upon mailing and that the note and DOT are void, it would seem to me that the proper motion would be a motion to strike those portions of their brief dealing with the effectiveness of the rescission. The Supreme Court has already decided that.

But further — the record is devoid of any evidence that the parties attacking you are or ever were actual creditors. It seems to me that these parties lack standing to attack the rescission because their standing was only as good as them holding the note and mortgage which are now void. I think they are using a magician’s act — getting the court to assume they are lenders or creditors when in fact nothing in the record supports that. They insisted in the trial court that none of your foreclosure defenses were good because they were “holders”. But now they are “holders” of void instruments.

If anyone is going to be contesting the rescission they would need to do the following:

  1. They must be an injured party with standing — i.e., loss of finance charges on the loan along with fees etc that they loaned or paid for. Such a party cannot rely on void instruments to establish standing.
  2. They must file an action within 20 days of receipt of the rescission.
  3. The action would need to allege that the borrower rescinded the loan improperly.
  4. The prayer for relief would be to enter an order vacating the rescission because of whatever reason they think it was wrong.

Some courts are side-stepping this issue and allowing the foreclosure to proceed without ever granting relief that was sought by the “holder” who is being presumed as creditor. But they do so without ever entering an order vacating the rescission which means that the rescission is still standing and the note and mortgage are still void. It’s another pretender scenario. The banks and courts are pretending that the rescission was not effective even though it clearly is effective by operation of law on the day of mailing because the highest court in the land has accepted that with finality and unanimously.

What your opposition is doing here is creatively attempting to avoid basic pleading requirements and using motion practice and the appeal as a vehicle for sidestepping the basic requirements of getting relief in court. Hence the motions in the trial court and the brief in the appellate court should be struck with prejudice as raising issues that are untimely and on issues in which the jurisdiction of the trial court and the appellate court has not been invoked.

The Motion to Strike is based on jurisdiction which can be raised at any time. What you could be saying is that their brief should be struck because it is a disguised effort to obtain relief without ever having filed a lawsuit alleging a short plain statement upon which relief could be granted.

By filing the Motion to Strike it redirects the appellate court to the focus of your brief.

So in states where the homeowner sues somebody to stop them from attempting to enforce the note and mortgage, there is a tricky question of how to express the objection to standing and jurisdiction. To another lawyer I wrote:

This is legal procedure — not substantive arguments about why the banks are horrible. You need to have California cases on standing and jurisdiction. This is tricky because you are right, you did sue them so how can the court not have jurisdiction to hear arguments? The answer is that if I sue you for throwing a ball through my window, you can’t “answer” or file a “motion to dismiss” on the basis that I ran over your bicycle. You must file a counterclaim. They didn’t. So there is no jurisdiction to hear what is in essence a “Motion” instead of affirmative pleading of facts, standing and prayer for relief. I see no way that I am not right on this in view of the Supreme Court decision. Any other interpretation would mean that the rescission was NOT effective until a judge rules on it — directly opposite to the law of the land.

  1. You sued them for a TRO to stop them from proceeding with foreclosure.
  2. Your basis for doing includes the rescission.
  3. You did not sue them to make the rescission effective — hence you did not invoke the jurisdiction of the court on that point. In fact your point is that they are NOT the right parties to do anything and they have no standing and had no standing in the trial court except as to the issue of why they were acting like creditors when they were not.
  4. The fact that you sued them for one thing doesn’t mean they can “Defend” a case that was never filed and never needs to be filed — a lawsuit to make the rescission effective.
  5. Their defensive motions do not ask for the rescission to be vacated. Hence the court’s jurisdiction has NOT been invoked on that issue — neither side is pleading for relief that the rescission is either effective (you) or vacated (them).
  6. THAT is why the trial court did not and could not enter an order vacating the rescission. And THAT means that the rescission is still effective and time has run out on the ability of anyone to file an action to vacate the rescission.
  7. Thus THEY are attempting to do a little side step — since they obviously don’t have the ability to plead and prove they are the creditors or that they are representative of creditor X — they instead are trying the “everyone knows that…” defense so they are not required to plead or prove facts that would show the date of consummation, adequacy of disclosures, etc.
  8. The only way the trial court or any court could have entered an order vacating the rescission would be by pleading facts that include the rescission is complete but wrongful.
  9. The only way ANYONE could bring that claim for relief (Vacating the rescission) is if they had standing — according to THEIR pleading and their proof. They didn’t do that. They are seeking to walk around the TILA rescission procedures despite the clear language of the statute and a unanimous Supreme Court decision.
  10. You sued them because they were claiming to be holders of instruments entitling them to foreclose. Now that point is moot because the rescission is effective upon mailing and the instruments they claim to hold are void anyway.
  11. Thus it is improper for the banks, servicers, trustees etc. to file anything in court “contesting” the effectiveness of the rescission or assuming that the rescission was wrongful without filing a complaint alleging facts that establish standing, injury and the wrongful nature of the rescission. Their argument on appeal is the same as the court below — that the rescission was clearly wrongful or that it was somehow not effective because of no tender, no lawsuit etc.
  12. Hence their entire position is procedurally incorrect and should be struck. If they want the relief of vacating the rescission they must bring a lawsuit to do that — just as the statute says. Since they blew the time, not even the creditor can do that anymore and couldn’t anyway because they were at no time the actual creditors or “injured parties” by the allegedly wrongful rescission. Neither the trial court nor the appellate court has had their jurisdiction invoked by either the Plaintiff or the Defendant as to the whether the rescission was effective or should be vacated.

How to Win the Case

There many ways to win a case, so what I am saying in this article should be taken in the context of a larger reality where lawyers are winning hearings and winning the entire case using their own style, strategies and tactics. And it is equally true that any case management plan, regardless of the brilliance behind it, can still result in a loss. So this article should not be taken as my way or the highway, but rather just my way.

The first thing to keep in mind is that the argument that many lawyers are using at the beginning of the case should really be reserved until the end if the case — closing argument at trial, or argument at motions in limine, motions for summary judgment etc.

The narrative at the end of the case must be based upon evidence that you have built, brick by brick, and which has been admitted in evidence or at least is presumed correct by the time you make your arguments. The error of pro se litigants and many lawyers is that in the absence of knowledge and experience in trial law, they attempt to insert the final narrative at the beginning of the case, when it is neither credible on its face nor supported by anything in the record. Evidence, for the most part, consists of facts that are admitted into evidence or presumed true. In early motion practice and discovery requests and motions there is no evidence except that the Plaintiff’s complaint is usually presumed or deemed to be true for purposes of the motion and argument.

If you wish to challenge the foreclosure complaint or the notice of sale in non-judicial states it is necessary for you to know the facts and know the defects of the case presented by your opposition. Announcing your narrative at the beginning merely telegraphs your case plan and locks you into an argument about why you are saying what you are saying.

For that reason I question the wisdom of filing counterclaims against the foreclosing party since your claim probably does not arise until it is determined that the foreclosure action was wrongful. This is a matter some considerable debate amongst lawyers who believe that the borrower’s claims are compulsory counterclaims that are waived unless filed in the first action that litigates the validity of the foreclosure. So it is a tricky call and only a licensed practicing attorney can give you an opinion upon which you could rely in your strategy. My belief is that most of the issues presented by the planned counterclaim should fit nicely into affirmative defenses and set up the claim for wrongful foreclosure, Slander of title etc.

So knowing your theory of the case is important as a guidepost for your early discovery and motion practice. But what you need to do is attack the basic facts and presumptions alleged by your opposition. Where do you start? In judicial states there are frequently rules requiring the verification of the complaint. Taking the deposition of the person who verified the complaint is a good idea.

Making them bring the documents and media upon which they relied might require the place of deposition to be their place of work and for lawyers to arrange for video deposition. The interesting reaction of your opposition is likely to be a motion for protective order. At this hearing you can probably get an order requiring that the person show up, perhaps permitting access to the workplace for your forensic ediscovery expert, and to bring documents “upon which she or he relied.”

My experience is that the presumptions in favor of the banks start cracking during the fight about deposing the verifier and the designated representative (the next deposition duces Tecum). The Bank will want to block access to the person who signed the verification. They will want to limit the inquiry to the designated corporate representative. Keep in mind that you also want to depose the witness who will testify at trial find out why that witness is different from the one they produced as the corporate representative with the “most” knowledge at deposition and why both if them are different than the person who verified the complaint.

By demonstrating the stonewalling and delays imposed by the bank who supposedly has an interest in getting to foreclosure sale, judges recognize that there is something odd about the case. Asking for and offering an expedited discovery schedule in a motion for status conference will also help set the stage for your accusation that the delaying party is the plaintiff or the foreclosing party. Being the aggressor can convey the impression that the borrower is not the perpetrator, but rather the victim of wrongful behavior.

Early subpoenas and motions will remove the impression that are just buying time. Strategies for buying time even if allowed by the court, basically show that you are admitting the debt, note, mortgage, foreclosure sale and credit bid but want your client to get a few months of free rent. You are digging the wrong hole if your case strategy encourages the judge to believe that the debt, note and mortgage, and the assignments are all valid and that the borrower is looking for a break.

Early proactive litigation can highlight the fact that the bank is backing up and only wants to fight uncontested cases. It is a way to take control of the narrative gradually, so that when it comes to the motions for summary judgment (including your own cross motion), you have an opening for victory as Mark Stopa has done in Florida at least make it clear that there are material issues of fact in dispute.

The absence of early proactive discovery and motions speaks loudly that the homeowner really has no defense because otherwise they would have pursued the proof.

Getting experienced trial attorneys who understand this article is not easy. Most cases settle, and most people are at least initially happy to remove the stressor imminent foreclosure and eviction. But without presenting a credible threat to the opposition, the settlement, if it happens at all is not going to offer much in terms of relief. And the cost of just getting free rent is not retaining your house and not having offset and complaints for damages for wrongful foreclosure. When you sit and do nothing you are conforming to the playbook of the bank. In the end they get the foreclosure, they evict the homeowner and the homeowner gets nothing except a black mark on their credit history.

We offer a forms library that will help reduce the work and cost of an attorney if he or she uses them as templates. Write to neilfgarfield@hotmail.com to inquire. But there are also dozens of free forms and templates you can get from foreclosure defense forms n the left side of this blog. THEY SHOULD NOT BE USED WITHOUT CONSULTING AN ATTORNEY LICENSED TO PRACTICE IN THE JURISDICTION IN WHICH THEN PROPERTY IS LOCATED.

Notice of Violation Under California Bill of Rights

“If we accept the Bank’s argument, then we are creating new law. Under the new law a borrower would owe money to a non-creditor simply because the non-creditor procured the borrower’s signature by false pretenses. The actual lender would be unable to retrieve money paid to the fake lender and the borrower would receive credit for neither his own payments nor any payment by a third party on the borrower’s behalf.” Neil F Garfield, livinglies.me

CHECK OUT OUR DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Barry Fagan submitted the Notice below.

Editor’s Notes: Fagan’s Notice gives a good summary of the applicable provisions of the Bill of Rights recently passed by California. The only thing I would add to the demands is a copy of all wire transfer receipts, wire transfer instructions or other indicia of funding or buying the loans. everything I am getting indicates that in most cases they can’t come up with it.

If you went into Chase and applied for a loan and they approved your application but didn’t fund it, you wouldn’t expect Chase to be able to sue you or start foreclosure proceedings for a loan they never funded. It’s called lack of consideration.

If you actually got the loan from BofA but they forgot to have you sign papers, you would still owe the money to them but it wouldn’t be secured because there was no mortgage lien recorded in their name. And BofA would have a thing or two to say to Chase about who is the real creditor — either the one or advanced the money or the one who got documents fraudulently or wrongfully obtained.

So then comes the question of whether Chase could assign their note and lien rights to BofA. If TILA disclosures had been made showing the relationship between the two banks, it might be possible to do so. But in these closings, the actual identity of the creditor (source of funds) was actively hidden from the borrower.

Thus we have a simple proposition to be decided in the appellate and trial courts: can a party who obtains signed loan documentation including a note and mortgage perfect the lien they recorded in the absence of any consideration. The floodgates for fraud would open wide if the answer were yes.

If the answer is NO, then the origination documents and all assignments, indorsements, transfers and allonges emanating from the original transaction without consideration are void. AND if each assignment or transfer recites that it is for value received, and they too had no money exchange hands thus producing lack of consideration, then they cannot even begin to assert themselves as a BFP (Bona Fide Purchaser for value without notice). The part about “without notice” is going to be difficult to sustain in proof since this was a pattern of table funded loans deemed “predatory per se” by Reg Z.

The reason they diverted the document ownership away from the creditor who actually advanced the money was to create the appearance of third party ownership (and transfers, which was why MERS was created) in the documentary chain arising out of the original of the non-existent loan (i.e., no money exchanged hands pursuant to the recitals on the note and mortgage as between the payor and payee). They needed the appearance of ownership was to create the appearance of an ownership and insurable interest.

Thus even though the money did not come from the originator, the aggregator or even the Master Servicer or Trustee of the pool, affiliates of the investment bank who underwrote and sold bogus mortgage bonds, were able (as “owners”) to purchase insurance, credit default swaps, and receive bailouts because they could “document” that they had lost money even though the reality was that the the third party source of funding, and the real creditors were actual parties suffering the loss.

Had those windfall distributions been applied to balances due to the owners of the mortgage bonds, the balance due from the bond would have been correspondingly reduced. AND if the balance due to the creditor had been reduced or paid in full, then the homeowner/borrower’s obligation to that creditor would have been extinguished entitling the homeowner to receipt of a note paid in full and a release of the mortgage lien (or at least cooperation in nullification of the imperfect mortgage lien).

PRACTICE TIP: Don’t just go after the documents that talk about the transaction by which they claim a liability exists from the borrower to one or more pretender lenders. Push for proof of payment in discovery and don’t be afraid to deny the debt, the note or the mortgage.

In oral argument before the Judge, when he or she asks whether you are contesting the note and mortgage, the answer is yes. When asked whether you are contesting the liability, the answer is yes – and resist the temptation to say why. The less said the better. This is why it is better preempt the pretender lenders with your own suit — because all allegations in the complaint must be taken as true for purposes of a motion to dismiss.

Don’t get trapped into disclosing your evidence in a motion to dismiss. If it is set for a motion to dismiss the sole question before the court is whether your lawsuit contains a short plain statement of ultimate facts upon which relief could be granted and all allegations you make must be assumed to be true. When opposing counsel starts to offer facts, you should object reminding the Judge that this is a motion to dismiss, it is not a motion for summary judgment and there are no facts in the record to corroborate the proffer by opposing counsel.

From Barry Fagan:

Re:  Notice of “Material Violations” under California’s Newly Enacted Homeowners Bill of Rights pursuant to California Civil Code sections, 2923.55, 2924.12, and 2924.17.
See attached and below

Reference is made to Wells Fargo’s (“Defendant”) December 13, 2012 response to Barry Fagan’s (“Plaintiff”) October 25, 2012 request for copies of the following:

(i)           A copy of the borrower’s promissory note or other evidence of indebtedness.

(ii)         A copy of the borrower’s deed of trust or mortgage.

(iii)       A copy of any assignment, if applicable, of the borrower’s mortgage or deed of trust required to demonstrate the right of the mortgage servicer to foreclose.

(iv)        A copy of the borrower’s payment history since the borrower was last less than 60 days past due.

Please be advised that I find Defendant’s response to be woefully defective. This letter is being sent pursuant to my statutory obligation to “meet and confer” with you concerning the defects before bringing an action to enjoin any future foreclosure pursuant to Civil Code § 2924.12.

Defendant’s are in violation of both the notice and standing requirements of California law, and the California newly enacted Homeowner Bill of Rights (“HBR”). In July 2012, California enacted the Homeowner Bill of Rights (“HBR”). Among other things, the HBR authorizes private civil suits to enjoin foreclosure by entities that record or file notices of default or other documentsfalsely claiming the right to foreclose. Civil Code § 2923.55 requires a servicer to provide borrowers with their note and certain other documents, if the borrowers request them.

Civil Code § 2924.17 requires any notice of default, notice of sale, assignment of deed of trust, or substitution of trustee recorded on behalf of a servicer in connection with a foreclosure, or any declaration or affidavit filed in any court regarding a foreclosure, to be “accurate and complete and supported by competent and reliable evidence.” It further requires the servicer to ensure it has reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose.

Civil Code § 2924.12 authorizes actions to enjoin foreclosures, or for damages after foreclosure, for breaches of §§ 2923.55 or 2924.17. This right of private action is “in addition to and independent of any other rights, remedies, or procedures under any other law.  Nothing in this section shall be construed to alter, limit, or negate any other rights, remedies, or procedures provided by law.” Civil Code § 2924.12(h). Any Notice of Default, or Substitution of Trustee recorded on Plaintiffs’ real property based upon a fraudulent and forged Deed of Trust shall be considered a “Material Violation”, thus triggering the injunctive relief provisions of Civil Code § 2924.12 & § 2924.17(a) (b).

I therefore demand that Wells Fargo Bank, N.A. provide Barry Fagan with the UNALTERED original Deed of Trust along with the ORIGINAL Note, as the ones provided by Kutak Rock LLP on October 13, 2011 to Ronsin Copy Service were both photo-shopped and fraudulent fabrications of the original documents, thus not the originals as ordered to be produced by Judge Tarle under LASC case number SC112044. Attached hereto and made a part hereof is the October 13, 2011 Ronsin Copy Service Declaration with copies of the altered and photo-shopped Note and Deed of Trust concerning real property located at Roca Chica Dr. Malibu, CA 90265.

Judge Karlan under LASC case number SC117023 “DENIED” Wells Fargo’s Request for Judicial Notice of the very same Deed of Trust, Notice of Default, Substitution of Trustee and the Notice of Rescission concerning real property located at Roca Chica Dr. Malibu, CA 90265.
Attached hereto and made a part hereof is the relevant excerpt of Judge Karlan’s October 23, 2012 Court Order along with a copy of Wells Fargo’s Request for Judicial Notice of those very same documents. Court Order: REQUEST FOR JUDICIAL NOTICE “DEFENDANT’S REQUEST FOR JUDICIAL NOTICE IS DENIED AS TO EXHIBITS A, B, C, D, K, L, & M.” 

As a result of the above stated facts, please be advised that the fraudulently altered deed of trust and photo-shopped Note that you claim to have been previously provided to Barry Fagan shall not be considered in compliance with section 2923.55 and therefore Wells Fargo Bank, N.A. has committed a “Material Violation” under California’s Newly Enacted Homeowners Bill of Rights pursuant to Civil Code sections, 2923.55, 2924.12, and 2924.17 (a) (b).

Please govern yourselves accordingly.

Regards,

/s/Barry Fagan

Barry S. Fagan Esq.

Thank you.

Barry S. Fagan Esq.
PO Box 1213, Malibu, CA 90265-1213
[T] +1.310.717.1790 – [F] +1.310.456.6447

Dealing with the Litigation Shell Game

Here is one way of handling the shell game. This could be split up into bite sized pieces and then filed one at a time, but then you might lose the flavor of it. The interesting thing about this pleading is that it takes the pleading and affidavits of the forecloser and uses it  against them. The affidavit for summary judgment after 3 years was completely deficient of any thing that wasn’t naked hearsay and speculation signed by an unauthroized person. The point made is “Is this best you can do after 3 years?”

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  1. Plaintiff has yet to respond to discovery requests despite repeated demands that they do so. Additional discovery is now required as to the sudden “appearance” of the note which Plaintiff presumably will rely upon. The Plaintiff has been known to use false created “photo-shopped” documents. If the real note was actually available, then it would have been delivered with the alleged assignment.
  2. The attachments are objected to for the same reason as to landscape mode. In addition, they clearly show confusion on the part of the Plaintiff as to which entity is claiming to be the creditor who could submit a credit bid at auction. What is readable shows that Lender is named as Chase Bank USA, N.A.

2.1.  Plaintiff has failed thus far to allege or answer discovery that would indicate whether the loan closing was complete (the note not having been signed by XXXXXXXXXXXXX), and whether Chase Bank USA, NA was the entity that actually funded the loan and therefore was the proper payee and secured party. Past conduct indicates that Plaintiff either cannot or will not respond to the essential question of the obligation to repay the actual creditor who advanced the funds for the loan or the party who has purchased the loan, and whether that purchase was supported by consideration or was even accepted by the assignee.

2.2. Prior pleadings indicate the loan is claimed to be part of a REMIC pool in which the loan was utilized as an asset to issue mortgage backed securities (mortgage bonds), but the Plaintiff insists on filing the papers on behalf of entities that have no current interest in the loan nor is it likely that they ever funded or purchased the loan.

2.3.  Plaintiff has thus failed to provide essential information allowing the Defendant to pursue modification under HAMP or HARP programs because there is no assurance that any of the parties on any of the documents are either the authorized servicer nor are they the creditor. Hence the “consideration” required of a modification proposal cannot be accomplished without knowing the creditor, knowing the authorized representative and commencing the modification process.

  1. These objections and motion to strike are not hypothetical. Plaintiff has already attempted to use a false affidavit in this case from an unauthorized person in support of its motion for summary judgment, which was amply demonstrated at the time of the last  hearing. Plaintiff fails to allege or offer who the originating the lender was, and fails to state the current ownership of the loan.
  2. Plaintiff is attempting to circumvent the rules of evidence and the rules of civil procedure by filing false affidavits signed by unauthorized persons, whose very existence cannot be determine by reasonable due diligence on behalf of corporate entities whose very existence cannot be determine by reasonable due diligence.

4.1. If a competent witness existed that could testify from personal knowledge and provide foundation of the documents upon which Plaintiff relies, there was plenty of time for Plaintiff to have submitted an affidavit from such competent witness. The absence of such a witness is apparent, and the attempt to “snow” the court with paperwork to cover up a botched closing and false securitization is obvious.

4.2.  Plaintiff has chosen to merely withdraw its claim for a lost note but has failed to produce it despite repeated requests in discovery.

4.3.  And Plaintiff now attaches “copies” of an “allonge” executed by Cynthia Corona on behalf of Chase Bank USA, NA endorsing the alleged note to Chase Home Finance as “assistant Treasurer” without indicating which company she was employed with — it being apparent that neither Defendant nor Plaintiff can locate said Cynthia Corona as an authorized officer with appropriate Corporate resolutions to transfer anything, and there being no indication that the endorsement was for “value received.”

4.4.  All of these apparently fabricated events and documents are contrary to the other facts alleged in the case in which the endorsement was to a REMIC (See below) which apparently is alleged to have provided funding by sale of mortgage bonds to investors.

4.4.1.                  However, the Plaintiff fails to answer discovery requests that would show the funding from the REMIC nor the authority of either Chase Bank USA NA or Chase Home Finance to represent the REMIC which is a trust, in which the supposed trustee is US Bank.

4.4.2.                  Further, no answer has been forthcoming identifying the accounts or accounts in which money was disbursed or received on behalf of what the Defendants claim to be the real creditor, the REMIC described below. Based upon experience with the same parties in other cases it appears as though the closing documents were diverted from the actual source of lending wherein the REMIC was not named as Payee and the money for the loan was diverted from the REMIC thus leaving the opening for any party to claim a relationship with the payee on the note as lender or assignee.

4.4.2.1.                 Plaintiffs failure to answer such basic questions in a simple foreclosure is disconcerting, to say the least. Defendants wish to settle the case through modification or mediation but are repeatedly blocked by the Plaintiff in this case from access to information that is either in the possession of their agents or affiliates or which does not exist. No party can consider the offer of modification under HAMP or HARP without being the creditor or an authorized representative of the creditor. Plaintiff refuses to provide any information on this subject and chooses to go forward with a dubious foreclosure case which has lingered for over 3 years.

4.4.2.2.                 None of the facts sought by Defendant exceed any of the information, documents or media that were necessary to be present at the time the suit in foreclosure was filed. If they in fact do not exist, then the suit should never have been filed and the action should be dismissed with prejudice as to these plaintiffs.

  1. The lender stated on the Mortgage is Chase Bank, U.S.A., a named entity that has never been repeated or connected with the parties stated to be the Plaintiffs in this case and quite contrary to the actual fact that the loan was funded by investors in a REMIC that Defendants now admit to be called J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1. This is therefore the claimed creditor, but he documents do not show any record of a money or document trail, except those prepared strictly for court proceedings, indicating why the Trust Corp. (REMIC) was not named on the note and mortgage or, if acquired, when it was acquired, what type of transaction occurred, whether it was for value received, and whether there was an offer and acceptance of the assignment, which of course would be impossible at this late stage because the close-out date under the securitization documents, and under the Internal Revenue Code expired years ago, and in any event, the assignment could only be considered an offer to sell that could not be accepted because it is, according to the defendants a non-performing loan contrary to both the requirements of the REMIC provisions and the provisions of the PSA.

5.1.  This leaves the loan without proper documentation, without a perfected lien, without a note describing the true creditor, and  with repayment provisions different from those promised the investor lenders who advanced the money for mortgage bonds that the borrower is not alleged to have ever acknowledged or signed.

5.2.  Plaintiff fails to allege or offer answers in discovery to explain the location of the note, the completion of the loan transaction, the trail of money or the trail of documents, all of which were manufactured for this lawsuit to cover up the fact that the Plaintiffs were in fact using the loan was though they owned it for the purposes of trading and obtaining insurance that should have reduced balances due to the actual creditor, and hence the balances due from the borrowers whose only obligation to the lenders, thanks to the botched paperwork of the intentionally fabricated loan closing, is a common law obligation to repay the funds. Yet the defendant  still wishes to seek a modification rather than a nullification because of the intent of the investor-lender in lending the money and the intent of the homeowner in borrowing the money.

5.3.      The Plaintiff explains nothing about the named mortgagee in the proffered affidavit.

5.4.      The identity of the true lender and creditor was intentionally withheld from the Defendant because this would have alerted him to the fact that the mortgagee stated on the Mortgage was a different entity than that which sues him now.

5.5.      The investors (pensions funds etc., whose identity has been improperly withheld from the Defendant, thus preventing the attempt at settlement under mediation or HAMP or HARP.

  1. The affidavit in support of summary judgment is filed on behalf of “U.S. Bank as Trustee for J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1.” Clearly this is the entity that is intended to be described as the creditor, but the Plaintiff has yet to explain any facts leading up to that conclusion thus depriving the Defendant of the ability to prepare a defense to facts that are in the exclusive possession of the four parties that appear to have some pleading or document filed as a stakeholder in the instant mortgage loan (Chase Bank, Chase Finance, US Bank and JP Morgan Acquisition Trust).

6.1.      The affidavit itself and the Notary indicate that it was executed on April 9, 2012.

6.2.      The affiant is reported to be Ronald L. Thomas as Vice President, JP Morgan  Chase Bank N.A.

6.2.1.       Nowhere does the affidavit even attempt to state that said Ronald L. Thomas is an authorized officer of U.S. Bank, Trustee. Yet the notice of filing states that it is U.S. Bank filing the affidavit.

6.2.2.       Nowhere does the affidavit state that Ronald L Thomas is an authorized officer, trustee or representative of J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1.

6.2.3.       From beginning to end there is no basis to determine the alleged relationship of the affiant to the companies or trusts that are alluded to in the notice of filing.

6.2.4.       Nowhere does the affidavit establish personal knowledge of the facts or authority of said Ronald L Thomas to sign on behalf of U.S. Bank or J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1.

6.2.5.       Nowhere is the identity or corporate or other legal existence of J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1 been alleged or offered in the affidavit to be an existing legal entity.

6.2.6.       Investigation of J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1 reveals that no such entity exists as a trust or as a corporation and none is alleged by the Plaintiff.

6.2.7.       Investigation of the signatory Thomas reveals that his name appears repeatedly on robo-signed documents in many other cases and his employment cannot be verified with either U.S. Bank or J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1. Upon information and belief said signatory does not exist and/or has no employment relationship with any of the parties referred to herein, and/or has no authority properly granted and authenticated to sign any legal paper on behalf of the Plaintiff or J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1.

6.2.8.       After extensive due diligence, J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1 does not appear to exist as a legal entity but was the actual lender and source of funds and therefore the actual party with whom the Defendants transacted business on the day of the funding of the loan from an escrow account at Chase Bank or one of its subsidiaries .

6.2.8.1.       Hence the pleadings and exhibits proffered by Plaintiff prove that that the named Payee on the note and the named mortgagee should have been an entity, to wit: U. S. Bank, as Trustee for J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1, which should have been organized into a legally recognizable business REMIC entity under the federal and state law.

6.2.8.2.       The reason they didn’t do that was because they were making extensive use of their own claims to ownership of the loan when trading credit default swaps and purchasing insurance, cross guarantees and other credit enhancements that would inure to the benefit of the intermediaries including the Chase investment bank entities.

6.2.8.3.       Plaintiff’s allegations and exhibits show a different story that would require them to obtain an assignment from the REMIC

6.2.8.4.       Plaintiff is attempting to side step this issue because it runs to the heart of the ability to foreclose. Defendants object to the affidavit as an attempt to re-write history without any foundation by a competent witness.

6.2.8.5.       Plaintiff is creating the illusion that the origination of the loan conformed to the parties and terms alleged in this foreclosure action. Their pleadings and affidavits are clearly intended to obscure the truth, and fail to support that illusion nor even the existence of investors or an investor group or entity that could make a claim.

6.2.8.6.       In fact, there is no evidence that the investors even know about these proceedings nor who the proceeds of foreclosure would  be paid after denuding the estate by continuous fees all to the detriment of the lender, in violation of the terms of the loan to the lender (as expressed in the Pooling and Servicing Agreement that the Plaintiff has failed to provide and without which they can make no claim).

6.2.8.6.1.       The REMIC was created allegedly by the terms of the PSA. The PSA was not attached because it would show clearly that the cutoff date for the pool, even if it existed expired long ago and that the acceptance of the loan which is declared in default was an ultra-vires act by the “Trustee” or manager, U.S. Bank.

6.2.9.       Defendants accordingly deny, subject to the special appearance denoted above, that the attachments, pleadings and affidavit are authentic or authorized and further deny that a foundation was or even could be proffered by this Plaintiff.

6.2.10.   Further, Defendants deny that the amounts stated are correct in that they appear to be taken from the accounting of the subservicer and exclude the accounting of the Master Servicing where all financial transactions are recorded.

6.2.10.1.   Based on Defendants’ own investigation, the subservicer and Master servicer distributed payments to the Plaintiff or Plaintiff’s successors before, during and after the declaration of default and the foreclosure suit was filed. The records of the Master Servicer would show those payments as would the recipient of the those funds, whose records are not attached to the proffered affidavit, nor does signatory Thomas allege any personal knowledge of the amounts due or how payments were allocated to the actual creditor as it may have changed from time to time. Accordingly the Defendants deny the debt, deny the default, and deny that the amounts claimed are correct as well as deny that the claimed amounts are owed to the Plaintiff or any entity related tot he Plaintiff.

6.2.10.2.   Defendants therefore affirmatively state that the party to whom money is owed or was owed has not been identified, and that no accounting has been forthcoming from the actual party entitled to submit a credit bid at a foreclosure auction on the basis that an obligation is owed from the Defendants to that party and that the specific obligation owed by the Defendants, or what is left of it after receiving payments from the sub-servicer and Master servicer, was in fact secured by a perfected lien on the property of the Defendants at the time of the “closing” of the transaction, nor that such lien could still be valid even if it was valid at the time of the closing.

6.2.10.3.   Defendants affirmatively state that it is the obligation of the Plaintiff to prove the damages on the claim that that the plaintiff is neither the creditor, nor does the Plaintiff have any relationship with any natural person or legal entity possessing such information as to the current status of the debt, the current identity of any party to whom money is actually owed and whether that obligation was secured and remains secured by a mortgage lien on the Defendants’ property.

6.2.11.  Attached to the alleged affidavit are printouts from a computer, which is neither explained nor supported by any declaration of the Affiant. If Plaintiff possesses the required accounting to support its claim of a default, it has yet to provide it.

6.2.11.1. In fact, the computer printouts affirmatively show that they were produced in April, and come from “3270 explorer: OLLW Letter (PL13)” which is not explained in the alleged affidavit and contain no reference to J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1 nor even the Defendants, with even the loan number redacted!

6.2.11.2. Some of the attachments contain the borrower name and some do not,  but even on those with the name borrower the loan number is partially redacted. Plaintiff has thus failed to prove or offer proof that the original loan still exists or that the original loan is now owed to U.S. Bank, as Trustee or J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1.

6.2.11.3. Most pages refer to the name “Chase” or JP Mortgage Chase, N.A. and some refer to Chase Home finance, LLC

6.2.11.4. Accordingly, the Plaintiff has failed to even offer any records covering the entire period of the alleged loan much less the receipt of payments from the subservicer, master servicer, insurance and credit default swaps all of which are known to Defendants to be expressly waiving subrogation.

6.2.11.5. At a minimum the obligation of the Defendant was reduced if not obliterated by such payments and credit enhancements, meaning that the Plaintiff is attempting to collect on a debt owed to the actual creditor (the party who could submit a credit bid at auction because the obligation is actually owed to that creditor was secured by a proper mortgage whose encumbrance upon the land was perfected.

6.2.11.6. Upon information and belief based upon opinion and facts from experts investigating this transaction, the original creditor no longer exists and the obligation is owed, without being secured by a perfected mortgage lien, to some other party who is only entitled to the net amount due on the obligation after reductions and allocations for payments received on Defendants’ obligation. In any event, the Plaintiff deftly attempts to sidestep this issue by not addressing it at all and filing a standard damage affidavit in a non-standard transaction. Failing that, the Plaintiff has no right to foreclose and neither does any other party, without reforming the instruments or imposing a trust upon the property.

6.3.      Paragraph 6,of the proffered affidavit to support Summary Judgment fails to identify the Lender. This is intentional since the attempt here is to re-write history and make it appear that what he is attempting to state now is the same way the loan was originated, which serves as yet another ground for exception and objection by the defendants.

6.3.1.     The Affidavit, being the culmination of three years to litigating and research, Paragraph 7 fails therefore to state a basis, foundation or history under which the Defendant could be in default, since the records upon which the affiant relied, even if they were admitted, were not the full records of receipts and disbursements to the actual identified creditor(s0, the use of which term is assiduously avoided by Plaintiff’s boiler-plate affidavit. Defendant’s object to the statement of default, the terms of the default and the lack of foundation and competency to declare the defendants in default.

6.3.1.1.     In fact, the affiant fails to identify when the Defendants supposedly went into default and to whom the Defendant was in default — meaning that the creditor to whom the money was owed was actually still receiving payments even though Chase and all its subsidiaries were treating the loan is default. Response to discovery demands would show facts leading to the discovery of admissible evidence that the plaintiff was intentionally hiding the activities relating to payments and disbursements and status of the loan from the investor(s) who believed that the mortgage bond they purchased conveyed to them an undivided interest on Defendant’s loan when in fact Defendant’s loan was not in the REMIC pool and cannot be placed in the REMIC pool without adjudicating the rights of the investors to their detriment without notice of a hearing on the merits. to wit:

6.3.1.1.1.    Plaintiff is attempting to get his court to rule that the loan they say is in default must now be accepted into a pool and specifically is in J.P. Morgan Mortgage Acquisition Trust Corp 2006-CH1. This is an attempt to get this court to violate the PSA and prospectus to the detriment of the investors.

6.3.1.1.2.    This transaction , along with many others like it after years of NOT being in said pool is now being forced down the throats of the investors contrary to the terms of their  agreement in their prospectus and PSA was that they would only accept industry standard loans in good standing within the 90 day cut-off period required by the PSA and the REMIC statute.

6.3.1.1.3.    By having this court rule that the loan should be treated as being in the “trust” when there is no trust and the investors are essentially in a common law general partnership, these intermediaries are attempting to create a judicial ruling that will cover the tracks of their misbehavior.

6.3.1.1.4.    Such a ruling requires the investors to accept loans NOW that they previously were told and assured by the prospectus and PSA and agreed would NOT be part of the pool and for which their money would NOT be used for funding the loan. And yet their money was used to fund the Defendants’ loan outside of the chain of securitization documents whose only purpose to crate the illusion of transferring ownership in order to facilitate trading by the intermediaries in which they claimed ownership of the loan for purposes of collecting insurance, proceeds of credit default swaps, bailouts, government purchases and credit enhancements.

6.3.1.1.5.    Such investors are necessary and indispensable parties since the ruling by this court will adjudicate the rights of investors to reject loans that they already agreed they would never accept.

  1. 7.    This entire lawsuit is an inauthentic attempt to cure a botched loan closing that was intentional and/or grossly negligent to obscure the facts, create illusions of ownership and a vehicle to defraud this Court, the defendants’ who face multiple liabilities, and the investors who are being forced to accept “bad” loans outside the cut-off period and outside the parameters of an acceptable loan. IN the end, the Defendants intent to make both the lender and the borrower the losers in this transaction, when the Defendant in good faith wishes to settle on honorable terms, including a perfected lien even though no such lien currently exists.

ACCEPTANCE OF THE ASSIGNMENT AND STATUS OF THE ASSIGNMENT

OK so you feel a little lost. That is because most of us are jumping in at the end of a long series of events and documents.

The most important point for you to make in order to jar the Judge’s thinking is that the closing with the borrower took place in the middle of the chain of securitization and within the context of the securitization documents executed without the borrower, before the borrower existed even as a prospective customer for the loan product.

Those documents provide the context in which loans will be offered, approved, assigned, accepted, replaced, returned, insured etc. Thus the key documents that creates the securitization structure for the creation and pooling of loans precede the offering of a loan product to the borrower. The closing documents of the borrower are in the middle of the securitization chain not at the beginning. The assignment is near the end of the securitization chain in practice, contrary to the usual conditions and prohibitions contained in the original enabling documents that created the securitization structure and process.

NOTE: Do not make any assumptions that your loan was securitized. Even if it was securitized it is entirely possible, if not probable, that the “assignment” is barred by a cutoff date in the securitization documents, or that the assignment was not executed with the form and content required by the securitization documents. Thus even if there is an assignment, you should not assume that it was or could be accepted. It is highly possible if your loan appears to be securitized, or even if there is a “Trustee” under an alleged securitization structure that a party making a claim on an assignment is unaware of the absence of acceptance or even that there is no authority for the Trustee to accept the assignment.You can be certain that if the other party is unaware of these defects, that the Judge is equally unaware.

The key to understanding this evolving process is that the Judge is looking at your transaction as the beginning point. That is simply flat wrong and you need to make that point as clearly as you can.

The beginning was the creation of the securitization structure.

  • The first transactions that occurred was the sale of securities to unsuspecting investors.
  • The second transaction that occurred was that the investor money was put into an account at an investment banking firm.
  • The third transaction was that the investment banker divided the money between fees for itself and then distributing the funds to aggregators or a Depository Institution.
  • The fourth transaction was the closing with the borrower. The loan was funded with the money from the investor but because of the disparity between the interest payable to the investor and the interest payable by the borrower, a yield spread was created, adding huge sums to what the investment banker took as fees without disclosure to the ivnestors or the borrowers.
  • The fifth was the assignment AND ACCEPTANCE of the loan (See below) into between 1 and 3 asset pools, each bearing distinctive language describing the pool such that they appeared to be different assets than already presumed to exist in the first pool.
  • The sixth was the receipt of insurance or counter-party payments on behalf of the pool pursuant to the documents creating the securitization structure.
  • The seventh was the resecuritization of the pooled assets between one and three times.
  • The eighth was the federal bailout payments and receipts allocable to the balances owed on the loans that were claimed to be part of the pool.
  • The ninth are the foreclosures by parties who never handled any money who allegedly represent investors who no longer have any interest in the loan.

Through the creation of multiple entities that never existed before securitization of mortgage loans, the intermediaries are able to support the illusion that they never received payment from outside parties on the obligations owed from borrowers.

Most loans are assigned only after they are delinquent or even after foreclosure has been ordered. By definition, the documents creating the securitized pool usually prohibit such an assignment from being accepted into the pool. Therefore, although an assignment was executed, it is entirely possible that it accomplished nothing of legal consequence.

Also, even if the loan was ever in a securitized pool of assets, no assumptions should be made regarding the CURRENT STATUS of the “assigned” loan. Most documents that create the securitization structure, require the assignor to take back a non-performing loan and replace it with either cash or a comparable performing loan. Therefore, it is at the very least a question of fact as to whether the loan is still in the pool whether the assignment was effective or not.

I think the fundamental issue that we have been weak on presenting is ACCEPTANCE OF THE ASSIGNMENT and STATUS OF THE ASSIGNMENT. The pretender lenders have been successful thus far in directing the court’s attention to the note, Deed of Trust (Mortgage) and the assignment and away from the facts dealing with the obligation itself and the securitization. The error is in allowing the opposition and the Court to focus its attention on the creation of the obligation and the assignment of the note. In an ABCDE chain, this is the equivalent of looking at B and D and ignoring A,C and E.

Securitization involves many documents. In broad brush, it involves the

  • Closing documents between loan originators, servicers, Special Purpose Vehicles, aggregators, etc. including the pooling and services agreement, the assignment and assumption agreement, the Master Services Agreement  [if separate], none of which includes the borrower as party or references any specific debtor or borrower because the debtor is unknown when the securitization structure is created
  • pre-application documents before the borrower was even a prospect,
  • the pre-closing documents and effect of documents that are not referenced at closing
  • the closing documents with the borrower
  • the assignment(s)
  • the conditions imposed on the assignment (conditional assignment because the assignment was pursuant to the pre-application and pre-closing documents)
  • and post closing documents involving third party payments and resecuritization of the loan or resecuritization involving additional insurance, credit enhancements, federal bailouts etc.

It should be argued aggressively that the opposing party needs to prove its case and not have the benefit of the Court assuming that a prima facie case exists. The putative creditor in each case at bar is claiming their standing by virtue of an assignment. But that assignment only exists by virtue of a larger structure of securitization in which the documents describe the conditions under which such an assignment is acceptable and further conditions if the loans ceases to perform. Provisions requiring insurance, credit default swaps, credit enhancements, and others add co-obligors to the borrower’s transaction which takes place not at the beginning of the chain, but rather in the middle of the chain.

Florida 6th District Strikes at Heart of Pretender Lenders

5 08 10 Florida mediationorder

The main message is that what we have here is a legal obligation in search of a creditor and that the opposition is trying to use the court as a vehicle to steal the house and run with it while the whole securitization mess is scrutinized.

I think this Order is far more significant than it might seem both statewide in Florida and nationally. This Order, as I read it, requires (1) verification of the Lender’s status and (2) the ACTUAL authority of a designated person in writing, as a decision-maker; in plain language it asks whether the note is actually legally payable to the (pretender) Lender that wishes to foreclose and whether they have an actual live person who has the authority to mediate, execute a satisfaction of mortgage and otherwise make any final decisions on the settlement of the matter. That eliminates virtually 100% of all pretender lenders, which in turn eliminates virtually 100% of all foreclosures.

This Order should be used as persuasive argument that an entire district has found the need to do this, which combined with the other Supreme Court and trial decisions we have reported here, should be persuasive enough to give the Judge pause about who is the REAL party trying to get a FREE HOUSE.

In the Motion Practice Workshop, an underlying theme is that you should not be arguing in the abstract or the nuances. In one hearing after another your objective is to get the Judge to agree to at least one thing that is OBVIOUS procedurally and gradually get to the next hearing and then the next, in a process of education that gives the Judge time to process and absorb the reality of the situation.

The main message is that what we have here is a legal obligation in search of a creditor and that the opposition is trying to use the court as a vehicle to steal the house and run with it while the whole securitization mess is scrutinized.

Specialized Loan Services: “MISTAKE” Costs Elderly Couple Their Home

Editor’s Note: Besides the obvious, there are a number of not-so-obvious things to keep in mind.

  • The reason why they made the “mistake” is probably related to errors in procedure because they receive information from multiple sources. It is possible but unlikely that this was a normal error in posting. In Motion Practice and Discovery you would want to exploit such weaknesses to s how that there are too many “stakeholders” in the pie and that the procedures used to keep track of payments and status are intentionally obtuse to create plausible deniability when something like this happens with such horrendous results.
  • Ask yourself: why are all these players in the marketplace supposedly servicing different aspects of the loan? One for payments from borrower, another for payments from third party credit enhancements, another for federal bailouts, another to “substitute” for the original nominal party named at closing as the lender, another”Substitute” for the trustee, another to handle the delinquency, another to handle the default, another to handle the foreclosure sale etc.
  • Pretender lenders want the courts to handle foreclosures like “business as usual.” But business isn’t usual. When business was usual the bank that loaned the money was the bank that foreclosed on the mortgage or otherwise enforced the note. They should not be allowed to proclaim “business as usual” or standard operating procedure, or business records and affidavits, when business is far from usual.
  • Fabricated documents executed by people with dubious titles and even more dubious authority are being used to foreclose on property. The reason is simple: they don’t own the loan and they are successfully using the courts to steal from both the investors who advanced the money, the taxpayers to covered the money and the homeowners who advanced their home as collateral — all for a debt or obligation that no longer exists in the same form as the one presented at the borrower’s closing.
  • From www.themortgageinsider.net we find:

Specialized Loan Servicing LLC (SLS) is a mortgage servicer of residential mortgage loans primarily for other mortgage lenders. We uncovered three phone numbers, their website, and some pretty ugly customer complaints. We found an additional DBA name of The Terwin Group for SLS too.

Specialized Loan Servicing LLC Website and Phone Contacts

Specialized Loan Servicing LLC Website: https://www.sls.net/
Specialized Loan Servicing LLC Phone:
(800) 315-4757
(720) 241-7385
(720) 241-7364
Fax: (720) 241-7218
Address: 8742 Lucent Blvd. #300, Littleton, CO 80129

Specialized Loan Servicing LLC Review

Specialized Loan Servicing LLC services mortgage loans for other lenders and according to past customers, they have an ugly customer service track record.

When I search for complaints against Specialized Loan Servicing LLC, I found the worst complaints a mortgage service can get levied against them. Click here to see all the Specialized Loan Servicing LLC complaints listed in Google.

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Senior Couple Being Screwed Royally By Mortgage Servicer – Specialized Loan Servicers

H. Vincent and Theresa Price have lived in their home in Alameda for 32 years.  It’s where they raised their children.  They had always planned to leave it as their legacy.  They’ve NEVER been late on a mortgage payment… to this day! And they never wanted or asked for a loan modification.

Yes, everything was just fine at the Price home… until last September… when their mortgage servicer, Specialized Loan Services, made a mistake in their accounting department.  A simple mistake… they didn’t credit the Prices for having made their August and September mortgage payments, even though they most certainly did, just like they always had, and on time too.  Incredibly, less than five months later they had lost their home to foreclosure.

And today, although Mr. Price lies in a hospital bed with his wife at his side, they are scheduled to be LOCKED OUT by the Pasadena Sheriff’s Department pursuant to an order by the court.  If everything goes as planned by the mortgage servicer, when his doctors discharge him, the couple will be homeless.

How is such a thing possible?  Well, stay with me, because I promise you… this is not a story you’ve heard before.

According to the complaint filed in Los Angeles Superior Court, on August 1, 2008, Mrs. Price made the couple’s mortgage payment as she’s been doing for 32 years.  Certainly nothing remarkable about that.  A month later, when their September statement arrived showing that they owed their September payment, she made their mortgage payment again.  So far, so good, right?

It was right around September 29th that the Prices were notified that Specialized Loan Serivces had not received their August or September payments.  Mrs. Price assured the servicer’s representative that she had made the payments, and on time as always, thank you very much.

The servicer requested proof, so Mrs. Price sent in her bank statement showing that the payments had been made to Specialized Loan Services, and the amounts were deducted from her account on August 3rd and September 4th, respectively.  The Specialized representative called back to say they needed more proof, so she sent them a more detailed transaction report showing the payments having been made.  Still, not enough according to Specialized.  So, Mrs. Price went to her bank and had them print out her account’s record of the payment being made to Specialized and sent that document to the mortgage servicer.

The next call from Specialized came from a different representative of the servicer.  He informed Mrs. Price that they had not yet located her payments, but that her proof was acceptable and that they expected to soon. Meanwhile, he assured her, the servicer was placing a waiver on the October and November payments, a show of good faith, if you will, until the missing payments were found.  After a couple of weeks passed with no further word from Specialized, the Prices called to inquire as to the status of the situation.

They spoke with a woman who said her name was Lynette.  She told the Prices that their account was showing “CURRENT” for August, September, October and November, that they should make their next payment on the first of December, and that a new accounting statement would be sent out.

When no new statement had arrived two weeks later, the Prices called Specialized yet again.  It was November 23, 2008 and this time they spoke with another representative of the mortgage servicer, “Ben”.

They asked Ben about the new statement that was to have been sent out, but Ben had no idea what they were talking about.  He stated that he wasn’t aware of any sort of arrangement regarding the couple’s August and September payments, and further, now that they were four months late, if they did not make the delinquent payments and associated late charges within the next 24 HOURS… Specialized Loan Services WOULD FORECLOSE ON THE PROPERTY.

You can just imagine what happened next.  The Prices began calling the servicer asking to speak with the three representatives that had been speaking with over the last several months… the ones that had told them about the waiver and had been trying to find the missing payments.  They called… and called… and no one answered or returned their calls.  They then called the servicer’s Vice President of Customer Service… and… nothing.  No return call… nothing.

It was January when the Prices received their first piece of written communication from Specialized… it was a Notice of Default and Election to Sell.  Understandably, the couple was speechless.  How could this happen?  How was this possible?

The Prices were referred to a lawyer who said he was also a minister; a man identifying himself as a Mr. Reginald Jones.  Mr. Jones told the Prices that he was highly experienced in these matters and that he would file a lawsuit as soon as possible.  The couple would later learn that Mr. Jones was not an attorney.  What he had done was go into court, appearing as a plaintiff by claiming that he had an interest in the property, and file a frivolous lawsuit, which was later dismissed by the court…. as it might go without saying.

Now, having been defrauded by the so-called lawyer-minister, the Prices were forced to defend an unlawful detainer action in pro per, meaning without an attorney.  Unfortunately, they were not successful as they were told that they could not “litigate title in a summary proceeding,” which as I’m quite sure everyone would agree, they clearly should have known. They were advised that they should file an injunction, which they did, but unfortunately they mistakenly filed their injunction in the “wrong court,” and don’t we all hate it when that happens.

(I’m sorry for the sarcasm, but this is the most outrageous travesty of justice to which I’ve ever been exposed.)

The Prices searched and finally found an attorney they could trust, Zshonette Reed of the firm Lorden Reed in Chatsworth, California, but now it was only days before the Pasadena Sheriff would be locking the Prices out of their home potentially forever.  As quickly as was possible, Ms. Reed prepared the legal documents required for the filing of a Temporary Restraining Order, or TRO, and with her clients at her side, and confident that this horrendous injustice would not be allowed to prevail, she appeared in Superior Court yesterday, September 15, 2009.

The Price home is to be locked up by the Pasadena Sheriff today, although because that office is closed for a special training day today, the event has been moved to tomorrow.

Astonishingly, the judge denied her motion for a TRO, ruling that he had no jurisdiction over the judgment that had been entered against the Prices in the unlawful detainer court.  So, immediately she and her clients proceeded to the unlawful detainer court to ask that judge, in layman’s terms, to put a stop to the madness.

It may be hard for a reader to believe, but that judge also refused to provide the Prices any relief, because he said that the attorney could not litigate title in that court.  It was a classic Catch-22.  Ms. Reed couldn’t get relief from the Superior Court because that court said that it had no jurisdiction over the unlawful detainer court, and the unlawful detainer court wouldn’t provide relief because you can’t litigate title anywhere but in the Superior Court.  Ms. Reed begged the judge, explaining that her client’s home was to be locked up by the sheriff the very next day.  She needed time to prepare to present her client’s case to the appellate court.  The answer was still no.

Ms. Reed and her clients left the courthouse shocked and scared.  Mr. Price was clearly distressed as was his wife, and he was having a hard time breathing so he went to sit down on a stoop.  He went into cardiac arrest right there in front of the courthouse and was rushed to the hospital where he is today with his wife by his side.

Meanwhile, the Pasadena Sheriff is scheduled to lock the couple out of their home today, although that looks like it won’t be until tomorrow due to the department taking today off for special training.

Can you even imagine the horror?  After 32 years living in your home, raising your family, never being late on a mortgage payment… and then this?  It’s unthinkable.

And it cannot be allowed to happen to the Prices or anyone else.

The worst part is that, although this is certainly an extreme case, it is far from being the only example of mortgage servicers and banks disregarding the law, and abusing homeowners.  Why do they do it?  I don’t know… because they can, comes to mind.

How can a homeowner hope to go up against a bank or mortgage servicer?  They can’t.  It would seem that even the President of the United States and the United States Treasury is having trouble getting these companies to behave like human beings.

It’s time that the people of this country come to understand what’s happening here.  Past time.

The Importance of Discovery and Motion Practice

Practically all the questions I get relate to how to prove the case that the loan was securitized. This is the wrong question. While it is good to have as much information about the pool a loan MIGHT BE INCLUDED, that doesn’t really answer the real question.

The real question is what is the identity of the creditor(s). The secondary question is what is owed on my obligation — not how much did I pay the servicer.

It might seem like a subtle distinction but it runs to the heart of the burden of proof. You can do all the research in the world and come up with the exact pool name that lists your property in the assets as a secured loan supporting the mortgage backed security that was issued and sold for real money to real investors.  But that will not tell you whether the loan was ever really accepted into the pool, whether it is still in the pool, or whether it is paid in whole or in part by third parties through various credit enhancement (insurance) contracts or federal bailout.

You must assume that everything is untrue. That includes the filings with the SEC. They may claim the loan is in the pool and even show an assignment. But as any first year law student will tell you there is no contract unless you have an offer AND an acceptance. If the terms of the pooling and service agreement say that the cutoff date is April 30 and the assignment is dated June 10, then by definition the loan is not in the pool unless there is some other documentation that overrides that very clear provision of the pooling and service agreement.

Even if it made it into the pool there are questions about the authenticity of the assignment, forgery and whether the pool structure was broken up (trust dissolved, or LLC dissolved) only to be broken up further into one or more new resecuritized pools. And even if that didn’t happen, someone related to this transaction most probably received payments from third parties. Were those allocated to your loan yet? Probably not. I haven’t heard about any borrower getting a letter with a new amortization schedule showing credits from insurance allocated to the principal originally due on the loan.

The pretender lenders want to direct the court’s attention to whether YOU paid your monthly payments, ignoring the fact that others have most likely made payments on your obligation. Remember every one of these isntruments derives its value from your loan. Therefore every payment on it needs to be credited to your loan whether the payment came from you or someone else. [You know all that talk about $20 billion from AIG going to Goldman Sachs? They are talking about YOUR LOAN!]

The error common to pro se litigants, lawyers and judges is that this is not a matter of proof from the borrower. The party sitting there at the other table in the courtroom with a file full of this information is the one who has it — and the burden of proof. Your case is all about the fact that the information was withheld and you want it now. That is called discovery. And it is in motion practice that you’ll either win the point or lose it. If you win the point about proceeding with discovery you have won the case.

You still need as much information as possible about the probability of securitization and the meaning it has in the context of the subject mortgage. But just because you don’t have it doesn’t mean the pretender lender has proved anything. What they have done, if they prevailed, is they blocked you from getting the information.

By rights you shouldn’t have to prove a thing about securitization where there is a foreclosure in process. By rights you should be able to demand proof they are the right people with the full accounting of all payments including receipts from insurance and credit default swaps. The confusion here emanating from Judges is that particularly in non-judicial states, since the borrower must bring the case to court in the first instance, the assumption is made that the borrower must prove a prima facie case that they don’t owe the money or that the foreclosing pretender lender is an impostor. That’s what you get when you convert a judicial issue into a non-judicial one on the basis of “judicial economy.”

In reality, the ONLY way that non-judicial statutes can be constitutionally applied is that if the borrower goes to the trouble of raising an objection by bringing the matter to court, the burden of proof MUST shift immediately to the pretender lender to show that in a judicial proceeding they can establish a prima facie case to enforce the obligation, the note and the mortgage (deed of trust). ANY OTHER INTERPRETATION WOULD UNCONSTITUTIONALLY DENY THE BORROWER THE RIGHT TO A HEARING ON THE MERITS WHEREIN THE PARTY SEEKING AFFIRMATIVE RELIEF (THAT IS THE FORECLOSING PARTY, NOT THE BORROWER) MUST PROVE THEIR CASE.

Padget v OneWest – IndyMac Provides some insight into RESPA remedies

The Ocwen Court provided an example for clarity: “Suppose an S & L signs a mortgage agreement with a homeowner that specifies annual interest rate of 6 percent and a year later bills the homeowner at a rate of 10 percent and when the homeowner refuses to pay institutes foreclosure proceedings. It would be surprising for a federal regulation to forbid the homeowner’s state to give the homeowner a defense based on the mortgagee’s breach of contract.” Ocwen, 491 F.3d at 643-44.

Padget-One west bank dba Indymac

Editor’s Note: The assumption was made that One West owned the loan when it was clearly securitized. One West used the fact that Plaintiff admitted that One West was the owner of the loan and therefore undermined Plaintiff’s case against One West as a debt collector which requires the actor to be collecting for the benefit of a third party.

This is where the rubber meets the road. either you are going to master the nuance introduced by securitization or you are going to let the other side have a field day with misrepresentations that you have admitted are true.

PADGETT, Plaintiff,
v.
ONEWEST BANK, FSB, d/b/a INDYMAC

Civil Action No. 3:10-CV-08
United States District Court, Northern District of West Virginia, Martinsburg

parties filed an Agreed Order in the bankruptcy court resolving IndyMac’s motion to lift the automatic stay. (Id. at ¶ 14). Pursuant to this Agreed Order, the plaintiff’s mortgage was deemed current as of May 1, 2008, and the one payment for which the plaintiff was in arrears was added onto the end of the mortgage. (Id. at ¶¶ 15-
16). The first payment due under the Agreed Order was due in May 2008. (Id. at ¶ 17). The plaintiff made the May 2008 payment in a timely fashion and has made his monthly mortgage payment each month after May 2008, up to and including the date of the filing of the plaintiff’s First Amended Complaint. (Id. at ¶¶ 18-19).

In March 2009, Defendant OneWest Bank, F.S.B. (“OneWest”) purchased IndyMac, whereupon IndyMac Mortgage Services (“IndyMac MS”) became a division of OneWest. (Id. at ¶¶ 20-21). On July 16, 2009, OneWest, doing business as IndyMac MS, sent the plaintiff a letter claiming he was one month behind on his payments. (Id. at ¶ 22). In response, on July 28, 2009, the plaintiff wrote to OneWest, enclosing a copy of the Agreed Order from his bankruptcy proceeding and requesting that OneWest supply him with documentation that he nevertheless remained one month behind. (Id. at
¶¶ 24-26). Again, on August 3, 2009, and September 16, 2009, IndyMac MS sent letters to the plaintiff alleging he was behind on his mortgage payments. (Id. at ¶¶ 28-29).

OneWest continues to assess monthly late fees against his account and has informed credit reporting agencies that the plaintiff’s mortgage is delinquent, though plaintiff alleges he is current on his monthly mortgage payments.

OneWest argued that all of the plaintiff’s claims for relief were preempted by the Home Owners’ Loan Act of 1933, 12 U.S.C. § 1461, et seq. (“HOLA”). (Id. at 4).

Motion to Dismiss denied in part and granted in part. Motion to Strike denied. Plaintiff was allowed to proceed.

Discovery Hints: Goldman Sachs may not be the only firm in SEC cross hairs

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP 5/23-24

Editor’s Notes: These lawsuits from the SEC, the Class Action lawyers etc., are already producing fall-out — dozens of articles and production of secret emails etc. that can only help your case. Follow them closely as they will inevitably lead to admissible evidence of what you can only argue generally now.Use Google and other search engines and subscribe to securitization sites.

In motion practice your credibility will be enhanced if you can refer to other cases where government agencies, attorneys general, U.S. Attorneys etc. have filed cases alleging the same thing you are alleging. To the extent that it is truthful to say so, you can point to various elements of proof that are coming out of those cases. This will vastly enhance your ability to gain the Judge’s attention — but don’t try to prove YOUR case simply on the basis that it appears to be true in OTHER cases. Use these other cases to establish your foundation for discovery requests and why they MUST come up with all the documents, ledgers, accounting and bookkeeping data, distribution reports, emails etc. related to the pool in which your particular loan is located.

Goldman Sachs may not be the only firm in SEC cross hairs

The agency’s fraud suit against the Wall Street giant may foreshadow similar cases against other financial firms and trigger a wave of private litigation.

By E. Scott Reckard, Los Angeles Times

April 22, 2010 | 3:32 p.m.

The government’s fraud lawsuit against Goldman, Sachs & Co. could portend cases against other financial giants that turned subprime mortgages into complex securities while also accelerating a surge in private litigation against Wall Street.

In announcing the Goldman case, Securities and Exchange Commission enforcement chief Robert Khuzami said the agency was looking into similar transactions at other firms. As the SEC struggles to shed its image as the snoozing securities cop that missed Bernard L. Madoff’s vast Ponzi scheme, the agency is likely to bring additional cases, said Alan Bromberg, a securities law professor at Southern Methodist University.

“The SEC has become pretty aggressive, so it’s a good bet,” Bromberg said. Goldman, he said, was probably chosen as the first target because of its prominence. “It is the biggest and by most estimates the best firm on Wall Street.”

Goldman Sachs is accused of failing to disclose that a hedge fund that helped it create complex securities had actually placed a bet that the investment would fail. Goldman has said it provided full disclosure to sophisticated investors who knew that some other knowledgeable party was betting against them.

The suit against Goldman will undoubtedly encourage similar claims by investors, said Boston University securities law expert Elizabeth Nowicki.

Private lawyers “are going to start filing these suits like they’re going out of style,” she said.

It’s not unusual for SEC cases to pave the way for private lawsuits. For example, the SEC’s announcement that it was investigating conflicts of interest by securities analysts in 2001 triggered a wave of private litigation making the same allegation.

In the case of the mortgage-linked investments known as collateralized debt obligations, a variation of which is at the heart of the Goldman Sachs case, lawyers for investors had already begun their assault.

UBS, Morgan Stanley, Merrill Lynch and Deutsche Bank face private lawsuits alleging they misled investors in CDOs or similar investments. The firms, like Goldman, have denied any wrongdoing.

“The question is whether the SEC has uncovered the tip of the iceberg,” Nowicki said.

The issue is especially important, she said, because the high-risk investments caused such huge losses for financial firms and investors around the world, magnifying the effect of the collapse of the housing and mortgage markets.

“Without these devastating transactions we would have had a regular downturn in the housing markets and not a near depression,” said Nowicki, a former SEC attorney who practiced securities law on Wall Street and has testified as an expert witness in disclosure cases.

The financial crisis has spawned hundreds of lawsuits, with the targets shifting from the lenders that made dubious home loans to the Wall Street firms that transformed mortgage bonds backed by subprime loans into supposedly solid investments, Jonathan Pickhardt, a securities-law attorney, wrote in a recent legal journal article.

The suits that deal with CDOs include allegations that some of the firms creating and marketing CDOs stuffed troubled assets into them without disclosure, especially as mortgage defaults surged in 2007; improperly influenced CDO management firms that were hired to pick assets independently; and withheld key information from credit-rating firms.

The bar of proof appears higher in CDO cases than in the SEC’s suits last year against former executives of Countrywide Financial Corp. of Calabasas and New Century Financial Corp. of Irvine, two major companies brought down by the mortgage meltdown.

That’s because the suits against the executives, including Countrywide co-founder Angelo Mozilo, accuse them of misleading individual shareholders and other members of the investing public. Mozilo and the other defendants in these cases have denied the allegations.

In contrast, the participants in the CDO transactions were, as UBS put it in statements responding to two CDO-related lawsuits, “professional and knowledgeable” banks and sophisticated investors who knew what they were buying.

Making it tougher still to prove fraud, the transactions in the SEC action against Goldman and a private suit targeting Merrill Lynch involved so-called synthetic CDOs. Such creations don’t contain actual mortgage bonds. Instead they hold insurance-like instruments tied to a portfolio of mortgage bonds. The CDOs essentially sold insurance on the bonds. Other investors bought that insurance, betting that home-loan defaults would lower the value of both the bonds and the CDOs themselves.

As a result, the structure of synthetic CDOs required outside investors to bet that the CDOs would incur losses.

For example, in a case brought by Rabobank, a large Dutch financial firm, against Merrill Lynch, now part of Bank of America Corp., the Wall Street firm said the CDO contract contained standard language obliging investors to conduct their own research on the deal and not rely on information provided by Merrill.

scott.reckard@latimes.com

Discovery and Motion Practice: Watch Those Committee Hearings on Rating Agencies

Editor’s Note: As these hearings progress, you will see more and more admissible evidence and more clues to what you should be asking for  in discovery. You are getting enhanced credibility from these government inquiries and the results are already coming out as you can see below.The article below is a shortened version of the New York Times Paper version. I strongly recommend that you get the paper today and read the entire article. Some of the emails quoted are extremely revealing, clear and to the point. They knew they were creating the CDO market and that it was going to explode. One of them even said he hoped they were rich and retired when the mortgage mess blew up.
Remember that a rating is just word used on Wall Street for an appraisal So Rating=Appraisal.
  • The practices used to corrupt the rating system for mortgage backed securities  were identical in style to the practices used to corrupt the appraisals of the homes.
  • The appraisals on the homes were the foundation for the viability of the loan product sold to the borrower.
  • In the case of securities the buyers were investors.
  • In the case of appraisals the buyers were homeowners or borrowers.
  • In BOTH cases the “buyer” reasonably relied on an “outside” or “objective” third party who whose opinion was corrupted by money from the seller of the financial product (a mortgage backed security or some sort of loan, respectively).
  • In the case of the loan product the ultimate responsibility for verification of the viability of the loan, including verification of the appraisal is laid squarely on the LENDER.
  • Whoever originated the loan was either passing itself off as the lender using other people’s money in a table funded loan or they were the agent for the lender who either disclosed or not disclosed (nearly always non-disclosed).
  • A pattern of table funded loans is presumptively predatory.
  • The appraisal fraud is a key element of the foundation of your case. If the appraisal had not been inflated, the contract price would have been reduced or there would have been no deal because the buyer didn’t have the money.
  • The inflation of the appraisals over a period of time over a widening geographical area made the reliance on the appraiser and the “lender” even more reasonable.
  • Don’t let them use that as proof that it was market forces at work. Use their argument of market forces against them to establish the pattern of illegal conduct.
April 22, 2010

Documents Show Internal Qualms at Rating Agencies

By SEWELL CHAN

WASHINGTON — In 2004, well before the risks embedded in Wall Street’s bets on subprime mortgages became widely known, employees at Standard & Poor’s, the credit rating agency, were feeling pressure to expand the business.

One employee warned in internal e-mail that the company would lose business if it failed to give high enough ratings to collateralized debt obligations, the investments that later emerged at the heart of the financial crisis.

“We are meeting with your group this week to discuss adjusting criteria for rating C.D.O.s of real estate assets this week because of the ongoing threat of losing deals,” the e-mail said. “Lose the C.D.O. and lose the base business — a self reinforcing loop.”

In June 2005, an S.& P. employee warned that tampering “with criteria to ‘get the deal’ is putting the entire S.& P. franchise at risk — it’s a bad idea.” A Senate panel will release 550 pages of exhibits on Friday — including these and other internal messages — at a hearing scrutinizing the role S.& P. and the ratings agency Moody’s Investors Service played in the 2008 financial crisis. The panel, the Permanent Subcommittee on Investigations, released excerpts of the messages Thursday.

“I don’t think either of these companies have served their shareholders or the nation well,” said Senator Carl Levin, Democrat of Michigan, the subcommittee’s chairman.

In response to the Senate findings, Moody’s said it had “rigorous and transparent methodologies, policies and processes,” and S.& P. said it had “learned some important lessons from the recent crisis” and taken steps “to increase the transparency, governance, and quality of our ratings.”

The investigation, which began in November 2008, found that S.& P. and Moody’s used inaccurate rating models in 2004-7 that failed to predict how high-risk residential mortgages would perform; allowed competitive pressures to affect their ratings; and failed to reassess past ratings after improving their models in 2006.

The companies failed to assign adequate staff to examine new and exotic investments, and neglected to take mortgage fraud, lax underwriting and “unsustainable home price appreciation” into account in their models, the inquiry found.

By 2007, when the companies, under pressure, admitted their failures and downgraded the ratings to reflect the true risks, it was too late.

Large-scale downgrades over the summer and fall of that year “shocked the financial markets, helped cause the collapse of the subprime secondary market, triggered sales of assets that had lost investment-grade status and damaged holdings of financial firms worldwide,” according to a memo summarizing the panel’s findings.

While many of the rating agencies’ failures have been documented, the Senate investigation provides perhaps the most thorough and vivid accounting of the failures to date.

A sweeping financial overhaul being debated in the Senate would subject the credit rating agencies to comprehensive regulation and examination by the Securities and Exchange Commission for the first time. The legislation also contains provisions that would open the agencies to private lawsuits charging securities fraud, giving investors a chance to hold the companies accountable.

Mr. Levin said he supported those measures, but said the Senate bill, and a companion measure the House adopted in December, did not go far enough.

“What they don’t do, and I think they should do, is find a way where we can avoid this inherent conflict of interest where the rating companies are paid by the people they are rating,” he said. “We’ve got to either find a way — or direct the regulatory bodies to find a way — to end that inherent conflict of interest.”

Although the agencies were supposed to offer objective and independent analysis of the securities they rated, the documents by Mr. Levin’s panel showed the pressures the companies faced from their clients, the same banks that were assembling and selling the investments.

“I am getting serious pushback from Goldman on a deal that they want to go to market with today,” a Moody’s employee wrote in an internal e-mail message in April 2006.

In an August 2006 message, an S.& P. employee likened the unit rating residential mortgage-backed securities to hostages who have internalized the ideology of their kidnappers.

“They’ve become so beholden to their top issuers for revenue they have all developed a kind of Stockholm syndrome which they mistakenly tag as Customer Value creation,” the employee wrote.

Lawrence J. White, an economist at the Stern School of Business at New York University, said he feared that the government’s own reliance on the rating agencies had “endowed them with some special aura.”

The House bill calls for removing references to the rating agencies in federal law, and both bills would require a study of how existing laws and regulations refer to the companies.

The addition of new regulations might inadvertently serve to empower the agencies, Mr. White said. “Making the incumbent guys even more important can’t be good, and yet that’s the track that we’re on right now,” he said.

David A. Skeel, a law professor at the University of Pennsylvania, said the Senate bill “basically just tinkers with the internal governance of the credit rating agencies themselves.”

Ending the inherent conflicts of interest is “more ambitious, but if you’re ever going to talk about it, then this is the time,” Mr. Skeel said.

Binyamin Appelbaum contributed reporting.

Discovery, Forensic Analysis and Motion Practice: The Prospectus

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

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

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

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

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

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

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

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

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

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

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