Stop Referring to Defaults as Something Real

Referring to the default as real, but with an explanation of how it is subject to rationalization or argument, completely undermines your argument that they have no  right to be in court, to collect, to issue notices or initiate foreclosure. 

…when you refer to the default, you should refer to it as a false claim of default because at no time was Deutsch or any trust or any group of investors ever receiving payments from you as borrower. Nor did they have any contractual right to expect such payments from you as borrower. So Deutsch didn’t suffer any default and neither did the investors who own certificates that are not ownership interests in the debt, note or mortgage. And Deutsch won’t get any proceeds if the property is subjected to a foreclosure sale.

Questions to the servicer about how, when and where they made payments to Deutsch, or Deutsch as Trustee, or any trust, or any group of investors holding certificates will reveal their absence from the money trail. No such payments exist nor will they ever exist.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
A few hundred dollars well spent is worth a lifetime of financial ruin.
PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.
Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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I take issue with the practice of referring to “the default.” When someone refuses or stops paying another person that does not automatically mean that a default exists. A default only exists if the the payment was due to a specifically identified party and they didn’t get it. Failure to pay a servicer is not a default. Failure to pay a servicer who is sending your payments to a creditor IS a default.
Since the fundamental defense for borrowers that wins cases is that the claimant has no right to be in court, it seems wrong to refer to”the default.” It should be “the claimed default.”
If your refusal to make payment was in fact a default as to Deutsch as Trustee of a real trust or as authorized representative of the certificate holders (they never make that clear), then all of your arguments come off as technical arguments to get out of a legitimate debt. You will lose.
On the other hand if your position (i.e., your denial and affirmative defenses) is that Deutsch is not a party on its own behalf and that it is being named by attorneys as being in a representative capacity for (a) a trust that does not exist or (b) for holder of certificates that do not convey title to the debt, note or mortgage and are specifically disclaimed, then you have a coherent narrative for your defense.
And if you further that argument by asserting that Deutsch has never received any payments and does not receive the proceeds of foreclosure on its own behalf nor as trustee for any trust or group of investors and will not receive those proceeds in this case then you push the knife in deeper.
So if Deutsch is not appearing on its own behalf and the parties that the lawyers say it is representing either don’t exist or are not identified, then the action is actually being filed in the name of Deutsch but for and on behalf of some other unidentified party who may or may not have any right to payment.
What is certain is that Deutsch is being represented as the owner of the loan when it is not.  The owner of a loan receives payments. Deutsch never receives payment from anyone and the investors never receive payment from the borrowers. If they did the servicer would have records of that. 
So when you refer to the default, you should refer to it as a false claim of default because at no time was Deutsch or any trust or any group of investors ever receiving payments from the homeowner as borrower. Nor did they have any contractual right to expect such payments from you as borrower. So Deutsch didn’t suffer any default and neither did the investors who own certificates that are not ownership interests in the debt, note or mortgage. And Deutsch won’t get any proceeds if the property is subjected to a foreclosure sale. 
If Deutsch didn’t suffer any default it could not legally declare one. If the declaration of default was void, then there is no default declared. In fact, there is no default until a  creditor steps forward and says I own the debt that I paid for and I suffered a default here. But there is no such party/creditor because the investment bank who funded the origination or acquisition of the loan has long since sold its interest in the loan multiple times.
Thus when lawyers or as servicer or both sent notices of delinquency or default they did so knowing that the party on whose behalf they said they were sending those notices had not suffered any delinquency or default.
When homeowners refer to the default as real, but with an explanation of how it is subject to rationalization or argument, they completely undermine their argument that they have no  right to be in court, to collect, to issue notices or initiate foreclosure. 
And remember that the sole reason for foreclosures in which REMIC claims are present is not repayment, because that has occurred already. The sole reason is to maintain the illusion of securitization which is the cover for a PONZI scheme. The banks are seeking to protect “profits” they already have collected not to obtain repayment. That is why a “Master Servicer” is allowed to collect the proceeds of a foreclosure sale rather than anyone owning the debt.
Also remember that while it might be that investors could be construed as beneficiaries of a trust, if it existed, they actually are merely holders of uncertificated certificates in which they disclaim any interest in the debt, note or mortgage.  Hence  they have no claim, direct or indirect, against any individual borrower. 

PRACTICE NOTE: Don’t assert anything you cannot prove. Leave the burden of proof on the lawyers who have named an alleged claimant who they say or imply possesses a claim. Deny everything and force them to prove everything. Discovery should be aimed at revealing the gaps not facts that will prove some assertion about securitization in general. Judges don’t want to hear that.
Appropriate questions to ask in one form or another are as follows:
  1. Who is the Claimant/Plaintiff/Beneficiary?
  2. Who will receive the proceeds of foreclosure sale?
  3. Before the default, who received the proceeds of payment from the subject borrower? [They will  fight this tooth and nail]
  4. Did the trustee ever receive payments from the borrower?
  5. Does the trustee in this alleged trust have any contractual right to receive borrower payments?
  6. Do holders of certificates receive payments from the borrower through a servicer?

Why Fabrications? Why Forgeries?

In an increasing number of foreclosure cases, homeowners are going head to head with the lawyers who file claims on behalf of entities on the basis of fabricated and/or forged instruments that in many cases were also recorded in county records. Lawyers like Dan Khwaja in Illinois are getting clearer and clearer about it. They hire experts who understand exactly how the notes are mechanically created and the endorsements are not real signatures.

The key question is why would the notes have been fabricated and forged when there actually was a closing and a note was actually signed? We’re talking about the financial industry whose reputation depends upon safeguarding all signed documents. If they didn’t safeguard the documents and instead destroyed them or “lost” them, why was that allowed to happen?

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Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
A few hundred dollars well spent is worth a lifetime of financial ruin.
PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.
Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
==========================

So we have a case in Illinois where lawyers filed a judicial foreclosure on behalf of Bank of New York/Mellon (BONY) as trustee (i.e. representative of) “holders” of certificates. The lawyers attach a copy of a note and indorsements. Khwaja hired an expert who found quite definitively that the note and the endorsements were all fabricated (forged). Khwaja has filed a motion for summary judgment.

Here is my analysis:

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The lawyers who filed the claim have a serious problem. If they cannot convince the judge that they have no need to respond they are dead in the water. They must either pay someone to commit perjury or seek to amend with an actual original note. In view of prior studies that show that most (or at least half) of all notes were “lost or destroyed” immediately following the “closing” combined with your expert on hand, coming up with the original note is not an option.
*
And that brings us to the question of “why?” If there really was a closing at which the borrower signed documents, why do they need fabricated documents? To me, the answer is simple. In order to sell the same loan multiple times they needed to convert from actual to imaged documents. The actual one had to disappear. And the handful of megabanks who had a virtual monopoly on tens of millions of mortgage transactions made it “custom and practice” to use images rather than actual documents. [This practice has spilled over to property sale contracts where neither party gets an original].
*
And we have the additional issue which is presented by the foreclosure complaint. It says that BONY appears on behalf of the holders of certificates. The simple question is “so what?”
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Being holders of certificates means nothing. It leaves out any assertion that the holders of the certificates are owners of the certificates, or anything that might identify those “holders”. So the proceeds of foreclosure could then go to whoever was chosen by the parties actually pulling the strings.
*
They are asking the court to fill in the blanks. They want the court to draw an inference without ever stating the fact to be inferred, to wit: the holders of the certificates are owners of the certificates who are therefore owners of the debt, note and mortgage. There simply is no such allegation nor any exhibit indicating that is true. The reason is that it is not true.
*
So who is really the Plaintiff? Supposedly not BONY who is appearing in a representative capacity.
*
If “sanctions” were applied against the “Plaintiff” BONY would claim it is not the actual party and that the unidentified “holders” of certificates are the proper party or perhaps an implied trust.
*
So then is it the certificate holders, represented by BONY? But they don’t have any right, title or interest to the subject debt, note or mortgage. The prospectus and certificate indentures make that abundantly clear in most cases.
*
Examining what happens after a foreclosure is “successful” provides clues. Neither BONY nor any certificate holder ever receives the actual money from the proceeds of the purported sale of the property.
*
So who does?
*
As the one party with actual control over the loan receivable, the investment bank that created the “securitization” scheme is the only party that comes close to being an actual creditor. But here is their problem: that loan receivable has been sold multiple times. This not only leaves them with no claim to the debt, but a surplus of funds over and above the amount due on what was the loan receivable. It’s basic accounting and bookkeeping. And if that were not true the banks would not be doing it.
*
So in the real world it is the investment bank that gets the proceeds of a foreclosure sale. But they do it as the “Master Servicer” of an implied (and nonexistent) trust. The money simply disappears.
*
In order to get away with selling the debt multiple times they had to make each sale a non recourse sale. And they did that. So the buyers of the debt, note and mortgage had no actual legal title to the debt, note and mortgage and no recourse to the borrower to collect on the unpaid debt.
*
THAT leaves NOBODY as owner of a debt that has probably been extinguished and reveals the paper issued to buyers/investors as essentially the issuance of cash equivalent instruments (also known as currency). And THAT is the reason the banks, after  two decades of this nonsense, have yet to come to court and simply say “here is proof of our funding of the origination or purchase of the debt, note and mortgage.”
*
If they did, they would be admitting to lying in millions of foreclosure cases over at least a 15 year period of time. Their scheme effectively concentrated the risk of loss on investors and borrowers while literally retaining all the benefits of supposed loan transactions for the sole benefit of the intermediaries, who then leveraged loans multiple times.
*
This translates as follows: the money taken from investors is an unsecured liability of the investment bank. To be sure that has a value — but not a value derived from loans to homeowners. THAT value was taken by the investment bank who cashed in on it already.
*
Note: For certain second tier investment bankers there were transition periods in which they were at actual risk. Examples include Lehman and Bear Stearns. But the top tier was able to sell forward on the certificates and never commit a single dime of their own money into the securitization scheme even in transition. But by pointing to Lehman and Bear Stearns they were able to convince policy makers that they were in the same position. This produced the “bailout” which was essentially the payment of even more money for losses that did not exist.
*
In an odd twist of irony, Wells Fargo was the only party (2009) that admitted to no loss but was forced to take bailout money so that other “less fortunate” parties would not be singled out as weak institutions.
*
In truth the AIG bailout and similar bailouts were merely payments of extra profits to Goldman Sachs and some other players, leaving investors and borrowers stranded with nearly worthless investments and collapsed markets for both homes, whose prices had been inflated by over 100% over value, and a nonexistent market for the bogus certificates that the Fed chose to revive by its purchasing program of “mortgage bonds” that were neither bonds nor backed by mortgages.
*
Despite the complexity of all this, on a certain level most people understand that the banks caused the misery of the meltdown and profited from it.  They also understand that it is still happening. The failure of government to deal appropriately with the existential threat posed by the megabanks clearly played into and perhaps caused the social unrest around the world in the form of “populist” movements. And until governments deal with this issue head-on, people will be looking for political candidates who show that they are willing to take a wrecking ball to the banks and anyone who is protecting them.
*
In the meanwhile, an increasing number of homeowners (again) are walking away from homes in the mistaken belief that they have an unpaid debt to the party named as the claimant against them.

UCC Hierarchy of Rights to Enforce Note and Mortgage

HAPPY NEW YEAR to readers who celebrate Rosh Hashanah! To all others, have a HAPPY DAY. This is a prescheduled article.

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I have assembled a partial list of various possible claimants on the note and various possible claimants on the mortgage. Which one of these scenarios fits with your case? Once you review them you can see why most law students fall asleep when taking a class on bills and notes. Some of these students became practicing attorneys. Some even became judges. All of them think they know, through common sense, who can enforce a note and under what circumstances you can enforce a mortgage.

But common sense does not get you all the way home. It works, once you understand the premises behind the laws that set forth the rights of parties seeking to enforce a note or the parties seeking to enforce a mortgage. The only place to start is (1) knowing the fact pattern alleged as to the note (2) knowing the fact pattern alleged as to the mortgage and (2) looking at the laws of the state in which the foreclosure is pending to see exactly how that state adopted the Uniform Commercial Code as the law of that state.

I don’t pretend that I have covered every base. And it is wise to consider the requirements of law, as applied to the note, and the requirements of equity as applied to the mortgage.

In general, the UCC as adopted by all 50 states makes it fairly easy to enforce a note if you have possession (Article 3).

And in general, the UCC as adopted by all 50 states, increases the hurdles if you wish to enforce a mortgage through foreclosure. (Article 9).

The big one on mortgages is that the foreclosing party must have paid value for the mortgage which means the foreclosing party must have purchased the debt. But that is not the case with notes — except in the case of someone claiming to be a holder of the note in due course. A holder in due course does not step into the lender’s shoes — but all other claimants listed below do step into the lender’s shoes.

The other major issue is that foreclosing on a mortgage invokes the equitable powers of the court whereas suing on the note is simply an action at law. In equity the court takes into consideration whether the outcome of foreclosure is correct in the circumstances. In suits on notes the court disregards such concerns.

Knowing the differences means either winning or losing.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

I provide advice and consent to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM. A few hundred dollars well spent is worth a lifetime of financial ruin.

PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORMWITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.

Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

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

===========================

UCC Hierarchy 18-step Program – Notes and Mortgages

The following is a list of attributes wherein a party can seek to enforce the note and mortgage if they plead and prove their status:

  1. Payee with possession of original note and mortgage.
  2. Payee with lost or destroyed original note but has original mortgage.
  3. Payee with lost or destroyed original note and lost or destroyed original mortgage.
  4. Holder in Due Course with original note endorsed by payee and original mortgage and assignment of mortgage by mortgagee.
  5. Holder in due course with lost or destroyed note but has original mortgage.
  6. Holder in due course with lost or destroyed original note and lost or destroyed original mortgage.
  7. Holder with rights to enforce with possession of original note and original mortgage.
  8. Holder with rights to enforce with lost or destroyed original note but has original mortgage.
  9. Holder with rights to enforce with lost or destroyed original note but does not have original mortgage.
  10. Possessor with rights to enforce original note and original mortgage
  11. Former Possessor with rights to enforce lost or destroyed note and original mortgage
  12. Former Possessor with rights to enforce lost or destroyed note but does not have original mortgage.
  13. Non-possessor with rights to enforce original note and original mortgage (3rd party agency)
  14. Non-possessor with rights to enforce lost or destroyed note (3rd party agency) and rights to enforce original mortgage
  15. Non-Possessor with rights to enforce lost or destroyed note (3rd party agency) but does not have the original mortgage.
  16. Assignee of purchased original mortgage with possession of original mortgage but no rights to enforce note.
  17. Assignee of purchased original mortgage without possession of original mortgage and no rights to enforce note.
  18. Purchaser of debt but lacking assignment of mortgage, endorsement on the note, and now has learned that the loan was purchased in the name of a third party and lacking privity with said third party. [This category is not directly addressed in the UCC. It is new, in the world of claims of securitization]

Facts matter. It is only by careful examination of the fact pattern and comparing the facts with the attributes listed in the UCC that you can determine the strategy for a successful foreclosure defense strategy. For example if the XYZ Trust is named as the foreclosing party and 123 Servicing is holding the original note and perhaps even the original mortgage, who has the right to foreclose and under what lawful scenario — and why?

Head spinning? GET HELP!

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Impact of Serial Asset Sales on Investors and Borrowers

The real parties in interest are trying to make money, not recover it.

The Wilmington Trust case illustrates why borrower defenses and investor claims are closely aligned and raises some interesting questions. The big question is what do you do with an empty box at the bottom of an organizational chart or worse an empty box existing off the organizational chart and off balance sheet?

At the base of this is one simple notion. The creation and execution of articles of incorporation does not create the corporation until they are submitted to a regulatory authority that in turn can vouch for the fact that the corporation has in fact been created. But even then that doesn’t mean that the corporation is anything more than a shell. That is why we call them shell corporations.

The same holds true for trusts which must have beneficiaries, a trustor, a trust instrument, and a trustee that is actively engaged in managing the assets of the trust for the benefit of the beneficiaries. Without the elements being satisfied in real life, the trust does not exist and should not be treated as though it did exist.

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

About Neil F Garfield, M.B.A., J.D.

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The banks have been pulling the wool over our eyes for two decades, pretending that the name of a REMIC Trust invokes and creates its existence. They have done the same with named Trustees and asserted “Master Servicers” of the asserted trust. Without a Trustor passing title to money or property to the named Trustee, there is nothing in trust.

Therefore whatever duties, obligations, powers or restrictions that exist under the asserted trust instrument do not apply to assets that have not been entrusted to the trustee to administer for the benefit of named beneficiaries.

The named Trustee or Servicer has nothing to claim if their claim derives from the existence of a trust. And of course a nonexistent trust has no claim against borrowers in which the beneficiaries of the trust, if they exist, have disclaimed any interest in the debt, note or mortgage.

The serial nature of asserted transfers in which servicing rights, claims for recovery of servicer advances, and purported ownership of note and mortgage is well known and leaves most people, including judges and regulators scratching their heads.

An assignment of mortgage without a a transfer of the indebtedness that is claimed to be secured by a mortgage or deed of trust means nothing. It is a statement by one party, lacking in any authority to another party. It says I hereby transfer to you the power to enforce the mortgage or deed of trust. It does not say you can keep the proceeds of enforcement and it does not identify the party to whom the debt will be paid as proceeds of liquidation of the home at or after the foreclosure sale.

As it turns out, many times the liquidation results in surplus funds — i.e., proceeds in excess of the asserted debt. That should be turned over to the borrower, but it isn’t; and that has spawned a whole new cottage industry of services offering to reclaim the surplus proceeds.

In most cases the proceeds are less than the amount demanded. But there are proceeds. Those are frequently swallowed whole by the real party in interest in the foreclosure — the asserted Master Servicer who claims the proceeds as recovery of servicer advances without the slightest evidence that the asserted Master Servicer ever paid anything nor that the asserted Master Servicer would be out of pocket in the event the “recovery” of “servicer advances” failed.

The foreclosure of the property proceeds with full knowledge that whatever the result, there are no creditors who will receive any money or benefit. The real parties are trying to make money, not recover it. And whatever proceeds or benefits might arise from the foreclosure action are grabbed by a party in a self-proclaimed assertion that while the foreclosure was brought in the name of a trust, the proceeds go to a different third party in derogation of the interests of the asserted trusts and the alleged investors in those trusts who are somehow not beneficiaries.

So investors purchase certificates in which the fine print usually says that for their own protection they disclaim any interest in the underlying debt, note or mortgages. Accordingly we have a trust without beneficiaries.

The existence of those debts, notes or mortgages becomes irrelevant to the investors because they have a promise from a trustee who is indemnified on behalf of a trust that owns nothing. The certificates are backed by assets of any kind. Even if they were “backed” by assets, the supposed beneficiaries have disclaimed such interests.

Thus not only does the trust own nothing even the prospect of security has been traded off to other investors who paid money on the expectation of revenue from the notes and mortgages claimed by the asserted trust through its named trustee.

In the end you have a name of a trust that is unregistered and never asserted to be organized and existing under the laws of any jurisdiction, trustee who has no duties and even if such duties were present the asserted trust instrument strips away all trustee functions, no beneficiaries, and no res, and no active business requiring administration nor any business record of such activity.

Yet the trust is the entity that  is chosen as the named Plaintiff in foreclosures. But the way it reads one is bound to believe that assumption that is not and never was true or even asserted: that the case involves the trustee bank for anything more than window dressing.

It is the serial nature of the falsely asserted transfers that obscures the real parties in interest in both securities transactions with investors and loans with borrowers. The unavoidable conclusion is that nothing asserted by the banks (players in  falsely claimed securitization schemes) is real.

Hawai’i Appellate Court Strikes at the Root of Fraudulent Foreclosures: HSBC Deutsch and PNC Crash and Burn

This decision, although not yet for publication, brings us another step closer to exposure to the largest economic crime in human history. Every lawyer should read it more than once in its entirety. It contains the arguments and the narrative for most successful defense strategies against fraudulent foreclosures.

Fundamental to understanding why foreclosures are fraudulent and why most borrowers should prevail is an examination of how the banks and servicers attempt to paper over the absence of (a) ownership of the debt and the failure to identify the owner and (b) any evidence of an actual nexus with the supposed contract they are seeking to enforce — in the absence of anyone else claiming the right to enforce. Their entire premise rests on bank control of who knows about the subject debt.

That void is what produced this decision and the decisions around the country in discovery, in motions (especially motions for summary judgment), and at trial that have been in favor of homeowners and then buried under settlements restricted by the seal of confidentiality —- thousands of them.

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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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See HSBC, Deutsch, PNC adv Felicitas Moore, Intermediate Court of Appeals, Hawai’i

Hat Tip to Da Goose and Awesome Order on Failure of Qualified Witness and Documents

Special kudos to Hawai’i Dubin Law Offices, representing the homeowner.

Whether this case will stand up to further appeal is a question that can only be answered by time. But I think that it will and that this case, like many in the past few weeks and months, is striking at the achilles heal of fraudulent foreclosures. It is worthy of study because it does much of the research and analysis for you. It is not binding in any other state and may not be binding even in Hawai’i, since it is currently designated as “not for Publication.”

If I were to write an article detailing the many fine points raised by this appellate court, it would be a book. So read the article and look for the following points:

  1. The existence and administration of the books and records of the supposed “REMIC” Trustee for the supposed trust is directly challenged, although indirectly.
  2. Summary Judgment just became more difficult for the banks and servicers, if you use the reasoning in this opinion.
  3. Verification of complaint by “authorized Signor” or the “attorney” does NOT end the inquiry into the facts.
  4. Presumptions work against the foreclosing party in motions for summary judgment.
  5. Courts are getting suspicious of anything proffered by a foreclosing party when there is an alleged “REMIC” “trust” involved.
  6. Affidavits or declarations that the affiant personally has possession of the note do NOT establish (a) possession or (b) the right to enforce before the foreclosure was initiated. [This will lead to even more backdating of documents]
  7. FOUNDATION: Self declaration of knowledge and competency are insufficient. Foundation requires that the affiant or declarant specifically state how he/she came into such knowledge and why he/she is competent to testify.
  8. A self-serving declaration that the affiant is the custodian of records as to one case” raises red flags. Such declarations are only proper when they come from an individual who is, in the ordinary course of business, the records custodian for the business. [This raises some very uncomfortable questions for the banks and servicers, to wit: there are no business records for the trust because (a) the trustee has no right to keep them or even review information that would be entered on such records and (b) the trust has no business that requires record-keeping. So the assumption that the servicer’s records are the records of the trust named as the foreclosing party is simply not true and more importantly, lacks the required foundation to get such records into evidence.]
  9. Self-serving declarations do not necessarily authenticate any documents.
  10. Attorneys for the banks and servicers are put on notice that chickens may come home to roost — for  filing attestations to facts, about which they knew nothing or worse, about which they knew were untrue.

 

Stupid Law

Hat tip to Bill Paatalo who wrote the main article. See link below.

I would like to say that this could have happened only in Arkansas, but that isn’t true. Watch how the Court twisted itself into a pretzel in its determines effort to make Wells Fargo win despite admitting to unlawfully altering the note by a forged endorsement.

I note also how the court steadfastly avoids the subject of ownership of the debt and clings to the notion that ownership of the note — i.e., the piece of paper that is EVIDENCE OF THE LOAN — is as deep as the court is willing to go.

see https://bpinvestigativeagency.com/wells-fargo-admits-to-executing-wamu-note-endorsement-in-2013-and-gets-away-with-it/

Register Now- 2 CLEs: Death of a Salesman — when the party who “originated” an apparent loan transaction is dead or bankrupt.

 

 

NJ Appellate Court Decision Goes to Achilles Heel of “Securitizers”

“In order to have standing to foreclose a mortgage, a party ‘must own or control the underlying debt.'”

New Jersey litigants need look no further. In fact, in every other state of the U.S. you will find the same decisions each quoting from several other to the same effect. Courts across the country have usually confused the issue and accepted the allegation of ownership as proof of ownership. This court answers that as well:

To establish such ownership or control, Plaintiff must present properly authenticated evidence that it is the holder of the note or a non-holder in possession with rights of the holder.”

So what is a holder, such that the party has established “ownership or control of the underlying debt.” That is the issue that has been blurred by the banks.

The banks focus on the state statutes (UCC) enabling a holder to enforce without ever establishing that the party owns or controls the underlying debt. If you think about it that is nonsense. But that one thing, more than anything else, is responsible for millions of wrongful foreclosures. 

see NJ Decision On POA and MERS

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Here are some basic black letter rules, quoted in the NJ case, that have been followed for centuries:

  1. A holder must possess the original note.
  2. Transfer of possession must be “authenticated by an affidavit or certification based upon personal knowledge.”
  3. A party relying upon power of attorney or other document must produce the authenticated original of that document.
  4. Using the words “as attorney in fact” means nothing unless the party is able to produce a witness who, in their own personal knowledge, knows and states that the POA is in writing and has not been revoked.
  5. That witness must be able to lay the factual foundation and authentication for introduction of the Power of Attorney or any other such document.
  6. Without such foundation and authentication, any testimony or documents proffered by virtue of the POA cannot be admitted into evidence and for purposes of the case then, such statements or documents do not exist.
  7. A party who claims a legal relationship with another party and who relies upon it for proffering evidence must provide evidence of the legal relationship.
  8. A Power of Attorney must be in writing, duly signed and acknowledged as set forth in state statutes. Oral Powers of Attorney cannot be used to circumvent the requirement that interests in real property (including mortgages) must be in writing.
  9. A party seeking to enforce a note must be able to establish, though competent evidence, the location and the previous locations of the note in order to establish possession and the right to enforce, respectively.
  10. Certifications must be based upon personal knowledge and not general familiarity.
  11. If testimony is offered based upon a “review” of records, the records must be present or the witness must identify those records and how the witness acquired personal knowledge of their content.
  12. Assignments of mortgage must be authenticated by a person who has personal knowledge of the assignment (and the circumstances in which the assignment occurred). Otherwise the assignment is hearsay and must be excluded from evidence unless otherwise admitted for different reasons. Hearsay statements in assignments cannot be admitted into evidence and for purposes of the case then, such statements do not exist.
  13. The fact that an assignment or other document exists as an original or a copy does not mean that what is written on it can be admitted into evidence. But without a proper objection, the document can be admitted into evidence as proof of the matters asserted therein.
  14. A document signed by an agent or “nominee” like MERS after the demise of the principal is void because the power of attorney expires upon expiration of the principal. If the originator no longer exists, MERS is not authorized to act on behalf of the originator.

Patricia Rodriguez Tonight on the Neil Garfield Show

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Patricia Rodriguez returns tonight to talk about her Seminar on October 31, 2015.. Patricia is a good lawyer and particularly good at organizing cases. She will be talking about Foreclosure Defense, Rescission, Intakes of Clients, and of course the latest in what is happening on the ground in Southern California. One of her strong points is organization — something that most lawyers are not so great at doing. Her seminar will focus on the bricks and mortar of setting up a case for litigation or modification.

Pretender Mender: Foreclosure Crisis Continues to Rise Despite Obama Team Reports

Despite various “reports” from the Obama Administration and writers in the fields of real estate, mortgages and finance, the crisis is still looming as the main drag on the economy. Besides the fact that complete strangers are “getting the house” after multiple payments were received negating any claim of default, it is difficult to obtain financing for a new purchase for the millions of families who have been victims of the mortgage PONZI scheme. In addition, people are finding out that these intermediaries who received an improper stamp of approval from the courts are now pursuing deficiency judgments against people who cooperated or lost the foreclosure litigation. And now we have delinquency rates rising on mortgages that in all probability should never be enforced. And servicers are still pursuing strategies to lure or push homeowners into foreclosure.

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Most people simply allowed the foreclosure to happen. Many even cleaned the home before leaving the keys on the kitchen counter. They never lifted a finger in defense. As predicted many times on this blog and in my appearances, it isn’t over. We are in the fifth inning of a nine inning game.

Losing homes that have sometimes been in the family for many generations results in a sharp decline in household wealth leaving the homeowner with virtually no offset to the household debt. Even if the family has recovered in terms of producing at least a meager income that would support a down-sized home, they cannot get a mortgage because of a policy of not allowing mortgage financing to anyone who has a foreclosure on their record within the past three years.

To add insult to injury, the banks posing as lenders in the 6 million+ foreclosures are now filing deficiency judgments to continue the illusion that the title is clear and the judgment of foreclosure was valid. People faced with these suits are now in the position of having failed to litigate the validity of the mortgage or foreclosure. But all is not lost. A deficiency judgment is presumptively valid, but in the litigation the former homeowners can send out discovery requests to determine ownership and balance of the alleged debt. Whether judges will allow that discovery is something yet to be seen. But the risk to those companies filing deficiency judgments is that the aggressive litigators defending the deficiency actions might well be able to peak under the hood of the steam roller that produced the foreclosure in the first instance.

What they will find is that there is an absence of actual transactions supporting the loans, assignments, endorsements etc. that were used to get the Court to presume that the documents were valid — i.e., that absent proof from the borrower, the rebuttable assumption of validity of the documents that refer to such transactions forces the homeowner to assume a burden of proof based upon facts that are in the sole care, custody and control of the pretender lender. If the former homeowner can do what they should have done in the first place, they will open up Pandora’s box. The loan on paper was not backed by a transaction where the “lender” loaned any money. The assignment was not backed by a purchase transaction of the loan. And even where there was a transfer for value, the “assignment turns out to be merely an offer that neither trust nor trustee of the REMIC trust was allowed to accept.

All evidence, despite narratives to the contrary, shows that not only have foreclosures not abated, they are rising. Delinquencies are rising, indicating a whole new wave of foreclosures on their way — probably after the November elections.

http://www.housingwire.com/blogs/1-rewired/post/31089-are-we-facing-yet-another-foreclosure-crisis

http://www.newrepublic.com/article/119187/mortgage-foreclosures-2015-why-crisis-will-flare-again

http://susiemadrak.com/2014/08/25/here-comes-that-deferred-mortgage-crisis/

Why They Sue as Holder and Not as Holder in Due Course

Parties claiming a right to foreclose allege they are the “Holder” and do not allege they are the holder in due course (HDC) because they are ducking the issue of consideration required by both Article 3 and Article 9 of the UCC. So far their strategy of confusion is working. They are directly or impliedly claiming they are the holder of the NOTE. They cannot claim they are the holder of the MORTGAGE, because no such status exists — they either own the mortgage encumbrance because they paid for it or they didn’t. If they didn’t pay for it, they cannot enforce it even if they still can enforce the note.

The framers of the Uniform Commercial Code (UCC) had a plan they executed in Article 3 and Article 9 of the UCC, as adopted by 49 states (Louisiana, excepted). They had four (4) problems to solve.

Consider two possible fact patterns, to wit: first the payee (“lender”) did in fact fund the loan putting cash in the hands of the borrower or paying debts on the borrower’s behalf; second, the payee (“originator”) gets the borrower to sign the note but fails or refuses or never intended to fund the loan of money to the borrower. In the first instance the note is evidence of a real debt whereas in the second instance the note is not evidence of a real debt.

This issue has been obscured by the fact that SOMEONE (“investors”) did fund a loan. The questions posed here is whether the investors received the protection of a note and mortgage and if they didn’t, what is the effect of advancing funds for a loan without getting the required evidence of the loan (Promissory Note) and without getting the collateral (Mortgage) that would ordinarily apply.

The Four Goals

First, the UCC framers wanted to encourage the free flow of commerce by making certain instruments the equivalent of cash. The Payee should be able to use such instruments in trading for goods, services, or credit. This is the promissory note — a written instrument containing an unconditional promise to pay a certain amount. The timing of the payments, the amount, the terms, the method of payment must all be obvious from the face of the note without reference to any outside evidence (parol evidence) that could reduce or eliminate the value of the note. If there are questions or conditions apparent from the face of the instrument, it fails the test of a negotiable instrument or cash equivalent. That means that Article 3, UCC doesn’t apply.

Second they wanted to protect the issuer of the note (the payor) from the effects of fraud, improper lending practices and other deprive lending policies and practices from any false claims for payment on the note. If the Payor (homeowner, borrower) received no benefit from the Payee but was somehow induced to sign the note in anticipation of receiving the benefit, then the Payee should not be able to collect from the Payor. This goal conflicts with the first goal only when the note is sold to an innocent third party for value who had no notice of the defective nature of the origins of the note (Holder in Due Course -HDC).

Thus third, in order to maintain the status of cash equivalent paper, they had to provide a mechanism in which an innocent third party was protected when they advanced money for the purchase of the note without having any notice of the borrower’s defenses. This would allow the buyer to sue the payor (borrower, debtor) and collect free of any potential defenses. The burden of the borrower’s claims would then fall on the borrower to collect damages against the original payee for wrongful acts. (Article 3, UCC, Holder in Due Course -HDC).

And in order to allow all such notes to be enforceable regardless of the circumstances of their origin, any party holding the note (“Holder”) can enforce the note if they have physical possession of the note, even if they paid nothing for it, as long as it is endorsed to them. But if they are a HOLDER and not a HOLDER IN DUE COURSE then they sue subject to all of the borrower’s defenses. The central issue is whether the Holder has paid for the note, in which case they would be in HDC status or if they did not pay for the note, in which case they enforce subject to all borrower’s defenses — including the allegation that the original payee never made the loan.

Fourth was the issue of forfeiture of collateral. This is considered the most extreme remedy under commercial law, analogous to the death penalty in criminal cases. (Article 9, UCC — secured transactions). It is one thing to preserve liquidity in the marketplace by protecting the investment of innocent third parties who purchase negotiable instruments from defenses — and quite another to cause forfeiture of home or property. Here again, the language of Article 3 is used for an HDC — i.e., an assignment of the mortgage is enforceable ONLY if the Assignor paid for it and had no notice of borrower’s defenses.

So they devised a structure in which a bona fide purchaser of the paper without notice of the borrower’s defenses would be called a holder in due course. They could sue the borrower despite wrongful behavior by the original payee on the unconditional promise to pay (the note). In the event of fraud in the sale of the note, the new owner of the note could sue both the seller (Assignor, endorser or indorser).

Then they considered the possibility of wrongful behavior: the issuance of such commercial paper would be a claim, but not negotiable paper — but if it was sold anyway it would be subject to the borrower’s defenses. This allows outside evidence (parol evidence) — which is to say that in this fact pattern, the promise to pay was conditional on the value and effect of the borrower’s defenses. The HOLDER of this instrument need not pay for the sale of the note and need not be ignorant of the borrower’s defenses. This holder could sue both the payor (borrower, debtor) and the party who transferred the note — depending upon the agreement that accompanied the transfer of the note by delivery and indorsement.

The party who accepts indorsement without paying for the note or even knowing of potential borrower defenses can still enforce the note, but unlike the the HOLDER IN DUE COURSE, the Payor (Borrower) could raise all defenses to the original transaction. The UCC Article 3 calls this a holder. A holder need not purchase the note and may have actual knowledge of the borrower’s defenses but can still sue the payor (borrower) for the principal amount due on the unconditional promise to pay.

I have noticed that most judicial foreclosures are either in rem (foreclosures only) or the claim on the note is that the Plaintiff is a “holder.” If they have possession and it is indorsed, they are probably a holder entitled to enforce the note. But the Defendant can raise all available defenses just as he or she would do if the fight was with the originator of the note execution. And nothing is a better defense than the distinction between being the originator of the note execution and the originator of the loan. The confusion over the term “originator” has allowed millions of foreclosures to be completed despite the fact that the “holder” neither paid for the note nor could they claim they were ignorant of the borrower’s defenses.

This confusion has led most courts to look at Article 3, UCC, instead of Article 9, UCC. Neither allow the claimant to sue on either the note or the mortgage without having paid for the assignment of the mortgage or delivery of the note, if the holder has actual notice of borrower’s defenses. In most cases the claimant either has the knowledge of the fraud and predatory practices at closing or is a made to order controlled company of a real party who has such knowledge.

In conclusion, borrowers should prevail in foreclosure litigation in situations where the claimant is unable to prove the identity of the actual lender who advanced funds, or where the claimant has failed to purchase the mortgage.

Based upon vast quantities of information in the public domain including investor lawsuits, insurer lawsuits and government agency lawsuits (all alleging FRAUD and mismanagement of funds) against broker dealers who sold mortgage bonds, it seems highly likely that in the 96% of all loans between 2001-2009 that are subject to claims of securitization three things are true:

(1) the securitization plan was never followed in most cases thus making the investors direct lenders without benefit of a note or mortgage and

(2) none of the parties “holding” paper possess any of the qualities of a party who could have standing to foreclose and

(3) claims still exist on the notes, even though they were not supported by consideration but those claims are unsecured and subject to all defenses that could have been raised against the originator.

Neil F Garfield, Esq.

For further information call 520-405-1688, or 954-495-9867. Do not use the above information without consulting an attorney licensed in the jurisdiction in which your property is located and who knows all the facts of your case. The above article is a general description and may not apply to your case.

Wake Up Tennesee: You Only Think the Foreclosure Mess Won’t Hurt You

PRACTICE AND PROCEDURE IN TENNESSEE
If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 (East Coast — including Tennessee) and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Alert To Tennessee Residents: LEGISLATURE CONSIDERING BILL TO PASS MAINTENANCE FEES AND ASSESSMENTS IN ARREARS ONTO HOMEOWNERS THAT WERE NOT FORECLOSED IN ASSOCIATION.

There are somethings you can do about this, one of which is obviously to ignore the issue and let the ill come to your door and find out you have to pay several thousand dollars to cover the lost association dues to the HOA. Right now the mood of Tennessee courts is to be very dismissive of the homeowner defenses and counterclaims. It is a bright red state. The judges are applying knowledge from years ago to a novel situation in which the parties are not who they appear to be and the money is not where it appears to be.

Because of that it would be wise for homeowners to unite and contact their legislators to NOT further burden them with already rising costs associated with foreclosures. But more than that, study, up, you end up with a first lien on the property and wipe out the mortgage that is being foreclosed, leaving with the homeowner with right of redemption that is far easier to satisfy than the one the bank is trying to impose based upon appraisal fraud at the commencement of the transaction.

I personally know several investors who are buying the liens from associations and foreclosing on the banks, getting considerable traction but not winning all the time.

So Tennessee wake up and smell the roses or the stuff that comes out of the back of a horse — it’s your choice.

TN bill would pass foreclosure fees to neighborhoods
http://www.wsmv.com/story/21634792/tn-bill-would-pass-foreclosure-fees-to-neighborhoods

Assignment must exist in writing, even if the court says it doesn’t need recording

Dan Hanacek, who will be at the conference in Emeryville tomorrow, and Charles Cox can be reached through our customer service number 520-405-1688. Dan is a lawyer with whom I am engaged in mentoring and resourcing in Northern California cases and Charles helps people all over the country. The tide is turning. The basic principles of title in place for hundreds of years, TILA in place for dozens of years and RESPA in place for dozens of years will yet win the day. Title analysis and attorney advice is crucial to making the write choices and communication with a party purporting to be either a lender or servicer. Don’t assume you know what they are saying is correct. Not even the original note can be admitted because of the thousands of instances in which the “original” is a Photoshopped version that is not the original note and therefore does not contain the original signature of the borrower.

Editor’s Note:

With Banks and servicers playing fast and loose with the rules of procedure, the rules of evidence and black letter law it well to remember BASIC BLACK LETTER LAW. An assignment without delivery is probably a nullity. An assignment that isn’t even in writing is (a) not proper under most existing laws and (b) requires the allegation of an oral “assignment” to be explained as to why it wasn’t in writing before, just like a lost or destroyed note.

The assignment can only be valid and used if the assignee is capable of accepting it, paying for it and either acceptance is for the assignee or as an authorized agent. The Notice Default does not give the Trustee or even the original mortgagee where there has been an assignment, the right to declare default. Then it becomes the representation of the trustee, who is supposed to be objective and disinterested in the result.

For the Trustee to issue a notice of sale and notice of default on behalf of the supposed beneficiary, means that the trustee is no longer accepting the responsibilities of the trustee to act with due diligence and good faith toward both the trustor and the beneficiary.

Hence the substitution of trustee is an offer which has not and cannot be accepted. Any actions taken by the trustee in a notice of default or any other notice or collection letter is out of bounds. The only reason the banks do this is to hide behind yet another layer of people and entities so when the arrest warrants are issued, they can claim plausible deniability that the wrong procedure was being followed. This is poppycock. The beneficiary supposedly knows whether or not he is the creditor entitled to submit a credit bid at auction based upon the the existence of a properly kept loan receivable account reflected on the CREDITOR’s books.

This is just another example where the banks and servicers have borrowed the identity of the creditor, claimed that said identity is private and privileged, and then used it for their own advantage to the detriment of both the lender-investor and the borrower.

Witness this exchange between two of our golden boys — Dan Hanacak and Charles Cox:

Dan wrote:

1624.  (a) The following contracts are invalid, unless they, or some
note or memorandum thereof, are in writing and subscribed by the
party to be charged or by the party's agent:
   (2) A special promise to answer for the debt, default, or
miscarriage of another, except in the cases provided for in Section
2794.
   (3) An agreement for the leasing for a longer period than one
year, or for the sale of real property, or of an interest therein;
such an agreement, if made by an agent of the party sought to be
charged, is invalid, unless the authority of the agent is in writing,
subscribed by the party sought to be charged.
 
Would this section not require the following:
  1. Assignments must be in writing as they are “…for the sale of real property, or of an interest therein.”
  2. Immediately contradict the Gomes holding as it assumes that the authority of the agent has already been subscribed by the party to be charged and pre-empts any challenge by the injured party to the alleged contract.

And Charles Cox wrote back:

I’ve just been drafting argument against TDSC (in opposition to their demurrer)  for the proposition of their authority (as an agent for the beneficiary) in which (as is common) they attempt to use an agent they have assigned, to record a NOD (usually prior to an assignment being recorded) which I refute as follows:

In P&A p.10:26-p.11:27: TDS wrongfully states a “title company representative as agent for T.D.” could validate a Notice of Default which by the terms of the purported Deed of Trust (“NOD”.)  By the terms of the purported Deed of Trust, a NOD is required to be executed or caused to be executed by the “Lender” not the trustee nor the Trustee’s sub-agent as was done here (see Compl. Exh. 1 p.13 ¶ 22 second paragraph.) TDS’s citations are inapposite relating to “authorized agents” (meaning, authorized by the principal, not by another agent.)  Pursuant to CCC § 2304, an agent cannot act for an agent without the express authority of the principal.  CCC § 2322(b) does not allow an agent to define the scope of the agency (which TDS is attempting to do here).  CCC § 2349(4) requires authorization by the principal.  CCC § 2350 states an agent’s sub-agent is the agent of the agent, not of the principal and has NO connection to the principal.

TDS misstates CCC § 2349(1) as it relates to allowing an agent to delegate acts which are purely mechanical.  The statute actually states:

“An agent, unless specially forbidden by his principal to do so, can delegate his powers to another person in any of the following cases, and in no others:
1. When the act to be done is purely mechanical (emphasis added)”
   Note the statute states “another person” not another agent or sub-agent.  The alleged “notice of default” TDS refers to (Plaintiffs are not sure which one, having not been identified in TDS’s P&A but assume as follows:) was signed by “LSI TITLE COMPANY AS AGENT FOR T.D. SERVICE COMPANY,” NOT merely by “a title company representative”  or “person” as statutorily authorized.  This, notwithstanding that authorizing recording a Notice of Default is hardly “purely mechanical.”  This is yet another attempt by TDS to mislead the Court.  
   TDS’s citation of Wilson v. Hyneck cannot be relied on because it is an unpublished opinion and is inapposite anyway. 
    TDS’s further arguments (P&A p.11:5-27) fail for the reasons detailed above.

Plaintiffs Complaint contains sufficient facts constituting Plaintiffs’ cause of action specifically against TDS.  Nothing stated in this section of TDS’s Demurrer provides available grounds sufficient to sustain Defendants’ Demurrer (see p.2:19-25 above.)

Defendant fails to meet the legal standards to sustain its Demurrer.  See Plaintiffs’ Section III below.

Defendant’s Demurrer is without merit and must be overruled.

Amazing how these guys fail to accept responsibility for anything they do!

Charles
Charles Wayne Cox
Email: mailto:Charles@BayLiving.com or Charles@LDApro.com

 

Weidner: Notes Are Not Negotiable Instruments

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Editor’s Notes:  

Matt Weidner appears to have mastered the truth about securitization and how to apply it in foreclosure defense cases. The article below is really for lawyers, paralegals and very sophisticated pro se litigants. His point about being careful about how you present this is very well taken. This is for lawyers to do and lawyers should read this and get with the program. Securitization turned about to be virtually all SHAM transactions with the real financial transaction hidden away from the view of the borrower, the courts and even securitization analysts. The operative rule here is that the existence of a financial transaction does not mean that strangers to that transactions can claim any rights. 

These loans were nearly always funded by other parties who had made promises to investors whose money was used to fund the mortgages. The very existence of co-obligors and payments by them defeats the arguments of the banks and servicers. I’d like to see ONE investor come into court and say that yes, they would ratify the inclusion of a defaulted loan into their pool years after the cutoff date which negates their tax benefits. There is o reasonable basis for an investor to do or say that. That leaves the loan undocumented, unsecured and subject to offset for predatory and wrongful lending practices.

The wrong way of approaching this is any way in which you are going into court to disclaim the obligation when everyone knows you received the money or the benefit of the money. The obligation exists. And the only way to discharge that debt is through payment, waiver (or bankruptcy) or forgiveness. Anything that smells like “I don’t owe this money anymore” is going to be rejected in most cases. But an attack on the lien and the reality of the true creditor is a different story. That needs to be presented as simply as possible and I think I good way to start is to deny the loan, obligation, note, mortgage etc on the basis of an absence of any financial transaction between the borrower and the party named on the documents upon which the foreclosers rely. Any discovery at all will reveal that the money never came from the payee on the note or mortgagee or beneficiary on the mortgage or deed of trust. 

by Matt Weidner:

Let’s start with real basic stuff here.  Sometimes law is complex, nuanced,difficult.  Other times it’s black and white…you just read the words, look at the facts and the answer is unavoidable.  Such is the case with the simmering dispute over the fact that the notes that are part of nearly every residential foreclosure case are not negotiable instruments.  Oh sure, too many courts won’t take the time to consider the argument and…just yesterday I heard an appellate court argument where the judges just kept repeating the mantra, “this is a negotiable instrument” without ever doing any analysis at all and without any finding of that “fact” from the trial court.  The attorney needed to stop the appellate judge right there and say, “No Your Honor, it’s Not A Negotiable Instrument”.

Just last week, in a trial court, here’s exactly the way it went down.  Now, keep in mind, this argument in court was supplemented by a long and detailed memo similar to the one attached here.  The best part it was in front of one of Florida’s most respected and brilliant judges.  He’s been on the bench longer than I’ve been alive, he knows more law in the tip of his finger than most lawyers get in their whole bodies in an entire lifetime, he’s presided over tens of thousands of foreclosure cases. It was a beautiful thing to see an argument before a dedicated jurist whose seen and heard it all before that really made him sit up, dig in to those decades of judicial wisdom and then do the heavy lifting. That’s one of the beautiful things about this job….despite decades of work and hundreds of years of law, out of nowhere something new and exciting can still get the intellect and wisdom fired up and shooting like a cannon. Here’s how it goes down:

Your honor, I’ve highlighted and present for you the statutory definition of a “negotiable instrument”.  Because it’s a statutory definition, it’s black and white. We cannot alter or weave or color it with shades of gray….here’s what it is:

673.1041 Negotiable instrument.—
(1) Except as provided in subsections (3), (4), and (11), the term “negotiable instrument” means
an unconditional promise or order to pay a fixed amount of money, with or without interest or other
charges described in the promise or order, if it:
(a) Is payable to bearer or to order at the time it is issued or first comes into possession of a
holder;
(b) Is payable on demand or at a definite time; and
(c) Does not state any other undertaking or instruction by the person promising or ordering
payment to do any act in addition to the payment of money.

FL Article 3

Now, we’re all stuck with exactly that definition. Before we examine the note in this case, let’s first think about what a negotiable instrument is….a check made payable to a person for $100. An IOU for $100.  Bills of lading with a total included.  It’s all real simple.

So now that we’re fixed about what a negotiable instrument is, let’s examine what it ain’t.  What ain’t a negotiable instrument, as defined by Florida law is the standard Fannie/Freddie Promissory note and the following paragraphs are the primary reasons why.  Read each one carefully and ask, “Are these sentences conditions or undertakings other than the promise to repay money?” (Of course they are)

4.         BORROWER’S RIGHT TO PREPAY

I have the right to make payments of Principal at any time before they are due.  A payment of Principal only is known as a “Prepayment.”  When I make a Prepayment, I will tell the Note Holder in writing that I am doing so.  I may not designate a payment as a Prepayment if I have not made all the monthly payments due under the Note.

I may make a full Prepayment or partial Prepayments without paying a Prepayment charge.  The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note.  However, the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying my Prepayment to reduce the Principal amount of the Note.  If I make a partial Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the Note Holder agrees in writing to those changes.

5.         LOAN CHARGES

If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then:  (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted limits will be refunded to me.  The Note Holder may choose to make this refund by reducing the Principal I owe under this Note or by making a direct payment to me.  If a refund reduces Principal, the reduction will be treated as a partial Prepayment.

10.  UNIFORM SECURED NOTE

This Note is a uniform instrument with limited variations in some jurisdictions.  In addition to the protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the “Security Instrument”), dated the same date as this Note, protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note.  That Security Instrument describes how and under what conditions I may be required to make immediate payment in full of all amounts I owe under this Note.  Some of those conditions are described as follows:

If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.

If Lender exercises this option, Lender shall give Borrower notice of acceleration.  The notice shall provide a period of not less than 30 days from the date the notice is given in accordance with Section 15 within which Borrower must pay all sums secured by this Security Instrument.  If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.

3210-FloridaFRNote-Freddie_UI

So, the deal is, if we were sitting in a law school classroom, there’s not a chance in the world but that every student in the room and the professor would agree and understand that the document being examined side by side is not covered by the definition provided.  The problem is we get into courtrooms and we get infected by considerations that are beyond and above the operative law.  Judgment gets clouded by preconceived notions and prejudices against our neighbors and favoritism for the criminal banking institutions that caused all this mess. Even to this day, years into this, years into all the fraud and the lies and the deceit, it’s like we’re still hypnotized by the banks and their black magic and voodoo.

Now, if you really want to take it a step deeper, Margery Golant makes a very credible argument that in doing this analysis we cannot just look at the note alone, but that we must also examine the mortgage that follows with it.  They truly are two integrated documents and you can see from her highlights that so many of the provisions in the mortgage have nothing to do with security and everything to do with conditions on the payment of money….these provisions are just jammed into the mortgage and kept out of the note to try and prop up this artifice of negotiability.  Read her highlights with this analysis in mind:

Fannie Florida Mortgage with Golant Highlights

Further supported by this case Sims v New Falls

Now, understand the industry never intended these notes and mortgages to transfer via endorsement.  The industry set this whole system up so that the notes and mortgage would transfer via Article 9 of the UCC.  It’s just so plain and simple.  They never set it up or intended that million dollar notes and mortgages would transfer via forged endorsements, undated squiggles and rubber stamps or floating allonges.  Of course not…that’s just crazy.  The entire system was created such that notes and mortgages and all the servicing agreements and rights and liabilities would transfer via far more formalized Assignments, with names and dates and notary stamps and witnesses.  The Article 9 transfer regime had nothing to do with protecting consumers, but everything to do with protecting the players in the industry from the scams, the lies, the cons that they all like to play on one another. (Hello, LIBOR anyone?)

But when the shifty con artists that set this whole securitization card game up, they were so focused on how much money they were making, they never considered what would happen when the whole house of cards blew down.  When it blew down, they threw their Article 9 intentions out the window and adopted the whole Article 3 negotiable instrument delusion.  Isn’t it an absurd argument when they cannot answer the question, “if assignments don’t matter, why do you still bother to do them?”  It’s because they do matter….assignments were and remain the foundation of their transfers.  The problem is Assignments, what with their pesky dates and legible names and notaries and all reveal the lies and the fraud and the con that developed once the system came crashing down and they all started stealing from one another. (With the explicit approval of our state and federal government to do so….too big to jail you know.)

Anywhoo, there’s still some faint glimmer of hope as long as we still have good judges out there that are willing to think these things through and do the heavy lifting, we might be able to rescue our nation’s judicial system and in fact our nation as a whole from this deep, dark black pit that we’ve all descended down.

I urge everyone to be very careful with these arguments.  I’m a very big supporter of pro se people and consumers being integrated into their courtrooms and being fully engaged in the public spaces they own. I’ve also seen some very good pro se people go into courtrooms and do some very beautiful things.  In some ways it’s like a “From the mouths of babes” experience.  Language and arguments stripped away from all their lawyerly pretense can have a magic effect on a judge’s ear and thoughtfully and well-prepared arguments are often received with great enthusiasm from our circuit courts….particularly those judges that recognize the roots of our civilian circuit justice system.  The danger is that ill-prepared and poorly presented arguments will taint the ears and poison the minds of judges that might otherwise accept with an open mind…..keep that in mind.  Max Gardner is the Obi One Kenobe of all this and there’s just something about the way he lays it out so clear and clean and simple that has it all make sense.  I really encourage everyone to get all his material and invest in the week long bootcamp before you go trying any of this out…..MAX GARDNER BOOTCAMP

And now my briefs:

Motion-to-Dismiss

Initial-Brief


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THE PROMISSORY NOTES FROM BORROWERS ARE SECURITIES

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EDITOR’S NOTE: Since the beginning, my experience on Wall Street, the underwriting of securities and the trading of securities, led me to believe that the documents issued at the closing with the borrower were part of a securities package. The issuer was nominally the borrower, but the real issuer was MERS or the Wall Street investment banking houses that created the securitization scheme. Securitization means by definition, that securities were involved. You don’t to be a finance pro to understand that.  By applying securities laws that already exist, the pieces of the puzzle all fall together.

But I’m not sure I agree completely with Brent about the solution. Yes, I think that being able to purchase the notes at whatever the free market dictates would be a huge step forward toward reality and the rule of law. But I think that we need to include some measures that would enable the Borrower to bring claims against the parties that slandered the title or deceived the borrower in the execution of documents that were not loan closing documents, but actually securities. The fact that the prices were purposely inflated in order to inflate the fees and trading profits that the investment banks took gives rise to a number of causes of action under appropriate securities law.

When speaking with securities lawyers I have repeatedly received the same sort of answer — they agreed with me in theory but the path was too difficult to explore. My answer is another question: do we ignore the reality of the transaction simply because people don’t get it? Let the truth and the facts come out.

Brent’s insight that the loan as part of a pool was a security begs the question of whether the loan ever actually made into the pool. But for purposes of securities litigation, it might be treated that way because now the assumption is that it is as claimed by the parties to securitization. Would the Banks have the nerve to now argue what Borrowers are saying? — That the loans were never really transferred into the pool and therefore the securities aspect doesn’t apply.

That argument would leave the notes and mortgages in limbo. If we accept the argument that the loans never made it into the pool but the loan was treated as though it had made it into the pool, it means that the money was not applied as set forth in the note — payment to the payee on the note. But the payments couldn’t go to the Payee because they didn’t make the loan. 

In fact, the moment that the loan documents were signed by the homeowner, the payee was unknown and so was the mortgagee or beneficiary. Or the note and mortgage were intentionally split, meaning the obligation existed but there was no secured interest existing as an enforceable encumbrance upon the land. The named beneficiary and/or lender were different in most closing than the actual creditor. The named beneficiary was without authority to return the note upon payment because the named payee was not the party to whom the debt was owed in the real world.

by Brent Bertrim
I have read that many believe the only way out of this mortgage mess is principal reduction.  I am skeptical after the Bevilacqua decision.  I believe the solution is allowing homeowners to purchase their own promissory notes at market rates will clear the title.

From the view of a securities expert, I think attorneys are too wrapped up in real estate law to understand much of what you put on your site.  They fail to recognize (other than in belief in your blog) that payments may not be owed because they are unable to ask the most critical question – when did the promissory note become a security?  While inside the pool, it is a security so how can simultaneously it not be during foreclosure?

I would argue that MERS itself by definition and BlueSky Laws in all 50 states made promissory notes securities.  The reason – by definition a security is an investment that can be readily exchanged for value and involves risk.  The entire point of MERS was to make the notes ‘readily’ transferable.  I will bet you $100 that the defense of MERS in the Dallas case will argue that the intent was not to escape recording fees but instead to make the notes ‘readily’ transferable.

Therefore, homeowners should in theory be able to ‘purchase’ their own notes.  This is the only way to overcome the lost/destroyed note issue and something the banks should offer all homeowners because the pretender lender defense is over.

More importantly, when a mortgage is satisfied, the lender has to file the release as well as return the note or provide a lost note affidavit.  How can they do this?

What will be funny if posing the question, is the only reply based on securitization is that you cannot buy your note because we do not know who owns each piece of it.  Therefore even trustee cannot direct servicer to foreclose.

After The Storm – Foreclosure Fraud & Robo-Signing Continues by Nye Lavalle

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EDITOR’S NOTE: THE ONLY THING MISSING IS THE LARGEST QUESTION OF ALL: WERE THE MORTGAGE LIENS EVER PERFECTED? DO THEY EXIST?

I also contest the issue of whether the banks were ever intending to do things right. I know from interviews I conducted that several lawyers who were assigned the task of drafting papers and procedures for securitization simply quit, citing illegality and even criminality of these acts. I believe the intention was always to defraud the investors, defraud the borrowers and take the principal as fees. This diverges from past corruption where fees were excessive or where the investment was bad. Here, the intent, in my opinion, was to create a bad investment and use leverage on the banks name and reputation to sell something that didn’t exist.

The proof is in the pudding. Analyzing these pols and the securitization scheme set forth in the PSAs, it is quite clear that the worse the loan, the worse the mortgage bond, the more Wall Street made. The higher the certainty of a loss to the investor, the higher the probability of the borrower being defaulted, the higher the profits and fees. Just do the math. If the investors wanted a 5% return, they wanted $50,000 per year as interest on their money if they invested $1 million. Wall Street delivered the $50,000 by making high risk loans averaging 10% instead of 5%. The result was that they could take $500,000 and fund a 10% loan, and take $500,000 and put it in their own pockets.

The Banks are still leveraging on their prior reputation for risk aversion and sticking by the rules of underwriting. And people are still buying the myth that the banks were just out to make loans. They were not. They were out to make profits, stealing the investors money, stealing the borrowers down payment and other money, stealing the houses and leaving both sides with nothing. Why won’t people use the age-old instruction: “look to the result to determine the intent?”

SEE NYE LAVALLE 62650988-After-the-Storm-Final

“In the best-­‐case scenario, concerns about mortgage documentation irregularities may prove overblown. In this view, which has been embraced by the financial industry, a handful of employees failed to follow procedures in signing foreclosure-­related affidavits, but the facts underlying the affidavits are demonstrably accurate.

Foreclosures could proceed as soon as the invalid affidavits are replaced with properly executed paperwork.

The worst-­‐case scenario is considerably grimmer.

In this view, which has been articulated by academics and homeowner advocates, the ‘robosigning’ of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure. In essence, banks may be unable to prove that they own the mortgage loans they claim to own.

The risk stems from the possibility that the rapid growth of mortgage securitization outpaced the ability of the legal and financial system to track mortgage loan ownership.”

After The Storm – Foreclosure Fraud & Robo-Signing Continues by Nye Lavalle

Foreclosure
Fraud
&
Robo-­Signing
Continues…

A Year Ago, A Storm of Allegations And Reports Highlighting Robo-­Signing And Foreclosure Fraud Swept Across America Causing Major Banks To Halt Foreclosures Nationwide While Congressional, State, And Federal Investigations Were Launched. A Year Later, While Investigations Are Still Ongoing, Regulators Have Failed To Correct The Underlying Issues Behind Foreclosure Fraud And Robo-­Signing. The Overwhelming Evidence Presented In This Paper Is That Not Only Were American Homeowners And Borrowers Defrauded In The World’s Greatest Financial Scam, But American’s Wealth And Security Were Placed At Risk. To Date, There Has Been Only One Criminal Conviction Of An Executive Of A Major Mortgage Company And Other Criminal Convictions Have Been Halted. Still, As Shown In This Paper, Foreclosure Fraud And Robo-­Signing Continue While Some Courts Address The Issue And Others Ignore The Ramifications Of This Massive Fraud. What Is Now Known Is That These Scams Were Not Unique, But Industry-­Wide. The Mortgage-­Backed Securities Turned Out To Be Non-­Mortgage & Note Backed Empty Trusts. To Conceal This Massive Ponzi Scheme Perpetuated Against Americans, The Nation’s Mortgage Industry Continues To Manufacture, Fabricate, & Destroy Evidence, Despite The Inherent Risks And Ramifications Since Over 90% of Borrowers Don’t Challenge Their Foreclosures.

Legal Research Society Uncovering the CUSIP Applications: Converting Notes into Bonds

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Editor’s Note: I’m not sure about the submission below and I invite comments. The point missing, I think, is that the notes themselves were not EACH converted into bonds. The securitization structure appears to me to be the intermingling of notes (which are probably invalid because they do not accurately reflect the loan obligation). The notes are thrown into a pool by a wave of a magic wand (i.e., just by entering them on a proprietary spreadsheet instead of actually transferring the documents legally). The principal amount of the notes, according to Charles Koppa who has researched this thoroughly, exceeds the principal amount of the bonds issued from the pool (i.e., the trust or SPV) by a factor of 20%. That’s called overcollateralization.

The interesting question which I think Koppa and the LRS are beginning to hone in on is this: how could the bond payable to investors be overcollateralized? If the investors advanced $1,000,000 and they have receivables from loans to homeowners totaling $1,200,000. But if you think about it, that is not possible. The receivables would either have to be overstated (fraud) or something else is working here. If the nominal value of the receivables is $1,200,000 that means that $1.2 million was FUNDED. Since the pretender lenders are not funding the loans except by use of investor money who thought they were buying bonds (that in many cases might not have ever existed in reality, something that the CUSIP research might reveal), where did the extra $200,000 of FUNDING come from?

Once you eliminate all possibilities except one, that ONE regardless of how improbable or counter-intuitive, must be the answer. So my answer three years ago and now is the same: the pretender lenders entered data on the same loan obligation with minor differences in dates or other index on more than one spreadsheet for more than one pool and issued bonds including the same loan obligation in multiple pools. The investor buying the bond under the mistaken belief that he has the protection of the property values and the protection of the receivables turns out to have neither.

The concept of overcollateralization was probably accepted because of the essential LIE at the base of the securitization scheme and which has yet to be completely absorbed by the courts or mainstream media: investors thought they were buying loans that had already been funded by originating banks. Hence the question of where did the money come from was solved. It appeared to come from the funds of the originators who were then selling them upstream into securitization chains. It made perfect sense. It just wasn’t true. The TRUTH was that the all the money came from the investors not the loan originators. The TRUTH is that the sale of “bonds” to investors took place first, before the loans were funded, exactly the converse of what the investors thought.

Thus the illusion of overcollateralization could only be created by literally selling the same asset (receivables from a funded loan) several times. It was an illusion because at the time of the purchase of the bond there were no loans and thus there were no receivables. Like the foreclosure procedures that have landed the pretenders in hot water, the method of operation was to back-fill where necessary. All eyes were on the flow of money and cutting up the money pie as it came down from the investors and then as it came up from the homeowners. The investors were never meant to be paid in full, like every Ponzi scheme. They were intended to be lulled into thinking it was working long enough for them to be “reloaded” (i.e., to sell them more garbage).

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

From: john@showmetheloan.net
Sent: 11/11/2010 11:16:35 P.M. Central Standard Time
Subj: VERY VERY IMPORTANT// from the desk of John Stuart

This just in:
I attended a weekly meeting of legal researchers in AZ, I have not attended in a while. They have started meeting at our workshop, every Thursday 7pm to 9pm. The Legal Research Society,, http://www.legalresearchsociety.org (I think)

Terry, the group leader and old friend brought up a concept, I will tell you what happened, how I think we should use, and then why I think it might work.

1. Terry had a friend being sued by a credit card company. The friend, just for the hell of it, asked the cc company for the CUSIP number for the APPLICATION. The banks dismissed the case and has not come back. So Terry, after going thru RFAs and interroitories to no avail, decided to try it. On his next document he asked the bank for the CUSIP number for the APLLICATION. They have since disappeared.

2. I think we should ask the banks for CURRENT COMPLETE copies of the ORIGINAL APPLICATION:
Inclusive of: legible copy of the stamping that states:
PAY TO THE ORDER…..WITHOUT RECOURSE and the CUSIP number for the APPLICATION.

This applies whether it is a mortgage or a deed of trust.

3. Why I think this may work:
a. Notes are converted to bonds all the time, that is what CUSIP numbers are for. You can buy a bond with any note or instrument. Promissory note, Federal Reserve Note, any note can be used to buy a bond.
b. Applications are NOT instruments and CANNOT be converted to instruments.
c. If the bank obtained a CUSIP number for an application that means they illegally converted an application to an instrument to purchase a bond that they then used to obtain a loan from the government to pass thru money to convert real property.

If they really do get CUSIP numbers for applications the whole game is over with. No case, no foreclosure, no payments, no contest of ownership. Its done.

Thinking about it makes my head spin because of the simplicity. If that is what they have to do to get the loan from the feds so they don’t risk their own money everything makes sense. That would be why they can claim there is a loan and we are in on it, its our application. Then really, the ONLY law broken was that of unlawfully converting an application to an instrument. Which would then cause the instrument to be invalid, the bond invalid, the loan have to be repaid by the bank IF they foreclose, but NOT if they don’t and just drop the case. That’s one hell of a barganing chip.

Could it be this simple? Its possible. It sure would answer the question why are the judges ruling against Notes and accepting the other documents as evidence of the deal.

I do not know if this will work. The idea is less than two hours old. But I think everyone should start trying to figure it out. If no one comes up with a good argument I think we should go for it.

Regulation and Prosecution on Wall Street

In my opinion, the growing anger at Wall Street is giving Lloyd Blankfein and Jamie Dimon another chance at misdirection. They are using the current popular angst to steer the debate into whether derivatives and synthetic CDOs should be banned. In the end they will win that debate, and they should win it. What they should lose is their freedom in a judicial forum where they are prosecuted like Ken Lay and Bernie Ebbers, and where it is proven beyond a reasonable doubt that they committed criminal fraud and securities fraud.

The fact that we had a bad experience with derivatives is not a reason to ban them. The fact that they were abused and that people were cheated and that the entire financial system was undermined is another story.

There is nothing wrong with any transaction if the playing field is relatively level and if the imbalances are addressed by law and regulation. That is what the Truth in lending Act is all about and the Real Estate Settlement Procedures Act is meant to address.

When the big guys use their superior knowledge to trick consumers into deadly transactions, the big guys should pay the price. We have the SEC to take care of that on the other end protecting investors. Licensing laws and administrative sanctions against those licensed by state or federal agencies are well-equipped to step in and deal with these abuses. But they didn’t.

Complaints sent to the Federal Trade Commission, Office of Thrift Supervision and Office of the Controller of the Currency have gone unheeded even to this day. The only answer you get is similar to the answer we get from sending short or long Qualified Written requests or Debt Validation Letters — short shrift of legitimate complaints that by law are required to be investigated, verified (not just restated) and corrected.

The inconvenient truth is that our regulators were not employing the tools given to them. Everyone knew it. In part it was because of undue influence and in part it was because they were deferring to larger “smarter” institutions like the Federal Reserve. But the biggest reason the Federal and state agencies didn’t do their job is that we, as a society, bought into the non-regulation philosophy which has failed so spectacularly. We didn’t support appropriate funding, training and resources for these agencies. If we had done what we should have done — elect people who were committed to government protecting and serving the people — this mess would never have mushroomed to the point where Wall Street issued proprietary currency equal to 12 times times the amount of government currency — all in a span only 25 years.

The simple truth is that there was nothing inherently wrong about securitizing residential mortgages. In theory, spreading the risk out created much greater liquidity for small and large consumers of credit. What was wrong and remains wrong is that the use of these instruments was for an illegal purpose — to defraud investors and borrowers alike. And they did it in an illegal manner — by denying and withholding information essential to the decision-making on both sides of these transactions.

On one side you had a creditor who was willing to loan money for residential mortgages under terms and conditions that were “explained” in mind-numbing prospectuses and guaranteed by “insurance” that wasn’t really insurance and which was appraised by government licensed rating agencies who issued investment grade appraisals that were so wrong that it strains credibility to assume they didn’t know they were part of a larger criminal enterprise. This creditor lent money and received a bond, whose terms referenced other documents in the securitization chain that imposed conditions, co-obligors, and protections to the intermediaries that completely changed the loans that were signed by borrowers far, far away.

On the other side, you had borrowers, homeowners, who put their largest or only investment in the world at risk in a transaction that they could not understand because the information required to understand it was withheld. But even Alan Greenspan admitted he didn’t understand the transactions with the help of 100 PhD’s. These borrowers relied upon the sanctity of an underwriting process that no longer existed. Verification of property value, quality, affordability etc. were no longer in the mix.

These borrowers undertook an obligation to repay and signed a note that was evidence of the obligation but was payable to someone other than the party(ies) who loaned the money. That note was only a tiny part of the obligation to the creditor as evidenced by the mortgage backed bond they received.

The creditor was bilked out of a dollar and contrary to the expectations of the creditor, less than 2/3 of each dollar was actually used to fund mortgages. The creditor never actually received or even saw the note but ownership of the note was conveyed to the investor along with many other terms — terms that were entirely different from the note the borrower signed as to interest payments, principal, fees etc.

In between were the dozens of intermediaries who treated the documentation like a hot potato because nobody wanted to be stuck with it — knowing that misrepresentation and bad appraisals were the root of the instruments signed by creditors and debtors. These intermediaries kept possession of the note, kept the security instrument and kept the money and most of the insurance proceeds, received the federal bailout and now are proceeding to repackage the junk they already sold and through “resecuritization” are selling them again.

In my opinion there is nothing theoretically wrong with anything described above except for one thing — they lied. Fraud is fraud. If they had educated the creditors and debtors, if they had complied with local property and contract law, if they had been transparent disclosing everything much the same way as the prospectus in an IPO, then two things are true: (a) transactions that were completed would have been done because both sides knew the risks and were willing to take the loss and (b) transactions that were NOT completed (which would have been nearly all of them) would been rejected because the costs were too high, the risks were too high, and the consequences too dire.

But none of that happened because we allowed our regulators to be co-opted by the industries they were supposed to regulate. So tell your legislators and government agencies that you’ll allow them the resources to properly regulate and that you expect to hold them and the elected officials who put them there fully accountable.

Don’t throw the baby out with the bathwater. It isn’t derivatives that are wrong it is the people who used them and the way they were used that is wrong. Killing derivatives would lead to stagnation of what once was our greatest asset — the engine of liquidity for access to capital that has kept our economy growing.


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