Vulture Firms: The Last Step in a Chain of Illegal Paper, with the Debt Long Gone

The key element of the paper strategy has been to create the illusion of transfers of assets, thus supporting the erroneous narrative that with all those parties purchasing the loans, a lot of due diligence MUST have been done and therefore the screaming defense of homeowners (attacking ownership) is nothing but a dilatory stall tactic.

What is consistently missed, even by people who are completely fed up with the banks and regulatory agencies that have given a wink and nod at plainly fraudulent practices, is that the only “asset” is the paper, and that the debt itself has never moved. In a true securitization the debt would indeed be transferred. But all claims of securitization of debt that are based upon CLAIMS of ownership rather than the ownership itself are groundless. Thus neither Vulture Firms nor any of their predecessors ever owned the debt.

This is why we have lawyers go to law schools. Such convoluted schemes are not easily deciphered without experts and lawyers. Lawyers understand the distinction between the debt, the note and the mortgage. But lawyers forget and lay people never knew about the distinction. It isn’t technical. It is all about keeping transactions on paper honest.

And right now nearly all of the hundreds of millions of documents are being used around the world to foreclose, or support the sale of the paper note and mortgage and derivatives based upon the value of those millions of documents containing false recitations and inferences of fact.

So borrowers, whether their payments (to the wrong party) are “current” or not, like the one in the story found in the link below are stuck in the very place that legislators and regulators have said could never happen in a legal mortgage lending situation: no knowledge about the identity of the obligee of the debt. Foreclosure defense lawyers who win cases punch holes in the foreclosure case simply by knowing they are not dealing with anyone who owns the debt nor anyone who is representing the obligee in the underlying debt (i.e., the real world).

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Hat tip Eric Mains and Bill Paatalo

see Vulture Firms Must Clean Up the Mess

So people ask me the obvious question, to wit: “If the paper didn’t transfer the debt because the seller, assignor or endorser never owned the debt, where is the debt now?”

The answer is simpler than you might imagine. The only two parties are the obligor (the person who took the money) and the obligee (the person who gave the money). The current obligee (owner of the debt) in most instances is a group of investors who are beneficiaries of multiple paper trusts that have never existed nor been active. THAT is why you never see any assertion that the debt has been purchased.

No money has exchanged hands in any of the transfers except in the case of vulture firms who pay fractions of a cent on the dollar for the paper. They don’t buy the debt because the seller of the paper doesn’t own the debt.

The one simple law school issue taught repeatedly in several classes — Contracts, Bills and Notes etc. — is that the debt arises no from paper but from action. There is no debt if there is no money exchanged between the parties claiming to be part of the transaction.

The debt arises by operation of law without  and even despite the existence or nonexistence of any written instruments — virtually all of which are subject to hearsay objections and lacking in factual foundation, to wit: an actual transaction in the real world in which reciprocal consideration was exchanged between the obligor and the obligee.

If the written instrument recites or assumes that the parties to the instrument are in fact identical to the parties to the real world transaction, then the parties to the debt would be identical to the parties on the written instrument. So keep this in your bonnet while you are planning defense strategy: at some point, usually at origination, a debt was created, separate and distinct from the recitals on the note and mortgage.

If the written instrument recites or assumes that the parties to the instrument are in fact identical to the parties to the debt, but the recital or assumption is untrue. Assumptions and presumptions are based upon one singular doctrine — they are used for judicial economy only where the the presumption clearly is true and where no contest to the presumption is introduced by the defense.

If the defense asserts and gives some argument or evidence that is inconsistent with the presumed “fact,” then the burden shifts back to the party who claimed the benefit of the presumption — i.e. they must prove the real world transaction that was being presumed. There is no prejudice to forcing such a party to prove the fact that they wished to be presumed — unless they were lying to begin with.


Unfortunate Decision of 9th Circuit

Hat tip to Darrell Neilander and Charles Cox for bringing this one to my attention.

Editor’s Comment: In a twisted display of circular reasoning and reverse logic, the 9th Circuit has issued an opinion that attacks the precise foundation of the Truth in Lending Act. Go to any seminar on TILA and the first thing they will tell you is that the purpose of the act was to provide the borrower with choice of lenders and the ability to apply competitive pressures on one lender versus another.

If a Borrower wants a loan and does NOT want it with Wells Fargo or Merrill Lynch for reasons of his own, then he has a specific right explicitly stated in TILA to know who the lender is and all the parties who received compensation in putting the loan package together for sale to the borrower and sale to the investors. Under Gale vs. Franklin, 686 F. 3d 1055, July 12, 2012, the 9th Circuit said that the right to know the owner of the loan does not apply if you are dealing with the servicer. This directly conflicts with the intent and content of the FCFB definitions in addition to defying  logic. It also strips the specific remedy of clawback of undisclosed compensation.

An additional reason for knowing the name of the obligee is to be able to confirm the balance due and to apply for HAMP or HARP modifications or settlement. How can you do that if you don’t know who the “decider” is?

As for asking for the identity of the creditor, the court incredibly concluded that “Failing to read and respond to letters may be impolite; however, ²a breach of [*1057]  good manners² is not always ²an invasion of any legal right.²  Spaulding v. Evenson , 149 F. 913, 920 (C.C.E.D. Wa. 1906). Richard Gale faults his lender, First Franklin Loan Services (²Franklin²), for failing to respond to his correspondence regarding ownership of his loan, and alleges that this failure amounted to a violation of the Truth in Lending Act (²TILA²), and Nevada’s covenant of good faith and fair dealing. Because Franklin was not legally required to respond in its capacity as loan servicer, we affirm the district court’s dismissal of these claims. However, Gale also alleges [**2] that after failing to respond to his letter, Franklin and the other defendants engaged in illegal conduct by wrong-fully foreclosing on his property. We remand these remaining state law claims to the district court.”

So as an aside, the Court cleaned out the carcass of RESPA as well. This decision cannot and will not stand in my opinion and the entry of politics and ideology clearly clouded the real issues of due process, statutory duties, and justice. But worse, the court put its stamp of approval on screwing around with the title records corrupting them beyond recognition.

This Court has given a back-door to those who engaged in such behavior and left the title problems for future owners, lenders and beneficiaries of trusts. In my opinion I would continue to plead the same actions and bring it up on appeal — perhaps in the state appellate decisions and maybe even direct to the State Supreme Court on public policy and urgency for consistency in decisions.

But once again, we have admissions that helped the court along in this wrong application of the law. The “FACTS” are that Gale “refinanced his home with Franklin.” In order to recite those facts, it would have been necessary to have the borrower admit that the transaction was real and actually took place. Now if Franklin actually did the loan and it was not subject to claims of securitization, this might be an inevitable admission. But Franklin does not appear to be one of the exceptions of those banks that did not play securitization PONZI roulette. The “Facts” show otherwise. [As soon as you see MERS” you know claims of securitization are involved.]

The same applies to “Gale defaulted on the loan.” How did that get in the record unless Gale admitted it? How does Gale know that there was a payment due? He presumed it because Franklin was the originator. With what is in the public domain now, we know that the loan might well have been paid in full or paid in part or that the payments to the real creditor continued to be made even after the borrower stopped paying. If the payment was made, there was no payment due, and thus there could be no default. But the Borrower here appears to have admitted it.

The one sort of bone thrown out to borrowers, is that the Court concluded that if the Gale claim arose after passage of Dodd-Frank, the results might have been different. They completely missed the point that the rules and regulations in Dodd-Frank were already stated or inherent under common law and existing statutory law, both Federal and State.

In short, the 9th Circuit is treating the sham transactions and strawmen of the fake securitization scheme with the deference one might give to a king. If the shoe was on the other foot, such behavior would not be tolerated for even a moment. Can you imagine the same court finding that a borrower does not need to disclose his principal in a loan? This decision is twisted, absurd and wrong.

by Charlie Guy

In Gale v. First Franklin Loan Services, 686 F.3d 1055 (9th Cir. 2012), the Ninth Circuit held that a borrower has no right under the federal Truth in Lending Act (“TILA”) to require a loan servicer to identify the owner of a loan obligation. TILA requires a servicer to identify the owner of the loan only when the servicer owns the loan, and only when the servicer owns the loan by assignment.

In Gale, the borrower refinanced his home mortgage with First Franklin Loan Services, which both originated the loan and serviced it. After the borrower became delinquent, he demanded First Franklin identify the “true” owner of the obligation. First Franklin ignored the requests and proceeded with foreclosure. The borrower filed suit claiming, in part, a violation of TILA. The trial court dismissed the TILA cause of action as a matter of law, and the Ninth Circuit affirmed.

On appeal, the borrower argued that the plain language of TILA, 15 U.S.C. Section 1641(f)(2), required First Franklin to respond to his inquiries regarding the identity of the owner of the loan. That section states that upon written request, “the servicer shall provide the obligor . . . with the name, address, and telephone number of the owner of the obligation . . .” The Ninth Circuit explained that this provision does not apply to all loan servicers, but only those servicers who are owners of the loan by assignment after loan origination. In this case, First Franklin was both the original lender and the servicer, so this section did not apply.

The Ninth Circuit also noted that, since a 2010 amendment to the Real Estate Settlement Procedures Act, all servicers must identify the owner of a real estate loan if requested, under all circumstances. This change, however, does not apply retroactively to claims (like the claim in Gale) that accrued prior to 2010.




Hats off to Dan for explaining the logistics of how additional people were added toy our deal, that you have a  right to know who they are and how their addition to your deal changes everything. Here is what he said:

So the homeowner gave an unconditional promise to pay. The “investors” who purchased securities from the issuing entity (the trust) stood up as the lender and provided the money. Now is where it gets tricky. Another 3rd party sprang up between the two and became the obligor to the lender. That is, they took over the CONDITIONS for providing payments to the “investors”. As Maher just said, they sliced and diced everything up into small pieces. But one thing is for sure, the relationship between the original borrower and the ultimate lender was bifurcated. They abstracted out the borrowers obligation to pay and replaced it with another 3rd party obligation to pay that is jacked up full of all kinds of goodies that apply not only to the investors, but to the borrowers also. This 3rd party took over the borrowers obligation to pay such that the borrower does not have to make payments and the “investor” lender’s payments are still “magically” made.

What are these “goodies” and magic? Advances, credit default swaps, hedges, insurance, over-collateralization, extra pools of funds, payments from borrowers in lower level tranches, you name it. And of course this does not even include government bailouts, write-offs, charge-offs, etc. The homeowners obligation to pay has been eviscerated.

Dan Edstrom

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