Az Federal Judge Strikes at Heart of Nonjudicial Foreclosure, Denies OneWest Motion to Dismiss

Posted on November 13, 2014 by Neil Garfield

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

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See OWB CASE Buffington v USBank_MTD Denied incl FDCPA 28USDC AZ

CAUTION: NOT ALL JURISDICTIONS ALLOW THE SAME CAUSES OF ACTION. CHECK WITH ATTORNEY WHO IS LICENSED IN THE JURISDICTION IN WHICH THE PROPERTY IS LOCATED.

A Federal Judge upheld a Complaint against OneWest on all counts except fraud. Actually the Judge was doing the homeowner a favor because the burden of proof on fraud is clear and convincing evidence whereas the burden of proof for the rest of the causes of action is only a preponderance (50% + 1) of the evidence. If it is more likely than not that the homeowner is right on the multi-count complaint that has now survived dismissal, the homeowner wins and the damages goes to the jury to jury to decide how much that should be. TRESPASS might also require a higher burden of proof. During the litigation, the homeowner will be able to inquire and potentially receive the necessary facts to support a fraud claim as well.

This is a dramatic reversal — lawsuits just like this one were previously dismissed in Az Federal Court. One of them was dismissed after 14 months of non-action by the court.

COUNT 1 UPHELD FOR NEGLIGENCE PER SE

COUNT 2 UPHELD FOR NEGLIGENT PERFORMANCE OF AN UNDERTAKING

COUNT 3 UPHELD FOR FALSE DOCUMENTS — Plaintiffs suffered false foreclosure recordings on their real property title record, additional damage to their credit reputation, and false late fees and penalties, as well as attorney fees and costs.

COUNT 4 UPHELD FOR PAYMENT/DISCHARGE/ SATISFACTION — based upon receipt of FDIC loss share payments that were intentionally withheld and therefore causing a misrepresentation to borrower as to the the existence of a default or the actual amount of the balance due to the actual creditor.

COUNT 5 UPHELD FOR BREACH OF CONTRACT

COUNT 6 UPHELD FOR BREACH OF CONTRACT

COUNT 7 DISMISSED — FRAUD

COUNT 8 UPHELD FOR TRESPASS TO REAL PROPERTY

COUNT 9 UPHELD FOR FAIR DEBT COLLECTION PRACTICES ACT

Filed under: foreclosure | Tagged: , , , , , , , , , | 9 Comments »

Tax “break” about to expire on debt “forgiveness”

Posted on November 9, 2012 by Neil Garfield

Editor’s Comments on policy:

Depending upon what Congress does between now and the end of the year the waiver of a tax on debt forgiveness as ordinary income will expire. My take is that it should expire and that at the same time the debt should be reduced by virtue of payments received or due from  subservicers, Master Servicers,  insurers, and counterparties to credit default swap contract, where appropriate. This is because (a) it was never secured and (b) it was never funded or acquired for “value received” by the parties whose name appears as payee and mortgagee on closing papers and (c) the debts have been paid off multiple times by multiples sales of the same loan under the structure of an outright sale (of something they didn’t own), insurance, credit default swaps and even federal bailout.

The added reason is that the homeowners were defrauded: the appraisals were cooked and the borrower justifiably relied upon them as did the investors. So we are talking restitution here not forgiveness.

That would leave each borrower with a tax instead of a mortgage. It would also give back the money to the Federal government and investors. In many cases the investors are also the borrowers if they pay taxes or are depending upon a managed institutional fund that bought the bogus mortgage bonds. By converting the defective mortgage, note and assignments to a tax, the borrower’s liability would be reduced and payable in installments.

Obama wants as little Federal involvement as possible, but he is missing the point that a large scale fraud took place here that ended up corrupting the title records in all fifty states and in which investors suffered losses only because their agents, the investment banks, never shared the enormous profits they received from “trading” (Tier 2 yield spread premium), buying insurance in which the investment bank was the payee instead of the investors, and buying additional coverage from credit default swaps again making themselves the payee instead of the investors.

This is a mirror of the closings at which the loans were supposedly originated. Instead of making the investors or their REMIC the payee on the note or recording an assignment with actual payment in cash, the banks “borrowed” ownership from the investors and made a ton of money trading on it.

The Federal government MUST get involved here and straighten this out or there will continue to be uneven inconsistent opinions emanating from state and federal courts across the country making the title situation (and uncertainty in the marketplace) even worse than it is now.

The fact is that in most loans the amount received from Federal bailouts and the hedge contracts that were used, as well as the outright multiple sales of the same loans, have been paid in full several times over whether they are in foreclosure or not — and that includes the prior “foreclosures” that were put through the system based upon false, defective documentation and fraudulent representations to the borrowers and all others involved in the process.

The remedy I propose is indeed extreme if you look at it as a gift. But if you look at it from the point of view that the investors and borrowers were lured into the scheme by the same lies to support a PONZI scheme that collapsed as soon as investors stopped buying the bogus mortgage bonds, it is easy to see that the balance due from borrowers is zero. In fact, it is even possible that legally the overpayment left over after the investors are paid, might be due back to homeowners by virtue of the terms of the notes they signed. That might also be taxable but the homeowner would have the money with which to pay the tax.

This proposal would stimulate the economy by automatically reducing the amount of household debt based upon tax brackets, while also increasing revenue to pay back the Federal government for all the “favors” done for the banks. Whether the Feds decide to prosecute the banks for restitution would their choice.

As it stands now, as long as homeowners focus their strategy or DENY and DISCOVER and demand to see the actual transfers of money to prove ownership of the loan and the existence of an unpaid loan receivable, the decisions are already turning toward the borrowers, albeit slowly. One way or the other, this issue with taxation of the “forgiveness” of debt when in fact it was actually paid is going to surface.

Think about it. Comments welcome.

Tax break for struggling homeowners set to expire
http://money.cnn.com/2012/11/07/real_estate/mortgage-forgiveness-tax-break/

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , | 142 Comments »

Appraisal Fraud: Triaxx Inching Toward the Truth

Posted on September 9, 2012 by Neil Garfield

Editor’s Comment: At the heart of the entire scam called securitization was the abandonment — in fact the avoidance of repayment of the loans. The idea was to make bigger and bigger loans without due any evidence of due diligence, so that the “lender” could claim plausible deniability and more importantly, make a claim for losses that were insured many times over. It was the perfect storm. Banks were using investor money to make bad loans on which the banks were raking in huge profits through multiple sales or insurance of the same loan portfolio. The only way the plan could fail was if the loans performed and the loan was in fact repaid.

For years, I have been pounding on the fact that the root of the method used was appraisal fraud, which as far as I can tell was present in nearly 100% of all loans subject to securitization, where loans were NOT bundled, and the securitization documents were ignored.

Now ICP Capital managing a vehicle called Triaxx, has countered the mountain of documents with real data sifted through algorithms on computers and they have come to the conclusion that loans were far outside the 80% LTV ratio that was presented to investors, that loans were never paid from the start (not even the first payment) and that probability of repayment was about zero on many loans. Soon, with some tweaking and investigation they will discover that repayment was never in the equation.

Thanks again to the learning curve of Gretchen Morgenson of the New York Times and her excellent investigations and articulation of her findings, we are all catching up with the BIG LIE. Banks made loans to lose money because they the money they were losing was the money of investors — pension funds etc. And at the same time they bet against the loans that were guaranteed to fail and put the money in their own pockets.

In classic PONZI scheme methodology, they used the continuing sales of false mortgage bonds to pay investors until the inevitable collapse.

Once this is established 2 things are inevitable — the investors will prove their case that they the mortgage bonds were fabricated and based upon lies, deceit and cheating.

And the other inevitable conclusion is that the money came from the investors and not from the named payee, lender or secured party on the notes and mortgages that were executed in the tens of millions during the mortgage meltdown decade.

But did the investor money come to the closing through the REMIC? The answer appears to be a big fat “NO” based upon a big fat LIE. And THAT is where the problem is that caused the banks and servicer to fabricate, forge, robo-sign, lie, cheat and steal in court the same way they did when they sold the investors and sold the borrowers on a deal doomed from inception.

Legally and practically all that means that the borrowers were equally defrauded by the false appraisals that are legally the representation of the “lender” not the borrower. But even more importantly it means that Wall Street cannot show that the money for funding or purchase of the loans ever actually came from the investment pools.

It turns out that the Wall Street was telling the truth when it denied the existence of the pools and the switched to a lie which we forced on them because it never occurred to us that they would blatantly cheat huge institutions that could do their own digging and litigating. 

The legal and accounting effect of all this is enormous. The Payees, Lenders and Secured Parties named in the closing were not the source of funding and therefore the documents that were signed must be construed as referring to a transaction that has never been completed because it was never funded.

The deception was complete when Wall Street investment bankers sent money down to closing agents without regard to any pool, REMIC, SPV or other specific collection of investors. The funding arrived from Wall Street a the same time as the papers were signed.

But in order to prevent allegations of false appraisals and predatory and deceptive lending from moving up the ladder, Wall Street made sure that there was NO CONNECTION between the PAYEE, LENDER or SECURED PARTY and either the investment bank or the so-called unfunded pool into which no assets were placed other than the occasional purchase or sale of a credit default swap.

FREE HOUSE?: As Arthur Meyer is fond of pointing out in his history of banking every 5 years, bankers always manage to step on a rake. The banks had severed the connection between the funding and the documents.

If the court follows the documents a windfall goes to someone in the alleged securitization documents WHO HAS ALREADY BEEN PAID.

If he follows the money, the loan is not secured by a perfected mortgage lien, which means that (1) the unsecured debt can be wiped out in its entirety by bankruptcy AND/or (2) with investors slow on the uptake, there might not be a creditor left to make a claim.

THE ULTIMATE AND RIGHT APPROACH TO PRINCIPAL REDUCTION: But as pointed out previously, there is a Tax liability that would put the federal, state and local budgets back in balance due from homeowners who got their “free house.” It would be a small fraction of the balance claimed on the original loan, but it would reflect the real valuation of the house, the real terms that should have applied, and a deduction for the predatory and deceptive lending practices employed.

BOA ET AL DEATHWATCH: The political third rail here is that 5-6 million homeowners might well have a right to return to their old homes with no mortgage — an event that would put our economy on steroids, end joblessness and crush the mega banks whose accounting and reporting to the SEC and shareholders has omitted the huge contingent liability to pay back the ill-gotten funds from reselling the same portfolio AS THEIR OWN  loans dozens of times.

Too Big to Fail may well be amended to “Too Fat to Jail”, a notion with historical traction even in our own society corrupted by money, influence peddling and lying politicians.

See Gretchen Morgenson’s Article at How to Find the Weeds in the Mortgage Pool

How to Find Weeds in a Mortgage Pool
By GRETCHEN MORGENSON, NY Times

IT sounds like the Domesday Book of the housing bust. In fact, it is a computerized compendium of millions of housing transactions — a decade’s worth from across the country — that could finally help us get to the bottom of troubled mortgage investments.

The system is an outgrowth of work done by a New York investment manager, Thomas Priore. In the boom years, his investment firm, ICP Capital, navigated the dangerous waters of collateralized debt obligations via an investment vehicle called Triaxx. Buyers of Triaxx C.D.O.’s did better than most, but Triaxx still incurred losses when the bottom fell out.

Now Triaxx’s database could help its managers and other investors identify bad mortgages and, perhaps, learn who snookered whom when questionable home loans were bundled into investments that later went bad.

Triaxx’s technology came to light only last month, in court documents filed in connection with the bankruptcy of Residential Capital. ResCap was the mortgage lending unit of GMAC, now known as Ally Financial. As an investor in mortgage securities, Triaxx gained access to a lot of information about loans that were pooled, including when those loans were made, where the properties are and how big the mortgage was, relative to the property’s value. After Triaxx fed such details into its system, dubious loans popped out.

Granted, Mr. Priore is no stranger to controversy. He and ICP spent two years defending themselves against a lawsuit by the Securities and Exchange Commission, which accused them of improperly generating “tens of millions of dollars in fees and undisclosed profits at the expense of clients and investors.” On Friday, ICP and Mr. Priore settled the matter. As is typical in such cases, they neither admitted nor denied the accusations. Mr. Priore paid $1.5 million. He declined to discuss the settlement.

But he did say that, looking ahead, he believed that Triaxx’s technology would help its investors recover money they deserved. Many other investors, unable or unwilling to dig through such data, have settled for pennies on the dollar.

“Our hope is that the technology will level the playing field for mortgage-backed investors and provide a superior method to manage residential mortgage risk in the future,” Mr. Priore said.

A step in that direction is Triaxx’s recent objection to a proposed settlement struck last May between ResCap and a group of large mortgage investors. Triaxx, which invested in mortgage loans originated by ResCap, criticized that settlement because it was based in part on estimated losses. Triaxx said the estimates had assumed that all the trusts that invested in ResCap paper were the same. Triaxx argued that a settlement based on estimated losses, rather than one based on an analysis of actual misrepresentations, unfairly rewards investors who bought ResCap’s riskier mortgages.

ResCap replied that it would be a herculean task to examine the loans in the trusts to determine the validity of each investor’s claims. But Triaxx noted that it took only seven weeks or so to do a forensic analysis of the roughly 20,000 loans held by the trusts in which it is an investor. Of its investments in loans with an original balance of $12.8 billion, Triaxx has identified approximately $2.17 billion with likely breaches. A lawyer for ResCap did not return a phone call on Friday seeking comment about problem loans.

John G. Moon, a lawyer at Miller & Wrubel who represents Mr. Priore’s firm, said: “Large institutions have been able to hide behind the expense of loan file review to evade responsibility for this very important national problem that we now have. Using years of data and cross-referencing it, Triaxx has figured out where the bad loans are.”

Triaxx, for example, said it had found loans that probably involved inflated appraisals. Those appraisals led to mortgages far exceeding the values of the underlying properties. As a result, investors who thought they were buying mortgages that didn’t exceed 80 percent of the properties’ value were instead buying highly risky loans that totaled well over 100 percent of the value.

Triaxx identifies these loans by analyzing 50 property sales in the same vicinity during the same period that the original mortgage was given. Then it compares the specific mortgage to 10 others that are most similar. The comparable transactions must involve the same type of property — a single-family home, for example — of roughly the same size. They must also be within a 5.5-mile radius. If the appraisal appears excessive, the system flags it.

Phony appraisals in its ResCap loans likely resulted in $1.29 billion in breaches, Triaxx told the court. Triaxx cited 50 possible cases; one involved a mortgage written in November 2006 on a home in Miami. It was a 1,036-square-foot single-family residence, and was appraised at $495,000. That appraisal supported a $396,000 mortgage, reflecting a relatively conservative 80 percent loan-to-value ratio.

But an analysis of 10 similar sales around that time suggested that the property was actually worth about $279,000. If that was indeed the case, that $396,000 mortgage represented a 142 percent loan-to-value ratio.

Perhaps the home had gold-plated bathroom fixtures and diamond-encrusted appliances. Probably not.

Triaxx’s system also points to loans on properties that were not owner-occupied, a breach of what investors were told would be in the pool when they bought it, Triaxx’s filing said. Such misrepresentations in loans underwritten by ResCap amounted to $352 million, Triaxx said.

The technology also kicks out mortgages on which borrowers failed to make even their first payments, loans that should never have wound up in the pools to begin with.

Although Triaxx is using its technology to try to recover losses, that system could also help investors looking to buy privately issued mortgage securities. After all, investors’ inability to analyze the loans in these pools during the mania led to enormous losses in the collapse. Now, deeply mistrustful of such securities, investors have pretty much abandoned the market.

Lenders and packagers of mortgage securities will undoubtedly fight the use of any technology like Triaxx’s to identify questionable loans. That battle will be interesting to watch. But investors should certainly welcome anything that brings transparency to this dysfunctional market.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , | 11 Comments »

It’s the title, Stupid!

Posted on September 5, 2012 by Neil Garfield

“What is surprising is the fresh evidence these cases are turning up of cockeyed mortgage practices, during both the boom and the bust. As these matters are adjudicated, perhaps we will finally learn whether these practices were intended or accidental.” — Gretchen Morgenson, NY Times

Editor’s Analysis: Gretchen Morgenson has latched onto the key element of the “securitization” of home loans that was faked to cover a Ponzi scheme in which the largest financial players in the world were pulling all the strings.

While the propaganda would have us believe that the situation is improving, the looming number of decisions from now alerted Judges may well produce a tidal change in the outcome of foreclosure litigation, the value of the bogus mortgage bonds which appear to be worthless from start to finish, and the balance owed on any of the debt issued under the guise of securitization.

Romney and the Republicans, taking their talking points from Wall Street are saying let’s wait until the market “bottoms out.” What people want and could have is a market where prices are going up, not “bottoming out.” Voters do not want to hear that because each year the predictions are the same: the market is finally hit bottom and is recovering, only to be bashed by news of ever-decreasing prices on homes.

The judicial system is where it all happening, albeit at the usual frustrating snails pace that the courts are known for, some of which is caused by the sheer volume through which the banks and servicers, masquerading as note holders push good-looking documents with not a single word of truth recited.

Judges are starting to realize that the issue of the identity of the creditor is important if any of these cases are going to settle or where a modification is the final result.

Under HAMP the servicers and “owners” of the mortgages are required to consider the mortgage modification proposal from borrowers. But they are not doing that, complaining that it is straining their resources and infrastructure since they are not set up for that. Whose fault is that? They took the TARP money and they agreed to modify where appropriate and even get paid for it.

The borrower is left in purgatory with no knowledge of the proper party to whom they can submit a proper proposal for modification, with principal loan r eduction or actually principal loan correction since the original appraisal was false and procured by the bank. Judges like settlements. But they can’t get it if they keep siding with the banks that the identity of the lender and the actual accounting for all money paid in or paid out of the loan receivable account is irrelevant.

The problem is MERS and the entire origination process where the rented name of a payee on the note, the rented name of the lender described in the note and mortgage, and the rented name of the mortgagee or beneficiary was used instead of the actual source of funds.

The second problem is the balance due, on which the servicers and attorneys have piled illegal fees.

The answer is the strategy of deny and discover which is being pursued by alliance partners of livinglies and the garfieldfirm.com. By the way, we are especially ready in South Florida. Call our customer service number 520-405-1688 for details on getting legal representation.

The banks and servicers are pretending that the report from the most recent sub-servicer is sufficient for the foreclosure. That has never been the case. Historically, if a lender felt it needed to foreclose it came to court with the entire loan receivable account starting with the funding and origination of the loan and continuing without breaks, up to and including the date of filing.

The banks and servicers have been steadfast in their stonewalling to prevent the homeowner from knowing the true status of their account, the true identity of the creditor, all of which can be gleaned not from the the records of the subservicer but from the records of the Master Servicer and the “Trustee” of the supposed common law trust which was “qualified” as a REMIC for tax purposes.

An accounting from the Master Servicer and Trustee would lead to the discovery of admissible evidence as to what the real creditor was owed after receipt of all payments, and who the current real creditor might be. After all, they looking for foreclosure and they are taking these properties by “credit bids” instead of paying cash at the auction. Only a creditor whose debt was secured by the mortgage or deed of trust can submit a credit bid.

The truth is that virtually all credit bids that have been submitted are invalid because they were not submitted by a secured creditor. And that leads to an even larger problem for the banks. Those “assets” they are holding on their balance sheet are not just fake, worth zero, they are also offset by a liability to those whose money was taken by the same investment banks that sold bogus mortgage bonds to the investors.

Since those sales were made through elaborate CDOs, CDS and other devices, we have known since 2007, that the reported “leverage” (using investor money) was as much as 42 times the amount of the average loan in the portfolio.

So that loan for $300,000 resulted in a 100 cents on the dollar payoff to banks who had neither funded nor purchased the loans but were representing themselves as the legal holder of the note and thus the obligation.

If the mortgage was invalid, the note was unenforceable because it wasn’t funded by the parties named on the note, and the “assignment,” or other transfer or sale of the “note” were all equally null and void, then the bank that has picked one end of the stick saying the assets on their balance sheet are real, should also have put a contingent liability on their balance sheet for as much as $12 million on the $300,000 loan.

Each time foreclosure is completed, or appears to be completed, that huge liability is wiped out arguably. Then the banks keep the $12 million, and dump the loss on the individual loan on the investors, which is usually some 50%-65% of the loan amount.

THAT is why the banks and servicers are in the business of foreclosure, not modification or settlement. They have no choice. They could owe back all that money they received. It isn’t the loss of $300,000 or some part thereof  they are worried about, it is the liability of $12 million on that loan that they are avoiding.

The political impact of this will be devastating to incumbents not in 2012 but in 2014 when the pension funds, who have already reported they are “underfunded” start slashing pension benefits, thus requiring another round of Federal Bailouts because the government so far has refused to claw back all of the money that was made by the banks and distribute it to the investors and reduce the borrowers balance owed on the “loan.”

Given the above scenario and the widespread use of nominees in lieu of real lenders and real sources of funding, it is highly probable that the title to potentially tens of millions of properties have clouds either because the foreclosure was wrongful or because the wrong party executed the satisfaction of mortgage or both.

And as stated in the previous post, this is not a gift to homeowners. They will owe tax on the elimination of the mortgages and loans because the loans were paid, not forgiven.

It is left-handed way of providing huge principal reductions because of PAYMENT (not forgiveness). With the balance paid, the borrowers must report the claim as a gain paid by co-obligors they never knew existed. With a top tax rate of 35% currently, soon to be 38%, the homeowner will have a tax obligation for no more than the tax rate applied against the balance due on the loan — the equivalent of a loan reduction of 65%-75%, which would satisfy anyone.

Modification proposals from homeowners are much higher than that. The only reason they are rejected is because each modification would transform each loan into the class of “performing” and would materially change the balance sheet of each of the mega banks with adverse consequences for the mega banks and a bonanza for the 7,000 community banks sand credit unions in this country.

But in order to determine the balance due, the accounting must be a total accounting starting from the original funding of the loan right up to the present. When Judges realize that the would-be foreclosers can’t or won’t provide that they will start making the opposite presumption — that it is the banks and servicers that are the deadbeats.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , | 283 Comments »

Payment, Not Magic Satisfies Obligations: Stop Saying You Don’t Owe the Money

Posted on January 16, 2012 by Neil Garfield

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EDITOR’S COMMENT: Stopa’s article runs to the heart of the matter and it’s time WE faced the reality that payment, not magic, discharges what you owe. And the other reality is that if you try to win your entire case in preliminary hearings, you are going to lose the opportunity to educate the Judge and hence lose the case.

There is no Judge, no matter how liberal, who is going to tell you that any defect in the paperwork on an otherwise valid debt is going to give you a free house or even a reduction off the amount demanded by the pretenders. Ultimately this is about MONEY and it is about the collateral for that money.

You can attack the security instrument that uses the home for collateral but you can’t attack the obligation if you received the money from the loan or the benefits of of the loan being funded. You borrow money, you owe it to somebody. Any hint that you are trying to convert the loan into anything other than an obligation will be met with a brick wall and your case will splatter on the windshield of the opposing counsel’s steamroller.

I have been encouraging our analysts and lawyers to emphasize the existence of the obligation since it arises by law with or without documentation. Stop fighting it. Point out the obvious — the investors loaned the money and the borrower took it. Your client has an obligation that arises by operation of law because the money received by or for the benefit of your client is presumed NOT to be a gift and that is a correct presumption. You have started educating the Judge. The deal was between the ivnestors and the the borrower homeowner.

Then start educating the Judge on how many obligees there are because of events subsequent to the initial closing, like payment from the servicer that reduces the amount due to the creditor investor but gives rise to a new and different obligation to the servicer that also arises by operation of law — money due the servicer for advances to the creditor, even if the servicer was a volunteer.

Again, tell the Judge that you don’t owe the servicer because they were a volunteer and you have lost your case and your motion will be presumed dilatory.

Instead show that there are now two creditors each claiming part of the same obligation in an amount that can be  measured easily from the reports on the Loan Level Analysis, showing distribution reports and payments to the creditor by the servicer. But the amount due the servicer is not owed pursuant to a contract that includes both the servicer and the borrower as parties.

So it arises by operation of law. Thus it is not subject to the provisions of the note or mortgage, but rather is simply a claim for restitution or unjust enrichment, that is undocumented and unsecured but nevertheless valid. NOW you have shown the Judge that the obligation has been split  and that at least part of it is unsecured by still owing. You have shown that part of the obligation is still owed the original creditor — the one who loaned the money and part is owed to a third party.

Then you do the same for the Insurance payments, proceeds of credit default swaps and guarantees through commingling funds in the tranches and you have three more creditors for which you are entitled to discovery to determine the amount of the payment and on what terms the borrower might owe each such additional creditor. So now you have 5 or more creditors, possibly including the US Government, Federal Reserve, etc.

Thus you have not tried to dodge the obligation, you have plunged into it, admitting that the obligation is there, but owed to multiple parties only one of which could be secured by the using the home as collateral. It also goes tot he question of whether the “missed payments” from the borrower were due at the time they were declared delinquent or in default if the servicer and others were paying the creditor.

THEN you point out that none of the actual creditors were on the originating paperwork with the borrower which means that either the paperwork can’t be used at all as evidence of the obligation or parole evidence must be allowed to provide a complete picture what happened — which means you get to the next hearing to enforce discovery, you avoid motion for summary judgment or dismissal etc. Just don’t tell the Judge that the end result is or could be a free house. Insist that the case is not about a free house, the case is about an obligation that arose when the borrower accepted the money and what happened after that.

This is the Achilles heal of the pretenders. Once you have the right to trace ALL the money that exchanged hands as receipts or disbursements relating to the borrower’s loan or the pool that claims some rights over the borrower’s loan then you have the right to and potential to show the Judge what they really did. At THAT point your request for modification, settlement or end of the foreclosure case will be seen in a far more credible light.

A “Free House” – That’s Not the Issue, Judge

by Mark Stopa
http://www.stayinmyhome.com/blog/wp-content/uploads/2012/01/Transcript-of-Foreclosure-Trial-Ticktin.pdf

Currently making the rounds among foreclosure defense attorneys is a transcript of a trial in a foreclosure case that recently took place in Miami. I did not participate, as this wasn’t one of my firm’s cases, but I encourage everyone to read the transcript, as there are significant lessons to be learned here for all involved.

Before I share my thoughts, just read. Here are some pertinent portions:

The Court: My feeling about this equitable lawsuit, foreclosure issues, and I want to get this as a jump off.

Defense Counsel: Okay.

The Court: My concern is, did you sign the Note? Did you sign the Mortgage? Did you get the loan? Did you default? Did you owe the money? Is it your signature or is it somebody else’s signature?

In response, defense counsel attempted to explain that the homeowner had an expert who would testify that the securitized trust, the plaintiff in the foreclosure case, did not actually own and hold the Mortgage because it was conveyed into the Trust after the deadline in the Pooling and Servicing Agreement. Unfortunately, the court seemed less concerned about the legitimacy of this legal argument and more concerned about whether that argument, if granted, would give the homeowner a free house:

The Court: Okay. Okay, so why do I care? Shouldn’t I just be concerned about whether or not they’re the holder of the note at the time that I try the case?

Defense Counsel: There are requirements, like any trust, basic trust law. … The trust has certain requirements that say, all the loans have to be transferred into this trust by X date. If they’re not transferred into the trust by X date the trust doesn’t own or hold anything.

The Court: So if I follow your thinking, your client should be able to live in this house forever, free and clear. Is that what you’re suggesting?

Defense counsel: That may be the ultimate outcome.

The Court: Good luck to you, sir.

Defense counsel: Thank you, Judge.

The Court: Good luck to you, sir.

Defense counsel: Thank you.

The Court: Do you think that I am going to sit here after somebody has been lent hundreds of thousands of dollars and you have the standing to complain that the trust documents were not properly obtained, so your client who got — how much was this loan?

Plaintiff’s counsel: $216,000.

The Court: $216,000, I get to live there forever. You think a court of equity which is what I am sitting as is going to allow that to occur?

Defense counsel: If there is a family trust that says, “all of Bob’s property for his family trust needs to be assigned into the trust by January 1, 2010.” If those — if that res is transferred prior to that January 1st, that’s fine. We as Bob’s family trust own that property.

The Court: Right.

Defense Counsel: But, now there’s a subsequent transfer of 2012 and the document comporting a transfer into Bob’s family trust in 2012 when the trust says, it must be transferred by 2010, and the trust is very particular about this. How can the 2012 transfer into the 2010 trust, you don’t have standing.

The Court: Right, but may — by here’s my problem. My problem is it would seem to me under your circumstances that somebody whose trust assets have been affected might have the ability to come in and say, this has effect on me. What standing does your client have to come along and say, somebody down the line got screwed over because they didn’t do what they were supposed to do? Your client received hundreds of thousands of dollars, has been in this house I assume for three or four years not paying a dime. Have you found one judge in this state that has said, ‘You know what? I buy your argument and you client can live there forever, rent free, mortgage free; because they violated the Pooling Agreement.” Have you found one judge that has –

The Court: So and so, they’ll never be able to foreclose on your client?

Defense counsel: Depending on how the case comes of issue, yes. If it’s an issue that would pertain a res judicata and/or collateral estoppel, yes.

The Court: So what you’re suggesting is that your client should be able to stay in this house forever?

Defense counse: That has been the result. And Judge, yes …

The Court: No, no, no, [defense counsel]

The Court: I think this is a very interesting issue. I think the Third District is doing to have to tell us to tell us that under these circumstances we should listen to this testimony and if the testimony proves what you’ve purported to prove that a person who borrowed hundreds of thousands of dollars should never have to repay it and should be able to live in the house for free, forever.

The Court: Because I’m not doing it.

The Court: You getting that down? All my friends in the Third District, you want to reverse this, you go right ahead and do it.

Defense Counsel: Right, but that’s also presuming that they’re able to prove their prima facie case. Judge, I just want to make the record clear.

The Court: Of course. I mean if they put on evidence of something other than this loan and they don’t convince me that they know what the documents are; they know what the loan figures are; they know that there’s been a default; they’ve complied with all conditions precedent, I can’t give them a judgment. But, I would be shocked. I’m putting that on the record. Shocked if the people of the Courts of this State, District Court of Appeal, would say that in situations like this somebody who has borrowed hundreds of thousands of dollars and has lived mortgage free for years should be able to jump in there and say ‘you guys screwed up and you can never throw me out of that house.’ If that’s what they want to write, that’s their job. They’re my judicial superiors. They can do it, but I’m not doing it. Okay.

My thoughts upon reading this exchange:

1. First off, I am very disappointed to see how the judge framed the issue before him. The issue at this foreclosure trial was not whether the homeowner was entitled to a free house. The issue was whether this plaintiff that filed this lawsuit was entitled to a final judgment of foreclosure against this homeowner. That bears repeating:

The issue was whether this plaintiff that filed this lawsuit was entitled to a final judgment of foreclosure against this homeowner.

I’m pleased to say that many of the judges before whom I appear recognize that this is the issue before them. For those who do not, I think it’s imperative that everyone (be it my my friends, colleagues, and pro se litigants), do whatever you can to force the judges before you appear to frame the issue appropriately. Here, for instance, when the judge kept asking this attorney if his client should get a free house, I think the response should have been something like:

“Respectfully, judge, whether my client winds up with a free house is not the issue before you. The issue before you is whether this plaintiff is entitled to a final judgment of foreclosure against this defendant based on the evidence the plaintiff is about to present. And candidly, judge, I’m troubled that you are not framing the issue in that manner, as it seems you have prejudged this case in a manner adverse to my client, which is causing me fear that you cannot adjudicate this case fairly and cannot be neutral and detached.

If that doesn’t make sense, put yourself in a different context – a murder trial. Suppose the state is relying exclusively on evidence that was procured through an illegal search and seizure and that the law requires the evidence be excluded. Allowing a murderer to go free would be inequitable as hell – I can hardly think of anything less equitable. However, if the law says that the evidence must be excluded, then no judge can allow that evidence to be admitted simply because he/she wouldn’t like the result.

Foreclosure cases are no different. The final outcome, no matter how unseemly it may appear to any judge, cannot justify a court to overlook the rules of evidence and rule of law. Candidly, I think most judges before whom I appear would agree with this, and for those who don’t, let’s all remind them of the issue.

Judge, the issue before you is not a “free house,” but whether this plaintiff is entitled to a foreclosure judgment against this defendant based on the evidence before you.

2. It was very apparent, certainly to me, anyway, that the judge prejudged this case. Most troubling in this regard were the judge’s repeated statements that he was not going to give the homeowner a free house, inviting the Third District to reverse if it so chose. What was so bothersome, of course, is that the judge made these comments before the trial had begun.

Respectfully, how could the judge possibly know whether evidence which he had yet to see would be sufficient to justify a foreclosure? How could he possibly know that the Third District would be in a position of reversing his ruling (adverse to the homeowner) when he hadn’t yet seen any evidence? Pretty clearly, at least in my eyes, the judge knew he was ruling against the homeowner before the trial even started.

As I read the transcript, the judge’s dislike of foreclosure defense only seemed to grow the more the concept of a “free house” was discussed. Unfortunately, this entire premise was misplaced. Hopefully, with input from all of us, everyone will realize the issue in foreclosure cases is not whether the homeowner gets a free house, but whether this plaintiff is entitled to a foreclosure judgment against that defendant based on the evidence in that case.

3. On the issue of whether the defendant has standing to complain about the plaintiff’s lack of standing, I follow the judge’s argument, but I disagree. If the plaintiff is a securitized trust, and the mortgage was not conveyed into the trust in a manner required by the Pooling and Servicing Agreement, then the trust doesn’t own the mortgage. And if the trust doesn’t own the mortgage, then it lacks standing to foreclose.

To say a defendant lacks standing to complain about a plaintiff’s lack of standing is, respectfully, silly. If the plaintiff has no legal right to bring suit, then the defendant always has standing to assert as much. To argue otherwise is to say ”the plaintiff might not be the right plaintiff, but shut up, defendant – you’re a bad actor, and it doesn’t matter if this plaintiff has standing – you’re going to pay.”

“But, judge, I don’t owe this Plaintiff any money.”

“Shut up, Defendant – you owe the money and you’re going to pay.”

I realize this seems a bit crass, and obviously the judge didn’t say “shut up,” but can you imagine that argument in other contexts? For instance, imagine a lawsuit against an insurance company where the issue is coverage for a homeowner. Can you imagine any judge saying “Shut up, insurance company. It doesn’t matter if this is a covered item, and it doesn’t matter if you issued an insurance policy to this homeowner. The house burned down, so you’re going to pay.”

Again, I realize that’s not how this judge worded it, but as I read the transcript, that’s how I interpret the position. It doesn’t matter if the plaintiff is the correct plaintiff, it doesn’t matter if the plaintiff has standing, the defendant can’t complain about it. Respectfully, does that even begin to make sense?

It’s ironic, actually. This judge was so concerned about the homeowner getting a windfall – a “free house” – that he was completely overlooking the fact that he was willing to give the plaintiff a windfall. After all, taking the judge’s position to its logical conclusion, it didn’t matter if that plaintiff actually owned the note – the homeowner was going to pay (and, hence, the plaintiff was going to collect). Maybe the judge didn’t intend to come across that way, but you read the transcript, and you tell me – isn’t that how it seems?

My point here, is this. There are laws that all of us dislike. There are outcomes that all of us find inequitable or inappropriate for one reason or another. However, the end does not justify the means. It’s not up to any of us, especially a judge, to say “this is the outcome that I think should happen, and I’m going to rule accordingly.” There are rules of evidence, procedure, and laws that must be followed. If we act otherwise, then the court system is not enforcing a system of laws, but each judge’s version of morality. And if we start going down that path, there can never be uniformity, as what one person finds inequitable, another will find perfectly appropriate.

Our judicial system functions by a uniform system of laws, which our courts must uphold and enforce. That’s why it’s so important to frame the issue appropriately. The issue isn’t whether a ruling would be fair or consistent with some nebulous standard of morality, but whether such a ruling would be fair and appropriate based on the evidence presented in that case.
Mark Stopa Esq.

http://www.stayinmyhome.com

 

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , | 26 Comments »

Minnesota Prepares to Sue A Debt Collection Agency: Robosigning

Posted on March 29, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

“The Minnesota attorney general, Lori Swanson, accused Encore of fraud, saying it had filed false affidavits to collect consumer debt that was not owed or had been already paid off.”

HUGE POTENTIAL EFFECT ON FORECLOSURES

EDITOR’S COMMENT:

The significance here is not just that robo-signing was used, which violates even common sense rules of evidence. It is the fact that the false affidavits were used to collect debts that were not due or had already been paid. This is the same as the current foreclosure mess, where pretenders are using false representations, fabrications, forgeries and perjured testimony to collect on non-existent debt, and debt which has already been paid by parties who have expressly waived any right to subrogation, which means they paid, but they did not purchase the receivable — to protect themselves from being called “lenders” or being subject to claims from homeowners for fraudulent or predatory lending.

As you will see from the description below, this opaque construct of conflicting “deals” and “trades” created a context in which the borrower’s obligation would be paid, regardless of whether the homeowner made the payments or not. The pretender lenders stepped in to the void created by this scheme to enforce a void note, void mortgage and an obligation in which it was neither the lender nor the purchaser of the receivable.

The pretenders are able to do this under the noses of the people who were the actual lenders because the investors don’t want to accept any responsibility for the fraudulent and predatory lending and documentation.

On a basic intuitive level it would seem that if a borrower received the benefit of funding of a loan, that the borrower was responsible for paying it back, regardless of what back-room deals were made. But in the words of Renaldo Reyes, Chief Asset Acquisition Officer (i.e., “trustee”) for Deutsch bank, the whole thing is COUNTER-INTUITIVE. That is why the courts are having so much trouble with these foreclosures — AND THAT IS THE SOLE REASON FOR THE USE OF ROBO-SIGNERS, FABRICATED DOCUMENTS AND FORGERIES TOGETHER WITH PERJURED TESTIMONY.

If the creditor was actually named, the real issues would come out and the issue would be completely reframed — because the the real creditor doesn’t want the house or the foreclosure, and in many cases is still getting paid. This leaves a “floating obligation owed to nobody” which is what the pretenders are exploiting and using on their balance sheets as “assets.”

Payment came from third parties who expressly waived rights of subrogation — it is right there in the insurance, credit default swap and buy-out agreements in the bailouts. That was intentionally done to remove the insurers or counterparts from any potential liability for fraudulent or predatory lending claims. But you can’t pick up one end of the stick without picking up the other end. The payments were received by agents of the investors — and the servicers keep on paying the payments to assure the imposition of absurd fees and costs. So at no time is the borrower’s debt to the investor-lender ever in default despite representations to the contrary in court. AND THAT IS WHY THEY USE ROBO-SIGNING, FABRICATION AND FORGERY — BECAUSE IF THEY WENT TO THE ACTUAL CREDITOR, THE DOCUMENT WOULD NOT BE SIGNED. SAME THING WITH CREDIT CARDS, STUDENT LOANS AND OTHER CONSUMER CREDIT WHICH INCIDENTALLY WAS MOSTLY SECURITIZED AS WELL.

Minnesota Prepares to Sue A Debt Collection Agency

By REUTERS

Minnesota’s attorney general accused the Encore Capital Group of cutting corners by filing “robo-signed” affidavits in debt collection lawsuits, the same practice for which banks have come under fire in home foreclosures.

Encore shares fell as much as 10.3 percent before closing with a 3 percent loss on the day.

The Minnesota attorney general, Lori Swanson, accused Encore of fraud, saying it had filed false affidavits to collect consumer debt that was not owed or had been already paid off.

Encore is one of the nation’s largest debt collection companies, and often buys debt from credit card companies.

The allegations follow an Ohio federal judge’s preliminary approval on March 11 of a $5.2 million class-action settlement of similar claims against Encore’s Midland Funding unit.

An Encore spokesman, Mike Huckman, had no immediate comment.

Robo-signing is a term coined to describe employees’ signing of litigation documents without reviewing their contents. All 50 state attorneys general are investigating robo-signing and other practices by banks in the mortgage industry.

Ms. Swanson said such practices were pervasive in debt collection. Ben Wogsland, a spokesman for Ms. Swanson, said she was investigating about a half-dozen other companies that buy debt.

Encore, which is based in San Diego, had through year-end invested $1.8 billion to buy 33 million accounts with a face value of $54.7 billion, according to its annual report.

Ms. Swanson wants the Ohio court to clarify that the proposed class-action settlement does not bar government agencies from pursuing similar litigation. She is seeking to file her lawsuit in a Minnesota state court, Mr. Wogsland said.

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ESTOPPEL LETTER: CALLING THEIR BLUFF — Interesting Anecdotal Evidence

Posted on February 28, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

“This reminds me of when we were asking for assignments and indorsements on loans that were not behind in the payments and they couldn’t come up with it. We realized that the only time those documents surfaced was in litigation years after the supposed assignment or indorsement took place and that is what led to the discovery of the LPS, DOCX etc., robo-signers and robotic signers. More importantly it led to the discovery that the failure to assign when (a) the loan was performing and (b) within 90 days of the creation of the “trust” (REMIC/SPV) meant that the trust could not legally accept the assignment years later when (a) the loan was non-performing and (b) it was years after the cutoff date provided in the PSA and REMIC statute.

“In fact, I think these two events are inextricably related, because most of their plan and profits would never have been created if they HAD done things properly. Properly documented mortgage loans and properly and timely execution and recording of documents of transfer would have prevented them from “securitizing” non-existent loans or selling the same loans multiple times or creating synthetic CDO’s creating leverage of 30x-60x betting on failure of the “pool”(which turned out to be completely empty except for the cash it had received from the sale of credit default swaps wherein the pool accepted the position of insurer of toxic waste tranches).

“It is on that basis that I arrived at the opinion that the documents were both prepared and handled intentionally to create ambiguity and to allow for claims of “mistake” or plausible deniability. If you look at the other end of the transaction where the pension fund investor advanced the money and the sophistication of the Wall Street investment banking firms and lawyers that corroboration of an intentional act bubbles up to the top. In order to steal from the investors, steal from the homeowners and take all the money and property bottle-necked in the middle, there could be no apparent privity of contract or even equitable relationship between the actual lender/investor and the borrower.

“This gap created the void that was utilized by investment banks and all the other intermediaries to make claims without notice or consent of either the actual lender or the actual borrower. They took what the real parties (those who were exchanging money and value) and inserted terms and conditions as well as unauthroized patterns of conduct that neither of the real parties knew about — any one of which would have stopped the transaction if the information had been properly disclosed.

“If they actually came up with THE one and only original documents it would prove the fraud of multiple sales of the same loan, or it would prove the fraud of misrepresenting the loan, and it would create a claim for fraud when the Master Servicer declared the downgrade of the value of the pool. Each performing loan set of documents became a ticking time bomb that could explode in the face of Wall Street investment bankers who had created the illusion of securitization and the illusion of compliance with local property and contract law.

“It should have come as no surprise when instead of providing proof of the ownership of the loan, obligation, note and mortgage, they offered “settlements” which were too good to pass up but which kicked the title question down the road. They would rather take LESS money than the amount offered than be required to provide authenticity of the transaction they claimed to won, collect or enforce. So the moral is that we have a whole wave of new title problems and a flood of litigation coming at us as these transactions come up for resale or refinancing and the title companies, stuck between a rock and a hard place, start placing exclusionary remarks in the commitment and the policy, and the real property lawyers actually look at the title record and see the breaks.” — Neil F Garfield

SEE 2-federal-judges-announce-multiple-lenders-with-the-same-original-note

a-little-larceny-now-and-then

countrywide-admits-never-delivering-deeds-and-notes-to-pools

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

LIVINGLIES FEBRUARY 27, 2011 BY NEIL F GARFIELD

Interesting response from my earlier report that some people were going to the nuclear option. Their premise: either we are right or we are wrong. These intrepid souls were willing to take the risk that we were wrong and pay off the entire mortgage even though the house was under water. So those with money or access to money they deposited more than enough actual “money” into a bona fide real estate escrow agent’s account who issued a standard estoppel letter to the “servicer” and to the “lender of record.”

For those of you who are unfamiliar with law practice an estoppel letter requests the current status of the loan, the current amount due, the payoff amount as of a certain date which usually relates to a pending closing on a refinance or sale of the property. It requires disclosure of the identity of the party to whom the payoff should be sent.

This strategy grew out of innocent transactions involving the sale of property where the mortgage was too low to cause the property to be underwater or where, it was close and the seller was willing to come to the table with money.

In most cases, the response was innocent in its appearance, but some lawyers for the new buyers picked up that it was insufficient, so they made sure that the recipient  of the request for the estoppel letter and the writer of the estoppel letter had actual possession of the original note (2) that they had it because the money was owed to them and (3) they could show with actual evidence the chain of assignments, indorsements etc  in recordable form such that their client would be “seized” with fee simple absolute title, free and clear of the mortgage or Deed of Trust. In other words, they needed the title record to SHOW the chain of title such that their client’s title would be marketable and not subject to questions (clouds on title) or challenges (defects in title).

This is nothing unusual and has been industry practice for hundreds of years.The basic premise behind any law of commerce, or for that matter any law at all is to create certainty in society and certainty in commerce. When you do a real estate transaction where you think you are buying the property, there should be no doubt that you own it after the transaction — if everything was done right.

As any lawyer will tell you a policy of title insurance is NOT a substitute for clear title — it just provides a financial remedy if it turns out that the title was defective and can’t be fixed. That remedy is only as good as the financial condition of the title insurer and the willingness of the title insurer to pay the claim. If the title company refuses coverage because of an allegation of fraud or “rescission” like we have seen with medical insurance, you can easily be stuck with no title, a claim on your property relating to a loan you never signed, and legal bills to defend what you thought was a simple deed transaction. And you can lose and possibly owe the other side their attorney fees and costs and any damages  caused by your claim which turned out to be without merit even though your intent was as pure as the driven snow.

So what happened? Under strict anonymity I have received more than 27 reports of a mere request for an estoppel letter resulting in the abandonment by the pretender lender of any claim on the mortgage, note or obligation in settlements carefully guarded by confidentiality. But 11 people wrote in and reported that the servicer challenged the escrow agent as to whether the money was really there. THAT was because several dozen people reported varying degrees of success of using letters of credit and other cash equivalents in lieu of actual cash in the account of the escrow agent’s account.

While some people were successful in calling the bluff of the pretender lender with “cash equivalent” deals, they are on to this scheme and if the money is not REALLY there they will force you into litigation. 7 people wrote in and told me that even though the cash was present in the escrow agent’s account, and even though the request for an estoppel letter was sent by email, fax and snail mail, the pretender lender went ahead with the foreclosure — eventually resulting in payment of damages to the homeowners as part of the confidential settlement.

I have no received no reports, so far, where the actual original documents and proof of of the title chain was ever offered, which means that even if the case was settled, there is a future title problem to be resolved. I conclude thus far, from this information that 100% of those seeking foreclosure are seeking to profit from self-help and self-serving fraudulent representations to fill the void left by the fact that the trustees and investors want no part of litigation with the individual homeowners.There is of course a question as to whether the investor’s claim exists, and if so, how much of the obligation is left AFTER loss mitigation payments that were made under express waiver of subrogation. But one thing seems “certain” in my opinion, and that is that the ONLY creditor, if one exists, is the party who actually funded the loan or actually funded the purchase of the loan.

With 96% of foreclosures resulting in sales involving a “credit bid” from a non-creditor, it is highly probable, based upon data received thus far, that NONE of the foreclosures are, or ever were valid exercise of rights by a creditor to recover or mitigate actual losses. In ALL cases these were interlopers who had neither loaned the money nor purchased the obligation who were submitting “credit bids” and fraudulently acquiring title.

There are some investor groups who formerly were doing short-sale  purchases that are now looking at using this strategy. If they are right, they need only maintain a balance in the account of the escrow agent, and then make a deal with the current homeowner for a new and valid mortgage, which in turn can be held for investment or sold properly on the secondary market. If they are right, a single deposit of a few hundred thousand dollars into the account of the escrow agent, could yield tens of millions of dollars in new, enforceable, valid mortgages. The yield is infinite since the money in escrow is never actually released because of the failure of the pretender lender to come up with the black letter proof of their status as the creditor and thus the proper party to execute a satisfaction of mortgage or reconveyance of the property.

The possibility for litigation still exists, but the position of the pretender lender is extremely weak.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , | 31 Comments »

Ambac Clients May Receive 25 Cents on Dollar in Cash

Posted on March 29, 2010 by Neil Garfield

Editor’s Note: The significance of this announcement is that the bondholders, who were insured directly by AMBAC (as opposed to the investment bankers who bought “bets” like credit default swaps) are receiving 25 cents on every dollar they funded as creditors for the funding of loan to homeowners (debtors/ borrowers).

This supports and corroborates two basic premises of this blog:

1. That the bondholders (i.e., the creditors in every securitized residential mortgage) have been paid or are covered, at least in part by insurance. Thus the allegation of a defense of payment or partial payment is confirmed. This supports the contention of the borrower that he is entitled to a FULL accounting of ALL monies relating to his obligation before any claim for default can be verified.

2. That the requirement of principal reduction is neither a gift nor any display of inequity. It is clear that principal reduction is as much a simple consequence of arithmetic as it is damages for appraisal fraud.

By Andrew Frye and Jody Shenn

March 25 (Bloomberg) — Ambac Financial Group Inc. clients will probably get about 25 cents on the dollar in cash for claims on about $35 billion of home-loan bonds backed by the insurer, the firm’s regulator said.

“Currently, my expectation is we’d be at approximately 25 cents cash” on the portfolio, with Ambac meeting the rest of its obligation by handing over surplus notes, Wisconsin Insurance Commissioner Sean Dilweg said today in a telephone interview from New York. The arrangement isn’t final until approved by a court, he said. The notes may be repaid, with regulator permission, if surplus funds remain.

Dilweg is taking over a portion of Ambac’s policies to protect municipal bondholders who count on the company’s guarantees. He halted payments on the $35 billion of mortgage bond policies and other contracts, saving Ambac about $120 million this month. That move will encourage the hedge funds, pension plans and other investors that hold the protection to negotiate with New York-based Ambac, Dilweg said.

“The only way to start negotiating is if regulatory action is taken,” Dilweg said. Investors holding securities backed by Ambac “watched our activities but every month they’ve been getting 100 cents on the dollar, so what incentive is there to come and talk to us?”

The $35 billion of mortgage-bond policies are part of the contracts seized by Dilweg’s office under the plan announced today and are separate from a group of collateralized debt obligations backed by Ambac, he said.

Counterparty Settlement

Ambac’s main unit, domiciled in Wisconsin, has offered to pay $2.6 billion in cash and $2 billion of surplus notes to settle with counterparties including banks on CDOs tied to assets such as subprime loans, the parent company said in a statement today. The notes will collect 5 percent annual interest, also payable with regulatory approval, Ambac said.

The insurer’s existing assets will be used to pay claims, Dilweg’s office said in a court filing yesterday requesting permission to take over the policies. The regulator said clients should continue to pay premiums to maintain coverage.

Ambac “maintains the assets to continue paying claims in full as they arise,” the regulator said in the filing. By offering a mix of cash and notes, the company “will not need to liquidate long-term assets prematurely.”

Ambac, created in 1971 to insure debt sold by states and municipalities, lost its top credit ratings and 99 percent of its stock-market value after expanding from its main business into guaranteeing bonds backed by riskier assets and CDOs. The company guarantees $256 billion of the $1.4 trillion in insured municipal issuance, according to Bloomberg data. The muni market totals $2.8 trillion, according to the Federal Reserve.

Shares Plunge

The company said that while it doesn’t consider the regulator’s move to constitute a default, it may consider a “prepackaged bankruptcy.”

The company fell 14 cents to 66 cents in New York Stock Exchange composite trading as of 4:15 p.m. The shares are down from as high as $96.10 in May 2007.

Ambac sold the industry’s first insurance policy on municipal debt 39 years ago, for a $650,000 bond of the Greater Juneau Borough Medical Arts Building in Alaska. The business thrived, with a handful of competitors obtaining the top AAA credit rating needed to guarantee debt of state and local governments and their agencies that seldom defaulted.

Ambac’s main unit was stripped of its top ratings in 2008 and has since seen its grade cut 17 levels to Caa2 by Moody’s Investors Service.

“At this point, it’s not a question of AAA coverage,” Dilweg told Bloomberg Television today. “It’s a question of coverage.”

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net;

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, HERS, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , | 7 Comments »

Credit Default Swaps Defined and Explained

Posted on March 3, 2010 by Neil Garfield

Editor’s Comments: Everyone now has heard of credit default swaps but very few people understand what they mean and fewer still understand their importance in connection with the securitization of residential mortgage loans and other types of loans.The importance of understanding the operation of a CDS contract in the context of foreclosure defense cannot be understated.

In summary, a CDS is insurance even though it is defined as not being insurance by Federal Law. In fact, Federal Law allows these instruments to be traded as unregulated securities and treats them as though they were not securities.

Anyone can buy a CDS. In the securitization of loans, anybody can “bet” against a derivative security ( like mortgage backed bonds) by purchasing a CDS. FURTHER THEY CAN PURCHASE MULTIPLE BETS (CDS) AGAINST THE SAME SECURITY. In the mortgage meltdown, Goldman and other insiders created the mortgage backed bonds to fail — collecting a commission and profit in the process — and using the proceeds of sales of mortgage backed securities to purchase CDS contracts for themselves. So they were betting against the value of the security they had just sold to investors. The investors (pension funds, sovereign wealth funds etc.) of course knew nothing of this practice until long after they had purchased the bonds.

The bonds were represented to be “backed” by mortgage loans that collectively received a Triple AAA rating from the rating agencies who were obviously in acting in concert with the investment bankers who issued and sold the bonds. There were also other contracts that were purchased using the proceeds of the sale of the bonds that performed the same function — i.e., when the bonds were downgraded or failed, there was a payoff to the lucky investment banker who issued them or the lucky “trader” or bought the insurance or CDS. Sometimes the proceeds were used to pacify the investors and sometimes they were not.

The significance of this in foreclosure defense, is that while the investors were getting bonds for their investment, the bonds incorporated the mortgage loans, which is another way of saying that the investors were funding the loans through a series of steps starting with their purchase of mortgage backed bonds. Thus it was the investor who was the ONLY creditor in the transaction that funded a homeowner’s loan (at least initially before bailouts and payoffs of insurance and proceeds of CDS contracts).

The other item of significance is that the securities did not need to actually fail for the CDS to pay off. That is precisely why AIG got into an argument with Goldman Sachs that eventually led to the bailout. All that was needed was for the issuer or some other “trustworthy” source to downgrade the value of the bonds or announce that a substantial number of the loans in the pool were in danger of default, and that was enough to claim payment on the CDS contract.

The translation of that is that even if your loan was paid up or only slightly behind, someone was getting paid on a CDS contract in which a series of mortgage backed bonds were marked down in value. This payment was received by the investment banker who was the central figure in the securitization chain. And, as stated above, sometimes these proceeds were shared with investors and sometimes they were not — which is why identification of the creditor and getting a complete accounting is so important.

But the issue goes deeper than that. The investment banker was acting as the agent or conduit for both the actual creditor “investor) who was lending the money and the debtor (borrower or homeowner) who was borrowing the money. Therefore the payment of proceeds in a CDS may have accomplished one or more of the following:

  1. Cure of any default by the debtor as far as the creditor was concerned, since the investor or its agent received the money.
  2. Satisfaction through payment of all or part of the borrower’s obligation.
  3. Obfuscation of the real accounting for the money that exchanged hands
  4. Payment of an excess amount above the amount owed by the debtor which might be a liability to the debtor under TILA, a liability to the investor, or both, plus treble damages, rescission rights, and attorneys fees.
  5. Opening the door for non-creditors to step into the shoes of the actual creditor who has been paid, and claim that the debtor’s non-payment created a default even though the creditor or his agents is holding money paid on the obligation that either cures the default, satisfies the obligation in full, creates excess proceeds which under the note and applicable law should be returned to the debtor.
  6. Creates an opportunity for some party to get a “free house.” In the current environment nearly all of the houses obtained without investment or funding of one dime is going to these intermediaries whom I have dubbed pretender lenders. Note that the financial services industry has taken control of the narrative and framed it such that homeowners are claiming a free home when they borrowed money fair and square. But at least homeowners have put SOME money into the deal through payments, down payments, or lending their credit to these dubious transactions. The free house, as things now stand is going to parties who never invested a penny in the funding of the home and who stand to lose nothing if denied the right to foreclose.

FROM WIKIPEDIA —–The article below comes from www.wikipedia.com

A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) undergoes a defined ‘Credit Event‘, often described as a default (fails to pay). However the contract typically construes a Credit Event as being not only ‘Failure to Pay’ but also can be triggered by the ‘Reference Credit’ undergoing restructuring, bankruptcy, or even (much less common) by having its credit rating downgraded.

CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of money if one of the events specified in the contract occurs. However, there are a number of differences between CDS and insurance, for example:

  • The buyer of a CDS does not need to own the underlying security or other form of credit exposure; in fact the buyer does not even have to suffer a loss from the default event.[1][2][3][4] In contrast, to purchase insurance, the insured is generally expected to have an insurable interest such as owning a debt obligation;
  • the seller need not be a regulated entity;
  • the seller is not required to maintain any reserves to pay off buyers, although major CDS dealers are subject to bank capital requirements;
  • insurers manage risk primarily by setting loss reserves based on the Law of large numbers, while dealers in CDS manage risk primarily by means of offsetting CDS (hedging) with other dealers and transactions in underlying bond markets;
  • in the United States CDS contracts are generally subject to mark to market accounting, introducing income statement and balance sheet volatility that would not be present in an insurance contract;
  • Hedge accounting may not be available under US Generally Accepted Accounting Principles (GAAP) unless the requirements of FAS 133 are met. In practice this rarely happens.

However the most important difference between CDS and Insurance is simply that an insurance contract provides an indemnity against the losses actually suffered by the policy holder, whereas the CDS provides an equal payout to all holders, calculated using an agreed, market-wide method.

There are also important differences in the approaches used to pricing. The cost of insurance is based on actuarial analysis. CDSs are derivatives whose cost is determined using financial models and by arbitrage relationships with other credit market instruments such as loans and bonds from the same ‘Reference Entity’ to which the CDS contract refers.

Insurance contracts require the disclosure of all risks involved. CDSs have no such requirement, and, as we have seen in the recent past, many of the risks are unknown or unknowable. Most significantly, unlike insurance companies, sellers of CDSs are not required to maintain any capital reserves to guarantee payment of claims. In that respect, a CDS is insurance that insures nothing.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , | 1 Comment »

Foreclosure Offense and Defense: Introduction to most pleadings

Posted on July 4, 2008 by Neil Garfield

Until the past few months few lawyers, judges or legislatures ever considered the foreclosure process to be anything other than a ministerial process. What has now emerged in hundreds of cases across the country is the dismissal, many times with prejudice, of foreclosure actions because of fraudulent documents from the lender, payment in full on the note, lack of standing and failure to prove the note or mortgage by production of the original or anyone with personal knowledge to prove a lost note.

The trial courts and some appellate courts have started recognizing that because of the securitization process initiated around 2001, the foreclosing party is not the real party in interest because they have sold or transferred, the note, the mortgage or both and that there were multiple transfers after that ending up with the holder of an asset backed security, secured by a pool of mortgages and loans. Along the way, the notes were paid off and the security was attempted to be transferred despite the satisfaction of the note. In addition co-obligors were added and substituted.

The subject mortgage and note is within that class of loans that has either been transferred or pledged or otherwise pooled with hundreds, perhaps thousands of other mortgages. In order to defend the action properly, and prosecute the claims of the Defendants in their affirmative defenses and counterclaim, Defendants must be allowed to trace the journey of the original loan documents, and the rights and obligations continued therein as they were effected by events both before and after the loan closing.

All proceedings conducted thus far are, upon information and belief, conducted under the allegation that the PLaintiff is the actual holder of the note and mortgage and that the note has not been paid. Upon infomration and belief, based upon many other cases invovling the same Plaintiff, the subject note and mortgage and note are not enfroceable by this Plaintiff and the continued allowance of the enforcement subjects the Defnedant to a Judgdement from this Plaintiff AND a claim and judgment from multiple third parties who will claim an interest in the subject note and mortgage.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: , , , | 1 Comment »

Foreclosure Defense and Offense: Banks Hiding Losses — Paying the Debts of Borrowers

Posted on July 4, 2008 by Neil Garfield

The most interesting part of this article is that our theory that third parties were actually paying the loan payments due to third parties that had “purchased” the mortgage loans, is validated.

This of couse presents an interesting problem in foreclosure defense: the defense of payment is now doubled — one for the money received by the STATED (at closing) mortgagee/payee which was paid the entire loan balance in full (plus around 2.5% premium) and second for the monthly payments that the STATED mortgagee/payee is now paying to the party to whom it sold the loan. One could obviously argue that the borrower has nohting further to do with this finacnial transaction, that there was a subsitution or novation, and that the security rights under the mortgage were eviscerated twice over.

The video is particularly instructive:

Banks Paying Debts of \”Borrowers\”

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Beyond Subprime: Banks’ Top 5 Problem Loan Areas
Posted Jul 03, 2008 02:45pm EDT by Aaron Task in Investing, Recession, Banking
Related: FITB, ZION, CORS, WFC, AXP, XLF

The past few weeks have brought a serious rethinking of the “credit crunch is ending” mantra that was making the rounds on Wall Street in March and April.

Rather than ending, the credit crunch is moving beyond its subprime mortgage origins. According to Richard Suttmeier, chief market strategist of RightSide.com, the top five problem loan sectors to watch now are:

* Credit card debt
* Home equity loans
* Commercial real estate loans
* Commercial and development loans
* Derivatives generally ($182 trillion notional value)

Each of these potentially bad loan categories are rising among FDIC insured institutions, Suttmeier notes. Rather than pulling back, he says borrowers are tapping outstanding lines of credit while banks are using “tricks” (like making payments on behalf of debtors) in order to keep the loans in the “current” category.

This practice “has got to stop,” Suttmeier says.

The credit crunch? Not so much.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: , , , | 1 Comment »

FORECLOSURE DEFENSE: THE RELEVANCE OF SECURITIZATION

Posted on June 9, 2008 by Neil Garfield

SEE GARFIELD’S GLOSSARY AND TACTICAL GUIDELINES 

http://livinglies.me/glossary-mortgage-meltdown-and-foreclosure/

THE UNDERLYING THEME OF THE MORTGAGE MELTDOWN WHICH HAS SIGNIFICANCE TO FORECLOSURE DEFENSE IS THAT FOR EACH “LOAN” TRANSACTION THERE WERE CORRESPONDING INVESTMENTS IN ONE OR MORE ASSET BACKED SECURITY, BOTH (MORTGAGE AND ABS) DEPENDENT ON EACH OTHER FOR THEIR CREATION.

THE SPREADING OF RISK, THE OBLIGATION FOR PAYMENT, AND THE SEPARATION OF THE OBLIGATION TO PAY FROM THE TERMS OF THE SECURITY INSTRUMENT (MORTGAGE) GIVE RISE TO NUMEROUS OFFENSIVE AND DEFENSIVE CLAIMS, DEFENSES, JURISDICTIONAL ISSUES, AND BUSINESS QUALIFICATION ISSUES IN VARIOUS STATES BY THE BORROWER WHO IS AT RISK OF FORECLOSURE OR WHO HAS BEEN DAMAGED BY THE LOAN TRANSACTION.

THE THEORY IS FURTHER EXPANDED BY THE NOTION THAT THE ESSENTIAL NATURE OF THE LOAN TRANSACTION WAS CONVERTED FROM A STANDARD PURCHASE MONEY FIRST, SECOND AND/OR THIRD MORTGAGE TO THE SALE OF TWO SECURITIES ON A SINGLE CHAIN — THE ABS INVESTOR WHO SUPPLIED THE MONEY AND THE PROPERTY INVESTOR WHO SUPPLIED THE SIGNATURES. 

PAYMENT:

In the context of the mortgage meltdown experience, payment was converted from one source to many. See SPV (Structured Purpose Vehicle). This was necessary because of the the purpose of the SPV and the collateralized securities issued from it to investors — the spreading of risk. It is therefore possible for an investor owning an ABS (Asset Backed Security) issued from an SPV to be paid in full without a single payment from any particular borrower. Thus the payment obligation on the note and mortgage at the loan closing was one of many options by which the obligation could be met. There is no doubt that efforts were made to make payments from the funds created in SPV’s through sale of their CDO/CMOs, and that contribution from third parties in the securitized chain starting with the “lender” all the way through guarantees, buy-back obligations and cross collateralization and credit swap vehicles. It is for this reason, among others, that the loan closing was itself the sale of a security based upon an inflated asset appraisal to support an inflated security rating, in which the borrower and the investor in the ABS were “assured” of a passive return on their investment through ever-increasing housing prices. Thus the securitized chain consists of two securities at its base — the “loan” and the ABS — and a myriad of other derivative securities and hedge products together with insurance policies that guaranteed the quality of the underwriting process at the lender level and at the investment banking level. 

Whether those who paid have any claims against any other obligors — including but not limited to the borrower — is unknown. But it is highly probable that those claims are unsecured and therefore dischargeable in bankruptcy. And it is highly probable that such claims are subject to offset, counterclaims and affirmative defenses based upon violations of TILA, RESPA, RICO, common law fraud and state unfair and deceptive business or lending practices together with state and federal securities regulation at the lender underwriting level and at the investment banking underwriting level.

SPECIAL PURPOSE VEHICLE (SPV)

THE “ENTITY” CREATED BY THE INVESTMENT BANKING FIRM TO HOLD AN INTEREST IN THE CASH FLOW AND/OR OWNERSHIP OF THE NOTE AND/OR OWNERSHIP OF THE SECURITY INSTRUMENTS (BY ASSIGNMENT, WHICH ARE RARELY RECORDED IN PROPERTY RECORDS) AND/OR OWNERSHIP OF THE RISK OF LOSS. It is the SPV that is the “company” which “issues” securities for the purpose of selling those securities (stock, bonds etc.) to qualified investors. The typical “security” that has been issued during the mortgage meltdown is the mortgage backed security (MBS) and more specifically, the collateralized debt obligation (CDO) and more specifically the collateralized mortgage obligation. The terms CDO and CMO are frequently used itnerchangeably but CDO connotes a larger class of securities that CMO.

CMO/CDOs vary in structure and underlying assets, but the basic principle is the same. Essentially a CDO is a corporate or other legal entity (LLC, LLP, Trust etc.) constructed to hold assets as collateral and to sell packages of cash flows to investors. A CDO is constructed as follows:

  • The SPV issues different classes of bonds and equity and the proceeds are used to purchase the portfolio of credits. The bonds and equity are entitled to the cash flows from the portfolio of credits, in accordance with the Priority of Payments set forth in the transaction documents. The senior notes are paid from the cash flows before the junior notes and equity notes. In this way, losses are first borne by the equity notes, next by the junior notes, and finally by the senior notes. In this way, the senior notes, junior notes, and equity notes offer distinctly different combinations of risk and return, while each reference the same portfolio of debt securities. These levels of risk are called “tranches”. 
  • A TYPICAL PROVISION OF THE CMO/CDO ISSUED BY THE SPV IS THAT THE PROCEEDS OF SALE CAN BE USED FOR PAYMENT OF THE PROMISED RETURN. THE SIGNIFICANCE OF THIS IN FORECLOSURE DEFENSE IS THAT THE PARTY TO WHOM PAYMENT IS TO BE MADE IS RECEIVING FUNDS FROM AN INTERMINGLING OF (A) THE FUND CREATED FROM THE SALE OF THE SPV SECURITIES (B) INCOME FROM THE LOWER TRANCHES (C) GUARANTEES OF THE SELLER OF THE SECURITIES, THE ORIGINATING LENDER (D) CLAIMS AGAINST THE SECURITY RATING AGENCY WHICH OFTEN RATED THE CMO/CDO ONLY IN ACCORDANCE WITH THE TOP TRANCHE WHICH MISSTATED THE RISK ASSOCIATED WTH THE ENTIRE SECURITY. THIS OVERSTATEMENT OF THE VALUE OF THE SECURITY IS IDENTICAL TO THE APPRAISER’S OVERSTATEMENT OF THE VALUE OF THE PROPERTY AND THE LENDER’S OVERSTATEMENT OF THE RISKS AND THEREFORE THE VALUE OF THE LOAN. 
  • In both cases (rating agency and appraiser) the public was deceived by intentional inflation of value. In both cases, there were specific financial incentives for the rating agency to overrate the security and for the appraiser to overvalue the property an for the lender to overrate the borrower’s financial ability or willingness to pay in accordance with the terms of the note and mortgage. In neither case was the potential liability and the potential litigation over these inherently bad practices ever disclosed to either the borrower or the investor. 

 

collateralized loan obligation (CLO) A multi-tranche security secured by a pool of corporate loans. Similar to the more familiar CMO, except that in a CBO the tiers or tranches are created with differing levels of credit quality. The CBO structure creates at least one tier of investment-grade bonds, thus providing liquidity to a portfolio of junk bonds.
collateralized mortgage obligation (CMO) A type of MBS created by dividing the rights to receive the principal and interest cash flows from an underlying pool of mortgages into separate classes or tiers. The tiers or classes are usually called tranches. In other words, it is a multiclass bond backed or collateralized by mortgage loans or mortgage pass-through securities. A given tranche is typically not redeemed until all bonds with earlier priority have been redeemed. By dividing the cash flows into one or more tranches with shorter terms, the risk resulting from the potential volatility from future changes in prevailing rates is shifted away from the shorter-term tranche or tranches and onto the longer-term tranches and the residual tranche.
commingled funds Money pooled for a common purpose. Often funds pooled for investments. See Quiet Title, Temporary Injunction. 

Filed under: CDO, currency, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: , , , , , | 1 Comment »

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