Concealed Side Agreements Should be the Target of Discovery Demands by Homeowners

Would you entrust all your money to some thinly capitalized company who wanted total control over all your assets? No you wouldn’t and neither does any bank in an industry that virtually define security and control.

So when I received a recent email regarding a “Power of Attorney” (POA) purportedly executed by Argent/Ameriquest to another company proclaiming itself to be a “servicer” my reply was don’t believe it.

I can virtually guarantee that Argent never executed any power of attorney and that the person who was the signatory was a contract laborer whose signature was stamped or forged. The reason is that no bank or other financial institution would ever sign such a document in earnest. It is all a sham.

This is where knowledge of the industry comes into play. When dealing with assets that are in 6-7 figures, financial institutions have all sorts of protective mechanisms to make sure that the money doesn’t disappear.

Servicing contracts, for example, are very specific if they are outsourced — and nobody gets to change the terms of any mortgage loan without express authority granted in writing by an officer of the creditor company who has been authorized by a corporate resolution from the board to perform that function. It doesn’t happen any other way and that is true for all residential loans regardless of what documents are presented by the lawyers who get them from the servicer who gets them from a document preparation service which is controlled by a central repository (Black Knight) who in turn is operating under strict restrictions imposed by its contract with investment banks or their intermediaries.

So when a modification is executed making it look like the “creditor” is the servicer, without any mention, warranty or representation about the identity of some other group or company that is the creditor, the servicer is not actually doing the modification, even though correspondence is going out on the Servicer’s “letterhead.”

And the servicer cannot then claim that the loan is owned by them because (a) it isn’t, (b) they are operating under restrictions in side agreements that are concealed and (c) the servicer does not actually have any opportunity to handle funds arising from payments from the borrower or from sales of the borrower’s home. All of that is a mirage.

Banks don’t sign or accept real POAs because they are subject to revocation, expiration and in the case of homeowner transactions they are actually quite vague. That is because there are other agreements in which the grantee of a POA agrees that its name can be used but that it won’t really be doing anything.

If that were not true then servicers could have and no doubt would have made off with hundreds of billions of dollars.

This is sleight of hand. They show you one document that looks facially valid, but there are other concealed documents that make it clear that the grantee has no such powers. Every PSA reads that way too. It looks on the front end that the trustee has something to do, but in the end the trustee has nothing it can do.

The side documents to the PSA or POA are the actual servicing agreements and the actual trust agreements that are always concealed. Those are the documents homeowners should be asking for. Accepting the POA or the PSA is a trap. 

*Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.*

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Can you really call it a loan when the money came from a thief?

The banks were not taking risks. They were making risks and profiting from them. Or another way of looking at it is that with their superior knowledge they were neither taking nor making risks; instead they were creating the illusion of risk when the outcome was virtually certain.

Securitization as practiced by Wall Street and residential “mortgage” loans is not just a void assignment. It is a void loan and an enterprise based completely on steering all “loans” into failure and foreclosure.

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Perhaps this summary might help some people understand why bad loans were the object of lending instead of good loans. The end result in the process was always to steer everyone into foreclosure.

Don’t use logic and don’t trust anything the banks put on paper. Start with a blank slate — it’s the only way to even start understanding what is happening and what is continuing to happen. The following is what you must keep in mind and returning to for -rereading as you plow through the bank representations. I use names for example only — it’s all the same, with some variations, throughout the 13 banks that were at the center of all this.

  1. The strategic object of the bank plan was to make everyone remote from liability while at the same time being part of multiple transactions — some real and some fictitious. Remote from liability means that the entity won’t be held accountable for its own actions or the actions of other entities that were all part of the scheme.
  2. The goal was simple: take other people’s money and re-characterize it as the banks’ money.
  3. Merrill Lynch approaches institutional investors like pension funds, which are called “stable managed funds.” They have special requirements to undertake the lowest possible risk in every investment. Getting such institutional investors to buy is a signal to the rest of the market that the securities purchased by the stable managed funds must be safe or they wouldn’t have done it.
  4. Merrill Lynch creates a proprietary entity that is neither a subsidiary nor an affiliate because it doesn’t really exist. It is called a REMIC Trust and is portrayed in the prospectus as though it was an independent entity that is under management by a reputable bank acting as Trustee. In order to give the appearance of independence Merrill Lynch hires US Bank to act as Trustee. The Trust is not registered anywhere because it is a common law trust which is only recognized by the laws of the State of New York. US Bank receives a monthly fee for NOT saying that it has no trust duties, and allowing the use of its name in foreclosures.
  5. Merrill Lynch issues a prospectus from the so-called REMIC entity offering the sale of “certificates” to investors who will receive a hybrid “security” that is partly a bond in which interest is due from the Trust to the investor and partly equity (like common stock) in which the owners of the certificates are said to have undivided interests in the assets of the Trust, of which there are none.
  6. The prospectus is a summary of how the securitization will work but it is not subject to SEC regulations because in 1998 an amendment to the securities laws exempted “pass-through” entities from securities regulations is they were backed by mortgage bonds.
  7. Attached to the prospectus is a mortgage loan schedule (MLS). But the body of the prospectus (which few people read) discloses that the MLS is not real and is offered by way of example.
  8. Attached for due diligence review is a copy of the Trust instrument that created the REMIC Trust. It is also called a Pooling and Servicing Agreement to give the illusion that a pool of loans is owned by the Trust and administered by the Trustee, the Master Servicer and other entities who are described as performing different roles.
  9. The PSA does not grant or describe any duties, responsibilities to be performed by US Bank as trustee. Actual control over the Trust assets, if they ever existed, is exercised by the Master Servicer, Merrill Lynch acting through subservicers like Ocwen.
  10. Merrill Lynch procures a triple AAA rating from Moody’s Rating Service, as quasi public entity that grades various securities according to risk assessment. This provides “assurance” to investors that the the REMIC Trust underwritten by Merrill Lynch and sold by a Merrill Lynch affiliate must be safe because Moody’s has always been a reliable rating agency and it is controlled by Federal regulation.
  11. Those institutional investors who actually performed due diligence did not buy the securities.
  12. Most institutional investors were like cattle simply going along with the crowd. And they advanced money for the purported “purchase” of the certificates “issued” by the “REMIC Trust.”
  13. Part of the ratings and part of the investment decision was based upon the fact that the REMIC Trusts would be purchasing loans that had already been seasoned and established as high grade. This was a lie.
  14. For all practical purposes, no REMIC Trust ever bought any loan; and even where the appearance of a purchase was fabricated through documents reflecting a transaction that never occurred, the “purchased” loans were the result of “loan closings” which only happened days before or were fulfilling Agreements in which all such loans were pre-sold — i.e., as early as before even an application for loan had been submitted.
  15. The normal practice required under the securities regulation is that when a company or entity offers securities for sale, the net proceeds of sale go to the issuing entity. This is thought to be axiomatically true on Wall Street. No entity would offer securities that made the entity indebted or owned by others unless they were getting the proceeds of sale of the “securities.”
  16. Merrill Lynch gets the money, sometimes through conduits, that represent proceeds of the sale of the REMIC Trust certificates.
  17. Merrill Lynch does not turn over the proceeds of sale to US Bank as trustee for the Trust. Vague language contained in the PSA reveals that there was an intention to divert or convert the money received from investors to a “dark pool” controlled by Merrill Lynch and not controlled by US Bank or anyone else on behalf of the REMIC Trust.
  18. Merrill Lynch embarks on a nationwide and even world wide sales push to sell complex loan products to homeowners seeking financing. Most of the sales, nearly all, were directed at the loans most likely to fail. This was because Merrill Lynch could create the appearance of compliance with the prospectus and the PSA with respect to the quality of the loan.
  19. More importantly by providing investors with 5% return on their money, Merrill Lynch could lend out 50% of the invested money at 10% and still give the investors the 5% they were expecting (unless the loan did NOT go to foreclosure, in which case the entire balance would be due). The balance due, if any, was taken from the dark pool controlled by Merrill Lynch and consisting entirely of money invested by the institutional investors.
  20. Hence the banks were not taking risks. They were making risks and profiting from them. Or another way of looking at it is that with their superior knowledge they were neither taking nor making risks; instead they were creating the illusion of risk when the outcome was virtually certain.
  21. The use of the name “US Bank, as Trustee” keeps does NOT directly subject US Bank to any liability, knowledge, intention, or anything else, as it was and remains a passive rent-a-name operation in which no loans are ever administered in trust because none were purchased by the Trust, which never got the proceeds of sale of securities and was therefore devoid of any assets or business activity at any time.
  22. The only way for the banks to put a seal of legitimacy on what they were doing — stealing money — was by getting official documents from the court systems approving a foreclosure. Hence every effort was made to push all loans to foreclosure under cover of an illusory modification program in which they occasionally granted real modifications that would qualify as a “workout,” which before the false claims fo securitization of loans, was the industry standard norm.
  23. Thus the foreclosure became extraordinarily important to complete the bank plan. By getting a real facially valid court order or forced sale of the property, the loan could be “legitimately” written off as a failed loan.
  24. The Judgment or Order signed by the Judge and the Clerk deed upon sale at foreclosure auction became a document that (1) was presumptively valid and (b) therefore ratified all the preceding illegal acts.
  25. Thus the worse the loan, the less Merrill Lynch had to lend. The difference between the investment and the amount loaned was sometimes as much as three times the principal due in high risk loans that were covered up and mixed in with what appeared to be conforming loans.
  26. Then Merrill Lynch entered into “private agreements” for sale of the same loans to multiple parties under the guise of a risk management vehicles etc. This accounts for why the notional value of the shadow banking market sky-rocketed to 1 quadrillion dollars when all the fiat money in the world was around $70 trillion — or 7% of the monstrous bubble created in shadow banking. And that is why central banks had no choice but to print money — because all the real money had been siphoned out the economy and into the pockets of the banks and their bankers.
  27. TARP was passed to cover the banks  for their losses due to loan defaults. It quickly became apparent that the banks had no losses from loan defaults because they were never using their own money to originate loans, although they had the ability to make it look like that.
  28. Then TARP was changed to cover the banks for their losses in mortgage bonds and the derivative markets. It quickly became apparent that the banks were not buying mortgage bonds, they were selling them, so they had no such losses there either.
  29. Then TARP was changed again to cover losses from toxic investment vehicles, which would be a reference to what I have described above.
  30. And then to top it off, the Banks convinced our central bankers at the Federal Reserve that they would freeze up credit all over the world unless they received even more money which would allow them to make more loans and ease credit. So the FED purchased mortgage bonds from the non-owning banks to the tune of around $3 Trillion thus far — on top of all the other ill-gotten gains amounting roughly to around 50% of all loans ever originated over the last 20 years.
  31. The claim of losses by the banks was false in all the forms that was represented. There was no easing of credit. And banks have been allowed to conduct foreclosures on loans that violated nearly all lending standards especially including lying about who the creditor is in order to keep everyone “remote” from liability for selling loan products whose central attribute was failure.
  32. Since the certificates issued in the name of the so-called REMIC Trusts were not in fact backed by mortgage loans (EVER) the certificates, the issuers, the underwriters, the master servicers, the trustees et al are NOT qualified for exemption under the 1998 law. The SEC is either asleep on this or has been instructed by three successive presidents to leave the banks alone, which accounts for the failure to jail any of the bankers that essentially committed treason by attacking the economic foundation of our society.

Post Mortum on 2010 “Bad” Decision in Florida

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See CitiBank v Delassio 756 F Supp 2d 1361 2010

This case is often cited by servicers and banks to enforce a note and/or mortgage. Lots of people regarded this decision as “bad” because it approved the foreclosure. The natural impulse is to run from this decision and try to cite others that conflict with it. But this decision was correct AND it provides a blueprint for making your defense successful. The Judge correctly analyzed the law and the facts and found that the homeowner had not proven anything or objected to anything that would prevent Citi from proving its prima facie case and had not proven anything or objected to anything that would have supported any of the homeowner’s defenses.

So I thought I would take this case, as I have done before, and examine it for clues on how the same Judge would have decided the case differently. Used properly this might enable the homeowner to cite to this case in support of a motion to dismiss, motion for summary judgment or to attack the prima facie case of the party initiating foreclosure. There are also plenty of clues as to proving an affirmative defense in which the final result will be that the mortgage is void or unenforceable and perhaps the note as well, leaving the debt, which arises by operation of law and is owed to the party who physically gave the borrower the money.

  1. LACK OF JURISDICTION — VOID MORTGAGE AND VOID NOTE: The first issue is that for reasons unknown, the borrower failed to bring up the fact that the “lender” did not legally exist in Florida and further failed to object to the finding that AHMSI and  American Brokers Conduit were “one in the same [sic]”. In fact, I wonder if the case could not still be overturned on the basis of lack of jurisdiction and perhaps even that the mortgage was void, thus depriving the court of both in rem jurisdiction and in personam jurisdiction. Perhaps the homeowner did not authorize investigation into the parties. But had he done so he would have found that American Brokers Conduit (the “lender”) did not exist in law or in fact. Any claim that ABC was the alter ego or Trade Name of AHMSI was not explored in the opinion. And as to AHMSI, what difference does it make if they were supposedly the true lender under Florida law? The note and mortgage were both defective and the disclosures were deficient in failing to identify the actual party, which, as we shall see below, would have changed the view of the case entirely.
  2. POOLING AND SERVICING AGREEMENT: The title of the case involves U.S. Bank “as indenture trustee.” By stating that without explanation the homeowner ought to be able to inquire about the indenture, where it exists, and ask for a copy. That would be the Pooling and Servicing Agreement, which makes all arguments about the irrelevance of the PSA moot. Failure to raise the question of where the trustee derived its powers, where the servicer derived its powers, and where the terms and provisions can be found for the duties of the servicer or trustee essentially waives the issue of securitization (false or not). By raising the issue appropriately the homeowner can then inquire as to whether the trust actually owns the debt or is a holder in due course. The holding by the judge in this case that the Trust was a holder in due course was wrong —but not wrong on the facts and admissions by both sides in this case. Hence the decision was inevitable even though the real facts did not support the conclusion. The accepted facts of the case were contrary to the actual facts.
  3. FDCPA CLAIMS: The homeowner settled with AHMSI regarding fair debt collection practices. This might have been a mistake and might have been the reason that the Judge regarded AHMSI and American Brokers Conduit as the same thing. The settlement probably was worded in a way that prevented the homeowner from raising the authority of ABC to assign anything, much less record a mortgage or transfer a note that it could not have funded because it never existed — at least in Florida. I have several cases where the lender is very concerned about the FDCPA claims and needs a settlement. They obviously know that there is danger in those hills and that should be exploited by borrowers when challenging the debt, note, mortgage or foreclosure.
  4. TILA AND RESPA DISCLOSURES: Amongst the agreed facts, the court found that the borrower closed the loan with ABC, and based upon the only issues raised by the borrower, found that the disclosures were proper, and that any discrepancies worked to the borrower’s advantage and therefore did not constitute a violation of the Truth in Lending Act (TILA) or the Real Estate Settlement Procedures Act (RESPA). Hence there was no right to rescind either under the 3 day rule or the 3 year rule. Despite the fact that the borrower announced rescission within the 3 years, the court properly found against the borrower. Citi by filing the foreclosure suit, was in substantial compliance with the requirement that it timely file a declaratory action regarding the right to rescind. So if the court had found that there was no closing because ABC did not exist and that the disclosures were inadequate because the borrower raised the issues of disclosing the lender (and avoiding the predatory per se finding by Reg Z), then the same Judge who entered this order probably would have said the rescission right was at least in play and might well have decided, as per the express terms of TILA, that the mortgage was nullified by operation of law by the announcement of rescission. [Note: This issue is currently being considered by the U.S. Supreme Court]
  5. RESCISSION: This in turn leads to the question: if ABC didn’t exist and therefore didn’t actually loan any money then who did? The only thing we can agree on, up to a point ( but that is the subject of another article), is that the borrower did get money and that the receipt of the money is presumed, by operation of law to create a debt in which the borrower is the debtor and the source of funds is the creditor. The failure to disclose a table funded loan or worse, a naked nominee or conduit providing funds from investors who didn’t know how their money was being used, is a material violation of the disclosure requirements in TILA. That is why Reg Z underscores the importance of that disclosure by saying that failure to do so constitutes conduct that is “predatory per se.” And you can prove that by citing to this same case. Hence the rescission would have or at least could have been found to have been complete and the mortgage nullified, thus paving the way for the borrower to get alternative financing,  quiet title or other other remedies.
  6. PREDATORY LOANS: It is unclear what exactly went on at the trial level  with regards to an obviously “trick” loan that fails to disclose its hidden terms in a way that the borrower would any possibility of understanding. The only thing the borrower knew or understood is that he was getting a low interest loan. No reasonable person would sign a loan in which they understood that the interest rate was only good for one month. If you want to win on this point ,though, you need more than the testimony of the borrower. You  need a mortgage broker or other professional that would testify that the loan was unworkable from the start, doomed to failure and was illegally funded from investor funds, and illegally sold to the borrower under false pretenses. THAT is how you prove unclean hands which would prevent enforcement of the mortgage.
  7. UCC: There is an interesting juxtaposition in the “Legal Analysis” of the opinion. The court finds that the Trust was a holder in due course. And this case can be cited for the elements of being a holder in due course. I would encourage foreclosure defense lawyers to do so because you can start out by saying in this case in which the Federal District Court found against the borrower, the elements of the status of holder in due course are summarized. If you go down to the end of the first paragraph in the legal analysis the quote about payment opens the door for your attack against the holder in due course status. Did the Trust prove or show that it PAID for the note and mortgage without knowledge of borrower’s defenses, without knowledge that it was already in default, and in good faith, and did the Trust get delivery (which according to the pleadings, they did not because the note was initially “lost”). Hence the same court that stated that the trust was an HIDC finds that PAYMENT “goes to the heart of the agreement”. If the trust cannot show it paid anything, then two questions arise, to wit: why not? and why did the endorser or assignor of the “loan” transfer or purport to transfer the loan documents to the trust without receiving any payment? If you follow that logic down the line you will corroborate your argument that ABC gave no money to the borrower and that was why ABC never received any money for the transfer of the paper, which now is visible as being entirely worthless, fraudulent and false.
  8. ENDORSEMENT OR ASSIGNMENT IN SECURITIZATION SCHEME: The court correctly states that under the UCC a transferee of negotiable paper can get the right to enforce the paper either by endorsement or assignment. Because the issue was apparently not raised, the court failed to address the issue of whether the enforcement could succeed at trial (as opposed to the pleading stage) if the identity of the creditor is not disclosed. The question at trial or deposition should be, if the witness is from the servicer entity, and assuming the current servicer entity had anything to do with processing payments from the borrower and to the creditor, “who did you pay?” What the court failed to deal with (presumably because the homeowner did not bring it up) is that the party claiming rights (the trustee for the trust) must show that the loan actually went into the trust because it was paid for and properly delivered. If no objection is raised, then the court can correctly presume that those elements are present. If a proper objection is made then the Plaintiff should be required and often is required now to prove the elements of a holder in due course. In cases where my team has been directly involved in litigation the opposing lawyer tried to wriggle out of this problem by declaring that the trust is not a holder in due course and that therefore they had no requirement to prove those elements. They are essentially hoping that the court won’t know the difference between a holder and holder in due course. A mere holder must establish that it has the rights to enforce on behalf of a party who actually owns the debt by identifying that party and identifying the instrument by which the “holder” was given authority to enforce. In the case of a trust that is impossible because by all accounts the trust is the final resting stop of the claims of securitization of loans. So you end up with an empty trust, in which neither the servicer nor the trustee have any legal rights to do anything with the debt created by the borrower when he accepted the money at “closing.” He still owes a debt, and if the opposition would comply with discovery requests we would know the identity of the party to whom he owes the debt. But one thing is for certain, he cannot ALSO owe a second debt created by signature on a note and mortgage made out in favor of a party who loaned him any money. The key to this is emphasizing that a holder must prove the loan in its claimed chain. But the loan will probably be presumed to exist within the chain if the borrower fails to object and raise the issues.
  9. DELIVERY: There is considerable confusion in the case as to the issue of delivery apparently because neither party made an issue about it. The court concludes that Citi got delivery of the loan documents (versus the lost note account that was later abandoned) but fails to show how that delivery constitutes delivery to the trust when the PSA obviously contains strict provisions as to delivery and New York law governing the trust requires any transaction outside the authority stated in the trust to be void.
  10. ECONOMIC WASTE: This decision stands for the proposition that economic waste is a proper affirmative defense, but unless you actually prove it with reliable, credible testimony about facts and documents, merely alleging an affirmative defense and hoping that somehow the opposition will stumble into an admission, is not a very good strategy.

Securitization for Lawyers: How it was Written by Wall Street Banks

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Continuing with my article THE CONCEPT OF SECURITIZATION from yesterday, we have been looking at the CONCEPT of Securitization and determined there is nothing theoretically wrong with it. That alone accounts for tens of thousands of defenses” raised in foreclosure actions across the country where borrowers raised the “defense” securitization. No such thing exists. Foreclosure defense is contract defense — i.e., you need to prove that in your case the elements of contract are absent and THAT is why the note or the mortgage cannot be enforced. Keep in mind that it is entirely possible to prove that the mortgage is unenforceable even if the note remains enforceable. But as we have said in a hundred different ways, it does not appear to me that in most cases, the loan contract ever existed, or that the acquisition contract in which the loan was being “purchased” ever occurred. But much of THAT argument is left for tomorrow’s article on Securitization as it was practiced by Wall Street banks.

So we know that the concept of securitization is almost as old as commerce itself. The idea of reducing risk and increasing the opportunity for profits is an essential element of commerce and capitalism. Selling off pieces of a venture to accomplish a reduction of risk on one ship or one oil well or one loan has existed legally and properly for a long time without much problem except when a criminal used the system against us — like Ponzi, Madoff or Drier or others. And broadening the venture to include many ships, oil wells or loans makes sense to further reduce risk and increase the likelihood of a healthy profit through volume.

Syndication of loans has been around as long as banking has existed. Thus agreements to share risk and profit or actually selling “shares” of loans have been around, enabling banks to offer loans to governments, big corporations or even little ones. In the case of residential loans, few syndications are known to have been used. In 1983, syndications called securitizations appeared in residential loans, credit cards, student loans, auto loans and all types of other consumer loans where the issuance of IPO securities representing shares of bundles of debt.

For logistical and legal reasons these securitizations had to be structured to enable the flow of loans into “special purpose vehicles” (SPV) which were simply corporations, partnerships or Trusts that were formed for the sole purpose of taking ownership of loans that were originated or acquired with the money the SPV acquired from an offering of “bonds” or other “shares” representing an undivided fractional share of the entire portfolio of that particular SPV.

The structural documents presented to investors included the Prospectus, Subscription Agreement, and Pooling and Servicing Agreement (PSA). The prospectus is supposed to disclose the use of proceeds and the terms of the payback. Since the offering is in the form of a bond, it is actually a loan from the investor to the Trust, coupled with a fractional ownership interest in the alleged “pool of assets” that is going into the Trust by virtue of the Trustee’s acceptance of the assets. That acceptance executed by the Trustee is in the Pooling and Servicing Agreement, which is an exhibit to the Prospectus. In theory that is proper. The problem is that the assets don’t exist, can’t be put in the trust and the proceeds of sale of the Trust mortgage-backed bonds doesn’t go into the Trust or any account that is under the authority of the Trustee.

The writing of the securitization documents was done by a handful of law firms under the direction of a few individual lawyers, most of whom I have not been able to identify. One of them is located in Chicago. There are some reports that 9 lawyers from a New Jersey law firm resigned rather than participate in the drafting of the documents. The reports include emails from the 9 lawyers saying that they refused to be involved in the writing of a “criminal enterprise.”

I believe the report is true, after reading so many documents that purport to create a securitization scheme. The documents themselves start off with what one would and should expect in the terms and provisions of a Prospectus, Pooling and Servicing Agreement etc. But as you read through them, you see the initial terms and provisions eroded to the point of extinction. What is left is an amalgam of options for the broker dealers selling the mortgage backed bonds.

The options all lead down roads that are absolutely opposite to what any real party in interest would allow or give their consent or agreement. The lenders (investors) would never have agreed to what was allowed in the documents. The rating agencies and insurers and guarantors would never have gone along with the scheme if they had truly understood what was intended. And of course the “borrowers” (homeowners) had no idea that claims of securitization existed as to the origination or intended acquisition their loans. Allan Greenspan, former Federal Reserve Chairman, said he read the documents and couldn’t understand them. He also said that he had more than 100 PhD’s and lawyers who read them and couldn’t understand them either.

Greenspan believed that “market forces” would correct the ambiguities. That means he believed that people who were actually dealing with these securities as buyers, sellers, rating agencies, insurers and guarantors would reject them if the appropriate safety measures were not adopted. After he left the Federal Reserve he admitted he was wrong. Market forces did not and could not correct the deficiencies and defects in the entire process.

The REAL document is the Assignment and Assumption Agreement that is NOT usually disclosed or attached as an exhibit to the Prospectus. THAT is the agreement that controls everything that happens with the borrower at the time of the alleged “closing.” See me on YouTube to explain the Assignment and Assumption Agreement. Suffice it to say that contrary to the representations made in the sale of the bonds by the broker to the investor, the money from the investor goes into the control of the broker dealer and NOT the REMIC Trust. The Broker Dealer filters some of the money down to closings in the name of “originators” ranging from large (Wells Fargo, Countrywide) to small (First Magnus et al). I’ll tell you why tomorrow or the next day. The originators are essentially renting their names the same as the Trustees of the REMIC Trusts. It looks right but isn’t what it appears. Done properly, the lender on the note and mortgage would be the REMIC Trust or a common aggregator. But if the Banks did it properly they wouldn’t have had such a joyful time in the moral hazard zone.

The PSA turned out to be the primary document creating the Trusts that were creating primarily under the laws of the State of New York because New York and a few other states had a statute that said that any variance from the express terms of the Trust was VOID, not voidable. This gave an added measure of protection to the investors that the SPV would not be used for any purpose other than what was described, and eliminated the need for them to sue the Trustee or the Trust for misuse of their funds. What the investors did not understand was that there were provisions in the enabling documents that allowed the brokers and other intermediaries to ignore the Trust altogether, assert ownership in the name of a broker or broker-controlled entity and trade on both the loans and the bonds.

The Prospectus SHOULD have contained the full list of all loans that were being aggregated into the SPV or Trust. And the Trust instrument (PSA) should have shown that the investors were receiving not only a promise to repay them but also a share ownership in the pool of loans. One of the first signals that Wall Street was running an illegal scheme was that most prospectuses stated that the pool assets were disclosed in an attached spreadsheet, which contained the description of loans that were already in existence and were then accepted by the Trustee of the SPV (REMIC Trust) in the Pooling and Servicing Agreement. The problem was that the vast majority of Prospectuses and Pooling and Servicing agreements either omitted the exhibit showing the list of loans or stated outright that the attached list was not the real list and that the loans on the spreadsheet were by example only and not the real loans.

Most of the investors were “stable managed funds.” This is a term of art that applied to retirement, pension and similar type of managed funds that were under strict restrictions about the risk they could take, which is to say, the risk had to be as close to zero as possible. So in order to present a pool that the fund manager of a stable managed fund could invest fund assets the investment had to qualify under the rules and regulations restricting the activities of stable managed funds. The presence of stable managed funds buying the bonds or shares of the Trust also encouraged other types of investors to buy the bonds or shares.

But the number of loans (which were in the thousands) in each bundle made it impractical for the fund managers of stable managed funds to examine the portfolio. For the most part, if they done so they would not found one loan that was actually in existence and obviously would not have done the deal. But they didn’t do it. They left it on trust for the broker dealers to prove the quality of the investment in bonds or shares of the SPV or Trust.

So the broker dealers who were creating the SPVs (Trusts) and selling the bonds or shares, went to the rating agencies which are quasi governmental units that give a score not unlike the credit score given to individuals. Under pressure from the broker dealers, the rating agencies went from quality culture to a profit culture. The broker dealers were offering fees and even premium on fees for evaluation and rating of the bonds or shares they were offering. They HAD to have a rating that the bonds or shares were “investment grade,” which would enable the stable managed funds to buy the bonds or shares. The rating agencies were used because they had been independent sources of evaluation of risk and viability of an investment, especially bonds — even if the bonds were not treated as securities under a 1998 law signed into law by President Clinton at the behest of both republicans and Democrats.

Dozens of people in the rating agencies set off warning bells and red flags stating that these were not investment grade securities and that the entire SPV or Trust would fail because it had to fail.  The broker dealers who were the underwriters on nearly all the business done by the rating agencies used threats, intimidation and the carrot of greater profits to get the ratings they wanted. and responded to threats that the broker would get the rating they wanted from another rating agency and that they would not ever do business with the reluctant rating agency ever again — threatening to effectively put the rating agency out of business. At the rating agencies, the “objectors” were either terminated or reassigned. Reports in the Wal Street Journal show that it was custom and practice for the rating officers to be taken on fishing trips or other perks in order to get the required the ratings that made Wall Street scheme of “securitization” possible.

This threat was also used against real estate appraisers prompting them in 2005 to send a petition to Congress signed by 8,000 appraisers, in which they said that the instructions for appraisal had been changed from a fair market value appraisal to an appraisal that would make each deal work. the appraisers were told that if they didn’t “play ball” they would never be hired again to do another appraisal. Many left the industry, but the remaining ones, succumbed to the pressure and, like the rating agencies, they gave the broker dealers what they wanted. And insurers of the bonds or shares freely issued policies based upon the same premise — the rating from the respected rating agencies. And ultimate this also effected both guarantors of the loans and “guarantors” of the bonds or shares in the Trusts.

So the investors were now presented with an insured investment grade rating from a respected and trusted source. The interest rate return was attractive — i.e., the expected return was higher than any of the current alternatives that were available. Some fund managers still refused to participate and they are the only ones that didn’t lose money in the crisis caused by Wall Street — except for a period of time through the negative impact on the stock market and bond market when all securities became suspect.

In order for there to be a “bundle” of loans that would go into a pool owned by the Trust there had to be an aggregator. The aggregator was typically the CDO Manager (CDO= Collateralized Debt Obligation) or some entity controlled by the broker dealer who was selling the bonds or shares of the SPV or Trust. So regardless of whether the loan was originated with funds from the SPV or was originated by an actual lender who sold the loan to the trust, the debts had to be processed by the aggregator to decide who would own them.

In order to protect the Trust and the investors who became Trust beneficiaries, there was a structure created that made it look like everything was under control for their benefit. The Trust was purchasing the pool within the time period prescribed by the Internal Revenue Code. The IRC allowed the creation of entities that were essentially conduits in real estate mortgages — called Real Estate Mortgage Investment Conduits (REMICs). It allows for the conduit to be set up and to “do business” for 90 days during which it must acquire whatever assets are being acquired. The REMIC Trust then distributes the profits to the investors. In reality, the investors were getting worthless bonds issued by unfunded trusts for the acquisition of assets that were never purchased (because the trusts didn’t have the money to buy them).

The TRUSTEE of the REMIC Trust would be called a Trustee and should have had the powers and duties of a Trustee. But instead the written provisions not only narrowed the duties and obligations of the Trustee but actual prevented both the Trustee and the beneficiaries from even inquiring about the actual portfolio or the status of any loan or group of loans. The way it was written, the Trustee of the REMIC Trust was in actuality renting its name to appear as Trustee in order to give credence to the offering to investors.

There was also a Depositor whose purpose was to receive, process and store documents from the loan closings — except for the provisions that said, no, the custodian, would store the records. In either case it doesn’t appear that either the Depositor nor the “custodian” ever received the documents. In fact, it appears as though the documents were mostly purposely lost and destroyed, as per the Iowa University study conducted by Katherine Ann Porter in 2007. Like the others, the Depositor was renting its name as though ti was doing something when it was doing nothing.

And there was a servicer described as a Master Servicer who could delegate certain functions to subservicers. And buried in the maze of documents containing hundreds of pages of mind-numbing descriptions and representations, there was a provision that stated the servicer would pay the monthly payment to the investor regardless of whether the borrower made any payment or not. The servicer could stop making those payments if it determined, in its sole discretion, that it was not “recoverable.”

This was the hidden part of the scheme that might be a simple PONZI scheme. The servicers obviously could have no interest in making payments they were not receiving from borrowers. But they did have an interest in continuing payments as long as investors were buying bonds. THAT is because the Master Servicers were the broker dealers, who were selling the bonds or shares. Those same broker dealers designated their own departments as the “underwriter.” So the underwriters wrote into the prospectus the presence of a “reserve” account, the source of funding for which was never made clear. That was intentionally vague because while some of the “servicer advance” money might have come from the investors themselves, most of it came from external “profits” claimed by the broker dealers.

The presence of  servicer advances is problematic for those who are pursuing foreclosures. Besides the fact that they could not possibly own the loan, and that they couldn’t possibly be a proper representative of an owner of the loan or Holder in Due Course, the actual creditor (the group of investors or theoretically the REMIC Trust) never shows a default of any kind even when the servicers or sub-servicers declare a default, send a notice of default, send a notice of acceleration etc. What they are doing is escalating their volunteer payments to the creditor — made for their own reasons — to the status of a holder or even a holder in due course — despite the fact that they never acquired the loan, the debt, the note or the mortgage.

The essential fact here is that the only paperwork that shows actual transfer of money is that which contains a check or wire transfer from investor to the broker dealer — and then from the broker dealer to various entities including the CLOSING AGENT (not the originator) who applied the funds to a closing in which the originator was named as the Lender when they had never advanced any funds, were being paid as a vendor, and would sign anything, just to get another fee. The money received by the borrower or paid on behalf of the borrower was money from the investors, not the Trust.

So the note should have named the investors, not the Trust nor the originator. And the mortgage should have made the investors the mortgagee, not the Trust nor the originator. The actual note and mortgage signed in favor of the originator were both void documents because they failed to identify the parties to the loan contract. Another way of looking at the same thing is to say there was no loan contract because neither the investors nor the borrowers knew or understood what was happening at the closing, neither had an opportunity to accept or reject the loan, and neither got title to the loan nor clear title after the loan. The investors were left with a debt that could be recovered probably as a demand loan, but which was unsecured by any mortgage or security agreement.

To counter that argument these intermediaries are claiming possession of the note and mortgage (a dubious proposal considering the Porter study) and therefore successfully claiming, incorrectly, that the facts don’t matter, and they have the absolute right to prevail in a foreclosure on a home secured by a mortgage that names a non-creditor as mortgagee without disclosure of the true source of funds. By claiming legal presumptions, the foreclosers are in actuality claiming that form should prevail over substance.

Thus the broker-dealers created written instruments that are the opposite of the Concept of Securitization, turning complete transparency into a brick wall. Investor should have been receiving verifiable reports and access into the portfolio of assets, none of which in actuality were ever purchased by the Trust, because the pooling and servicing agreement is devoid of any representation that the loans have been purchased by the Trust or that the Trust paid for the pool of loans. Most of the actual transfers occurred after the cutoff date for REMIC status under the IRC, violating the provisions of the PSA/Trust document that states the transfer must be complete within the 90 day cutoff period. And it appears as though the only documents even attempted to be transferred into the pool are those that are in default or in foreclosure. The vast majority of the other loans are floating in cyberspace where anyone can grab them if they know where to look.


 Courts and lawyers are continually ignoring the obvious. By zeroing in on the NOTE, they are ignoring the documents that allow the person in possession of the note to be in court. That results in elimination of critical elements of a prima facie case in which the Defendant borrower lacks the superior knowledge and resources of the Plaintiff and its co-venturers that would show the truth about his loan ownership and balance.


Chronologically the document trail starts with the securitization documents. Without the securitization documents there is no privity or nexus between the borrowers and the lenders. Neither one of them signed the deal that the other signed. Without the Assignment and Assumption Agreement, the Prospectus and the Pooling And Servicing Agreement, the trust does not exist, the servicer has no powers, the trustee has no powers, and there is no right of representation or agency between any of those parties as it relates to either the lender investors or the homeowner borrowers.


The Assignment and Assumption Agreement between the originator and the aggregator sets forth all the rules and actions preceding, during and after the loan”closing”, including the underwriting by parties other than the originator and the ownership of the loan by parties other than the originator. It is a contract to violate public policy, the Federal Truth in Lending Law prohibiting table funded loans designed to withhold disclosure, and usually state deceptive and predatory lending statutes.


The Assignment and Assumption Agreement was an agreement to commit illegal acts that were in fact committed and which strictly governed the conduct of the originator, the closing agent, the document processing, the delivery of documents, the due diligence, the underwriting, the approval by parties other than the originator and the risk of loss on parties other than the originator. The Assignment and Assumption Agreement is essential to the Court’s knowledge of the intent and reality of the closing, intentionally withheld from the borrower at closing. It cannot be anything other than relevant in any action sought to enforce the documents produced at a loan closing that was conducted in strict adherence to the illegal Assignment and Assumption Agreement.


The other closing is with the investors who were accepting a proposed transaction to lend money for the origination or acquisition of loans through a trust. Those documents and records (Prospectus, Pooling and Servicing Agreement, Distribution reports, etc) provide for the creation and governance of the trust, the appointment of a trustee and the powers of the trustee, and the appointment and the powers of the Master Servicer and subservicers. Those documents also provide for there requirements of reporting and record keeping, including the physical location and custody of actual loan documents. Without those documents, there is no power or authority for the trustee, the trust, the Master Servicer, the subservicer, the Depository, the Securities Administrator the purchase of insurance, credit default swap trading, funding the origination or acquisition of loans, or collection and enforcement of loan documents. without those documents the Court cannot know what records should be kept and thus what records need to be produced to show the status of the obligation in the books and records of the creditor — regardless of whether the loan was actually securitized or just claimed to be securitized.


Procedure and UCC
In Judicial States, the Plaintiff is bringing suit alleging a default by the Defendant on a promissory note and for enforcement of a mortgage. The name of the payee on the note is different from the name of the Plaintiff in the lawsuit. The name of the mortgagee is different from the the name of the Plaintiff. The suit is bought by (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised.


In Non-Judicial States, the name of the “new” beneficiary is different from the name of the payee on the promissory note and the name of the beneficiary on the Deed of Trust. The “new beneficiary” files a “Substitution of Trustee”, the Trustee sends a notice of default, notice of sale and notice of acceleration based upon “representations” from the “new beneficiary.” This process allows a stranger to the transaction to assert its position outside of a court of law that it is the new beneficiary and even allows the new beneficiary to name a company as the “new trustee” in the Notice of Substitution of Trustee. The foreclosure is initiated by the new trustee on the deed of trust on behalf of (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised. In these cases it is the burden of the borrower to timely file a motion for Temporary Injunction to stop the trustee’s sale of the property.


By failing to assert with clarity the identity of the creditor on whose behalf they are “holding” the note and mortgage (or deed of trust) and failing to assert the presence of the actual creditor (holder in due course) the parties initiating foreclosure have (a) failed to assert the essential elements to enforce a note and mortgage and (b) have failed to establish a prima facie case in which the burden should shift to the borrowers to defend. The present practice of challenging the defenses first is improper and contrary to the requirements of due process and the rules of civil procedure. If the Plaintiff in Judicial states or beneficiary in non-judicial states is unable to sustain their burden of proof for a prima facie case, then Judgment should be entered for the alleged borrower.


Virtually all loans initiated or originated or acquired between 1996 and the present are subject to claims of securitization, which is the first reason why the securitization documents are relevant and must be introduced as evidence along with proof of compliance with those documents because they are almost all governed by New York State law governing common law trusts. Any act not permitted by the trust instrument (Pooling and Servicing Agreement) is void, which means for purposes of the case narrative, the act or event never occurred.

If the Plaintiff or beneficiary is alleging that it is a holder and not alleging it is a holder in due course then there is a 96% probability that the creditor is either a trust or a group of investors who paid money to a broker dealer in an IPO where securities were issued by the trust and the investors money should have been paid to the trust. In all events, the assertion of “holder” status instead of “Holder in Due Course” means by definition that one of two things is true: (1) there is no holder in due course or (2) there is a Holder in Due Course and the party initiating the foreclosure and collection proceedings is asserting authority to represent the holder in due course. In all events, the representation of holder rather than holder in due course is an admission that the party initiating the foreclosure proceeding is there in a representative capacity.




If the proceeding is brought by a named trust, then the existence of the trust, the authority of the trust, the manner in which the trust may acquire assets, and the authority of the servicer, Master servicer, trustee of the trust, depository, securities administrator and others all derive from the trust instrument. If there is a claim of securitization and the provisions of the securitization documents were not followed then in virtually all foreclosure cases the wrong parties are initiating the foreclosures — because the money of the investors went direct to the origination and purchase of loans rather than through the SPV Trust which for tax purposes was designed to be a REMIC pass through trust.


If the foreclosing party identifies itself as a servicer and as a holder it is admitting that it is there in a representative capacity. Their prima facie case therefore includes the documents and events in which acquired the right to represent the actual creditor. Those are only the securitization documents.


If the foreclosing party identifies itself as a holder but does not mention that it is a servicer, the same rules apply — the right to be there is a representative capacity must derive from some written instrument, which in virtually cases is the Pooling and Servicing Agreement.


Representations that the loan is a portfolio loan not subject to securitization are generally untrue. In a true portfolio loan the UCC would not apply but the rules governing a holder in due course can be used as guidance for the alleged transaction. The “lender” must show that it actually funded the loan, in good faith (in accordance with the requirements of Federal and State law governing lending) and without knowledge of the borrower’s defenses. They would be able to show their underwriting committee notes, reports and correspondence, the verification of the loan, the property value, the ability of the borrower to repay and all other national standards for underwriting and appraisals. These are only absent when there is no risk of loss on the alleged loan, because if the borrower doesn’t pay, the money was never destined to be received by the originator anyway.


In addition, the Prospectus offering to the investors combined with the Pooling and Servicing Agreement constitute the “indenture” describing the manner in which the investment will be returned to the investors, including interest, insurance proceeds, proceeds of credit default swaps, government and non government guarantees, etc. This specifies the duties and records that must be kept, where they must be kept and how the investors will receive distributions from the servicer. Proof of the balance shown by investors is the only relevant proof of a dealt and the principal balance due, applicable interest due, etc. The provisions of the contract between the creditors and the trust govern the amount and manner of distributions to the creditor. Thus it is only be reference to the creditors’ records that a prima facie case for default and the right to accelerate can be made. The servicer records do not include third party payments but do include servicer advances. If records of servicer advances are not shown in court, and the provision for servicer advances is in the prospectus and/or pooling and servicing agreement, then the Court is unable to know the balance and whether any default occurred as a result of the borrower ceasing to make payments to the servicer.


In short, it is the prospectus and pooling and servicing agreement that provide the framework for determining whether the creditors got paid as per their expectations pursuant to their contract with the Trust. It is only by reference to these documents that the distribution reports to the investors can be used as partial evidence of the existence of a default or “credit event.” Representations that the borrower did not pay the servicer are not conclusive as to the existence of a default. Only the records of the creditor, who by virtue of its relationships with multiple co-obligors, can establish that payments due were paid to the creditor. Servicer records are relevant as to whether the servicer received payments, but not relevant as to whether the creditor received those payments directly or indirectly. The servicer and creditors’ records establish servicer advance payments, which if made, nullify the creditor default. The creditors’ records establish the amount of principal or interest due after deductions from receipt of third party payments (insurance, credit default swaps, guarantees, loss sharing etc.).

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



Why Is the PSA Relevant?

Many judges in foreclosure actions continue to rule that the securitization documents are irrelevant. This would be a correct ruling in the event that there were no securitization documents. Otherwise, the securitization documents are nothing but relevant.

There are three scenarios in which the securitization documents are relevant:

  1.  The party claiming to be a trustee of a trust is claiming to have the rights of collection and foreclosure.
  2.  The party claiming to be the servicer  for a trust is claiming to have the rights of collection and foreclosure.
  3.  The party claiming to be the holder with rights to enforce is claiming to have rights of collection and foreclosure. If the party claims to be a holder in due course, the inquiry ends there and the borrower is stuck with bringing claims against the intermediaries, being stripped of his right to raise defenses he/she could otherwise have made against the originator, aggregator or other parties.

The securitization scheme can be summarized as follows:

  1.  Assignment and Assumption agreement:  This governs procedures for the closing. This is an agreement between the apparent originator of the loan and an undisclosed third-party aggregator. This agreement exists before the first application for loan is received by the originator, and before the alleged “closing.” It governs the behavior of the originator as well as the rights and obligations of the originator. Specifically it states that the originator has no rights to the whatsoever. The aggregator is used as a conduit for the delivery of funds to the closing table at which the borrower is deceived into thinking that he received a loan from the originator when in fact the funds were wired by the aggregator on behalf of an unknown fourth party. The unknown fourth party is a broker-dealer acting as a conduit for the actual lenders. The actual lenders are investors who believe that they were buying mortgage bonds issued by a REMIC trust, which in turn would be using the money raised from the offering of the bonds for the purpose of originating or acquiring residential loans. Hence the assignment and assumption agreement is highly relevant because it dictates the manner in which the closing takes place. And it demonstrates that the loan was a table funded loan in a pattern of conduct that is indisputably “predatory per se.” It also demonstrates the fact that there was no consideration between originator and the borrower. And it demonstrates that there was no privity between the aggregator and the borrower. As the closing agent procured the signature of the borrower on false pretenses. Interviews with document processors for both originators closing agents now show that they would not participate in such a closing where the identity of the actual lender was intentionally withheld.
  2.  The pooling and servicing agreement: This governs the procedures for collection, disbursement and enforcement. This is the document that specifies the authority of the trustee, the servicer, the sub servicers, the documents that should be held by the servicer, the servicer advance payments, and the formulas under which the lenders would be paid. Without this document, none of the parties currently bring foreclosure actions would have any right to be in court. Without this document trustee cannot show its authority to represent the trust or the trust beneficiaries. Without this document servicer cannot show that it performed in accordance with the requirements of a contract, or that it was in privity with the actual lenders,  or that it had any right of enforcement, or that it computed correctly the amount of payment required from the borrower and the amount of payment required to be made to the lenders. It also specifies the types of third party payments that are made from insurance, swaps and other guarantors or co-obligors.
  3. Of specific importance is the common provision for servicer advances, in which the creditors are receiving payments in full despite the declaration of default by the servicer.  In fact, the declaration of default by the servicer is actually an attempt to recover money that was voluntarily paid to the creditor. It is not correctly seen as a declaration of default nor any right to demand reinstatement nor any right to accelerate because the creditor is not showing any default. It is a disguised attempt to assert a claim for unjust enrichment because the servicer made payments on behalf of the borrower, voluntarily, to the creditor that are not recoverable from the creditor. Usually they make this payment by the 25th of each month. Hence any prior delinquency is cured each month and eliminates the possibility of a default with respect to the creditor on the residential loan.

It is argued by the banks and accepted by many judges that mere possession of the note sufficient to enforce it in the amount demanded by the servicer. This is wrong. The amount demanded by the servicer and does not take into account the actual payments received by the actual creditor. Accordingly the computation of interest and principal is incorrect. This can only be shown by reference to the securitization documents, including the assignment and assumption agreement, the pooling and servicing agreement, the prospectus and supplements to the PSA and Prospectus.

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

Who is the “lender” or “creditor”?

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LET’S PROCEED STEP BY STEP. – Based upon actual documentation filed with the SEC

1. let’s assume that the mortgage is defective because it was not perfected. The note described a party who was not the creditor and gave no notice as to the actual identity of the creditor.
2. Let’s assume also that the note was paid in full from a variety of sources, which you know about ad nauseum.
3. Let’s further assume that the transfer documents are either non-existent or defective in that there was no actual transaction (they are false), there was no authority of the signatories etc.
4. Now let’s see what evidence I come up with to show that one or all of these things are true.


We will issue and guarantee the certificates. Each certificate represents an undivided ownership interest in a pool of adjustable-rate residential mortgage loans. We offer each certificate by this prospectus supplement and the prospectus referenced in the pool statistics included herein.

Notice the reference to “pool statistics” and not the loans. There was a spreadsheet attached as though those were the loans, but it says later in the prospectus that those are not the real loans. So we have an offer, acceptance and consideration given by the investor to the broker dealer. If they had put the money in the trust, as they were required to do, then the Trust would have funded the transactions and received the necessary assignment through the Depositor. Discovery from hundreds of cases strongly suggests they never did that, because they were more interested in lining their own pockets (i.e., the broker dealers) than in giving the protection promised to the investors — which was an undivided ownership interest in the loans through a derivative security (mortgage bond). They got the mortgage bond but it was issued by a trust that in all probability never received the money and never engaged in any transaction.

What that means is that they (a) intend to do something in the future as of the date of this instrument, which appears to be some time in 2005 and (b) each certificate represents an undivided interest in the loans as a pool and do not represent direct ownership of the loans themselves (c) and it appears to indicate that that FNMA issues and guarantees the certificates, not the loans. Note that FNMA is not a lender but rather a guarantor although it is frequently referred to as a lender because it serves in the nominal position of “Master Trustee” for REMIC Trusts whose Trust Beneficiaries funded the loan, even if it wasn’t through the trust.

The certificates are issued under the terms of the ARM trust indenture dated as of July 1, 1984, as amended.

What that means is that the agreement and intentions of the parties were set long before the first contact or application was made by the borrower. This impacts the mortgage origination. TILA and RESPA require full disclosure of the identity of the lender because the very purpose of TILA was to make sure the borrower had enough information to make a choice between one lender or another. By depriving the borrower of this knowledge, the borrower was unaware that the purpose of his/her “loan” product was to sell securities and that the “securitization” parties had a greater incentive to sell the loan than make sure that the loan was viable — even if they had no intention of actually securitizing the loan in the manner set forth in the Prospectus and Pooling and Servicing Agreement.

The borrower is also not advised that his/her name and credit score would be used to sell those securities. Now this doesn’t mean the loan wasn’t real, but it does point to the fact that the actual identity of the funders of the loan was being kept secret and that the note was defective in failing to show that this was the intent of the parties sitting across the table from the borrower. By keeping this information from both the lender and the borrower, the “securitization” parties were obviously intending to use the identities of the lenders and use the identities of the borrowers to create actual or fictitious transactions to cover any excessive compensation or payoffs they were anticipating.

We have responsibility for the servicing of the mortgage loans in the pool. Every month we will pay to certificate holders scheduled installments of principal on the mortgage loans in the pool, together with one month’s accrued interest at the pool accrual rate. We guarantee to pay these amounts, whether or not the borrowers under the mortgage loans pay us. If we foreclose on a mortgage loan, we also must pay certificate holders the full principal balance of that loan even if we recover a lesser amount.

There are several possible interpretations here. And that is because “we” is not actually an identification of any party or parties. One is that FNMA was the creditor in fact the whole time. The fact that FNMA is not the creditor because it never loaned any money and never bought the loans (except possibly as Master Trustee for a REMIC Trust, which could only mean that the REMIC trust bought it acting through FNMA acting as a “manager”). Another is that the investors were the creditors, and still another is that the trust was the creditor. It’s really not that clear.

What IS clear is that the investors were paid no matter what, which means that from the investor point of view there could be no default — ever, unless FNMA defaulted. This is the quasi equivalent of servicer advances. In truth both servicer advances and the guarantee payments probably came from a reserve fund taken out of the investors’ pool of money sitting in the broker dealer’s account. The reason why the payments were made regardless of what the borrower did was that the broker dealers wanted to sell more bonds.

By creating the illusion that all is well with the loan pool, the investors continued to buy the mortgage bonds. The authority for paying the investors out of their own money is directly stated in language buried in the prospectus, at a point where most fund managers have stopped reading and are relying upon their trust of investment banks who have a reputation dating back as much as 150 years. This was a reputation they cashed. The only true securitization was that the reputation of the major banks was sold off multiple times in bogus instruments that do NOT qualify for security exemption and SHOULD be subject to SEC enforcement.

Hence the source of funding was paid and is being paid and is guaranteed to be paid in all events. So here is the problem: if the guarantee was of the certificate and not of the mortgage how exactly does FNMA claim direct ownership of the loan? You have a right to see those transactions and ascertain the true value of the mortgage and the true creditor. It is unlikely that there were two guarantees — one for the certificates and one for the loans. And the interesting part of that is my understanding of the process is that FNMA was to created to guarantee loans not certificates.

The point of this exercise is to emphasize the importance of actually reading the “securitization” documents and to compare the events set forth in the documents with the actual events. If the document says the loan was to be acquired through an assignment that is in recordable form and which is recorded, then there are several questions. Was the document of assignment prepared? Was it recorded? And most of all was there any transaction in which the Trust paid for the assignment?

And of course as almost everyone knows in foreclosure defense, when did this alleged transaction take place. The name of the trust usually has a year and sometimes a month in it and that gives the answer about when the transaction must have taken place in order to qualify for a valid acquisition of loan — i.e., the 90 day cutoff.

So we know by definition and from the facts of closing that if the closing took place on December 1, 2006 and the cutoff date for trust business was January 1, 2007, that the assignment was required during that period. But we also know from experience that these assignments appear out of thin air only for mortgages that are in litigation — leading to what some in foreclosure defense refer to as “ta da!” assignments — obviously fabricated minutes before they were used in court.

The last item is the most deadly for the banks. It is perfectly appropriate to ask for the transaction in which the transfer took place. The assignment, fabricated or not, says it took place on a certain date. The banking system is set up so that there are multiple sets of footprints for the movement of money. So your question is, show me the transaction where the Trust issued a check or wire transfer for this mortgage. Their answer is no. They will cite all sorts of reasons for this, but the real one is that the transaction does not exist.

It doesn’t exist now, it didn’t exist then and it never will exist because in most cases the money advanced by investors to the broker dealers was never used in the manner set forth in the prospectus. That is a subject for litigation between investors and broker dealers and there have been hundreds of such claims now that the truth is coming out. The only significance to you is that you now have actual knowledge that the investors directly and involuntarily funded the origination or acquisition of your loan, but failed to get the what they should have received — a note and mortgage payable to the investors.

Naming the mortgage broker or originator on the note and mortgage is pure fiction and in my opinion renders those instruments void. The alleged transaction at the closing with the borrower was a sham. He or she was induced to sign closing documents upon the mistaken belief that the originator or mortgage broker was actually lending the money to him or her. The moment the borrower signed the note and mortgage, and the moment the mortgage was recorded, there was a cloud on title because the mortgage was defective — a mortgage which the investors themselves allege was unenforceable for exactly the reason set forth in this article.

Analysis taken from


SET 2 TEXT RECOGNIZABLE FM 000471 – MERS history of lender, investor, servicing.pdf;




monthly reporting.pdf;


Prospectus July 1, 2004.pdf;


Supplement to Prospectus.pdf

Is Donald Duck Your Lender?


I was asked a question a few days ago that runs to the heart of the problem for the banks in enforcing false claims for foreclosure and false claims of losses that should really allocated to the investors so that the investor would get the benefits of those loss mitigation payments. This is the guts of the complaints by insurers, investors, guarantors et al against the investment banks — that there was fraud, not breach of contract, because the investment bank never intended to follow the plan of securitization set forth in the prospectus and pooling and servicing agreement. The question asked of me only reached the issue of whether borrowers could claim credit for third party payments to the creditor. But the answer, as you will see, branches much further out than the scope of the question.

If you look at Steinberger in Arizona and recent case decisions in other jurisdictions you will see that if third party payments are received by the creditor, they must be taken into account — meaning the account receivable on their books is reduced by the amount of the payment received. If the account receivable is reduced then it is axiomatic that the account payable from the borrower is correspondingly reduced. Each debt must be taken on its own terms. So if the reduction was caused by a payment from a third party, it is possible that the third party might have a claim against the borrower for having made the payment — but that doesn’t change the fact that the payment was made and received and that the debt to the trust or trust beneficiaries has been reduced or even eliminated.

The Court rejected the argument that the borrower was not an intended third party beneficiary in favor of finding that the creditor could only be paid once on the debt. I am finding that most trial judges agree that if loss-sharing payments were made, including servicer advances (which actually come from the broker dealer to cover up the poor condition of the portfolio), the account is reduced as to that creditor. The court further went on to agree that the “servicer” or whoever made the payment might have an action for unjust enrichment against the borrower — but that is a not a cause of action that is part of the foreclosure or the mortgage. The payment, whether considered volunteer or otherwise, is credited to the account receivable of the creditor and the borrower’s liability is corresponding reduced. In the case of servicer payments, if the creditor’s account is showing the account current because it received the payment that was due, then the creditor cannot claim a default.

A new “loan” is created when a volunteer or contractual payment is received by the creditor trust or trust beneficiaries. This loan arises by operation of law because it is presumed that the payment was not a gift. Thus the party who made that payment probably has a cause of action against the borrower for unjust enrichment, or perhaps contribution, but that claim is decidedly unsecured by a mortgage or deed of trust.

You have to think about the whole default thing the way the actual events played out. The creditor is the trust or the group of trust beneficiaries. They are owed payments as per the prospectus and pooling and servicing agreements. If those payments are current there is no default on the books of creditor. If the balance has been reduced by loss- sharing or insurance payment, the balance due and the accrued interest are correspondingly reduced. And THAT means the notice of default and notice of sale and acceleration are all wrong in terms of the figures they are using. The insurmountable problem that is slowly being recognized by the courts is that the default, from the perspective of the creditor trust or trust beneficiaries is a default under a contract between the trust beneficiaries and the trust.

This is the essential legal problem that the broker dealers (investment banks) caused when they interposed themselves as owners instead of what they were supposed to be — intermediaries, depositories, and agents of the investors (trust beneficiaries). The default of the borrower is irrelevant to whether the trust beneficiaries have suffered a loss due to default in payment from the trust. The borrower never promised that he or she or they would make payment to the trust or the trust beneficiaries — and that is the fundamental flaw in the actual mortgage process that prevailed for more than a dozen years. There would be no flaw if the investment banks had not committed fraud and instead of protecting investors, they diverted the money, ownership of the note and ownership of the mortgage or deed of trust to their own controlled vehicles. If the plan had been followed, the trusts and trust beneficiaries would have direct rights to collect from borrowers and foreclose on their property.

If the investment banks had not intended to divert the money, income, notes and mortgages or deeds of trust from the creditor trust or trust beneficiaries, then there would have no allegations of fraud from the investors, insurers and government guarantee agencies.

If the investment banks had done what was represented in the prospectus and pooling and servicing agreements, then the borrower would have known that the loan was being originated for or on behalf of the trust or beneficiaries and so would the rest of the world have known that. The note and mortgage would have shown, at origination, that the loan was payable to the trust and the mortgage or deed of trust was for the benefit of the trust or trust beneficiaries, as required by TILA and all the compensation earned by people associated with the origination of the loan would have had to have been disclosed (or returned to the borrower for failure to disclose). That would have connected the source of the loan — the trust or trust beneficiaries — to the receipt of the funds (the homeowner borrowers).

Instead, the investment banks hit on a nominee strawman plan where the disclosures were not made and where they could claim that (1) the investment bank was the owner of the debt and (2) the note and mortgage or deed of trust were executed for the benefit of a nominee strawman for the investment bank, who then claimed an insurable interest as owner of the debt. As owner of the debt, the investment banks received loss sharing payments from the FDIC. As agents for the investors those payments should have been applied to the balance owed the investors with a corresponding reduction in the balance due from the borrower —- if the payments were actually made and received and were not hypothetical or speculative. The investment banks did the same thing with the bonds, collecting payments from insurers, counterparties to credit default swaps, and guarantees from government sponsored entities.

When I say nominee or strawman I do not merely mean MERS which would have been entirely unnecessary unless the investment banks had intended to defraud the investors. What I am saying is that even the “lender” for whom MERS was the “nominee” falls into the same trapdoor. That lender was also merely a nominee which means that, as I said 7 years ago, they might just as well have made out the note and mortgage to Donald Duck, a fictitious character.

Since no actual lender was named in the note and mortgage and the terms of repayment were actually far different than what was stated on the borrower’s promissory note (i.e., the terms of the mortgage bond were the ONLY terms applicable to the plan of repayment to the creditor investors), the loan contract (or quasi loan contract, depending upon which jurisdiction you are in) was never completed. Hence the mortgage and note should never have been accepted into the file by the closing agent, much less recorded.

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Mortgage Lenders Network and Wells Fargo Battled over Servicer Advances

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

As usual, the best decisions come from cases where the parties involved in “securitization” are fighting with each other. When a borrower brings up the same issues, the court is inclined to disregard the borrower’s defense as merely an attempt to get out of  a legitimate debt. In the Case of Mortgage Lenders  versus Wells Fargo (395 B.K. 871 (2008)), it is apparent that servicer advances are a central issue. For one thing, it demonstrates the incentive of servicers to foreclose even though the foreclosure will result in a greater loss to the investor then if a workout or modification had been used to save the loan.

See MLN V Wells Fargo

It also shows that the servicers were very much aware of the issue and therefore very much aware that between the borrower and the lender (investor or creditor) there was no default, and on a continuing basis any theoretical default was being cured on a monthly basis. And as usual, the parties and the court failed to grasp the real economics. Based on information that I have received from people were active in the bundling and sale of mortgage bonds and an analysis of the prospectus and pooling and servicing agreements, I think it is obvious that the actual money came from the broker dealer even though it is called a “servicer advance.” Assuming my analysis is correct, this would further complicate the legal issues surrounding servicer advances.

This case also demonstrates that it is in bankruptcy court that a judge is most likely to understand the real issues. State court judges generally do not possess the background, experience, training or time to grasp the incredible complexity created by Wall Street. In this case Wells Fargo moves for relief from the automatic stay (in a Chapter 11 bankruptcy petition filed by MLN) so that it could terminate the rights of MLN as a servicer, replacing MLN with Wells Fargo. The dispute arose over several issues, servicer advances being one of them. MLN filed suit against Wells Fargo alleging breach of contract and then sought to amend based on the doctrine of “unjust enrichment.” This was based upon the servicer advances allegedly paid by MLN that would be prospectively recovered by Wells Fargo.

The take away from this case is that there is no specific remedy for the servicer to recover advances made under the category of “servicer advances” but that one thing is clear —  the money paid to trust beneficiaries as “servicer advances” is not recoverable from the trust beneficiaries. The other thing that is obvious to Judge Walsh in his discussion of the facts is that it is in the servicing agreements between the parties that there may be a remedy to recover the advances; OR, if there is no contractual basis for recovering advances under the category of  “servicer advances” then there might be a basis to recover under the theory of unjust enrichment. As always, there is a complete absence in the documentation and in the discussion of this case as to the logistics of exactly how a servicer could recover those payments.

One thing that is perfectly clear however is that nobody seems to expect the trust beneficiaries to repay the money out of the funds that they had received. Hence the “servicer advance” is not a loan that needs to be repaid by the trust or trust beneficiaries. Logically it follows that if it is not a loan to the trust beneficiaries who received the payment, then it must be a payment that is due to the creditor; and if the creditor has received the payment and accepted it, the corresponding liability for the payment must be reduced.

Dan Edstrom, senior securitization analyst for the livinglies website, pointed this out years ago. Bill Paatalo, another forensic analyst of high repute, has been submitting the same reports showing the distribution reports indicating that the creditor is being paid on an ongoing basis. Both of them are asking the same question, to wit:  “if the creditor is being paid, where is the default?”

One attorney for US bank lamely argues that the trustee is entitled to both the servicer advances and turnover of rents if the property is an investment property. The argument is that there is no reason why the parties should not earn extra profit. That may be true and it may be possible. But what is impossible is that the creditor who receives a payment can nonetheless claim it as a payment still due and unpaid. If the servicer has some legal or equitable claim for recovery of the “servicer advances” then it can only be against the borrower, on whose behalf the payment was made. This means that a new transaction occurs each time such a payment is made to the trust beneficiaries. In that new transaction the servicer can claim “contribution” or “unjust enrichment” against the borrower. Theoretically that might bootstrap into a claim against the proceeds of the ultimate liquidation of the property, which appears to be the basis upon which the servicer “believes” that the money paid to the trust beneficiaries will be recoverable. Obviously the loose language in the pooling and servicing agreement about the servicer’s “belief” can lead to numerous interpretations.

What is not subject to interpretation is the language of the prospectus which clearly states that the investor who is purchasing one of these bogus mortgage bonds agrees that the money advanced for the purchase of the bond can be pooled by the broker-dealer; it is expressly stated that the investor can be paid out of this pool, which is to say that the investor can be paid with his own money for payments of interest and principal. This corroborates my many prior articles on the tier 2 yield spread premium. There is no discussion in the securitization documents as to what happens to that pool of money in the care custody and control of the broker-dealer (investment bank). And this corroborates my prior articles on the excess profits that have yet to be reported. And it explains why they are doing it again.

It doesn’t take a financial analyst to question why anyone would think it was a great business model to spend hundreds of millions of dollars advertising for loan customers where the return is less than 5%. The truth in lending act passed by the federal government requires the participants who were involved in the processing of the loan to be identified and to disclose their actual compensation arising from the origination of the loan — even if the compensation results from defrauding someone. Despite the fact that most loans were subject to claims of securitization from 2001 to the present, none of them appear to have such disclosure. That means that under Reg Z the loans are “predatory per se.”

To say that these were table funded loans is an understatement. What was really occurring was fraudulent underwriting of the mortgage bonds and fraudulent underwriting of the underlying loans. The higher the nominal interest rate on the loans (which means that the risk of default is correspondingly higher) the less the broker-dealer needed to advance for origination or acquisition of the loan; and this is because the investor was led to believe that the loans would be low risk and therefore lower interest rates. The difference between the interest payment due to the investor and the interest payment allegedly due from the borrower allowed the broker-dealers to advance much less money for the origination or acquisition of loans than the amount of money they had received from the investors. That is a yield spread premium which is not been reported and probably has not been taxed.

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

I caution that when enough cases have been lost as a result of servicer advances, the opposition will probably change tactics. While you can win the foreclosure case, it is not clear what the consequences of that might be. If it results in a final judgment for the homeowner then it might be curtains for anyone to claim any amount of money from the loan. But that is by no means assured. If it results in a dismissal, even with prejudice, it might enable the servicer to stop making advances and then declare a default if the borrower fails to make payments after the servicer has stopped making the payments. Assuming that a notice of acceleration of the debt has been declared, the borrower can argue that the foreclosing party has elected its own defective remedy and should pay the price. If past experience is any indication of future rulings, it seems unlikely that the courts will be very friendly towards that last argument.

Attorneys who wish to consult with me on this issue can book 1 hour consults by calling 520-405-1688.

The Mystery of Servicer Non Stop Advances

Since I entered the fray as the actual attorney for clients, we are getting down to the nitty gritty. Judges are surprised to learn that the foreclosure case in front of them was filed despite the payments actually received by the alleged creditor through third parties. In other words the case in front of them does not actually present a default from the creditor’s point of view even tough the borrower stopped paying.

The primary payment we are focusing on today is servicer advances which come in different flavors — non-stop, limited and none. Most loans (96%) are subject to claims of securitization regardless of what the current servicer or trustee is telling you. And most of those (my guess is around 75%-90%) come with third party obligors, which is why there is so much confusion. Besides servicer advances, the agents for the trust beneficiaries at the investment bank who sold them the bonds received on behalf of the bond holders, insurance payments and other funds from other contracts designed to limit the risk associated with the terms of the bond repayment of interest and principal.

When you do the math, you can easily see how the “lender” could be overpaid by a multiple that averages 3-5 times, even while the borrower is being pursued for yet another payment or else losing a home. The dirty little secret, the mystery behind these payments is that under common law and statutory law there are potential causes of action against the borrower for such payments, but the actual creditor on the loan has been fully satisfied.

Worse yet, those third parties have waived subrogation or any right of action against the borrower to prevent multiple parties from suing the same defendant on the same debt. The insurers are mad as hell. But the servicers are curiously silent — possibly because they are not really paying the servicer advances which are instead coming from the pool of funds held by the investment banker from the original investment of the trust beneficiaries and the receipt of insurance, credit default swaps, guarantors and even sales to the Federal Reserve.

The lender (Trust beneficiaries) have agreed to lend money on the basis of interest only payments at a particular rate that rarely coincides with any of the loans alleged to be in the pool. Since they were sold the bonds first before the loan was made (see “selling forward”), you can assume fairly safely that the actual lender is the trust or trust beneficiaries, regardless of what was put on the loan documents — which is why I say that none of the loan documents are valid enforceable documents and why the investors have sued the real culprits (investment banks) stating the exact same thing.

In one case I have currently pending in Dade County, Florida, US Bank is putting itself through a ringer because servicer advances have been paid in full to the creditor that they acknowledge is the creditor. The Judge instantly recognized that this defeats the allegation of default, if the creditor has received and accepted payment. The attorney for US Bank allegedly as trustee for the trust beneficiaries is pursuing a strategy of getting the assignment of rents enforced. The statutory requirement is that there be a written demand for rents, which nobody ever made. And it turns out that the Trustee was unwilling to go on record demanding assignment of rents because the beneficiaries were paid in full exactly as set forth in the prospectus and pooling and servicing agreement. A call to the servicer confirmed they were not interested in the rents, but curiously, despite PSA restrictions to the contrary, the new “Trustee” US BANK is pursuing the foreclosure.

The Judge, who wants more proof of the advances which we are only too happy to provide, instantly recognized that if the trust beneficiaries were receiving their expected payment, then there can be no default on the principal, which is prerequisite to BOTH foreclosure and the assignment of rents. In this case there were 52 payments received and accepted by the trust beneficiaries after the alleged borrower default. We were able to get this information through drilling down to loan level accounting in our title and securitization reports. If there is money owed it is not owed to the plaintiff in foreclosure and it is not secured by a mortgage. see

We have since done the reports on other properties owned by the same client and found out that the same pattern holds true. In the one case we have already argued, more than $70,000 has been received by the trust beneficiaries from servicer non stop advances. Payment is the ultimate defense for an action to recover money. The fun part comes when the Judge starts asking why these payments were not disclosed by the attorney or his client.

There are other sources of third party payments from co-obligors at the inception of the loan. The mystery comes from the fact that the homeowner who signs loan papers has no idea, because it was never disclosed to him/her/them that the lender is not the payee on the note, not the mortgagee on the mortgage, not the beneficiary on the trust deed, but rather the trust beneficiaries who own bonds issued from the REMIC trust (which as I have already reported was never actually funded and never actually received title to the loan).

In other words, the lender has agreed to one set of terms that were never disclosed to the borrower in violation of the truth in lending act, and the borrower has agreed to an entirely different deal — which means that there is no “meeting of the minds.” Both the lender and borrower wanted a completed contract that would be enforceable and where title was clear, but neither of them got it. The solution is to get rid of the servicer and get rid of the investment banker, get an accounting of all funds, repay the investors and work out a reasonable deal with borrowers, most of whom would be willing to sign a mortgage that was enforceable based upon economic reality.

Banks Traded on Inside Information on Mortgages

Despite the pronouncements by Eric Holder, the chief law enforcement officer of the United States, and the obvious reticence of the Securities and Exchange Commission, the vast majority of securities attorneys believe that the banks were (a) trading on inside information and (b) committing securities fraud when they funded and then traded on mortgages that were too toxic to ever succeed.

The first, trading on inside information, is regularly prosecuted by the justice department and the SEC. It is why Martha Stewart went to jail in rather flimsy evidence. The catch, justice and the SEC say is that this only applies to securities and the 1998 act signed into law by Clinton makes mortgage bonds and hedges on mortgage bonds NOT securities. It also makes the insurance paid on the mortgage bonds NOT insurance. This is despite the fact that the instruments meet every definition of securities and both the insurance contracts and credit default swaps appear to meet every definition of insurance. But the law passed by Congress in 1998 says otherwise, so how can we prosecute?

The second, securities fraud meets the same obstacle they say because they can’t accuse anyone of committing fraud in the issuance or trading of securities when the law says there were no securities.

So goes the spin coming from Wall Street and as long as law enforcement in each state and the DOJ keeps listening to Wall Street and their lawyers, they will keep arriving at the same mistaken conclusion.

If Wall Street had in fact followed the plan of securitization set forth in their prospectuses and pooling and servicing agreements, assignment and assumption agreements and various other instruments that were created to build the infrastructure of securitization of debt — including but not limited to mortgages, credit cards, auto loans, student loans etc. — then Wall Street would be right and the justice department and the SEC might be stuck in the mud created by the 1998 law. But that isn’t what happened and therefore the premise behind the apparent immunity of Wall Street Banks and bankers is actually an illusion.

Starting with the issuance of the mortgage bonds, most of them were issued before any mortgage was originated or acquired by anyone. In fact, the list attached to the prospectus for the mortgage bonds said so — stating that the spreadsheet or list attached was by example only, that these mortgages do not exist but would be soon be replaced with real mortgages acquired pursuant to the enabling documents for the creation of the REMIC “trust.” But that is not what happened either.

In no way did the Banks follow the terms of the prospectus, PSA, assignment and assumption agreements or anything else. Instead what they really did was create the illusion of a securitization scheme that covered up the reality of a PONZI scheme, the hallmark of which is that it collapses when investors stop buying the bogus securities and more investors want their money out than those wishing to put money into the scheme. There was no reason for the entire system to collapse other than the fact that Wall Street planned and bet on the collapse, thus making money coming and going and draining the lifeblood of capital worldwide out of economies and marketplaces that depended upon the continued flow of capital.

The creation of the REMIC “trust” was a sham. It was never formalized, never funded and never acquired any mortgages. hence any “exempt” securities issued by it were not the kind intended by the Act signed into law in 1998. It was not a mortgage-backed security, or credit backed security, it was an illusion designed to defraud anyone who invested in them. The purpose of issuing the mortgage bonds was not to fund and acquire mortgages but rather to steal as much money out of the flow as possible while covering their tracks with some of the money ending up on the closing table for newly originated or previously originated bundles of mortgages that were to be acquired. That isn’t what happened either.

Wall Street bankers put the money from investors into their own private piggy bank and then funded and acquired mortgages with only part of the money while they made false “proprietary trades” in the “mortgage bonds” that made it look like they were trading geniuses making money hand over fist while the rest of the world saw their wealth decline by as much as 60%-70%. The funding for debt came not from the unfunded REMIC “trusts” but from the investment banker who was merely an intermediary depository institution which unlawfully was playing with investor money. The actual instruments upon which Wall Street relies to justify its actions is the prospectus, the PSA, and the Master Servicing agreement — each of which was used to sell the investors on letting go of their money in exchange for the promises and conditions contained in the exotic agreements containing numerous conflicting clauses.

Thus the conclusion is that since the mortgage bonds were issued by an unfunded and probably nonexistent entity, the investors had “bought” an interest in an incoherent series of agreements that together constituted a security or, in the alternative, that there was no security and the investors were simply duped into parting with their money which is fraud, pure and simple.

I would say that investors acquired certain passive rights to the instruments used, with the exception of the bogus mortgage bonds that were usually worthless pieces of paper or entries on a log. In my opinion the issuance of the prospectus was the issuance of a security. The issuance of the PSA was the issuance of a security, And the issuance of the other agreements in the illusory securitization chain may also have been the issuance of a security. If cows can be securities, then written instruments that were used to secure passive investments are certainly securities. The exemption for mortgage bonds doesn’t apply because neither the mortgage bond nor the REMIC “trust” were ever funded or used — except in furtherance of their fraud when they claimed losses due to mortgage defaults and obtained federal bailouts, insurance and proceeds of credit default swaps.

The loan closings, like the funding of the “investments” was similarly diverted away from the investor and toward the intermediaries so that they could trade on the appearance of ownership of the loans in the form of selling bundles of loans that were not even close to being properly described in the paperwork — although the paperwork often looked as though it was all proper.

The trading, hedging and insuring of investments that were not only destined by actually planned to fail was trading on inside information. The Banks knew very well that the triple A rating of the mortgage bonds was a sham because the mortgage bonds were worthless. What they were really trading in was the ownership of the loans which they knew were falsely represented on the note and mortgage. They thus converted the issuance of the promissory note signed by the borrower into a security under flase pretenses because the payee on the note and the secured party on the mortgage never completed the transaction, to wit: they never funded the loan and they made sure that the terms of repayment on the promissory note did not match up with the terms of repayment set forth in the prospectus, which was the real security.

Knowing from the start that they had the power (through the powers conferred on the Master Servicer) to pull the rug out from under the “investments” they traded with a vengeance hedging and selling as many times as they could based upon the same alleged loans that were in fact funded directly by and therefor owned by the investors directly (because the REMIC was ignored and so was the source of funding at the alleged loan closing).

Being the sole source of the real information on the legality, quality and quantity of these nonexistent investments in mortgage bonds, the Wall Street banks, their management, and their affiliates were committing both violation of the insider trading rule and the securities fraud rule ( as well as various other common law and statutory prohibitions and crimes relating to deceptive practices in the sale of securities). By definition and applying the facts rather than the spin, the Banks a have committed numerous crimes and the bankers should be held accountable. Let’s not forget that by this time in the S&L scandal more than 800 people were sent to jail despite various attempts to mitigate the severity of their trespass and trampling on the rights of investors and depositors.

Failure to prosecute, while the statute of limitations is running out, is taking the rule of law and turning it on its head. The Obama administration has an obligation to hold these people accountable not only because violations of law should be prosecuted but to provide some deterrence from a recurrence or even escalation of the illegal practices foisted upon institutions, taxpayers and consumers around the world. Ample evidence exists that the Banks, emboldened by the lack of prosecutions, have re-started their engines and are indeed in the process of doing it again.

Think about it, where would a company get the money to have a multimedia advertising campaign blanketing areas of the the Country when the return on investment, according to them is only 2.5%? Between marketing, advertising, processing, and administrative costs, pus a reserve for defaults, they are either running a going out of business strategy or there is something else at work.

And if the transactions were legitimate why do the numbers of foreclosures drop like stones in those states that require proof of payment, proof of loss, and proof of ownership? why have we not seen a single canceled check or wire transfer receipt that corroborates the spin from Wall Street? Where is the real money in this scheme?

James Surowiecki: Why Is Insider Trading on the Rise?


Foreclosure Victims Protesting Wall Street Impunity Outside DOJ Arrested, Tasered

Watch out. The mortgage securities market is at it again.

Wall Street Lobbyists Literally Writing Bills In Congress

Time to Put the Heat on the Fed and FDIC to Fix Lousy Governance at TBTF Banks

West Sacramento homeowner uses new state law to stop foreclosure

The Foreclosure Fraud Prevention Act: A.G. Schneiderman Commends Assembly for Passing Foreclosure Relief Bills

Where did the California foreclosures go? Level of foreclosures sales dramatically down. Foreclosure legislation and bank processing. Subsidizing investor purchases via HAFA.

Wasted wealth – The ongoing foreclosure crisis that never had to happen – The Hill’s Congress Blog–the-ongoing-foreclosure-crisis-that-never-had-to-happen

Oregon Foreclosure Avoidance Program gets tuneup



Veto Clock Ticking on Florida Foreclosure Bill HB 87

DISCOVERY TIP: Has anyone asked for a received the actual agreement between the party designated as “lender” and MERS? Please send to

Questions for interrogatory and request to produce, possible request for admissions:

(1) If we accept the proffer from opposing counsel that the transaction (i.e, the loan) was done for the express purpose of fulfilling an obligation to investors for backing mortgage bonds through a REMIC asset pool, then why was MERS necessary?

(2) Why wasn’t The asset pool disclosed to the borrower?

(3) Why wasn’t the asset pool made the payee on the promissory note at origination of the loan?

(4) Why wasn’t the asset pool shown on a recorded assignment immediately after closing as the new payee and secured party?

(5) What was the business purpose of using MERS?

(6) Was the lender the source of funding on the loan or was it too just another nominee?

(7) Is there any identified real party in interest on the note and mortgage as the creditor?

(8) If there is no real party in interest on the note and mortgage, then how can the mortgage be considered perfected when nobody has notice of who they can go to for a satisfaction or release or rescission of the mortgage?

(9) In which document and what provision are the parties at the loan “closing” empowered to identify a party other than the source of funds as the payee and secured party?

(10) Who were the parties to the loan? — (a) the borrower and the source of funds or (b) the borrower and the holder of paper documenting a transaction that is incomplete (the payee and secured party never fulfilled their obligation to fund the loan)?

(11)If the servicer’s scope of employment, authority or apparent authority was limited to tracking the payments of the borrower only, and did not include accounting for the creditor, then how does the servicer know what is contained in the creditor’s accounting records? — Since the creditor in any loan subject to claims of securitization received a bond whose indenture provided repayment terms different than those terms signed by the borrower to another party entirely, how can any finding of money damages be determined by any court without a full accounting for all transactions relating to the loan?

(12) What is the identity of the party who was injured by the refusal of the borrower to make any further payments? To what extent were they injured? Are they qualified to submit a “credit bid” or must they pay cash for the property at auction? If they are not qualified to submit a credit bid then (see below) then under what legal theory should they be permitted to foreclose or for that matter seek any collection? Are these intermediary parties violating the FDCPA because they are neither the creditor nor the agent of the creditor and yet demanding payment for themselves?


FLORIDA 5th DCA: To establish standing to foreclose, Plaintiff must show that it acquired the right to enforce the note before it filed suit to foreclose. Important: the right to enforce the note means either they were the injured party or they represent the injured party. An assignment from a party who is proffered to be the injured party must be established with proper foundation from a competent witness.

GREEN V CHASE 4-5-2013


FLORIDA 4TH DCA: DATES MATTER: While the note introduced had a blank endorsement (note conflict with PSA, which is supposedly source of authority to represent creditor: note may not be endorsed in blank and in fact must be endorsed and assigned in recordable form and recorded where the law allows or requires it) and was sufficient [under normal rules governing commercial transactions — except if the parties agree otherwise which they certainly did in the PSA) to prove ownership by appellee, who possessed the note, nothing in the record (e.s) shows that the note was endorsed prior to filing of the complaint (or if you want to use this decision by analogy prior to initiation of the notice of default and notice of sale in non-judicial states). The endorsement did not cotnain a date, nor did the affidavit filed in support of the motion for summary judgment contain any sworn statement that the note was owned by the Plaintiff on the date that the suit was filed. [PRACTICE TIP: THEY DON’T WANT TO GIVE A DATE BECAUSE THAT WILL LEAD TO YOU ASKING FOR DETAILS OF THE TRANSACTION, PROOF OF PAYMENT, THE ASSIGNMENT AND WHETHER THE TRANSACTION CONFORMED TO THE PSA, NONE OF WHICH WILL BE PRODUCED. But  considering past behavior it is highly probable that they will fabricate documents that ALMOST give you a copy of the canceled check or wire transfer receipt but don’t quite get them to the finish line. Being aggressive on this point will clearly  put them on the defensive].

4th DCA Cromarty v Wells Fargo 4-17-2013

2d DCA: IS THE TRANSACTION GOVERNED BY THE UCC PROVISIONS EVEN IF THE PARTIES HAVE AGREED OTHERWISE? This is the nub of the issue in the Stone case (link below). We think that the courts are confused i applying ordinary rules from the UCC regarding the negotiation of commercial instruments and certainly we understand why — the UCC is the basis upon which we can conducted trusted business transaction and maintain liquidity in the marketplace. But if the party attempting to foreclose derives its powers from the Prospectus, PSA,or purchase and Assumption Agreement, then they cannot invoke the powers in those instruments on the one hand and disregard the provisions that prohibit blank endorsements of loans of dubious quality without an assignment that can only be accepted by the supposed creditor if it complies with the assignment provisions of the agreement under which the foreclosing party is claiming to have authority to enforce the note and mortgage. And this is precisely the risk and consequences of a lawyer not understanding claims of securitization and the reality of what the UCC means when it says things like “unless otherwise agreed” and “for value.” Without raising those issues on the record, the homeowner was doomed:

Stone v BankUnited May 3 2013

OCC: 13 Questions to Answer Before Foreclosure and Eviction

13 Questions Before You Can Foreclose

foreclosure_standards_42013 — this one works for sure

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

“Conversion” of the Note to a Bond Leaves Confusion in the Courts

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Brent Bentrim, a regular contributor to the dialogue, posed a question.

I am having some trouble following this.  The note cannot be converted any more than when a stock is purchased by a mutual fund (trust) it becomes a mutual fund share.

You’re close and I understand where you seem to be going…ie, the loans were serviced not based on the note and closing documents, but on the PSA.  What I do not understand is the assumption that the note was converted.  From a security standpoint, it cannot.

You are right. When I say it was “converted” I mean in the lay sense rather a legal one. Of course it cannot be converted without the borrower signing. That is the point. But the treatment of the debt was as if it had been converted and that is where the problem lies for the Courts — hence the diametrically opposed appellate decisions in GA and MA. Once you have pinned down the opposing side to say they are relying on the PSA for their authority to bring the foreclosure action, and relying on the “assignment” without value, the issue shifts —- because the PSA and prospectus have vastly different terms for repayment of interest and principal than the note signed by the borrower.There are also different parties. The investor gets a bond from a special purpose vehicle under the assumption that the money deposited with the investment bank goes to the SPV and the SPV then buys the mortgage or funds the origination. In that scenario the payee on the note would either be the SPV or the originator. But it can’t be the originator if the originator did not fulfill its part of the bargain by funding the loan. And there is no disclosure as to the presence of other parties in the securitization chain much less the compensation they received contrary to Federal Law. (TILA).

Under the terms of the PSA and prospectus the expectation of the investor was that the investment was insured and hedged. That is one of the places where there is a break in the chain — the insurance is not made payable to either the SPV or the investors. Instead it is paid to the investment bank that merely created the entities and served as a depository institution or intermediary for the funds. The investment bank takes the position that such money is payable to them as profit in proprietary trading, which is ridiculous. They cannot take the position that they are agents of the creditor for purposes of foreclosure and then take the position that they were not agents of the investors when the money came in from insurance and credit default swaps.

Even under the actual money trail scenario the same holds true — they were acting as agents of the principal, albeit violating the terms of the “lender” agreement with the investors. Here is where another break occurred. Instead of funding the SPV, the investment bank held all investor money in a commingled undifferentiated mega account and the SPV never even had any account or signatory on any account in which money was placed.

Hence the SPV cannot be said to have purchased the loan because it lacked the funding to do it. The banks want to say that when they funded the origination or acquisition of the loan they were doing so under the PSA and prospectus. But that would only be true if they were following the provisions and terms of those instruments, which they were not. The banks funded the acquisition of loans directly with investor money instead of through the SPV, hence the tax exempt claims of the SPV’s are false and the tax effects on the investors could be far different — especially when you consider the fact that the mega suspense account in the investment bank had funds from many other investors who also thought they were investing in many different SPVs.

The reality of the money trail scenario is that the SPV can’t be the owner of the note or the owner of the mortgage because there simply was no transaction in which money or other consideration changed hands between the SPV and any other party. The same holds true for all the parties is the false securitization trail — no money was involved in the assignments. Thus it was not a commercial transaction creating a negotiable instrument.

In both scenarios the debt was created merely by the receipt of money that is presumed not to be gift. The question is whether the note, the bond or both should be used to re-structure the loan and determine the amount of interest, principal, if any that is left to pay.

The further question is if the originator did not loan any money, how can the recording of a mortgage have been proper to secure a debt that did not exist in favor of the secured party named on the mortgage or deed of trust?
And if the lender is determined by the actual money trail then the lenders consist of a group of investors, all of whom had money deposited in the account from which the acquisition of the loan was funded. And despite investment bank claims to the contrary, there is no evidence that there was any attempt to actually segregate funds based upon the PSA and prospectus. So the pool of investors consists of all investors in all SPVs rather just one — a factor that changes the income and tax status of each investor because now they are in a common law general partnership.

Thus the “conversion” language I have used, is merely shorthand to describe a far more complex process in which the written instruments were ignored, more written instruments were fabricated based upon nonexistent transactions, and no documentation was provided to the investors who were the real lenders. That leaves a common law debt that is undocumented by any promissory note or any secured interest in the property because the recorded mortgage or deed of trust was filed under false pretenses and hence was never perfected.

The conversion factor comes back in when you think about what a Judge might be able to do with this. Having none of the documentation naming and protecting the investors to document or secure the loan, the Judge must enter judgment either for the whole amount due, if any (after deductions for insurance and credit default swap proceeds) or in some payment plan.

If the Judge refers to the flawed documentation, he or she must consider the interests and expectation s of both the lender (investors) and the borrower, which means by definition that he must refer back to the prospectus and PSA as well as the promissory note.
The interesting thing about all this is that homeowners are of course willing to sign new mortgages that reflect the economic reality of the value of their homes, and the principal balance due, as well as money that continued to be paid to the creditor by the same same servicer that declared the default (and was therefore curing the default with each payment to the creditor).
The only question left is where did the money come from that was paid to the creditor after the homeowner stopped making payments and does that further complicate the matter by adding parties who might have an unsecured right of contribution against the borrower for money  advanced advanced by an intermediary sub servicer thereby converting the debt (or that part that was paid by the subservicer from funds other than the borrower) from any claim to being secured to a potential unsecured right of contribution from the borrower.
To that extent the servicer should admit that it is suing on its behalf for the unsecured portion of the loan on which it advanced payments, and for the secured portion they claim is due to other parties. They obviously don’t want to do that because it would focus attention on the actual accounting, posting and bookkeeping for actual transfers or payments of money. The focus on reality could be devastating to the banks and reveal liabilities and reduction of claimed assets on their balance sheets that would cause them to be broken up. They are counting on the fact that not too many people will understand enough of what is contained in this post. So far it seems to be working for them.Remember that as to the insurance and credit default swaps there are express waivers of subrogation or any right to seek collection from the borrowers in the mortgages. The issue arises because the bonds were insured and thus the underlying mortgage payments were insured — a fact that played out in the real world where payments continued being made to creditors who were advancing money for “investment” in bogus mortgage bonds. This leaves only the equitable powers of the court to fashion a remedy, perhaps by agreement between the parties by which the lenders are made parties to the action and the borrowers are of course parties to the action but he servicers are left out of the mix because they have an interest in continuing the farce rather than seeing it settled, because they are receiving fees and picking up property for free (credit bids from non-creditors).

This is precisely the point that the courts are missing. By looking at the paperwork first and disregarding the actual money trail they are going down a rabbit hole neatly prepared for them by the banks. If there was no commercial transaction then the UCC doesn’t apply and neither do any presumptions of ownership, right to enforce etc.

The question of “ownership” of the note and mortgage are a distraction from the fact that neither the note or the mortgage tells the whole story of the transaction. The actions of the participants and the real movement of money governs every transaction.

Whether the courts will recognize the conversion factor or something similar remains to be seen. But it is obvious that the confusion in the courts relates directly to their ignorance of the the fact that the actual money transaction is not brought to their attention or they are ignoring it out of pure confusion as to what law to apply.

Now UCC Me, Now You Don’t: The Massachusetts Supreme Judicial Court Ignores the UCC in Requiring Unity of Note and Mortgage for Foreclosure in Eaton v. Fannie Mae

High court rules in favor of bank in Suwanee foreclosure case

Wells Fargo slows foreclosure sales, BofA not so much

The Documents Fannie and Freddie Never Received

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Editor’s Comment:

Go to the link below which will take you to the article posted on StopForeclosureFraud where  you will see a list of documents (just like the Pooling and Servicing Agreements that everyone ignored) that should have been received by Freddie, Fannie, Ginnie, FHA et al.  Since we now know that the securitization chain of documents was nonexistent until the dealers were called upon to fabricate them for cases in litigation, we know that the absolute minimum requirements for Fannie and Freddie approval were absent. 

This means, contrary to the assertions of 99% of the securitization “auditors”, and contrary to the appearance of a loan on a Fannie or Freddie website, that the loan was never delivered to those agencies nor any of the documents required.  Just as the REMICs never received the loans, Freddie never received the loans.  And since Freddie never received the loans it became the master trustee of “trusts” that never received the loans and were therefore empty.

All this means is that we have to go back to the first day of the alleged transaction.  Investor lenders, operating through dealers, (investment banks) were advancing money for the “purchase” of residential mortgage loans.   The money was advanced to the closing agent who paid off the party claiming to be the prior mortgagee, giving the balance to the seller of the property or to the borrower (if the transaction was supposedly a refinance).  The nightmare for the banks is that if we go back to that first day the parties named as “lender”, “beneficiary”, “mortgagee” are the only parties of record with an apparent recorded interest in the property.  Their problem is that contrary to conventional foreclosure practice, those entities (many of which do not exist anymore) never funded nor even handled the money as a conduit for the loan.  Thus the note and mortgage are fatally defective and cannot be enforced. 

This would mean that the loan never made it into any pool.  That would mean that all of the deals made by the dealers (investment banks) based on the existence of that loan would fall apart leaving them with an enormous liability since they had sold the same deal dozens of times.  And that is the sole reason why the bailout, insurance, credit default swaps, guarantees and other credit enhancements were so large.  The banks used their ability to control the people with their hands on the levers of power within our government to pay for the malfeasance of the banks that have wrecked our economy and our society.

As Iceland has already proven and Europe is in the process of proving, the only answer is to take the stolen money back from the banks, put it back into the private sector, and put it back into government budgets. 

Freddie Mac Designated Counsel/Trustee For Foreclosures and Bankruptcies 2012

Documents That Must Be Received By Counsel/Trustee Within 2 Business Days of Referral





Bankers Using Foreclosure Judges to Force Investors into Bad Deals

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“Foreclosure judges don’t realize that they are entering orders and judgments on cases that are not in front of them or in which they have any jurisdiction. Foreclosure Judges are forcing bad loans down the throat of investors when the investor signed an agreement (PSA and prospectus) excluding that from happening. The problem is that most lawyers and pro se litigants don’t know enough to make that argument. The investor bought exclusively “good” loans. Foreclosure judges are shoving bad loans down their throats without notice or an opportunity to be heard. This is a classic case of necessary and indispensable parties being ignored.”

— Neil F Garfield,

Editor’s Comment:  About three times per week, something occurs to me about what is going on here and then I figure it out or get the information from someone else. The layers of the onion are endless. But this one is a showstopper. When I started blogging in October 2007 I thought the issue of necessary and indispensable parties John Does 1-1000 and Jane Roes 1-100 were important enough that it would slow if not stop foreclosures. The Does are the pension funds and other investors who thought that they were buying mortgage bonds and the Roes were the dozens of intermediaries in the securitization chain.

Of course we know that the Does never got their bond in most cases, and even if they did they received it issued from a “REMIC” vehicle that wasn’t a REMIC and which did not have any money or bonds before, during or after the transaction. Instead of following the requirements of the Prospectus and Pooling and Servicing Agreement, the investment banker ignored the securitization documents (i.e., the agreement that induced the investor to advance the funds on a forward sale — i.e., sale of something the investment bank didn’t have yet). The money went from the investor into a Superfund escrow account. It is unclear as to whether the gigantic fees were taken out before or after the money went into the Superfund (my guess is that it was before). But one thing is clear — the partnership with other investors far larger than anything disclosed to the investors because the escrow account was from all investors and not for investors in each REMIC, which existed only in the imagination of the CDO manager at the investment bank that cooked this up.

We now know that in all but a scant few cases, the loan was (1) not documented properly in that it identified not the REMIC or the investor as the lender and creditor, but rather a naked straw-man that was a thinly capitalized or bankruptcy remote relationship and (2) the loan that was described in the documentation that the homeowner signed never occurred. The third thing, and the one I wish to elaborate on today, is that even if the note and mortgage were valid (i.e., referred to any actual transaction in which money exchanged hands between the parties to the agreements and documents that borrower signed) they never made it into the “pools” a/k/a REMICs, a/k/a Special Purpose Vehicle (SPV), a/k/a/ Trust (of which there were none according to my research).

The fact that the loan never made it into the pool is what caused all the robo-signing, fabrication of documents, fraudulent documents, forgeries, misrepresentations and corruption of both the title system and the court system. Because if the loan never made it into the pool, the investment banker and all the intermediaries that were used were depending upon a transaction that never took place at the level of the investor, to wit: the loan was not in the pool, the originator didn’t lend the money and therefore was not the lender, and the “mortgage” or “Deed of trust” was useless because it was the tail of a tiger that did not exist — an enforceable note. This left the pools empty and the loan from the Superfund of thousands of investors who thought they were in separate REMICS (b) subject to nothing more than a huge general partnership agreement.

But that left the note and mortgage unenforceable because it should have (a) disclosed the lender and (b) disclosed the terms of the loan known to the lender and the terms of the loan known to the borrower. They didn’t match. The answer was that those loans HAD to be in those pools and Judges HAD to be convinced that this was the case, so we ended up with all those assignments, allonges, endorsements, forgeries, improper notarizations etc. Most Judges were astute enough to understand that the documents were fabricated. But they felt that since the loan was valid, the note was real, the mortgage was enforceable, the issues of where the loan was amounted to internal bookkeeping and they were not about to deliver to borrowers a “free house.”  In a nutshell, most Judges feel that they are not going to let the borrower off scott free just because a document was created or executed improperly.

What Judges did not realize is that they were adjudicating the rights of persons who were not in the room, not in the building, and in fact did not even know the city in which these proceedings were being prosecuted much less the fact that the proceedings even existed. The entry of an order presuming or stating that the loan was in fact in the pool was the Judge’s stamp of approval on a major breach of the Prospectus and pooling and servicing agreement. It forced bad loans down the throat of the investors when their agreement with the investment banker was quite the contrary. In the agreements the cut-off was 90 days after closing and required a fully performing mortgage that was originated utilizing industry standards for due diligence and underwriting. None of those things happened. And each time a Judge enters an order in favor of for example U.S. Bank, as trustee for JP Morgan Chase Bank Trust 1234, the Judge is adjudicating the essential deal between the investor and the investment banker, forcing the investor to accept bad loans at the wrong time.

Forcing the investors to accept bad loans into their pools, probably to the exclusion of the good loans, created a pot of s–t instead of a pot of gold. It isn’t that the investor was not owed money from the investment banker and that the money from the investment banker was supposed to come from borrowers. It is that the pool of actual money sidestepped the REMIC document structure and created a huge general partnership, the governance of which is unknown.

By sidestepping the securitization document structure and the agreements, terms, conditions and provisions therein, the investment banker was able, for his own purposes, to claim ownership of the loans for as long as it took to buy insurance making the investment banker the insured and payee. But the fact is that the investment banker was at all times in an agent/fiduciary relationship with the investor and ALL the proceeds of ALL insurance, Credit Default Swaps, guarantees, and credit enhancements were required to be applied FIRST to the obligation to the investor. In turn the investor, as the real creditor, would have reduced the amount due from the borrower on each residential loan. This means that the accounting from the Master Servicer is essential to knowing the actual amount due, if any, under the original transaction between the borrower and the investors.

Maybe “management” would now be construed as a committee of “trustees” for the REMICs each of whom was given the right to manage at the beginning of the PSA and prospectus and then saw it taken away as one reads further and further into the securitization documents. But regardless of who or what controls the management of the pool or general partnership (majority of partners is my guess) they must be disclosed and they must be represented in each and every foreclosure and Trustees on deeds of trust are creating huge liability for themselves by accepting assignments of bad loans after the cut-off date as evidence of ownership fo the loan. The REMIC lacked the authority to accept the bad loan and it lacked the authority to accept a loan that was assigned after the cutoff date.

Based upon the above, if this isn’t a case where necessary and indispensable parties is the key issue, I do not know of one — and I won the book award in procedure when I was in law school besides practicing trial law for over 30 years.





Alabama Appeals Court Slams U.S. Bank Down on “Magic” Fabricated Allonge

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NY Trust Law — PSA Violation is FATAL

RE: Congress (yes that is really her name) versus U.S. Bank 2100934

Alabama Court of Civil Appeals

Editor’s Comment:

Yves Smith from Naked Capitalism has it right in the article below and you should not only read it but study it. The following are my comments in addition to the well written analysis on Naked Capitalism.

  1. Alabama is a very conservative state that has consistently disregarded issues regarding the rules of evidence and civil procedure until this decision from the Alabama Court of Civil Appeals was handed down on June 8, 2012. Happy Birthday, Brother! This court has finally recognized (a) that documents are fabricated shortly before hearings and (b) that it matters. They even understand WHY it matters.
  2. Judges talk to teach other both directly and indirectly. Sometimes it almost amounts to ex parte contact because they are actually discussing the merits of certain arguments as it would effect cases that are currently pending in front of them. I know of reports where Judges have stated in open Court in Arizona that they have spoken with other Judges and DECIDED that they are not going to give relief to deadbeat borrowers. So this decision in favor of the borrower, where a fabricated “Allonge” was used only a couple of days before the hearing is indicative that they are starting to change their thinking and that the deadbeats might just be the pretender lenders.
  3. But they missed the fact that an allonge is not an instrument that transfers anything. It is not a bill of sale, assignment or anything else like that. It is and always has been something added to a previously drafted instrument that adds, subtracts or changes terms. See my previous article last week on Allonges, Assignments and Endorsements.
  4. What they DID get is that under New York law, the manager or trustee of a so-called REMIC, SPV or “Trust” cannot do anything contrary to the instrument that appointed the manager or trustee to that position. This is of enormous importance. We have been saying on these pages and in my books that it is not possible for the trustee or manager of the “pool” to accept a loan into the pool if it violates the terms expressly stated in the Pooling and Servicing Agreement. If the cut-off date was three years ago then it can’t be accepted. If the loan is in default already then it cannot be accepted. So not only is this allonge being rejected, but any actual attempt to assign the instrument into the “pool” is also rejected.
  5. What that means is that like any contract there are three basic elements — offer, consideration and acceptance. The offer is clear enough, even if it is from a party who doesn’t own the loan. The consideration is at best muddy because there are no records to show that the REMIC or the parties to the REMIC (investors) ever funded the loan through the REMIC. And the acceptance is absolutely fatal because no investor would agree or did agree to accept loans that were already in default.
  6. The other thing I agree with and would expand is the whole notion of the burden of proof. In this case we are still dealing with a burden of proof on the homeowner instead of the pretender lender. But the door is open now to start talking about the burden of proof. Here, the Court simply stated that the burden of proof imposed by the trial judge should have been by a preponderance (over 50%) of the evidence instead of clear and convincing (somewhere around 80%) of the evidence. So if it is more likely than not that the instrument was fabricated, the document will NOT be accepted into evidence. The next thing to work on is putting the burden of proof on the party seeking affirmative relief — i.e., the one seeking to take the home through foreclosure. If you align the parties properly, all of the other procedural problems disappear. That will leave questions regarding admissible evidence (another time).
  7. Keep in mind that this decision will have rumbling effects throughout Alabama and other states but it is only persuasive, not authoritative. So the fact that this appellate court made this decision does not mean you win in your case in Arizona.
  8. But it can be used to say “Judge, I know how the bench views these defenses and claims. But it is becoming increasingly apparent that the party seeking to foreclose is now and always was a pretender. And further, it is equally apparent that they are submitting fabricated and forged documents. 
  9. ‘More importantly, they are trying to get you to participate in a fraudulent scheme they pursued against the investors who advanced money without any proper documentation. This Alabama Appellate Court understands, now that they have read the Pooling and Servicing Agreement, that it simply is not possible for the investors to be forced into accepting a defaulted loan long after the cut-off date established in the PSA.
  10. ‘If you rule for the pretender creditor here you are doing two things: (1) you are providing these pretenders with the argument that there is a judicial ruling requiring the innocent investors to take the defaulted loan and suffer the losses when they never had any interest in the loan before and (2) you are allowing and encouraging a party who is not a creditor and never was a creditor to submit a credit bid at auction in lieu of cash thus stealing the property from both the homeowner and in violation of their agency or duty to the investors.
  11. ‘This Court and hundreds of others across the country are reading these documents now. And what they are finding is that pension funds and other regulated managed funds were tricked into buying non-existent assets through a bogus mortgage bond. The offer and promise made to these investors, upon whom millions of pensioners depend to make ends meet, was that these were industry standard loans in good standing. None of that was true and it certainly isn’t true now. Yet they want you to rule that you can force investors from another state or country to accept these loans even though they are either worthless or worth substantially less than the amount represented at the time of the transaction where the investment banker took the money from the investor and put it into a giant escrow fund without regard to the REMIC’s existence.

We don’t deny the existence of an obligation, but we do deny that this trickster should be given the proceeds of ill-gotten gains. The actual creditors should be given an opportunity to reject non-conforming loans that are submitted after the cut-off date and are therefore indispensable parties to this transaction.”

Alabama Appeals Court Reverses Decision on Chain of TitleCase, Ruling Hinges on Question of Bogus Allonges

In a unanimous decision, the Alabama Court of Civil Appeals reversed a lower court decision on a foreclosure case, U.S. Bank v. Congress and remanded the case to trial court.

We’d flagged this case as important because to our knowledge, it was the first to argue what we call the New York trust theory, namely, that the election to use New York law in the overwhelming majority of mortgage securitizations meant that the parties to the securitization could operate only as stipulated in the pooling and servicing agreement that created that particular deal. Over 100 years of precedents in New York have produced well settled case law that deems actions outside what the trustee is specifically authorized to do as “void acts” having no legal force. The rigidity of New York trust has serious implications for mortgage securitizations. The PSAs required that the notes (the borrower IOUs) be transferred to the trust in a very specific fashion (endorsed with wet ink signatures through a particular set of parties) before a cut-off date, which typically was no later than 90 days after the trust closing. The problem is, as we’ve described in numerous posts, that there appears to have been massive disregard in the securitization for complying with the contractual requirements that they established and appear to have complied with, at least in the early years of the securitization industry. It’s difficult to know when the breakdown occurred, but it appears that well before 2004-2005, many subprime originators quit bothering with the nerdy task of endorsing notes and completing assignments as the PSAs required; they seemed to take the position they could do that right before foreclosure. Indeed, that’s kosher if the note has not been securitized, but as indicated above, it is a no-go with a New York trust. There is no legal way to remedy the problem after the fact.

The solution in the Congress case appears to have been a practice that has since become troublingly become common: a fabricated allonge. An allonge is an attachment to a note that is so firmly affixed that it can’t travel separately. The fact that a note was submitted to the court in the Congress case and an allonge that fixed all the problems appeared magically, on the eve of trial, looked highly sus. The allonge also contained signatures that looked less than legitimate: they were digitized (remember, signatures as supposed to be wet ink) and some were shrunk to fit signature lines. These issues were raised at trial by Congress’s attorneys, but the fact that the magic allonge appeared the Thursday evening before Memorial Day weekend 2011 when the trial was set for Tuesday morning meant, among other things, that defense counsel was put on the back foot (for instance, how do you find and engage a signature expert on such short notice? Answer, you can’t).

The case was ruled in favor of the US Bank, in a narrow and strained opinion (which was touted as significant by reliable securitization industry booster Paul Jackson). It argued that the case was an ejectment action (the final step to get the borrower out after the foreclosure was final) so that, per securitization expert, Georgetown law professor Adam Levitin,

..the question of ownership of the note was not an issue of standing, but an affirmative defense for which the homeowner had the burden of proof…Crazy or not, however, this meant that the homeowner wasn’t actually challenging the trust’s standing. From there it was a small step for the court to say that the homeowner couldn’t invoke the terms of the PSA because she wasn’t a party to it…..

The case has been remanded back to trial court, and the judges put the issue of the allonge front and center.





Why The PSA is Never Included as an Exhibit to a “Colorable” Claim to Foreclose


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Editor’s Note: I would add that if the PSA was required to be placed in evidence and to be attached as an exhibit to the would-be forecloser’s pleadings, it would put facts in issue that the forecloser would never be able maintain. Amongst others, the facts would not support that the transfer into the pool ever occurred nor was it accepted by the trustee nor could it be accepted by the pool trustee — thus depriving the alleged servicer of any legal contract relationship with the investor lender or the homeowner borrower.

By leaving it out and dancing around the subject, the banks convince the Judge to improperly put the burden of pleading and the burden of proof on the borrower rather than the party making the claim for collection or foreclosure. And the accounting from the”servicer” carries with it a presumption of accuracy that is unwarranted, leaving out all the financial transactions that are NOT reported by the loan servicer starting with the initial funding of the loan all the way through the payment of the debt by parties who are not in privity with the borrower.

Looking at the transaction from the standpoint of where money exchanged hands it is easy to see that the lenders were the investors whose purchase of a mortgage bond was a ruse and the homeowner whose purchase of an exotic guaranteed to fail loan (or loan in a pool that was guaranteed to fail) was a fraud (both investor and homeowner being fooled by fraudulent appraisals and fine print conflicting with the rest of the documentation), it is all too easy to see how the closing documents with the investor are not complete without the closing documents from the borrower and vica versa. Had this simple rule been followed, nearly all of the foreclosures would have been withdrawn or settled leaving both the housing market and the economy in far better shape than current circumstances.

by Patrick Downey

In order to have a colorable claim, the mortgage servicer plaintiff must be entitled via separate agreement with its principal to enforce the debt owner’s property rights and interests provided to the debt owner by the note and lien instrument. A mortgage servicer may have possession of the genuine note, but it is never an owner of the property rights and interests the note is supposed to evidence and represent. The note was stripped and denuded of those property rights and interests when they were irrevocably assigned to a pool in order to capitalize a securities offering.

Revised UCC Article 9 contains a series of provisions that broadly expand the property rights and interests that may be assigned, regardless of anti-assignment language in contracts or other state statutes. These rules are not limited merely to restrictions prohibiting an assignment. They also override restrictions that permit assignment only with the consent of a third-party obligor or with restrictions that simply declare that assignment will constitute a default. The party that takes the right to collect via a distinct assignment of the lender’s inherent collection right in lieu of a negotiation and conveyance of the whole and inseparable loan contract is not a successor to the lender under the terms of the mortgage instrument. Likewise, the party that takes the lender’s inherent right to payment via a distinct assignment of the lender’s beneficial interests in lieu of a negotiation and transfer of the whole and inseparable loan contract is not a successor to the lender under the terms of the mortgage instrument. Both parties are considered partial assignees provided for in UCC article 3-203(a). A partial assignee is never a mortgagee and this is the real reason why MERS was created. MERS acts as a lien holder strawman, or bailee, whereas otherwise the lien would be vanquished due to these distinct property assignments. MERS allows the lien to survive these intangible property assignments and it placated the ratings agencies whereby they granted AAA status to the MBS offerings.

The servicing agreement is never attached as an exhibit to the complaint because if it ever saw the light day, it would reveal that the defendant’s payments were being remitted by the servicer for the benefit of a party lacking contract privity with the defendant and that the contract holder is not an aggrieved party nor did it suffer default. Neither the servicer or its principal have contract privity with the defendant.


The contract holder has executed UCC article 9 assignments of its property rights and interests for the benefit of strangers to the loan contract whereby the note it possesses is a carcass or relic of the property rights and interests it used to evidence. Proof of this is contained within the notice of servicing transfer whereby it should state that the “right to collect” has been sold, assigned or transferred. The “right to collect” is a property right of the lender provided by debt ownership, it doesn’t just appear out of thin air. That property right is required to be reported as a distinct loan asset on the mortgage servicers balance sheet. Ask yourself how the servicer can report the “right to collect” as a distinct loan asset and also claim to report the note as a distinct loan asset.

Blank endorsements act as a smoke screen for these distinct article 9 assignments and any endorsement exhibited on the note in favor of a mortgage servicer is bogus because all the property rights and interests of the debt owner were not transferred with the conveyance of a whole and inseparable loan contract. The “right to collect” was stripped and assigned to the servicer separate and independent from the loan contract. Section 20 of the lien instrument provides that these property rights and interests can be assigned independent and separate from each other. Section 13 grants the lien binds and benefits the lender’s successors and assigns (except under the circumstances provided for in section 20). Taken together, the mortgage instrument grants the lien only transfers with a conveyance of the real property and not an assignment of the lender’s intangible property rights and interests. Under Florida law, contracts are construed in accordance with their plain language, as bargained for by the parties. see Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000).

The foreclosure complaint filed by the mortgage servicer plaintiff is an in rem action in equity to enforce a mortgage instrument not an in personam action at law for enforcement of a note for money damages see, Sun Trust Mortgage v Fullerton FLWSUPP,1612, (6th Circuit Court, Pinellas County, Oct 2009). Be advised only the mortgagee or anyone authorized in writing by the mortgagee may accelerate the debt and file a lawsuit to foreclose on the mortgage because of the Florida Statute of Frauds Title XLI.

The servicer doesn’t qualify as an entity entitled to enforce the note and mortgage because it doesn’t have contract privity with the defendant. An entity lacking contract privity with the defendant is not the mortgagee nor can it grant or convey a higher status to another than what it possesses. A simple pre foreclosure QWR asking for the name of loan investor will reveal the servicer’s principal but not substantiate the principal is the note owner and holder. Thereby, a written agreement with a substantiated note owning principal granting the servicer administrative authority to enforce the lien instrument must be attached to the complaint. FL R Civ P 1.130(a) provides in pertinent part “All bonds, notes, bills of exchange, contracts accounts or documents upon which action must be brought or defense made, a copy thereof or a copy of the portions thereof material to the pleadings must be incorporated in or attached as an exhibit to the complaint.”

#1 The defendant is prejudiced in its ability to raise certain defenses without attachment of the written servicing agreement as an exhibit to the complaint.

#2 When provisions contained within exhibits are inconsistent with the plaintiff’s allegations of material fact as to whom the real party at interest is, such allegations cancel each other out. Fladell v Palm Beach County Canvassing Board 772 So 2d 1240 (FL 2000), Greenwald v Triple D Properties, Inc. 424 So 2d 185, 187 (FL 4th DCA 1983)

#3 In Florida, prosecution of a foreclosure action is by the owner and holder of the note see Your Construction Center Inc. v Gross 316 So 2d 596 (FL 4th DCA 1975) Florida is a fact pleading State and plaintiff’s failure to plead and show competent evidence it or its principal is both owner and holder of the note renders the complaint fatally defective on its face.



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Lee Farkas of TBW was right when he said, “I could rob a bank with a pencil.”



EDITOR’S COMMENT: It’s like a checklist of things to examine when reviewing the document trail, the money trail and the loan closing procedures. At the heart of it lies not only the usual fraud and deceit, but what emerges is that the “substitute trustee” is no substitute trustee at all. And even if they were the trustee, they breached every duty set forth in the statutes governing the conduct of the trustee on a deed of trust.

The courts have repeatedly confirmed the extra duty of the Trustee on a deed of trust to exercise due diligence and good faith. What the banks have done is literally appoint themselves as the Trustee and then ran amok doing whatever they wanted. But the law catches up.

Virtually all deeds issued upon auction sales where the “credit bid” was entered, resulted in the issuance of a deed without the Trustee ever having received any consideration — no note and no money, leaving the obligation hanging out there. Just an oral “bid” in which the bidder does not identify any creditor and where the bidder does not tender the note as a credit bid or the money for the house. And if you drill down further you find that there is a cause of action for damages and injunctive relief against the original trustee, the substitute trustee and the parties behind this farce.

Here we have laid bare the following:

  1. Defective Notice of Default
  2. Improper Substitution of Trustee
  3. Notary Stamp Fraud
  4. Altered Affidavit of Mailing
  5. Fabricated Assignment of Deed of Trust
  6. Defective Notice of Sale

From Jake Naumer

This article was written by
George W. Mantor
The Real Estate Professor
Founder, American Foreclosure Resistance Movement

“in their rush to steal another home, Wall Street has inadvertently called attention to the massive repledging of the collateral and the tax evasion at the center of the securitization fraud.”

“I have before me six documents that could lead no reasonable person to any other conclusion than this: Bank of America, hiding behind a bogus Goldman Sachs Pooling and Servicing agreement aided and abetted by MERS, Litton Loan Servicing, Lender Processing Services, and Quality Loan Service, have manufactured documents, to try to steal the beneficial interest of an unknown creditor believed to be Washington based lender MILA, the originator, currently insolvent and in Bankruptcy. The Bankruptcy Trustee is suing MILA for fraud.

Robo-Signers, a Tangled Web Indeed

I was about seven years old when I heard my mother repeat this Sir Walter Scott phrase to my sister, “Oh what a tangled web we weave when first we practice to deceive.”

I’ve always thought it was more practical advice than moral lesson. Men who speak their minds tend to have few false friends and too many enemies but they don’t have to work to keep their stories straight. So, when they do say something, people know they mean it.

Where I come from, it’s so sparsely populated that there isn’t anyone to scam. Loggers, miners, and farmers come right to the point, and it makes some people uncomfortable.

Southern California is beautiful, and most of the people are terrific, but what I was not prepared for is the sort of tacit acceptance of bullshit…like an art form. I’ve been here more than thirty years and I still overhear things that make me involuntarily roll my eyes.

Not that long ago I had a conversation with a woman who asked me, “Do you know what your problem is?”

Here we go. I know the answer to that would take longer than a trip to the DMV, but just as I was about to concede one or two obvious shortcomings, she told me. “You are too direct!”

Ouch! Wow! I had no idea. Thanks for sharing. I’ll try to get better. I didn’t know that you could be too direct. You are either direct or indirect.

It got me wondering if it was a problem I wanted to fix. How would I go about it such a transformation? Is there a twelve step program for that where I can master the skills of less directedness? Do I need to set goals? Should I start out slowly with a few little white lies or should I jump right in and get a job at Goldman Sachs?

Because when it comes to tangled webs, Goldman Sachs is the epitome of deceit. They have admitted and substantial evidence exists that the Goldman plan was to deceive everybody and keep right on doing it until the courts stop them. Which the courts seem strangely disinclined to do despite mountains of evidence piling up at every imaginable agency.

So here I sit with the smoking gun, right in my lap.

Today, I have before me the remnants of GSAMP Trust 2006-HE3 and what has to be the clumsiest attempt ever to transfer the asset of another into a trust years after the cutoff date.

Trust me; you’re going to love this story. For in their rush to steal another home, Wall Street has inadvertently called attention to the massive repledging of the collateral and the tax evasion at the center of the securitization fraud.

This little bit of foreclosure fraud is an absolute classic and we just have to thank our friends at Bank of America for a perfect example.

Hold everything, Ladies and Gentleman…We Have a Winner; this has to be the steamiest pile of doo-doo, yet.

For the few people left out there who do not believe that many of the foreclosures are fraud, and Darrell Issa you know who you are, I have before me six documents that could lead no reasonable person to any other conclusion than this: Bank of America, hiding behind a bogus Goldman Sachs Pooling and Servicing agreement aided and abetted by MERS, Litton Loan Servicing, Lender Processing Services, and Quality Loan Service, have manufactured documents, to try to steal the beneficial interest of an unknown creditor believed to be Washington based lender MILA, the originator, currently insolvent and in Bankruptcy. The Bankruptcy Trustee is suing MILA for fraud.

A Defective Notice of Default

A document purporting to be A Notice of Default was prepared by LSI Title Company dated July 7, 2009 and signed by Merrilyn L. Aguas as Agent for Beneficiary. LSI Title is a division of Lender Processing Services recently under heavy fire for forging loan documents to accommodate illegal foreclosures.

But every indication is that the document was printed at foreclosure mill, Quality Loan Servicing in San Diego. I’m looking into that.

The Notice of Default was recorded on July 9th, 2009 by Elena Davis representing LSI Title Company (CA). But only against one of the borrowers, a husband and wife. Absent from the notice of default was the name of the husband.

This may have been an error, but the result is that the notice of default is defective. One of the very few requirements of a non-judicial foreclosure concerns the filing of the NOD.

Improper Substitution of Trustee

Coincidentally, also on July 7, 2009 in faraway Harris County Texas, a document purporting to be a Substitution of Trustee was prepared.

This is signed by Marti Noriega, who according to his or her LinkedIn page is AVP of Foreclosures at Litton Loan Servicing.

On this document she is representing herself as an Assistant Vice President of Mortgage Electronic Registration Systems, Inc.

She identifies LANDAMERICA/SOUTHLAND as the original Trustee, and Mortgage Electronic Registration Systems, Inc., as Nominee For MILA, as the Original Beneficiary.

Based on this representation, Quality Loan Service Corporation, a law office and well known foreclosure mill becomes the new Trustee under the original Trust Deed.

See how easy that was?

A trustee is supposed to protect the interests of the trustor as well. How a law firm working for the bank trying to steal the home can be the trustee is beyond me.

Notary Stamp Fraud

If that isn’t bad enough, we have notary fraud on the document.

This document purports to have been notarized by a Melissa Bell on 07/14/09, in Harris, Texas. A week after it was signed in San Diego. No big deal you say? Fair enough.

The notary signed the name M Bell, but her stamp clearly shows Melissa Bell. The law in Texas is that the notary must sign exactly as the name appearing on the stamp. Still too picky? They were busy? Okay.

The stamp has a commission expiration date of March 28, 2011. Multiple inquires to the Texas Secretary of State produced no evidence of a Melissa Bell whose commission expires on that date and if anyone knows where she is, we have some questions we’d like to ask her.

There is a Melissa Bell who works or did work for Bank of America. You don’t suppose…?

But wait, there’s more. This document, provided to the borrower, is not the same document recorded on file at the San Diego County Recorder’s Office.

The recorded document, not recorded until August 21, 2009 has been altered. Lined out are the words, “who proved to me on the basis of satisfactory evidence and hand printed “personally known to me”.

The unnotarized document without the interlineation obviously was the original? What effect does this change have? Why was the borrower or borrower’s attorney never provided a copy of the new and improved version?

In recording this document, there is no reference to the borrower so it does not show up in the County Recorders main public portal, the Grantor/Grantee Index, making it virtually invisible to the property owner.

Altered Affidavit of Mailing

An Affidavit of Mailing for Substitution of Trustee By Code was executed by Cynthia Tran representing that she is an employee of Quality Loan Service Corp., an agent for beneficiary whose business address is: 2141 5th Avenue, San Diego, CA 92101.

Herein she swears that she mailed a copy of the substitution on or before 7/16/2009. The copy she mailed to the borrower predated the altered copy in regard to the notarization.

There are two different versions of this as well; the recorded copy was signed by Ms. Tran, if she even exists. The signature line above the name Cynthia Tran is blank on the copy sent to the borrower. In addition, “/s/”, is on the signature line but absent from the recorded copy.

The Substitution wasn’t recorded until August 21, 2009. Why was the borrower mailed a different copy six weeks before it was recorded?

Fabricated Assignment of Deed of Trust

Frankly, I consider this the absolute masterpiece. Also dated 7/7/2009 1:50 PM is an Assignment of Deed of Trust signed again by Marti Noriega, who this time purports to be:

“Assistant Vice President of Mortgage Electronic Registration Systems, Inc., As Nominee For MILA, Inc., DBA Mortgage Lending Associates, Inc. A Washington Corporation.”

(And you think your job title is too long.) (Oh, and the DBA, well, it’s DOA. The original lender and beneficiary under the deed of trust was Mortgage Investment Lending Associates who ceased operation in 2007 and is in bankruptcy as mentioned above.)

Herein, Noriega names, “Bank of America, National Association as successor by Merger to LaSalle Bank National Association, as trustee under the Pooling and Servicing Agreement dated as of May 1, 2006, GSAMP Trust 2006-HE3.”

Of the Documents created in Harris Texas on July 7/7/2009 this is the only one that is time stamped.

Though purportedly created on 7/72009, it wasn’t notarized until November 20, 2009.

Further, this Assignment was not recorded until December 2, 2009 nearly a month after the posted sale date. Had the homeowner not filed a lawsuit, the property would have already have been sold before the assignment was recorded. Now that’s a slandered title.

The borrower was never provided a copy of this document and absent from the recording was any mention of the borrower’s name. As a result this document was not listed in the San Diego County Recorders Grantor/Grantee Index making it virtually invisible to the public and the borrower.

I simply cannot wait to hear the depositions of the people who cooked this up. They want us to believe that a document supposedly created on July 7, 2009 along with two others wasn’t notarized until more than two weeks after the sale date.

They also, and this really is my favorite part, want us to believe that an employee of Litton can transfer an asset from a lender in bankruptcy to a pool of loans that is closed and, by its own rules, cannot accept assets in default and cannot accept any but a performing replacement loan after mid-2006. It stopped reporting to the SEC in 2008, so it must be an empty shell into which they try to launder the theft of the property and disguise the broken chain of title.

So guess what I did? Yup, I picked up the phone and called the Trustee handling the MILA bankruptcy.

Keep in mind that he had been in control of the company for more than two years, winding down MILAs assets and liabilities. He will provide an affidavit to the effect that it did not happen.

Another complete fabrication.  According to him, MILA originated loans to sell them and did not retain notes or trust deeds.

I can’t wait to have Marti Noriega explain this.

What this blizzard of phony documents reveals is the biggest crime in history.

The Pooling and Servicing Agreements are a complete fiction. The loans that are referenced are just that, a reference to something seemingly tangible and yet diluted to worthlessness.

The Pooling and Servicing Agreement, by its very language, requires that all loan documents go to the trust properly assigned and endorsed upon closing and no later than 180 days in rare circumstances which do not apply here.

That means the Mortgage or Trust Deed and the Note should have been with the custodian of the trust documents long before August of 2009.

But wait. The loan, or at least the pledge of the loan, already shows up in the GSAMP Trust 2006-HE3. Out of more than 10,500 loans this is referenced as number 4,067.

That means that MILA did not comply with the terms and did something else with the note and deed of trust. Now an employee of a division of Goldman Sachs, Litton, is trying to use the opportunity to seize a property to which they have no legal right.

The Assignment of the Trust Deed was assigned to the trust three years after closing. So why wasn’t it assigned at origination?

Where oh where might it have been for three years? Is it referenced in multiple pools and legally assigned to none?  Was it used to double or triple fund the loan? And where oh where do you suppose the promissory note might have gone to?

More importantly, this activity causes the trust to lose its status as a REMIC with preferred tax provisions. These cases would be a slam dunk for the IRS. But the IRS, just like every other agency responsible for this economic Katrina, has much smaller fish to fry. Doesn’t anyone, anywhere, in a position of authority, have any balls?

Also, at the exact same time the loan was being originated by MILA, MILA also registered a pool of mortgage backed securities with the SEC. But there is scant information and it appears that it may never have been completed. Why? Would its existence allow MILA to re-pledge the obligation?

MILA owner Wayne Sapp, like Taylor Bean and Whitaker CEO Lee Farkas was, in all likelihood, pledging the loans to multiple pools, submitting the same loan to multiple warehouse lines of credit and keeping the proceeds from those repledgings and destroying the original notes and trust deeds.

According to the MILA bankruptcy trustee, MILA was insolvent as far back as 2004 and covered their position through fraud. Selling the loans to multiple pools and destroying the original Note and Trust Deed would be an easy way to do that because the aggregators of the loan pools knew it was all designed to implode and provide plausible deniability when it did. Knowing the pools were destined to fail, Wall Street bought Credit Default Swaps.

Litton Loan may claim they have the note and trust deed but if they did, why would they produce all of the forged documents to try to justify the foreclosure? And if you knew the documents had been destroyed, why not just launder the theft and the title through a confusing, possibly nonexistent Goldman Sachs Trust on its way to Bank of America and get a kickback?

In a Florida lawsuit Bank of America says the following in one of their pleadings, “Indeed, it appears as though many loans and other mortgage assets have been double-and even triple-pledged to various constituencies.”

Or maybe more, way more. If you do it twice, you might as well do it over and over.

Defective Notice of Sale

On October 13, 2009, Quality Loan Service issued a Notice of Trustee Sale Scheduled for November 4, 2009. This document was recorded on October 16, 2009, six weeks prior to the recording of the Assignment of the Deed of Trust.

Here again the borrower’s copy is unsigned.

In this case, it isn’t just the borrower whose home they are trying to steal, they are also trying to steal an asset from the true beneficiary who may actually possess the note and the Deed of Trust. These aren’t scrivener’s errors or the result of overworked employees. This is RICO.

This is a conspiracy against a presently unknown entity because we know from the documents recorded by the servicer, Litton; that it isn’t that entity.

The evidence in this case, as submitted by the foreclosing attorneys, shows that the loan was originated by MILA and that MILA although a bankrupt entity is the beneficiary under the Deed of Trust and the only party with standing to foreclose.

The MILA bankruptcy Trustee who has been overseeing the company since 2007 denies that Marti Noriega had any authority regarding MILA.

What does it all prove? It proves that Lee Farkas of TBW was right when he said, “I could rob a bank with a pencil.”

And you can steal people’s homes the same way. But beware the web you weave; Bank of America, you sure got some ‘splaining to do. Let the “disco” and the “depos” begin, this is gonna’ be some fun.


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EDITOR’S COMMENT: I’d like to see the expression of someone who sits on a Bar grievance committee that meets out discipline to lawyers, when they read this. In any situation, until the mortgage meltdown, if a lawyer signed documents and then presented them as his client’s “evidence” he would be subject to severe discipline if not disbarment. But as long as we have trillions of dollars at stake, nobody at the Bar associations is saying anything. Here we have, courtesy of, part of the transcript in which the lawyer testifies rather arrogantly, that “sure” he signed the documents, so what? No, he didn’t ever speak to anyone about doing it, no he never obtained permission or instructions,  he just did it. 

The bottom line is that as long as we delay applying the law as it was written and followed for hundreds of years concerning property rights, contract rights, lending and attorney misconduct, the foreclosures will continue, the housing mess will get larger, and the economy will continue to sag under the weight of 80 million mortgage transactions that in any other setting would be called grand theft. And as long as we continue to hear that correction and restoration of the wealth taken from investor-lenders and homeowners would be unfair to those who were not defrauded, we will continue to be subjected to Alice in Wonderland policies.


Full Deposition Transcript of ROY DIAZ Shareholder of Smith, Hiatt & Diaz, P.A. Law Firm


Q. So through that corporate authority as
Exhibit 4 to this deposition, MERS assented to the terms
Of this assignment of mortgage?

A. Through me.

Q. So it was you that assented to the terms of
This assignment of mortgage.

A. The one in this case, yes.

Q. And no one else.

A. Correct

Q. And you signed as vice president of MERS
acting solely as a nominee for America’s Wholesale
Lender; is that correct?

A. Yes, it is.

Q. How did you know that MERS was nominee for
America’s Wholesale Lender?

A. By reviewing documentation.

Q. What documentation?

A. I don’t specifically recall what I reviewed
In this case to see that, to determine that, but I would
have reviewed either the mortgage or I would have
reviewed other documentation that would have established
that to me.

Q. So in this case you don’t remember a single
Document that you looked at that would establish the
Nominee status of MERS for America’s Wholesale Lenders;
Is that correct?

A. I don’t

Q. Did someone at America’s Wholesale Lender
Tell you that MERS was acting as the nominee?

A. No.

Q. Did someone at MERS tell you they were
Acting as Nominee for America’s Wholesale Lender?

A. NO.

Q. Was America’s Wholesale Lender in existence
On May 19, 2010?

A. don’t now.

Q. Did you check that before signing this
assignment of mortgage?

A. No.


Q. Now, you’ve said you review the MERS
Website and you’ve seen documents like this, like
Composite Exhibit 6. Any reason why you wouldn’t review
the documents contained in Exhibit 6 before executing the
assignment of mortgage?

A. It’s not necessary.

Q. Why not?

A. Because it’s not. Because I decided it’s

Q. You as vice president of MERS?

A. In every possible capacity as it relates to
This case.

Q. Did you sign this assignment of mortgage
after being retained as counsel for the plaintiff?

A. After my law firm was retained?

Q. (Nods head.)

A. Is that the question?

Q. Sure.

A. Yes.

Q. Okay. So you executed an assignment to be
Used as evidence in your case, correct?

A. Sure.

Q. Is that a yes?

A. It’s a sure.

Q. Is that a yes o a no?

A. You said sure earlier. Was that a yes or a

Q. Okay. So…

A. It’s a yes.

Q. It’s a yes.

Max Gardner’s Top Reasons for Wanting a Pooling Servicing Agreement

EDITOR’S NOTE: Lest people think I invented this whole field of law just because I’m loudest about it, here is a post from Max Gardner, who only a few days after I started this blog had already figured out everything I had figured out and was already doing something about it.

Max Gardner’s Top Reasons for Wanting a Pooling Servicing Agreement

Monday, November 5th, 2007

Every time I file a civil action against a mortgage servicer the very first document I want is a copy of the “Pooling and Servicing Agreement.”  This is the legal document that creates the securitized trust of mortgage loans and also strictly provides for the duties of all entities who are assigned the responsiblity of servicing loans for the Trust.

For all “public placements” or “public offerings,”  the Pooling and Servicing Agreement is always filed on Form 8-K with the Securities and Exchange Commission.  All such documents can be found by conducting a search of the SEC’s website through an internal search engine known as “Edgar.”  But, what is a PSA?  Why do I want to see it? What can be found in the PSA?  Kevin Byers, a forensic accountant, who works with me on these cases, has assisted me in developing the following list of reasons why any consumer must have the PSA.  The reasons are as follows:

Pooling and Servicing Agreements (PSA)Top Twenty Reasons to Request ProductionKevin Byers and O. Max Gardner III

In no particular order, these are some of reasons you need to request through formal discovery in any mortgage-related case the PSA Agreement and why it is relevant:

1.     It is a contractual document naming the parties to any given securitization, important for standing issues.  The document will list the Sponsor, the Trustee for the Securitized Trust, the Master Servicer, and all primary and secondary servicers.

2.     It provides address for all necessary parties including “notice” addresses for the service of legal process. 3.     It outlines the specific duties of the Servicer and/or the Master Servicer as well as the Trustee on behalf of a respective trust. 4.     It contains the representations and warranties of all parties to the agreement, including the Servicer and/or Master Servicer.

5.     It includes all representations provided by the Depositor of the loans into the trust as the same relate to important consumer protection issues related to the underwriting and origination of the loan, such as conformity with anti-predatory lending laws, full-file credit reporting, title insurance coverage, and validity and content of individual loan files.

6.     It gives the conditions under which a prepayment penalty may be waived or modified by the Servicer and/or Master Servicer. 7.     It oftentimes will outline specific loss mitigation and foreclosure avoidance measures available to the Servicer, including, for example, forbearance and loan modification, principal reductions, interest reductions and interest changes.

8.     It defines a “defective mortgage loan” and describes the circumstances and process by which the lender must repurchase a loan.

9.     It establishes the rights of the Trustee under the Trust to force the Depositor/Originator of any loan to repurchase a loan under the recourse provisions. 10.    It describes the specific process by which a delinquent loan can be charged off and the subsequent servicing party and procedures that apply to such charged-off loan. 11.    It provides guidelines on loan-level advances that must be paid by the servicer. 12.    It provides details regarding the mechanics of how the Servicer must go about foreclosing on property, what documents need to be requested and/or recorded and what authorizations need to be granted to foreclose, and in whose name the foreclosure must be filed. 13.    It provides guidance on the fees a Servicer may retain as compensation in the administration of the loans, for example, NSF fees, late fees, loan modification or assumption fees.

14.    It will contain the Mortgage Loan Schedule, important to verify the ownership of the loan on behalf of the Trust.

15.    It details the requirements for mortgage assignments and when these will or will not be recorded and the implications of the failure to record such assignments. 16.    It details the specific loan documents contained in each loan file that will be delivered to the Trustee or Document Custodian on behalf of the trust, establishing who holds the original Note and where it may be found.

17.    It describes the credit enhancements that have been deployed to enhance the rating of the most secure certificates of investment in the Trust.

18.    It provides rules and procedures for the rights of the Master Servicer or the Primary Servicer to accept a deed-in-lieu of foreclosure or a short sale of the property so as to avoid a foreclosure.

19.    It describes the rights the Originator/Depositor may retain the Residual Value of the Trust and the extent to which the residuals may be used as credit enhancements.

20.    It will name a default servicer and describe when a loan is considered to be in default and outline the process for the transfer of servicing rights.

O. Max Gardner IIIHistoric Webbley House

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