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

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.

Relevance: THE FORECLOSER HAS NO RIGHT TO BE IN COURT WITHOUT THE SECURITIZATION DOCUMENTS AND RECORDS

 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.

Premise:

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.

 

Argument:
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.

 

Evidence:
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.

 

THE FORECLOSER HAS NO RIGHT TO BE IN COURT WITHOUT THE SECURITIZATION DOCUMENTS:

 

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.

 

 

Servicer Advances: More Smoke and Mirrors

Several people are issuing statements about servicer advances, now that they are known. They fall into the category of payments made to the creditor-investors, which means that the creditor on the original loan, or its successor is getting paid regardless of whether the borrower has paid or not. The Steinberger decision in Arizona and other decisions around the country clearly state that if the creditor has been paid, the amount of the payment must be deducted from the amount allegedly owed by the “borrower” (even if the the borrower doesn’t know the identity of the creditor).

The significance of servicer advances has not escaped Judges and lawyers. If the payment has been made and continues to be made, how can anyone declare a default on the part of the creditor? They can’t. And if the payment has been made, then the notice of default, the end of month statements, the notice of acceleration and the amount demanded in foreclosure are all wrong by definition. The tricky part is that the banks are once again lying to everyone about this.

One writer opined either innocently or at the behest of the banks that the servicers were incentivized to modify the loans to get out of the requirement of making servicer advances. He ignores the fact that the provision in the pooling and servicing agreement is voluntary. And he ignores the fact that even if there is a claim for having made the payment instead of the borrower, it is the servicer’s claim not the lender’s claim. That means the servicer must bring a claim for contribution or unjust enrichment or some other legal theory in its own name. But they can’t because they didn’t really advance the money. Anyone who has experience with modification knows that the servicers make it very difficult even to apply for a modification.

Once again the propaganda is presumed to be true. What the author is missing is that there is no incentive for the Servicer to agree to make the payments in the first place. And they don’t. You can call them Servicer advances but that does not mean the money came from the Servicer. The prospectus clearly states that a reserve pool will be established. Usually they ignore the existence of the REMIC trust on this provision like they do with everything else. The broker dealer (investment banker) is always the one party who directly or indirectly is in complete control over the funds of investors.
Like the loan closing the source of funds is concealed. The Servicer issues a distribution report with disclaimers as to authenticity, accuracy etc. That report gets to the investor probably through an investment bank. The actual payment of money comes from the reserve pool made out of investor’s funds. The prospectus says that the investor can be paid out of his own funds. And that is exactly what they do. If the Servicer was actually taking its own money to make payments under the category of Servicer advances, the author would be correct.
The Servicer is incentivized by two factors — its allegiance to the broker dealer and the receipt of fees. They get paid for everything they do, including their role of deception as to Servicer advances.
When you are dealing with smoke and mirrors, look away from the mirror and walk through the smoke. There, in all its glory, is the truth. The only reason Servicer advances are phrased as voluntary is because the broker dealer wants to make the payments every month in order to convince the fund manager that they should buy more mortgage bonds. They want to be able to stop when the house of cards falls down.

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.

SUPPLEMENT TO PROSPECTUS:

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

ADJUSTABLE RATE TRUST INDENTURE FOR ADJ RATE PRIOR TO 6-1-07.pdf;

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

FNMA LISTING OF ARM MBS SUBTYPES.pdf;

FORM 10-K ANNUAL REPORT FOR DECEMBER 2005.pdf;

LOAN LEVEL INFO.pdf;

monthly reporting.pdf;

NOTES WHILE REVIEWING SECURITIZATION DOCUMENT.wpd;

Prospectus July 1, 2004.pdf;

SECURITY SPECIFIC DETAILS FROM FNMA WEBSITE BASED ON POOL NUMBER PROVIDED IN DISCLOSURE.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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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 www.livingliesstore.com

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?
http://www.newyorker.com/talk/financial/2013/06/10/130610ta_talk_surowiecki

FROM OTHER MEDIA SOURCES —-

Foreclosure Victims Protesting Wall Street Impunity Outside DOJ Arrested, Tasered
http://www.truth-out.org/news/item/16527-victims-of-foreclosure-arrested-tasered-protesting-wall-street-impunity-outside-doj

Watch out. The mortgage securities market is at it again.
http://money.cnn.com/2013/05/23/news/economy/mortgage-backed-securities.pr.fortune/

Wall Street Lobbyists Literally Writing Bills In Congress
http://news.firedoglake.com/2013/05/27/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
http://www.nakedcapitalism.com/2013/05/so-if-shareholders-wont-rein-in-jamie-dimon-time-to-put-the-heat-on-the-fed-and-fdic.html

West Sacramento homeowner uses new state law to stop foreclosure
http://www.sacbee.com/2013/05/23/5441875/west-sacramento-homeowner-uses.html

The Foreclosure Fraud Prevention Act: A.G. Schneiderman Commends Assembly for Passing Foreclosure Relief Bills
http://4closurefraud.org/2013/05/23/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.
http://www.doctorhousingbubble.com/california-foreclosure-process-hafa-program-subsidize-investor-purchases/

Wasted wealth – The ongoing foreclosure crisis that never had to happen – The Hill’s Congress Blog
http://thehill.com/blogs/congress-blog/economy-a-budget/301415-wasted-wealth–the-ongoing-foreclosure-crisis-that-never-had-to-happen

Oregon Foreclosure Avoidance Program gets tuneup
http://www.oregonlive.com/opinion/index.ssf/2013/05/oregon_foreclosure_avoidance_p.html

“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
http://4closurefraud.org/2013/05/20/now-ucc-me-now-you-dont-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
http://www.gwinnettdailypost.com/news/2013/may/20/high-court-rules-in-favor-of-bank-in-suwanee/

Wells Fargo slows foreclosure sales, BofA not so much
http://www.bizjournals.com/orlando/morning_call/2013/05/wells-fargo-slows-foreclosure-sales.html

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, www.livinglies.me

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.

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Like I said, the loans never made into the “pools”

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Editor’s Comment:

When I first suggested that securitization itself was a lie, my comments were greeted with disbelief and derision. No matter. When I see something I call it the way it is. The loans never left the launch pad, much less flew into a waiting pool of investor money. The whole thing was a scam and AG Biden of Đelaware and Schniedermann of New York are on to it.

The tip of the iceberg is that the note was not delivered to the investors. The gravitas of the situation is that the investors were never intended to get the note, the mortgage or any documentation except a check and a distribution report. The game was on.

First they (the investment banks) took money from the investors on the false pretenses that the bonds were real when anyone with 6 months experience on Wall street could tell you this was not a bond for lots of reasons, the most basic of which was that there was no borrower. The prospectus had no loans because there were no loans made yet. The banks certainly wouldn’ t take the risks posed by this toxic heap of loans, so they were waiting for the investors to get conned. Once they had the money then they figured out how to keep as much of it as possible before even looking for residential home borrowers. 

None of the requirements of the Internal Revenue Code on REMICS were followed, nor were the requirements of the pooling and servicing agreement. The facts are simple: the document trail as written never followed the actual trail of actual transactions in which money exchanged hands. And this was simply because the loan money came from the investors apart from the document trail. The actual transaction between homeowner borrower and investor lender was UNDOCUMENTED. And the actual trail of documents used in foreclosures all contain declarations of fact concerning transactions that never happened. 

The note is “evidence” of the debt, not the debt itself. If the investor lender loaned money to the homeowner borrower and neither one of them signed a single document acknowledging that transaction, there is still an obligation. The money from the investor lender is still a loan and even without documentation it is a loan that must be repaid. That bit of legal conclusion comes from common law. 

So if the note itself refers to a transaction in which ABC Lending loaned the money to the homeowner borrower it is referring to a transaction that does not now nor did it ever exist. That note is evidence of an obligation that does not exist. That note refers to a transaction that never happened. ABC Lending never loaned the homeowner borrower any money. And the terms of repayment intended by the securitization documents were never revealed to the homeowner buyer. Therefore the note with ABC Lending is evidence of a non-existent transaction that mistates the terms of repayment by leaving out the terms by which the investor lender would be repaid.

Thus the note is evidence of nothing and the mortgage securing the terms of the note is equally invalid. So the investors are suing the banks for leaving the lenders in the position of having an unsecured debt wherein even if they had collateral it would be declining in value like a stone dropping to the earth.

And as for why banks who knew better did it this way — follow the money. First they took an undisclosed yield spread premium out of the investor lender money. They squirreled most of that money through Bermuda which ” asserted” jurisdiction of the transaction for tax purposes and then waived the taxes. Then the bankers created false entities and “pools” that had nothing in them. Then the bankers took what was left of the investor lender money and funded loans upon request without any underwriting.

Then the bankers claimed they were losing money on defaults when the loss was that of the investor lenders. To add insult to injury the bankers had used some of the investor lender money to buy insurance, credit default swaps and create other credit enhancements where they — not the investor lender —- were the beneficiary of a payoff based on the default of mortgages or an “event” in which the nonexistent pool had to be marked down in value. When did that markdown occur? Only when the wholly owned wholly controlled subsidiary of the investment banker said so, speaking as the ” master servicer.”

So the truth is that the insurers and counterparties on CDS paid the bankers instead of the investor lenders. The same thing happened with the taxpayer bailout. The claims of bank losses were fake. Everyone lost money except, of course, the bankers.

So who owns the loan? The investor lenders. Who owns the note? Who cares, it was worth less when they started; but if anyone owns it it is most probably the originating “lender” ABC Lending. Who owns the mortgage? There is no mortgage. The mortgage agreement was written and executed by the borrower securing terms of payment that were neither disclosed nor real.

Bank Loan Bundling Investigated by Biden-Schneiderman: Mortgages

By David McLaughlin

New York Attorney General Eric Schneiderman and Delaware’s Beau Biden are investigating banks for failing to package mortgages into bonds as advertised to investors, three months after a group of lenders struck a nationwide $25 billion settlement over foreclosure practices.

The states are pursuing allegations that some home loans weren’t correctly transferred into securitizations, undermining investors’ stakes in the mortgages, according to two people with knowledge of the probes. They’re also concerned about improper foreclosures on homeowners as result, said the people, who declined to be identified because they weren’t authorized to speak publicly. The probes prolong the fallout from the six-year housing bust that’s cost Bank of America Corp., JPMorgan Chase & Co. (JPM) and other lenders more than $72 billion because of poor underwriting and shoddy foreclosures. It may also give ammunition to bondholders suing banks, said Isaac Gradman, an attorney and managing member of IMG Enterprises LLC, a mortgage-backed securities consulting firm.

“The attorneys general could create a lot of problems for the banks and for the trustees and for bondholders,” Gradman said. “I can’t imagine a better securities law claim than to say that you represented that these were mortgage-backed securities when in fact they were backed by nothing.”

Countrywide Faulted

Schneiderman said Bank of America Corp. (BAC)’s Countrywide Financial unit last year made errors in the way it packaged home loans into bonds, while investors have sued trustee banks, saying documentation lapses during mortgage securitizations can impair their ability to recover losses when homeowners default. Schneiderman didn’t sue Bank of America in connection with that criticism.

The Justice Department in January said it formed a group of federal officials and state attorneys general to investigate misconduct in the bundling of mortgage loans into securities. Schneiderman is co-chairman with officials from the Justice Department and the Securities and Exchange Commission.

The next month, five mortgage servicers — Bank of America Corp., Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. and Ally Financial Inc. (ALLY) — reached a $25 billion settlement with federal officials and 49 states. The deal pays for mortgage relief for homeowners while settling claims against the servicers over foreclosure abuses. It didn’t resolve all claims, leaving the lenders exposed to further investigations into their mortgage operations by state and federal officials.

Top Issuers

The New York and Delaware probes involve banks that assembled the securities and firms that act as trustees on behalf of investors in the debt, said one of the people and a third person familiar with the matter.

The top issuers of mortgage securities without government backing in 2005 included Bank of America’s Countrywide Financial unit, GMAC, Bear Stearns Cos. and Washington Mutual, according to trade publication Inside MBS & ABS. Total volume for the top 10 issuers was $672 billion. JPMorgan acquired Bear Stearns and Washington Mutual in 2008.

The sale of mortgages into the trusts that pool loans may be void if banks didn’t follow strict requirements for such transfers, Biden said in a lawsuit filed last year over a national mortgage database used by banks. The requirements for transferring documents were “frequently not complied with” and likely led to the failure to properly transfer loans “on a large scale,” Biden said in the complaint.

“Most of this was done under the cover of darkness and anything that shines a light on these practices is going to be good for investors,” Talcott Franklin, an attorney whose firm represents mortgage-bond investors, said about the state probes.

Critical to Investors

Proper document transfers are critical to investors because if there are defects, the trusts, which act on behalf of investors, can’t foreclose on borrowers when they default, leading to losses, said Beth Kaswan, an attorney whose firm, Scott + Scott LLP, represents pension funds that have sued Bank of New York Mellon Corp. (BK) and US Bancorp as bond trustees. The banks are accused of failing in their job to review loan files for missing and incomplete documents and ensure any problems were corrected, according to court filings.

“You have very significant losses in the trusts and very high delinquencies and foreclosures, and when you attempt to foreclose you can’t collect,” Kaswan said.

Laurence Platt, an attorney at K&L Gates LLP in Washington, disagreed that widespread problems exist with document transfers in securitization transactions that have impaired investors’ interests in mortgages.

“There may be loan-level issues but there aren’t massive pattern and practice problems,” he said. “And even when there are potential loan-level issues, you have to look at state law because not all states require the same documents.”

Fixing Defects

Missing documents don’t have to prevent trusts from foreclosing on homes because the paperwork may not be necessary, according to Platt. Defects in the required documents can be fixed in some circumstances, he said. For example, a missing promissory note, in which a borrower commits to repay a loan, may not derail the process because there are laws governing lost notes that allow a lender to proceed with a foreclosure, he said.

A review by federal bank regulators last year found that mortgage servicers “generally had sufficient documentation” to demonstrate authority to foreclose on homes.

Schneiderman said in court papers last year that Countrywide failed to transfer complete loan documentation to trusts. BNY Mellon, the trustee for bondholders, misled investors to believe Countrywide had delivered complete files, the attorney general said.

Hindered Foreclosures

Errors in the transfer of documents “hampered” the ability of the trusts to foreclose and impaired the value of the securities backed by the loans, Schneiderman said.

“The failure to properly transfer possession of complete mortgage files has hindered numerous foreclosure proceedings and resulted in fraudulent activities,” the attorney general said in court documents.

Bank of America faced similar claims from Nevada Attorney General Catherine Cortez Masto, who accused the Charlotte, North Carolina-based lender of conducting foreclosures without authority in its role as mortgage servicer due improper document transfers. In an amended complaint last year, Masto said Countrywide failed to deliver original mortgage notes to the trusts or provided notes with defects.

The lawsuit was settled as part of the national foreclosure settlement, Masto spokeswoman Jennifer Lopez said.

Bank of America spokesman Rick Simon declined to comment about the claims made by states and investors. BNY Mellon performed its duties as defined in the agreements governing the securitizations, spokesman Kevin Heine said.

“We believe that claims against the trustee are based on a misunderstanding of the limited role of the trustee in mortgage securitizations,” he said.

Biden, in his complaint over mortgage database MERS, cites a foreclosure by Deutsche Bank AG (DBK) as trustee in which the promissory note wasn’t delivered to the bank as required under an agreement governing the securitization. The office is concerned that such errors led to foreclosures by banks that lacked authority to seize homes, one of the people said.

Renee Calabro, spokeswoman for Frankfurt-based Deutsche Bank, declined to comment.

Investors have raised similar claims against banks. The Oklahoma Police Pension and Retirement System last year sued U.S. Bancorp as trustee for mortgage bonds sold by Bear Stearns. The bank “regularly disregarded” its duty as trustee to review loan files to ensure there were no missing or defective documents transferred to the trusts. The bank’s actions caused millions of dollars in losses on securities “that were not, in fact, legally collateralized by mortgage loans,” according to an amended complaint.

“Bondholders could have serious claims on their hands,” said Gradman. “You’re going to suffer a loss as bondholder if you can’t foreclose, if you can’t liquidate that property and recoup.”

Teri Charest, a spokeswoman for Minneapolis-based U.S. Bancorp (USB), said the bank isn’t liable and doesn’t know if any party is at fault in the structuring or administration of the transactions.

“If there was fault, this unhappy investor is seeking recompense from the wrong party,” she said. “We were not the sponsor, underwriter, custodian, servicer or administrator of this transaction.”

State and Federal Agencies Should Brace for Demands for Administrative Hearings

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Editor’s Comment: We had an interesting exchange in a civil, almost charming meeting with the Arizona Secretary of State last night at Darrell Blomberg’s Tuesday night meeting. He has the  AZ AG coming in a couple of weeks.

One thing that came out is that the oath of the notary is missing in many cases and there were some people who thought this might be the magic bullet that would bring down the entire foreclosure process. I don’t know how this got started but the responses from the Secretary and his manager of business affairs were mostly correct — although they point to serious deficiencies in the system and training of the people.

The oath and the bond are usually on the same page. That it is not recorded anywhere is flimsy at best and even if correct would be a source of annoyance to a judge rather than convincing him that the mortgage origination was defective and the foreclosure wrongful.Proving the notary to have been incorrectly affixed might accomplish a right to have the mortgage or deed of trust removed from the title records — but it does NOT invalidate the document itself. There is no magic bullet.

I again say: there is no magic bullet, and there is no paper defect that will discharge a debt. Debts are discharged by payment or waiver of payment (and waived could be involuntary, like in bankruptcy). By concentrating upon the possibility of a defect in the process of record-keeping on the oath of office of a judge or notary, you are essentially admitting the debt, the default and the right to collect and even foreclose, although your intent is otherwise.

The attestation by the notary has nothing to do with the validity of the contents of the document. It serves only to say that a person appeared before the notary and fulfilled the statutory requirements by identifying themselves. The notary is merely attesting to the fact that this is what happened. Someone appeared, gave a drivers license etc., and signed in front of the notary. That is the fullest extent of the attestation of the notary and the power of the notary.

In Arizona, any attestation by the notary that includes corroboration that the person whose signature is being notarized is in fact that person or has a particular relationship with a particular company is void to the extent that the attestation of the notary includes assurance of the signor’s official position or representative powers.

California has a similar provision but allows notaries — if they actually know — to attest to the official capacity of the signor. But California law has an important caveat. Any attestation as to the powers, rights and obligations of the signor cannot be used and is of no effect if it is being used outside the state. So if you are in Arizona and the notary was in California and included an attestation that the signor was vice president of MERS, the part about the signor being a VP of MERS counts for nothing.

The secretary stepped in immediately when his manager tried to say that any decision by the office of the secretary of state is final and cannot be reviewed. However, as he pointed out, the finding of an administrative agency is presumptively true unless you can prove otherwise. That is why the OCC decrees etc. should be viewed as valuable to homeowners because there have already been admissions and findings that the foreclosures were wrongful, and in some studies (San Francisco). Those findings after investigations are also entitled to a presumption of validity and throws the burden of proof onto the the pretender lender IF you show that the bad practices cited by the agencies show up in your particular case.

It is disturbing that (a) a state official second only to the secretary of state himself actually believed that she had supreme authority that was never subject to review. And (b) although the secretary affirmed his believe that his office was a record keeper and not an enforcement arm of the executive branch, I think that is a contradiction in terms. The purpose of the executive branch of government is to enforce the law. If a filing is required with the Secretary of State providing information about the activities of a limited partnership along with the fees payable to the State of Arizona, it is a mistake, in my opinion, to believe that such an agency lacks the right to prosecute those who fail to register, do business in the state and don’t pay their fees.

After decades of practice in administrative law all over the country, I believe I have discovered a mistaken impression that is often found amongst state departments, both as to their powers and their obligations to enforce those powers. I think a lawsuit in mandamus against the office of Secretary of State requiring them to use the Administrative Procedures Act and participate in hearings conducted by administrative hearings judges who are objective and unbiased, may well be necessary unless the Secretary rethinks his position and does so on his own.

This might be particularly important to the State of Arizona and other states since the REMIC pools appear to be either general or limited partnerships and not Trusts as they are described in the PSA and prospectus. This ought to be at least tested.

But whether the restrictive power of the secretary of state extends only to limited partnerships and not corporations and other business entities ( division that is peculiar at best) the major point is still the same. A foreign entity or person holding money in their hands, solicited applicants for loans and then closed transactions for those loans within the state of Arizona and with respect to an interest or potential interest in real property located strictly within the state of Arizona, violated state law and must suffer the consequences.

If they want to say that these leads to an unfair or inequitable result, they must allege and prove that they will lose money by applying the law and that means proving that they funded the loan, bought it or otherwise advanced real money where money exchanged hands. At this point everyone who knows the logistics here knows that there is not one party, group or person that can prove that case, which is why the rejection of modifications is so ridiculous and born of pure arrogance.

The real lender or creditor is now admitted to be an out of state group or entity of some kind that never registered in the state, never paid the fees, and never gave any required information about the group or entity. Perhaps the Secretary of state should be more intrigued when he realizes that hundreds of thousands of such transactions occurred in the State of Arizona over the last 12 years and they continue to be conducting business activity and legal activity in the state all without the required registration. The exemptions from registration do not apply.

Under normal rules of engagement, the party failing to properly register is subject to fees, fines and penalties for doing business without registration and may neither bring any legal claim or defend against one in the absence of the proper registration. So whether it is the office of the Secretary of State or some other department that somehow does not fall under the authority of the secretary of state (a peculiar circumstance at best) the State is (a) missing out on hundreds of millions of dollars in revenue from out-of-state carpet baggers and (b) missing its chance to stop the foreclosures and even return the wrongfully foreclosed homes to their rightful owners.

So my question to the Secretary of State is this: As the putative lieutenant governor of the State who might be seeking higher office (the governor’s mansion), which would you rather do — run with the backing of back s  tabbing bankers who have already shown their willingness and desire to lie, forge documents and otherwise cheat the state’s citizens out of the right to possession of their own homes AFTER payment has been received in full — or would you rather ride the crest of anti-bank sentiment that can be found lurking in almost every voter regardless of the status of the ir mortgage or living arrangements? My bet is that the politician who seeks higher office or to maintain incumbency, would best be served by leading a populist revolt against the major out of state banks and a movement toward local in-state banks that had nothing to do with the mortgage mess created by false claims of securitization.

My second piece of advice is that the head of any agency having anything to do with regulation of business entities , banking and lending had best brush off their old copy of the Administrative Procedure Act because in my view there is right to bring a complaint against the agency that cannot be denied. And without having procedures and facilities for administrative hearings, complainants cannot fulfill the requirement of exhaustion of administrative remedies. That allegation alone in state or federal court could bring a mountain of constitutional issues crashing upon the shoulders of agency heads who thought they were immune from some issues.

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

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

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

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

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

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

By E. Scott Reckard, Los Angeles Times

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

scott.reckard@latimes.com

DISCOVERY AND PRACTICE TIPS: SEC RULE DISCLOSURE DOCUMENTS Carrington Mortgage – Stanwich – EMC Mortgage Corporation – New Century Mortgage Corporation (“NCMC”

FROM drhDe.u5a.htm

This is both a HERS post and a general post for those seeking discovery of documentation. You can Google this information also. This is also what I am asking all of you to send in to me for posting. I’m backdating the HERS posts like this generally to February and March so as not to crowd out current articles but if you look at the search index and bring up “HERS or even the particular name of an institution or unfamiliar name of an individual company or institution it will come up with increasing frequency as we expand this aspect of the blog.

DISCOVERY: You ask for all SEC filings including but not limited to 8k filings and back-up documents, custodians of those records, and people with personal knowledge of the information contained in those filings, together with their names, addresses, phone numbers, title, scope of duties etc. Then you call them and ask them what they know where there are other documents. Note these are words of art and have a general meaning that cannot be disputed in the industry. CFR= Code of Federal Regulations

EMC Mortgage Corporation transferred the servicing of mortgage loans with respect to the Carrington Mortgage Loan Trust Asset-Backed Pass-Through Certificates, Series 2007-HE1, to Carrington Mortgage Services, LLC. Prior to November 1, 2007, the Mortgage Loans were serviced by EMC Mortgage Corporation pursuant to the Pooling and Servicing Agreement, among Stanwich Asset Acceptance Company, L.L.C., Wells Fargo Bank, N.A., EMC Mortgage Corporation, Carrington Mortgage Services, LLC and HSBC Bank USA, National Association, a copy of which was filed as Exhibit 10.1 pursuant to Form 8-K on July 27, 2007 under the same Central Index Key (CIK) as this periodic report on Form 8-K (the “Pooling and Servicing Agreement”). On and after November 1, 2007, Carrington Mortgage Services, LLC will service the Mortgage Loans pursuant to the Pooling and Servicing Agreement. These are the SEC entries of data relating to this event.

STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., on behalf of Carrington Mortgage Loan Trust, Series 2007-HE1 Asset-Backed Pass-Through Certificates

(Exact name of registrant as specified in its charter)

SEC File 333-139507-02

Carrington Mortgage Loa..2007-HE1

8-K{6

Mayer Brown & Platt/FA

11/01/07

Carrington Mortgage Loan Trust/Series 2007-HE1

STANWICH ASSET ACCEPTANCE COMPANY, L.L.C.

STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. (as depositor under a Pooling and Servicing Agreement, dated as of June 1, 2007, providing for, inter alia, the issuance of Carrington Mortgage Loan Trust, Series 2007-HE1 Asset-Backed Pass-Through Certificates)

(Commission File Number)333-139507-02

Delaware

(IRS Employer Identification No.) 20-2698835

Seven Greenwich Office Park
599 West Putnam Avenue

Greenwich, Connecticut

06830

(203) 661-6186

Rule 425 under the Securities Act (17 CFR 230.425)

Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)
Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Written communications pursuant to Rule 425
Pre-commencement communications pursuant to Rule 14d-2(b)
Pre-commencement communications pursuant to Rule 13e-4(c)
Item 6.02.  Change in Servicer or Trustee

Carrington Mortgage Services, LLC (“CMS”) is a Delaware limited liability company and a wholly-owned subsidiary of Carrington Capital Management, LLC. CMS maintains its executive and principal offices at 1610 E. St. Andrews Place, Santa Ana, CA 92705. Its telephone number is (949) 517-7000.

On June 29, 2007, CMS acquired substantially all of the servicing assets of New Century Mortgage Corporation (“NCMC”), an indirect wholly-owned operating subsidiary of New Century Financial Corporation (“New Century”) as provided in the prospectus filed pursuant to Rule 424 of the Securities Act of 1933, as amended, on July 11, 2007 under the same Central Index Key (CIK) as this periodic report on Form 8-K (the“Prospectus”)

DISCOVERY HINT. IN ORDER TO GET APPROVALS THEY HAD TO SUBMIT FORMS (APPLICATION ETC.). ASK FOR THOSE FORMS AND THE DISCLOSURES ON THOSE FORMS FROM BOTH THE COMPANY YOU ARE SEEKING INFORMATION ABOUT AND THE AGENCY UNDER THE FREEDOM OF INFORMATION ACT. CMS has the approvals necessary to service mortgage loans in accordance with the related servicing agreements. CMS is qualified to service mortgage loans on behalf of Freddie Mac, a corporate instrumentality of the United States, and has received the approval of the Secretary of Housing and Urban Development to service mortgage loans. CMS has received approvals from the rating agencies with respect to the acquisition of the servicing platform. The residential mortgage servicing operations of CMS are currently rated -RPS4” by Fitch Ratings (“Fitch”). PRACTICE HINT: FILE AN ADMINISTRATIVE GRIEVANCE WITH THE AGENCY REGARDING THE VIOLATIONS YOU ARE ALLEGING. IN MANY CASES IT IS QUICKER AND THREATENS THE ABILITY OF THE SERVICER TO CONTINUE BUSINESS. DISCOVERY HINT: ASK FOR MATERIAL SUBMITTED FOR RATING FROM BOTH THE COMPANY (ISSUER) AND THE RATING AGENCY. SUBPOENA IF NECESSARY. DO DEPOSITIONS UPON WRITTEN QUESTIONS ON RATING AGENCIES AND GOVERNMENT AGENCIES TO ESTABLISH POINTS THAT YOU FEEL WILL BE UNCONTROVERTIBLE ONCE ENTERED INTO THE RECORD. PRACTICE HINT: IN ORDER TO DO THAT YOU WILL PROBABLY NEED TO FILE A MOTION TO TAKE THE DEPOSITION IN LIEU OF LIVE TESTIMONY THUS GIVING THE OTHER SIDE AN OPPORTUNITY TO CROSS EXAMINE THE WITNESS EITHER LIVE OR IN PERSON. YOU COULD ALSO TAKE THE BETTER ROUTE OF GETTING THE DEPOSITION DONE BY TELEPHONE OR VIDEO BUT THESE CAN GET EXPENSIVE. EITHER WAY MAKE SURE EACH DOCUMENT IS SPECIFICALLY LABELED AS AN EXHIBIT AND EVENTUALLY BATES STAMPED. START CREATING AN INDEX OF EXHIBITS WITH SHORT SUMMARIES OF WHAT YOU WANT TO SUE THEM FOR IN WORD FORMAT OR SOME OTHER SPREADSHEET OR DATABASE FORMAT SO THAT YOU CAN DO EASY SEARCHES. PRACTICE HINT: THE LONGER YOU MAKE THE JUDGE WAIT FOR THE PRODUCTION OF THE DOCUMENT, THE LOWER YOUR CREDIBILITY. SHUFFLING PAPERS AROUND MAKES IT LOOK LIKE YOU MAY NOT KNOW WHAT YOU ARE TALKING ABOUT AND THAT YOU ARE UNPREPARED.

Stanwich Asset Acceptance Company L.L.C.
By:
Name:  Bruce M. Rose
Title:  President



WHAT NOT TO DO IN PLEADING AND MOTION PRACTICE

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP

(2006) Here is a case that should not have been filed (entire text of opinion below) and was argued improperly. The homeowners clearly lost because they put their eggs in the wrong basket. Nonetheless, the opinion is a pretty good compilation of the various statutes, rules and regulations affecting mortgages and their enforcement.

An interest quote used against the “homeowner” which itself was a trust, is that the word “interest” should be interpreted to mean “Ownership interest”. This is precisely the argument I advance regarding the holders of of certificates or even non-certificated mortgage-backed securities whose indenture is the prospectus. Those investors received at the very least a “beneficial” interest in the loans. Thus either the prospectus, the certificate or both are starting points, in addition to the note signed by the borrower, as evidence of the terms and status of the obligation.

CAROL R. ROSEN, Plaintiff,
v.
U.S. BANK NATIONAL ASSOCIATION as TRUSTEE, EQUIFIRST CORP., AMERICAN MORTGAGE SPECIALISTS, INC., and JOHN and JANE DOES 1-10, Defendants.

CIV-06-0427 JH/LAM.

  1. DON’T TRY OUT NEW THEORIES IN PLEADINGS THAT SOUND LIKE THE CONSPIRACY THEORIES OF CRAZY PEOPLE, EVEN IF YOU THINK YOU ARE RIGHT. IF YOU KNOW IN ADVANCE THAT THE THEORY IS OUT OF BOUNDS IN THE PERCEPTION OF MOST PEOPLE, USE SOMETHING ELSE — there are plenty of simpler basic principles of law that will enhance rather than reduce your credibility.
  2. Beware of companies that claim to have a magic bullet to end your mortgage problems. Securitization is complex, and you need to focus on breaking it down to its simplest elements.
  3. Don’t try to win your case on a knock-out punch in the first hearings. Plan your strategy around education of the judge as to what happened in YOUR loan, using published reports, expert declarations and forensic analysis as corroborative.
  4. Don’t even think the Judge will indict the entire financial industry for what happened in your case. This will diminish your credibility.
  5. Plead causes of action that are familiar to the Judge and make sure you know and plead all the elements of those causes of action.
  6. Focus in pleadings and hearings as much as possible on the premises with which nobody could disagree — like every case should be heard on the merits, that you have a right to the same presumptions as anyone else who is pleading a claim or defense, and that you need to conduct discovery because there are facts and documents known to the defendants for which it would be over-burdensome and hugely expensive for you to get any other way.
  7. Don’t expect the Judge to be sympathetic. In most cases Judges still look at securitized mortgages like any other mortgage. In most cases Judges see challanges to foreclosures as desperate attempts to stave of the inevitable. Lead and repeat your main message. Your main message is that it is indisputable that if the facts you are pleading are true, then you are entitled to the precise relief you have demanded. KEEP IT SIMPLE. Use each hearing to repeat the previous “lesson” and add new lessons for the Judge.
  8. Do not avoid arguments of opposing counsel. Challenge them in a direct manner showing the Judge that if the attorney was correct in what he is saying, then he would be right and his client would win (if that is the case) or showing that the if the attorney was correct he still would not win his case. THINK BEFORE YOU SPEAK. PLAN BEFORE YOU APPEAR.
  9. DO NOT FALL INTO THE TRAP OF ALLOWING OPPOSING COUNSEL TO PROFFER FACTS AS THOUGH THEY WERE TRUE. Challenge that tactic by admitting that counsel has a right to put on evidence in support of what he/she is arguing but that the hearing is not the trial and you have evidence too, and you’ll have more evidence if you are allowed to proceeds on the merits of your claim. By all means, once opposing counsel has “testified” include in your remarks prepared script as to YOUR facts and YOUR conclusions. END WITH THE INESCAPABLE CONCLUSION THAT THERE IS OBVIOUSLY AN ISSUE OF FACT AND WHETHER THE JUDGE THINKS YOU WILL WIN OR NOT IS IMMATERIAL. YOU HAVE A RIGHT TO BE HEARD ON THE MERITS AND A RIGHT TO CONDUCT DISCOVERY. If opposing counsel is so sure that what you are alleging is frivolous, then there are many remedies available including summary judgment. But it is not until the FACTS come out that any of those remedies arise.
  10. Do not characterize your opposition as part of an evil axis of power. They may well have contributed to the Judge’s campaign, or otherwise have indirect relationships that do not merit recusal. This is not about whether banks are evil, it is about why are all these entities necessary to simply foreclose on a mortgage? If it is as simple as THEY say, why don’t they have the paperwork to back it up?
  11. DO NOT SAY ANYTHING YOU CAN’T BACK UP. This does NOT mean you have all the proof you need to win your case when you file your first pleading. It means that you know that if you are allowed to proceed, and you actually get the disclosure and discovery of the true facts, you will win.

United States District Court, D. New Mexico.

November 8, 2006.

Carol Rosen, Albuquerque, NM, Attorney for Plaintiff.

Rhodes & Salmon, P.C., William C. Salmon, Albuquerque, NM, Attorney for Defendant U.S. Bank.

Karla Poe, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, Kimberly Smith Rivera, McGlinchey Staford, PLLC, Cleveland, OH, Attorney for Defendant EquiFirst.

MEMORANDUM OPINION AND ORDER

JUDITH HERRERA, District Judge.

THIS MATTER is before the Court on Defendant U.S. Bank National Association’s (“U.S. Bank”) Motion to Dismiss or Stay [Doc. 23, filed Aug. 7, 2006], and Defendant EquiFirst Corporation, Inc.’s (“EquiFirst”) Motion for Judgment on the Pleadings [Doc. 28, filed Sept. 15, 2006]. The Court has reviewed the motions, the record in this case, and the relevant law, and concludes that the motions are well-taken and should be GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND

Before turning to the facts presented in the pleadings in this case, the Court takes judicial notice of cases involving D. Scott Heineman and Kurt F. Johnson, who are the Trustees of the Rosen Family Trust, of which Plaintiff Carol R. Rosen is a beneficiary. See Doc. 17, Ex. B ¶ 4.A. Heineman and Johnson

were the proprietors of a business that claimed to help homeowners eliminate their mortgages. [Heineman and Johnson’s] business operated under the “vapor money” theory of lending, which holds that loans funded through wire transfers rather than through cash are unenforceable. [They] claimed that, through a complicated series of transactions, they could take advantage of this loophole and legally eliminate their clients’ mortgages.

In 2004, Johnson and Heineman filed a series of lawsuits against mortgage companies on behalf of their clients, seeking, among other things, a declaration that any mortgages on their clients’ properties were void. All fifteen cases were . . . found. . . to be “frivolous and . . . filed in bad faith.”

. . . .

On September 22, 2005, a federal grand jury indicted [Heineman and Johnson] on charges of mail fraud, wire fraud, and bank fraud.

United States v. Heineman, 2006 WL 2374580, *1 (N. D. Cal. Aug. 15, 2006). The step-by-step method Heineman and Johnson advertised over the internet and used to attempt to eliminate mortgages is as follows. They would have

the homeowner prepare and sign a promissory note as well as a loan agreement for the encumbered property. The homeowner then sends these documents to [Heineman and Johnson] with a cashier’s check “of $3,000 [to eliminate a] 1st mortgage, and $1,500 [to eliminate] a second mortgage or home equity line of credit.” Once this initial fee is received, Heineman and Johnson set up a Family Estate Amenable Complex trust in the homeowner’s name, i.e., the Frances Kenny Family Trust. Heineman and Johnson name themselves the trustees. Title to the homeowner’s property is transferred to the trust.

Now in charge as trustees, Heineman and Johnson approach the bank or lending institution that lent the homeowner the money to purchase the property. They make a “Presentment” to the bank in the form of “a cash-backed bond in double-amount of the promissory note.” The “bond” is allegedly “a valid, rated instrument backed by a $120 Million Letter of Credit against the Assets of an 85-year old, $800 Million Swiss Trust Company.” This is essentially an offer to the lender to satisfy the borrower’s indebtedness. The alleged “bond,” however, is a ploy.

. . . .

In addition to the “bond,” Heineman and Johnson hire “Trustee lawyers” to “begin the legal process by sending out a legal complaint in the form of a CPA Report that outlines 40 or more different federal laws that have been violated in the ‘lending process.'” The lending institution thereafter has a certain time frame within which to respond to the complaint. Purportedly, the homeowner will be notified by plaintiffs’ legal team when the loan is “satisfied.” The homeowner’s “lender may or may not let [you] know or acknowledge this.”

Once the loan is satisfied, “re-financing begins.” The homeowner is told to “refinance [his] property at the maximum loan to value ratio possible” with a new lender. The alleged “purpose of this new re-financing is for you, the client, to compensate the Provider and CCR.” Heineman and Johnson are the “Provider.” They run CCR. The proceeds from this new loan are disbursed as follows: “The Provider receives 50%. CCR receives 25%. You, the client, receives the other 25%.” This entire process takes “5-7 months in most cases.” And, “[t]he end result is that the [homeowner] gets free and clear title to the home and a good amount of cash in hand.”

[Heineman and Johnson], however, perpetrate a fraud to “satisfy” the original indebtedness. One of the documents Heineman and Johnson present to the bank or lending institution is entitled a “power of attorney.” This document demands that the lender sign and thereby acknowledge that it has given the homeowner “vapor money” in exchange for an interest (via a deed of trust) in the subject property at the time of financing. A provision of this “power of attorney” provides that the lender’s “silence is deemed consent.” When the lender fails to respond, [Heineman and Johnson] execute the power of attorney. They then sign a deed of reconveyance reconveying the lender’s security interest in the property to Heineman and Johnson. The forged power of attorney and the deed of reconveyance are duly recorded at the county recorder’s office. The county’s records thus show a power of attorney from the lender granting Heineman and Johnson the right to sign the deed of reconveyance and the reconveyance from the original lender. The title seems clear and unencumbered. The lender is unaware of the maneuver.

[Heineman and Johnson] then turn around and from an unsuspecting new lender seek a loan to refinance the property. When the new lender conducts a preliminary title search, it discovers the power of attorney and deed of reconveyance, both of which appear to have been validly executed. From the new lender’s point of view, the property appears to be unencumbered. And it is thus willing to refinance the property.

. . . .

At the conclusion of this process, the borrower is in even worse condition than when he or she first looked to [Heineman and Johnson] for debt relief. Two lenders believe that they have valid security interests in the subject property. When the homeowner defaults on both loans, both lenders commence foreclosure proceedings. In response, Heineman and Johnson, as trustees, file a bankruptcy petition on behalf of the borrower or file suit alleging that no enforceable debt accrued from either lender because the loans were funded through wire transfers rather than cash. Fifteen such lawsuits were filed in [the Northern District of California] on such a “vapor money” theory.

Frances Kenny Family Trust v. World Sav. Bank FSB, 2005 WL 106792 at *1-*3 (N. D. Cal., Jan. 19, 2005).

The following facts are taken from Rosen’s Amended Complaint and from the exhibits attached to her complaint and to U.S. Bank’s Answer. They demonstrate a pattern strikingly and disturbingly similar to the one described above. In December 2004, Rosen quitclaimed her property located on Wellesley Drive in Albuquerque, NM to Heineman and Johnson, as Trustees of the Rosen Family Trust. See Doc. 17, Ex. B ¶ 4.A. Colonial Savings held a mortgage secured by the Wellesley property. On March 3, 2005, Heineman, acting as “Attorney-in-Fact” for Colonial Savings, executed and recorded a notarized “Discharge of Mortgage” purporting to release Rosen from her mortgage of $86,250. Id. Ex. A. The Discharge stated that the mortgage had been “fully paid, satisfied, and discharged” and that Heineman’s power of attorney to act on behalf of Colonial Savings was granted “through the doctrine of agency by estoppel.” Id. The Vice President of Colonial Savings, however, recorded an “Affidavit of Fraudulent Recording of Discharge of Mortgage,” disputing that Heineman had any authority to act on Colonial’s behalf or discharge the mortgage and attesting that the note and mortgage had not been paid. Id.

On April 27, 2005, Rosen submitted a loan application to Defendant American Mortgage Specialists, Inc. (“American Mortgage”), a mortgage broker located in Arizona, for the purpose of refinancing the Wellesley property. See Am. Compl. at ¶¶ 8, 10-11 & Ex. A (Doc. 13). Rosen subsequently executed a note for $198,305 in favor of EquiFirst, secured by a Deed of Trust on the Wellesley property. See id. Ex. A, B. The mortgage provides that, if the note was sold or the Loan Servicer was changed, EquiFirst would give Rosen written notice, together with “any other information RESPA requires.” Id. Ex. B at 13.

Rosen signed the note and mortgage on May 17, 2005. See id. at 16. The loan was closed that same day, and proceeds were disbursed on May 23, 2005, including over $29,000 to third-party creditors. See Am. Compl. Ex. G. Colonial Savings is not included in the list of payoff recipients. See id.

Lines 801, 812, and 814 of the closing statement, under the heading “ITEMS PAYABLE IN CONNECTION WITH LOAN,” show that a 1% “loan origination fee” of $1983.05 as well as “OTHER BRK FEES” of $1762 were paid to American Mortgage from Rosen’s loan proceeds, and that a $940 “LENDER ORIGINATION” fee was paid to EquiFirst from Rosen’s loan proceeds. Id. at 2. In addition, line 813 of the closing statement states: “BROKER FEE PAID BY LENDER YSP $3,966.10 POC.[1]Id. This represented a yield spread premium that EquiFirst additionally paid to American Mortgage upon the loan closing.

On June 21, 2005, EquiFirst and Homecomings Financial notified Rosen that the servicing of her mortgage loan (i.e., the right to collect payment from her) had been transferred to Homecomings Financial and that the effective date of transfer would be June 29, 2005. See Am. Compl., Ex. C. The transfer of servicing did not affect the terms or conditions of the mortgage. See id. Further, during the 60 days following the effective date of transfer, timely loan payments made to EquiFirst could not be treated as late by Homecomings Financial. See id.

On July 11, 2005, Rosen executed a Grant Deed granting “to D. Scott Heineman and Kurt F. Johnson, Trustees of Rosen Family Trust, for a valuable consideration . . .” her Wellesley Drive property that secured her EquiFirst mortgage. Am. Compl. at ¶ 26, Ex. D. The complaint does not state whether Rosen gave Homecomings Financial or EquiFirst notice of her transfer of ownership of the property to the Trust. According to her “Affidavit of Sum Certain,” Rosen made only three mortgage payments between the time she closed the EquiFirst loan in May 2005 and August 7, 2006, when she filed the affidavit. See Doc. 22.

On January 23, 2006, EquiFirst granted, assigned, and transferred its beneficial interest in Rosen’s mortgage to Defendant U.S. Bank as Trustee. See Am. Compl., Ex. E. U.S. Bank initiated foreclosure proceedings on Rosen’s mortgage and the Wellesley Drive property on February 1, 2006, in state district court. See Am. Compl. ¶ 28. On May 11, 2006, Rosen mailed a “notice of rescission” to EquiFirst, U.S. Bank, and Homecomings Financial. See id. ¶ 42, Ex. I. She alleged a right to rescind her mortgage transaction based on her claim that, when she closed the loan in May 2005, “EquiFirst failed to meet the requirements to give me accurate material disclosures and the proper notice of the right to rescind.” Am. Compl., Ex. I ¶ 7. She also claimed that “[a] broker’s fee, in the form of a yield spread premium, was fraudulently assessed to the loan transaction, . . . [which] renders the HUD 1/Settlement Statement defective, inter alia, because it does not state to whom the fee was paid . . . [and because] the charge was encoded, to the extent that no consumer or most any other person could decipher [it] . . . .” Id. ¶ 10B. Rosen claimed that these failures extended her statutory right to rescind from the regular three-day period to a three-year period. See id. ¶ 10D. Homecomings Financial, through counsel, responded to Rosen’s May 11 letter on June 6, 2006. It sent Rosen a copy of the Notice of Right to Cancel she signed on May 17, 2005, in which she acknowledged receipt of two copies of the Notice. See Am. Compl., Ex. H. It asserted that the abbreviations of “YSP” and “POC” “are standard terms within the mortgage banking industry” and that, if she’d had any concerns about those terms, she should have addressed them at closing. Id. Finding no basis for rescission, it refused to rescind the loan transaction.

Rosen filed her initial complaint in federal court on May 19, 2006, seeking declaratory and injunctive relief and monetary damages. See Doc. 1. She filed an amended complaint on July 17, 2006, that contains six claims. Count One is for rescission under 15 U.S.C. § 1635 and § 226.23 of Regulation Z of the Truth in Lending Act (“TILA”). See Am. Compl. ¶¶ 33, 48. She claims that recission “extinguishes any liability Plaintiff may have had to Defendants for finance or other charges arising from the [loan] Transaction,” id. ¶ 49, and that “Defendants [sic] failure to take action to reflect the termination of the security interest in the property within twenty . . . days of [her] rescission. . . releases [her] from any liability whatsoever to Defendants.” Id. ¶ 50.

Count Two alleges damages under 15 U.S.C. § 1640 for Defendants’ failure to comply with § 1635 after Defendants received Rosen’s rescission letter. Id. ¶¶ 51-52. Count Three is for recoupment of a statutory penalty provided under § 1640. In support, Rosen lists twenty-eight alleged violations of various federal and state statutes and regulations. See id. ¶¶ 54(a)-(bb).

Count Four alleges violation of a right to Equal Credit Opportunity as described in 12 C.F.R. § 202.14. In support, Rosen alleges that the Defendants failed to make clear and conspicuous disclosures, and that various documents were confusing. See id. ¶ 55.

Count Five alleges violations of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601-17. Rosen claims that Defendants failed to give her fifteen days notice before the loan servicing contract was assigned from EquiFirst to Homecomings Financials in violation of § 2605(b), see Am. Compl. ¶¶ 57-59, and that EquiFirst’s payment of the yield-spread premium to American Mortgage constituted an illegal fee or “kickback” violating 12 U.S.C. § 2607(a)[2], see id. ¶ 60. Additionally, she alleges that EquiFirst and American Mortgage engaged in “fee splitting” in violation of § 2607(d)[3]. Id. ¶ 61.

Court Six alleges violation of the New Mexico Unfair Practices Act, N.M.S.A. §§ 57-12-1 et seq., based on the same allegations that EquiFirst and American Mortgage engaged in illegal kickback and fee-splitting activities that caused her to pay a higher interest rate. See Am. Compl. ¶¶ 63-68, 76.

Rosen seeks: (i) a judicial declaration that she validly rescinded the loan and is not liable for any finance or other charges and has no liability whatsoever to Defendants; (ii) an order requiring Defendants to terminate their security interest in her home; (iii) an injunction enjoining Defendants from maintaining foreclosure proceedings or otherwise taking steps to deprive her of ownership of the property; (iv) an award of statutory damages and penalties; and (v) attorney fees. See id. at 26-27.

II. LEGAL STANDARDS

U.S. Bank’s motion to dismiss is brought pursuant to Fed R. Civ. P. 12(b)(6). It asserts that Rosen has failed to state claims under particular statutes and that other claims are time-barred. It urges the Court to abstain from asserting jurisdiction over any remaining claims that should be resolved in the pending state foreclosure action. EquiFirst moves for dismissal under Fed. R. Civ. P. 12(c) (“Judgment on the Pleadings”), asserting that it is entitled to judgment as a matter of law on Counts One through Four and Count Six, and on part of Count Five of Rosen’s amended complaint. In resolving motions brought under either Rule 12(b)(6) or 12(c), the Court must

accept all facts pleaded by the non-moving party as true and grant all reasonable inferences from the pleadings in favor of the same. Judgment on the pleadings should not be granted “unless the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.” United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir. 2000). As with . . . motions to dismiss under Rule 12(b)(6), documents attached to the pleadings are exhibits and are to be considered in [reviewing] . . . [a] 12(c) motion. See Hall v. Bellmon, 935 F.2d 1106, 1112 (10th Cir. 1991); Fed. R. Civ. P. 10(c).

Park Univ. Enter., Inc. v. Am. Cas. Co. of Reading, PA, 442 F.3d 1239, 1244 (10th Cir. 2006).

It is true that dismissal under Rule 12(b)(6) is a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice. It is also well established that dismissal of a complaint is proper only if it appears to a certainty that plaintiff is entitled to no relief under any state of facts which could be proved in support of the claim.

Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006) (internal quotation marks and citations omitted). “The court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to state a claim for which relief may be granted.” Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991).

In reviewing a pro se complaint, a court applies the same legal standards applicable to pleadings counsel has drafted, but is mindful that the complaint must be liberally construed. See Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991). But “[t]he broad reading of the plaintiff’s complaint does not relieve the plaintiff of alleging sufficient facts on which a recognized legal claim could be based.” Id.

[T]he [pro se] plaintiff whose factual allegations are close to stating a claim but are missing some important element that may not have occurred to him, should be allowed to amend his complaint. Nevertheless, conclusory allegations without supporting factual averments are insufficient to state a claim on which relief can be based. This is so because a pro se plaintiff requires no special legal training to recount the facts surrounding his alleged injury, and he must provide such facts if the court is to determine whether he makes out a claim on which relief can be granted. Moreover, in analyzing the sufficiency of the plaintiff’s complaint, the court need accept as true only the plaintiff’s well-pleaded factual contentions, not his conclusory allegations.

Id. (citations omitted). The legal sufficiency of a complaint is a question of law. See Moore, 438 F.3d at 1039.

III. ANALYSIS

A. ROSEN FAILS TO STATE A CLAIM FOR RESCISSION.

In transactions covered by the TILA, the borrower is entitled to rescind the transaction. See § 1635(a). The right to rescind lasts for three days, if the lender has given the borrower the disclosures required by the TILA and a notice of the right to rescind; the right lasts up to three years if the lender fails to give the requisite disclosures and notice, unless the borrower sells or transfers the property to someone else before the end of the three-year period[4]. See § 1635(f). EquiFirst asserts that Rosen’s right to rescind expired by operation of law upon her transfer of her ownership interest in the Wellesley Drive property to Heineman and Johnson as Trustees of the Rosen Family Trust. Rosen contends, however, that because she did not actually sell the Wellesley Drive property and maintains a beneficial interest in remaining in the house (apparently by the terms of the Trust, which is not part of the record), her right to rescind has not expired.

Congress gave the Board of Governors of the Federal Reserve System broad authority to promulgate extensive regulations implementing the TILA, see 15 U.S.C. § 1604(a), which it calls Regulation Z, see 12 C.F.R. § 226.1(a). In interpreting and implementing § 1635(f), Regulation Z specifically provides that the borrower’s right to rescind immediately expires not only “upon sale of the property,” but also “upon transfer of all of the [borrower’s] interest in the property.” 12 C.F.R. § 226.23(a)(3). The parties do not point to anything within the TILA, Regulation Z, or case law that further defines the extent of the borrower’s interest that must be transferred in order to trigger expiration of the right to rescind, and the Court has found none in its own research.

But the Court concludes that the words “all of the [borrower’s] interest” means all of the borrower’s ownership or title interest for several reasons. First, the Board clarified through § 226.23(a)(3) that something less than an outright sale of the property triggers expiration of the right to rescind. Second, because TILA provides for penalties when a lender fails to comply with rescission requirements and gives the lender only twenty days to return earnest money, down payments, and accrued interest and payments and to remove the security interest after receiving notice of the recission letter, see 15 U.S.C. § 1635(b), the lender must be able to quickly ascertain whether the borrower still legally owns the property securing the loan and has a statutory right to rescind. The only way to timely accomplish this goal is to examine the real property records in the county where the real property title is recorded. If, as here, those records demonstrate that the borrower has transferred her ownership and legal interests in the property, for valuable consideration, to another entity controlled by someone other than the borrower, the lender can reasonably contest the borrower’s right to rescission without fear of penalty. Trust documents that may contractually grant various types of beneficial interests after the sale or transfer of all of a borrower’s ownership interest in property are not generally filed in the public records, and a lender should not be required to assume that a beneficial interest of some sort may secretly exist that would hypothetically extend the borrower’s right to rescission. It is therefore consistent with the TILA’s goals to interpret “interest” as “ownership interest. See Williams v. Homestake Mortgage Co., 968 F.2d 1137, 1140 (11th Cir. 1992) (noting that “another goal of § 1635(b) [‘s recission requirement] is to return the parties most nearly to the position they held prior to entering the transaction”).

“Although the right to rescind is statutorily granted [in the TILA], it remains an equitable doctrine subject to equitable considerations.. . . Thus, district courts are to consider traditional equitable notions in applying [the TILA’s] statutory grant of rescission.” Brown v. Nat’l Permanent Fed. Sav. & Loan Ass’n , 683 F.2d 444, 447 (D.C. Cir. 1982); see In re Ramirez, 329 B.R. 727, 738 (D. Kan. 2005) (stating that, “[r]escission, whether statutory or common law, is an equitable remedy. Its relief, in design and effect, is to restore the parties to their pre-transaction positions. The TILA authorizes the courts to apply equitable principles to the rescission process. . . . [W]ithin the context of the TILA, rescission is a remedy that restores the status quo ante.”). Because Rosen has transferred her ownership of the property to a third party, the parties cannot be returned to their pre-transaction positions, which would unfairly prejudice EquiFirst if she maintained the right to recission. Cf., e.g., Powers v. Sims & Levin, 542 F.2d 1216, 1221-22 (4th Cir. 1976) (holding that a court could condition the borrowers’ continuing right of rescission upon tender to the lender of all of the funds spent by the lender in discharging the earlier indebtedness of the borrowers as well as the value of the home improvements). Without legal ownership of the Wellesley property to use as security for another mortgage, Rosen most likely could not return the $198,305 EquiFirst gave to her and her creditors. Equity therefore requires that the Court interpret § 226.23(a)(3) to provide for expiration of the right to rescission upon the transfer of a borrower’s ownership interest in the property securing a loan. See Beach v. Ocwen Fed. Bank, 523 U.S. 410, 411-12, 417-19 (1998) (noting that “a statutory right of rescission could cloud a bank’s title on foreclosure, [so] Congress may well have chosen to circumscribe that risk” by “governing the life” of the right to rescission with absolute expiration provisions under § 1635(f), “while permitting recoupment damages regardless of the date a collection action may be brought,” and holding that a borrower may not assert the right to rescind as an affirmative defense in a collection action after the right has expired by operation of law).

Finally, TILA is a strict liability statute. See Mars v. Spartanburg Chrysler Plymouth, Inc., 713 F.2d 65, 67 (4th Cir. 1983) (“To insure that the consumer is protected, as Congress envisioned, requires that the provisions of [the TILA and Regulation Z] be absolutely complied with and strictly enforced.”); Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 248 (3d Cir.1980) (noting that the TILA and its regulations mandate a standard of disclosure of certain information in financing agreements and enforce that mandate by “a system of strict liability in favor of consumers who have secured financing when this standard is not met”). There should, therefore, be a bright line delineating the borrower’s and lender’s rights and responsibilities. Interpreting § 226.23(a)(3) to mean that transfer of all of the borrower’s ownership interest in the property securing a loan triggers expiration of the right to rescission preserves an easily-ascertainable bright line.

The Court concludes that, when Rosen transferred her ownership interest in the Wellesley Drive property to a Trust with Trustees other than herself on July 11, 2005, her right to rescission expired that same date by operation of law. Her May 11, 2006, recission letter was untimely and ineffective. She therefore cannot state a cause of action for rescission, and Count One must be dismissed. Accordingly, her claims stated in Count Two for monetary damages and penalties arising from Defendants’ refusal to rescind the refinancing contract must also be dismissed.

B. CLAIMS FOR DAMAGES UNDER TILA ARE TIME BARRED.

“Section 1640 is a general ‘civil liability’ section in the TILA. In subsection (a) it provides for either actual and/or statutory damages for various TILA violations” set forth in parts B, D, and E of the subchapter. Baker v. Sunny Chevrolet, Inc., 349 F.3d 862, 870 (6th Cir. 2003); § 1640(a) (providing liability for creditors who fail to comply with “any requirements imposed under this part, including any requirement under section 1635 of this title, or part D or E of this subchapter”). Count Three, for recoupment of a statutory penalty provided under § 1640 alleges violations of not only TILA, but also of various other non-TILA regulations and the New Mexico UCC. Insofar as Rosen attempts to recover damages for violation of statutes not listed in § 1640(a), she has failed to state a claim.

Further, her claims for failing to disclose information or otherwise violating subchapter B at the time of closing must be dismissed as time barred. As both U.S. Bank and EquiFirst point out, claims for damages under § 1640 of TILA have a one-year limitations period. See § 1640(e) (“Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation . . . .”). A review of Rosen’s complaint reveals that all alleged violations of subchapter B occurred at or before closing on May 17, 2005, but she did not file her complaint until more than one year later. Count Three must be dismissed.

D. ROSEN FAILS TO STATE A CLAIM FOR VIOLATION OF THE EQUAL CREDIT OPPORTUNITY ACT.

The Equal Credit Opportunity Act, codified at 15 U.S.C. § 1691-1691(f), makes it unlawful for a creditor to discriminate “on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); [] because all or part of the applicant’s income derives from any public assistance program; or [] because the applicant has in good faith exercised any right under [TILA].” § 1691(a). Rosen’s amended complaint alleges no facts to support a claim for violation of the Act, and she made no argument in her response brief to support amendment. Count Four must be dismissed.

E. RESPA CLAIMS MUST BE DISMISSED.

Rosen attempts to assert two types of claims under RESPA in Count Five of the Amended Complaint. The first is for violation, on June 21, 2005, of a provision that requires creditors to give a borrower fifteen days notice before transferring an account to a different loan servicer. See § 2605(b)(2)(A) (“Except as provided under subparagraphs (B) and (C), the notice required under paragraph (1) shall be made to the borrower not less than 15 days before the effective date of transfer of the servicing of the mortgage loan.”). To recover under § 2605, the borrower must allege and show actual damages suffered “as a result of the failure.” § 2605(f)(1)(A). If the borrower also alleges and establishes that the violation is a “pattern or practice of noncompliance,” a court may additionally award statutory damages “not to exceed $1000.” § 2605(f)(1)(B). Although the Amended Complaint neither alleges that Rosen suffered any actual damages as a result of EquiFirst’s failure to give her a full 15-days notice of the change of loan servicer, nor alleges that EquiFirst engaged in a pattern or practice of not complying with the 15-day notice requirement, Rosen requests that the Court “reduce the amount owed by Plaintiff by the amount of statutory and actual damages available under RESPA.” Am. Compl. at 22.

Because she has not alleged she suffered actual damages, the Court concludes that Rosen has failed to state a claim for damages under § 2605 and that she should not be given an opportunity to amend her complaint because none of the Defendants have attempted, in this federal suit, to bring any claims for money Rosen owes them. Any claims for recoupment that Rosen may be able to bring are relevant to the state foreclosure action and should be litigated there. Cf. Demmler v. Bank One NA, 2006 WL 640499, *5 (S.D. Ohio, Mar. 9, 2006) (alternatively holding that the plaintiff’s claims brought pursuant to TILA and other federal statutes against lending bank and challenging validity of loan were barred because they were compulsory counterclaims that should have been raised in the foreclosure action in state court).

Rosen alleges that Defendants violated § 2607 by giving “kickbacks” or engaging in “fee-splitting” on May 17, 2005, when EquiFirst paid a broker’s fee to American Mortgage as a yield-spread premium. The statute of limitations for violations of § 2607 is one year from the date the violation is alleged to have occurred. See 12 U.S.C. § 2614. The Court concludes that Rosen’s claims for violation of § 2607 are barred by the one-year statute of limitations. See Snow v. First Am. Title Ins. Co., 332 F.3d 356, 359-60 (5th Cir. 2003) (“The primary ill that § 2607 is designed to remedy is the potential for ‘unnecessarily high settlement charges,’ § 2601(a), caused by kickbacks, fee-splitting, and other practices that suppress price competition for settlement services. This ill occurs, if at all, when the plaintiff pays for the service, typically at the closing. Plaintiffs therefore could have sued at that moment, and the standard rule is that the limitations period commences when the plaintiff has a complete and present cause of action.”) (internal quotation marks and bracket omitted). Rosen’s argument that her claim survives the one-year statute of limitations because it is one for recoupment is unavailing because Defendants have not sued her by way of counter-claim in this federal suit. Again, any claims for recoupment should have been brought as a defense in the state foreclosure action. See 15 U.S.C. § 1640(e); Beach, 523 U.S. at 417-19.

F. THE COURT WILL NOT TAKE SUPPLEMENTAL JURISDICTION OVER POTENTIAL STATE-LAW CLAIMS.

The Tenth Circuit has instructed district courts that, when federal jurisdiction is based solely upon a federal question, absent a showing that “the parties have already expended a great deal of time and energy on the state law claims, . . . a district court should normally dismiss supplemental state law claims after all federal claims have been dismissed, particularly when the federal claims are dismissed before trial.” United States v. Botefuhr, 309 F.3d 1263, 1273 (10th Cir. 2002); see Sawyer v. County of Creek, 908 F.2d 663, 668 (10th Cir. 1990) (“Because we dismiss the federal causes of action prior to trial, we hold that the state claims should be dismissed for lack of pendent jurisdiction.”). None of the factors identified in Thatcher Enterprises v. Cache County Corp., 902 F.2d 1472, 1478 (10th Cir. 1990) — “the nature and extent of pretrial proceedings, judicial economy, convenience, or fairness” — would be served by retaining jurisdiction over any potential state-law claim in this case. No discovery has been conducted in this case, and no energy has been expended on the potential state-law claims. The Court will dismiss Rosen’s state-law claims for violation of the New Mexico Unfair Practices Act contained in Count Six of her amended complaint.

NOW, THEREFORE, IT IS ORDERED that all Counts of Rosen’s federal complaint are DISMISSED.

[1] “YSP” is an abbreviation for “yield spread premium” and “POC” is an abbreviation for “paid outside closing.” Am. Compl., Ex. H

[2] Although Rosen cites 12 U.S.C. § 1207(a) as the statute violated, there is no such statute and her citation to 24 C.F.R. § 3500.14 refers to violations of § 2607. The Court therefore construes her complaint to allege violations of § 2607.

[3] See footnote 2.

[4] Section 1635 provides, in relevant part:

(a) Disclosure of obligor’s right to rescind

Except as otherwise provided in this section, in the case of any consumer credit transaction . . . in which a security interest . . . is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section.

. . . .

(f) Time limit for exercise of right

An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor . . . .

Wells Fargo, Option One, American Home Mortgage Relationship

Wells Fargo Bank, N.A. appears in many ways including as servicer (America Servicing Company), Trustee (although it does not appear to be qualified as a “Trust Company”), as claimed beneficiary, as Payee on the note, as beneficiary under the title policy, as beneficiary under the property and liability insurance, and it may have in actuality acted as a mortgage broker without getting licensed as such.

In most securitized loan situations, Wells Fargo appears with the word “BANK” used, but it acted neither as a commercial nor investment bank in the deal. Sometimes it acted as a commercial bank meaning it processed a deposit and withdrawal, sometimes (rarely, perhaps 3-4% of the time) it did act as a lender, and sometimes it acted as a securities underwriter or co-underwriter of asset backed securities.

It might also be designated as “Depositor” which in most cases means that it performed no function, received no money, disbursed no money and neither received, stored, handled or transmitted any documentation despite third party documentation to the contrary.

In short, despite the sue of the word “BANK”, it was not acting as a bank in any sense of the word within the securitization chain. However, it is the use of the word “BANK” which connotes credibility to their role in the transaction despite the fact that they are not, and never were a creditor. The obligation arose when the funds were advanced for the benefit of the homeowner. But the pool from which those funds were advanced came from investors who purchased certificates of asset backed securities. Those investors are the creditors because they received a certificate containing three promises: (1) repayment of principal non-recourse based upon the payments by obligors under the terms of notes and mortgages in the pool (2) payment of interest under the same conditions and (3) the conveyance of a percentage ownership in the pool, which means that collectively 100% of the ivnestors own 100% of the the entire pool of loans. This means that the “Trust” does NOT own the pool nor the loans in the pool. It means that the “Trust” is merely an operating agreement through which the ivnestors may act collectively under certain conditions.  The evidence of the transaction is the note and the mortgage or deed of trust is incident to the transaction. But if you are following the money you look to the obligation. In most  transactions in which a residential loan was securitized, Wells Fargo did not work under the scope of its bank charter. However it goes to great lengths to pretend that it is acting under the scope of its bank charter when it pursues foreclosure.

Wells Fargo will often allege that it is the holder of the note. It frequently finesses the holder in due course confrontation by this allegation because of the presumption arising out of its allegation that it is the holder. In fact, the obligation of the homeowner is not ever due to Wells Fargo in a securitized residential note and mortgage or deed of trust. The allegation of “holder” is disingenuous at the least. Wells Fargo is not and never was the creditor although ti will claim, upon challenge, to be acting within the scope and course of its agency authority; however it will fight to the death to avoid producing the agency agreement by which it claims authority. remember to read the indenture or prospectus or pooling and service agreement all the way to the end because these documents are created to give an appearance of propriety but they do not actually support the authority claimed by Wells Fargo.

Wells Fargo often claims to be Trustee for Option One Mortgage Loan Trust 2007-6 Asset Backed Certificates, Series 2007-6, c/o American Home Mortgage, 4600 Regent Blvd., Suite 200, P.O. Box 631730, Irving, Texas 75063-1730. Both Option One and American Home Mortgage were usually fronts (sham) entities that were used to originate loans using predatory, fraudulent and otherwise illegal loan practices in violation of TILA, RICO and deceptive lending practices. ALL THREE ENTITIES — WELLS FARGO, OPTION ONE AND AMERICAN HOME MORTGAGE SHOULD BE CONSIDERED AS A SINGLE JOINT ENTERPRISE ABUSING THEIR BUSINESS LICENSES AND CHARTERS IN MOST CASES.

WELLS FARGO-OPTION ONE-AMERICAN HOME MORTGAGE IS OFTEN REPRESENTED BY LERNER, SAMPSON & ROTHFUSS, more specifically Susana E. Lykins. They list their address as P.O. Box 5480, Cincinnati, Oh 45201-5480, Telephone 513-241-3100, Fax 513-241-4094. Their actual street address is 120 East Fourth Street, Suite 800 Cincinnati, OH 45202. Documents purporting to be assignments within the securitization chain may in fact be executed by clerical staff or attorneys from that firm using that address. If you are curious, then pick out the name of the party who executed your suspicious document and ask to speak with them after you call the above number.

Ms. Lykins also shows possibly as attorney for JP Morgan Chase Bank, N.A. as well as Robert B. Blackwell, at 620-624 N. Main street, Lima, Ohio 45801, 419-228-2091, Fax 419-229-3786. He also claims an office at 2855 Elm Street, Lima, Ohio 45805

Kathy Smith swears she is “assistant secretary” for American Home Mortgage as servicing agent for Wells Fargo Bank. Yet Wells shows its own address as c/o American Home Mortgage. No regulatory filing for Wells Fargo acknowledges that address. Ms. Smith swears that Wells Fargo, Trustee is the holder of the note even though she professes not to work for them. Kathy Smith’s signature is notarized by Linda Bayless, Notary Public, State of Florida commission# DD615990, expiring November 19, 2010. This would indicate that despite the subject property being in Ohio, Kathy Smith, who presumably works in Texas, had her signature notarized in Florida or that the Florida Notary exceeded her license if she was in Texas or Ohio or wherever Kathy Smith was when she allegedly executed the instrument.

Discovery, Forensic Analysis and Motion Practice: The Prospectus

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

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

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

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

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

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

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

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

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

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

This RMBS “Trust” has quit reporting to the SEC in 2007

Here is a direct link to this particular “Trust”…

http://sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001352650&owner=exclude&count=40

The PSA is contained within the 330 page Prospectus (424B5). I have not found any of the other relevant “Purchase Agreements” …

This “Trust” has quit reporting to the SEC in 2007 yet is still actively providing monthly payments to the Investors according to the Deutsche Bank Investor Site:

https://tss.sfs.db.com/investpublic/

1. Click on RMBS on the left side…

2. Click on Ameriquest…

3. Click on Ameriquest Mortgage Securities…

4. Click on 2006-R1

There you will find ALL monthly reports/statements for this “Trust” Deutsche is claiming to be “Trustee” of.

This is still an “Active” Trust without having any oversight by the SEC!!!

On a Side Note, I have also discovered today that when we filed our “Quiet Title” action in October 2009, our “Attorney” never even recorded a Lis Pendens which would have prevented them from even completing and recording the Sheriff Sale Certificate…he told me it “wasn’t needed”.

Any thoughts???

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