RESCISSION: It’s time for another slap on the wrist for state and federal judges.

Posted on February 2, 2017 by Neil Garfield

50 years ago Congress decided to slap punitive measures on lenders who ignore or attempt to go around (table-funded loans) existing laws on required disclosures — instead of creating a super agency that would review every loan closing before it could be consummated. So it made the punishment so severe that only the stupidest lenders would attempt to violate Federal law. That worked for a while — until the era of securitization fail. (Adam Levitin’s term for illusion under the cloak of false securitization).

Draconian consequences happen when the “lender” violates these laws. They lose the loan, the debt (or part of it), their paper is worthless and the disgorgement of all money ever paid by borrower or received by anyone arising out of the origination of the loan.

But Judges have resisted following the law, leaving the “lenders” with the bounty of ill-gotten gains and no punishment because judges refuse to do it —even after they received a slap on their wrists by the unanimous SCOTUS decision in Jesinoski. Now they will be getting another slap — and it might not be just on the wrists, considering the sarcasm with which Scalia penned the Jesinoski opinion.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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TILA rescission is mainly a procedural statute under 15 USC §1635. Like Scalia said in the Jesinoski case it specifically states WHEN things happen. It also makes clear, just as the unanimous court in Jesinoski made clear that no further action was required — especially the incorrect decisions in thousands of cases where the judge said that the rescission under TILA is NOT effective until the borrower files a lawsuit. What is clear from the statute and the regulations and the SCOTUS decision is that rescission is effective on the date of notice, which is the date of mailing if the borrower uses US Mail.

There are several defenses that might seem likely to succeed but those defenses (1) must be filed by a creditor (the note and mortgage are void instruments the moment that rescission notice is sent) (2) hence the grounds for objection are not “defenses” but rather potential grounds to vacate a lawful instrument that has already taken effect. Whether the right to have sent the notice had expired, or whether the right to rescind the putative loan is not well-grounded because of other restrictions (e.g. purchase money mortgage) are all POTENTIAL grounds to vacate the rescission — as long as the suit to vacate the rescission is brought by a party with legal standing.

A party does not have legal standing if their only claim to standing is that they once held a note and mortgage that are now void. {NOTE: No party has ever filed an action to vacate the rescission because (1) they have chosen to ignore the rescission for more than 20 days and thus subject to the defense of statute of limitations to their petition to vacate and (2) they would be required to state the rescission was effective in order to get relief and (3) there is a very high probability that there is no formal creditor that was secured by the mortgage encumbrance of record. The latter point about no formal creditor would also mean that the apparent challenge to the rescission based upon the “purchase money mortgage” “exception” would fail.}

The premise to this discussion is that the so-called originator was not the source of funds. This in my opinion means that there never was consummation — despite all appearances to the contrary.

The borrower was induced to sign a note and mortgage settlement statements and acknowledgement of disclosures and right to rescind under the false premise that the originator was the lender, as stated on the note and mortgage.

The resulting execution of documents thus produced the following results: (1) the putative borrower has signed the “closing documents” and (2) the originator neither signs those documents nor lends any money. This results in an executory contract without consideration which means an unenforceable partially completed documentary trail that creates the illusion of a normal residential loan closing.

TILA Rescission is effective at the time that the borrowers notify any one of the players who represent themselves as being servicer, lender, assignee or holder. The effect of rescission is to cancel the loan contract and that in turn makes the note and mortgage void, not voidable. That the note and mortgage become void is expressly set forth in the authorized regulations (Reg Z) promulgated by the Federal Reserve and now the Consumer Financial Protection Board (CFPB). There is no lawsuit that is required or even possible for the putative borrower to file — i.e., there is no present controversy because the loan “contract” to the extent it exists has already been canceled and the note and mortgage have already been rendered void.

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FDUTPA:”Per Se” Violations of Deceptive or Unfair trade Practices Under Federal or State Law

Posted on January 25, 2017 by Neil Garfield

a per se violation of TILA or any other Federal or State law makes the act also per se violations of the FTC act, (and the applicable little FTC acts passed in various states). Florida is used here as an example. 

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Anyone who has done even the most cursory research knows that a pattern of behavior in which the name of the creditor or lender is withheld is a “per se” predatory loan. While Judges don’t care whether the borrower knows the actual lender, clearly Congress, the U.S. Supreme Court and the executive branch DO care ( and so their state counterparts); the courts are required to follow the law not create it by inaction or action contrary to the express wording of statutes. As we have discussed this will be shortly revealed as the rescission cases go back to SCOTUS which has already ruled unanimously that there is nothing wrong with the rescission statute, it clearly states the procedures and nothing unconstitutional about its process or effect.
 
Pretender lenders are rushing as many cases to forced sale through foreclosure because their days are numbered in which they can continue to do so. One reason is that their violations of Federal and State statutes prohibiting unfair trade practices are violations per se and another is that their violations are still prosecutable even if they are not on some list somewhere in some statute or group of cases interpreting deceptive trade and lending practices. 
 
For along time, it has been known, accepted and understood that withholding the name of the actual lender as a matter of practice makes each such loan and each such practice “predatory per se” under Reg Z of the Federal truth in Lending Act. The purpose of this article is to suggest that a per se violation of TILA or any other Federal or State law makes the act also per se violations of the FTC act, (and the applicable little FTC acts passed in various states). Florida is used here as an example. 
 
While the recognition that the alleged loan transaction was by definition unto itself predatory, there has been no attempt or agreement to arrive at any consequences that should befall the “ pretender lender” violator because TILA has enforcement provisions and self executing punishment like TILA rescission but it does not specifically provide an easy route to assessing substantial damages by way of disgorgement, which probably cannot be barred by the defense of the statute of limitations. 
 
If a loan is predatory per se under Reg Z as a table funded loan then it is hard to imagine how that act of “lending” would not also be a per se violation of the FTCA and, in Florida, the FDUTPA 501.204 et seq. A table funded loan by definition withholds the identity of the true lender. Table funded loans were not only part of the pattern and practice of creating illusions they called “loans” but became industry standard.
 
 It is neither an exaggeration nor over-reaching to say that table funded loans that were predatory per se became industry practice from around 2001 through the present. In other words it became industry standard to violate the Federal Truth in Lending Act, the FTC Act, and the state versions of the FTC act (in Florida §501.204 et seq). As we have seen with construction defect lawsuits starting back in the 1970’s, the fact that it became custom and practice to violate the the local building codes does not in any way raise a valid defense to violating those codes. 
 
This would fall under the Florida FDUTPA category of “Per Se by Description. “ It doesn’t matter whether the judge “feels” that some bank or “lender” or “servicer” might be hurt. That question has been decided by the Federal legislative branch, the Federal Executive Branch and the Federal Judicial branch as enunciated by the highest court in the land. Under the powers vested in the Federal government laws were passed in which the Federal government pre-empted or restricted state action in circumstances where ordinary consumers were fooled by deceptive practices. And the test is whether the least sophisticated and most gullible consumer was tricked and hurt by the trick. The same line of thought applies to state laws like the little FTC act in Florida.
 
Once the violation becomes a per se violation, the question is not whether there is injury but rather how much should be awarded to the consumer as a punishment to the violator and as a means to settle the score with the consumer. This calls for disgorgement which is not considered to be “damages” since it is described as merely preventing the violator from keeping ill-gotten gains. Attorneys fees and court costs are almost always provided by the Federal and state FTC statutes. The violations under the FDCPA may be barred by the expiration of a statute of limitations but the per se violations of the of the FDCPA and its equivalent state statutes probably is a trigger for declaring the FDCPA violation a per se violation which in turn triggers the rest of the applicable statutes for disgorgement of ill-gotten gains. 
 
•Per Se by Description
The reference in §501.203(3)(a) and (c) to FDUTPA violations based on FTC or FDUTPA rules, or “[a]ny law, statute, rule, regulation, or ordinance” can further be interpreted as a formal acknowledgment of violations of a second type of per se violation which occurs when a rule, statute, or ordinance is violated, and the rule, statute, or other ordinance expressly describes unfair, deceptive, or unconscionable conduct, without necessarily referring expressly to FDUTPA.
 
•Rules Adopted by the FTC
Pursuant to the FTC act, the FTC has adopted rules which describe unfair or deceptive acts in several contexts, and which appear in 16 C.F.R. ch. 1, subch. D, entitled “Trade Regulation Rules.” Some of the more well known of these include the FTC rules governing door-to-door sales,16 franchises,17 holders in due course,18 negative option sales plans,19 funeral industry practices,20 and mail or telephone order sales.21 According to the definition of “violation of this part,” in §501.203(3)(a) a violation of FDUTPA can occur when federal administrative rules promulgated by the Federal Trade Commission pursuant to the FTC act are violated. Along these lines, the 11th Circuit has confirmed that §501.203(3)(a) of FDUTPA creates a private cause of action for violation of an FTC rule even though none exists under federal law.22
 
[Whether  or not the facts alleged by the consumer are sufficient for rescission, damages remain available under the FTC act and little FTC acts in various states. The damages extend up to and including all money paid by the debtor. And according to recent case law following a long prior tradition, the statute of limitations does not apply to petitioners for disgorgement of ill-gotten gains.  16 CFR 433 — Preservation of consumer claims and defenses, unfair or deceptive acts or practices]

120510advisoryopinionholderrule

Much of the material for this article has been inspired by the following article:
Florida Bar Journal May, 2002, Volume LXXVI, No. 5 Page 62 by Mark S. Fistos. “Per Se Violations of Florida Deceptive and Unfair Practices Act §501.204(1)”
Relevant passages quoted:
 
FDUTPA broadly declares in §501.204(1) that “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce” are unlawful. By design, FDUTPA does not contain a definition or “laundry list” of just which acts can be “deceptive,” “unfair,” or “unconscionable.” No specific rule or regulation is required to find conduct unfair or deceptive under the statute.1
 
There is, however, an entire body of state and federal rules, ordinances, and statutes which serves to identify specific acts that constitute automatic violations of FDUTPA’s broad proscription in §501.204(1). These rules, ordinances, and statutes, if violated, constitute “per se” violations of FDUTPA, and could automatically expose parties to actual damages, injunctions, and civil penalties up to $15,000 per violation. An assessment of potential per se FDUTPA violations, therefore, should play a part in any commercial law practice, and is imperative for any lawyer bringing or defending against a claim for deceptive or unfair trade practices.
 
Approaches to FDUTPA Liability
There are two basic approaches to analyzing FDUTPA liability: one is to determine whether an act or practice in trade or commerce violates broadly worded standards relating to unfairness, deception, unconscionable acts or practices, or unfair methods of competition; a second is to assess whether conduct in trade or commerce constitutes a per se violation.2
FDUTPA tracks the broad language of the Federal Trade Commission Act (FTC act)3and declares “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce” to be unlawful. Subsection 501.204(2) of FDUTPA in turn provides that “due consideration and great weight” be given interpretations by federal courts and the Federal Trade Commission of what constitutes unfairness and deception.
 
Based on FTC interpretations and federal case law dating from the 1960s, Florida courts have adopted and applied in various contexts a broadly worded standard of unfairness under which a practice is unfair, “if it offends public policy and is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”4

Categories of Per Se Violations

The rules, regulations, ordinances, and statutes referenced in the above-quoted §501.203(3) refer to sources which may serve as a basis for a per se FDUTPA violation. These sources can be broken down into three categories:
1) Per se violations whereby a statute, ordinance, or rule expressly refers to FDUTPA and provides a violation thereof to be a violation of FDUTPA; [per se by reference]
2) Per se violations whereby a statute, ordinance, or rule expressly describes deceptive, unconscionable, or unfair conduct without referring expressly to FDUTPA and when violated constitutes a per se violation of FDUTPA; [per se by description] and
3) Per se violations whereby a court, in the absence of any such reference or description, construes a statute, ordinance, or rule to be a per se violation of FDUTPA.
 
Examples from Footnotes: Fla. Stat. §§210.185(5) (cigarette distribution), 320.03(1) (DHSMV agents), 320.27(2) (vehicle dealer licensing), 624.125(2) (service agreements), 681.111 (lemon law), 501.97(2) (location advertising), 400.464(4)(b) (home health agencies), 400.93(6)(b) (home medical equipment providers), 483.305(3) (multiphasic health testing centers), 496.416 (charitable contributions), 501.160(3) (price gouging), 501.0579 (weight loss centers), 501.34 (aftermarket crash parts), 509.511 (campground memberships), 559.934 (sellers of travel), 624.129(4) (location and recovery services), 817.62(3)(c) (credit card factoring);Code of Ordinances, City of Ft. Walton Beach, Florida §23-145(a) (title loans).

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Problems with Lehman and Aurora

Posted on August 23, 2016 by Neil Garfield

Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.

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

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I keep receiving the same question from multiple sources about the loans “originated” by Lehman, MERS involvement, and Aurora. Here is my short answer:
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Yes it means that technically the mortgage and note went in two different directions. BUT in nearly all courts of law the Judge overlooks this problem despite clear law to the contrary in Florida Statutes adopting the UCC.

The stamped endorsement at closing indicates that the loan was pre-sold to Lehman in an Assignment and Assumption Agreement (AAA)— which is basically a contract that violates public policy. It violates public policy because it withholds the name of the lender — a basic disclosure contained in the Truth in Lending Act in order to make certain that the borrower knows with whom he is expected to do business.

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Choice of lender is one of the fundamental requirements of TILA. For the past 20 years virtually everyone in the “lending chain” violated this basic principal of public policy and law. That includes originators, MERS, mortgage brokers, closing agents (to the extent they were actually aware of the switch), Trusts, Trustees, Master Servicers (were in most cases the underwriter of the nonexistent “Trust”) et al.
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The AAA also requires withholding the name of the conduit (Lehman). This means it was a table funded loan on steroids. That is ruled as a matter of law to be “predatory per se” by Reg Z.  It allows Lehman, as a conduit, to immediately receive “ownership” of the note and mortgage (or its designated nominee/agent MERS).
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Lehman was using funds from investors to fund the loan — a direct violation of (a) what they told investors, who thought their money was going into a trust for management and (b) what they told the court, was that they were the lender. In other words the funding of the loan is the point in time when Lehman converted (stole) the funds of the investors.

Knowing Lehman practices at the time, it is virtually certain that the loan was immediately subject to CLAIMS of securitization. The hidden problem is that the claims from the REMIC Trust were not true. The trust having never been funded, never purchased the loan.

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The second hidden problem is that the Lehman bankruptcy would have put the loan into the bankruptcy estate. So regardless of whether the loan was already “sold” into the secondary market for securitization or “transferred” to a REMIC trust or it was in fact owned by Lehman after the bankruptcy, there can be no valid document or instrument executed by Lehman after that time (either the date of “closing” or the date of bankruptcy, 2008).

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The reason is simple — Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.

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The problems are further compounded by the fact that the “servicer” (Aurora) now claims alternatively that it is either the owner or servicer of the loan or both. Aurora was basically a controlled entity of Lehman.

It is impossible to fund a trust that claims the loan because that “reporting” process was controlled by Lehman and then Aurora.

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So they could say whatever they wanted to MERS and to the world. At one time there probably was a trust named as owner of the loan but that data has long since been erased unless it can be recovered from the MERS archives.

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Now we have an emerging further complicating issue. Fannie claims it owns the loan, also a claim that is untrue like all the other claims. Fannie is not a lender. Fannie acts a guarantor or Master trustee of REMIC Trusts. It generally uses the mortgage bonds issued by the REMIC trust to “purchase” the loans. But those bonds were worthless because the Trust never received the proceeds of sale of the mortgage bonds to investors. Thus it had no ability to purchase loan because it had no money, business or other assets.

But in 2008-2009 the government funded the cash purchase of the loans by Fannie and Freddie while the Federal Reserve outright paid cash for the mortgage bonds, which they purchased from the banks.

The problem with that scenario is that the banks did not own the loans and did not own the bonds. Yet the banks were the “sellers.” So my conclusion is that the emergence of Fannie is just one more layer of confusion being added to an already convoluted scheme and the Judge will be looking for a way to “simplify” it thus raising the danger that the Judge will ignore the parts of the chain that are clearly broken.

Bottom Line: it was the investors funds that were used to fund loans — but only part of the investors funds went to loans. The rest went into the pocket of the underwriter (investment bank) as was recorded either as fees or “trading profits” from a trading desk that was performing nonexistent sales to nonexistent trusts of nonexistent loan contracts.

The essential legal problem is this: the investors involuntarily made loans without representation at closing. Hence no loan contract was ever formed to protect them. The parties in between were all acting as though the loan contract existed and reflected the intent of both the borrower and the “lender” investors.

The solution is for investors to fire the intermediaries and create their own and then approach the borrowers who in most cases would be happy to execute a real mortgage and note. This would fix the amount of damages to be recovered from the investment bankers. And it would stop the hemorrhaging of value from what should be (but isn’t) a secured asset. And of course it would end the foreclosure nightmare where those intermediaries are stealing both the debt and the property of others with whom thye have no contract.

GET A CONSULT!

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“Lost” Note Found and Linda Green Assignments

Posted on July 15, 2016 by Neil Garfield

Virtually none of the nonjudicial or judicial foreclosures can be won by banks without use of legal presumptions that lead the court to assume facts that are plainly untrue.

The bottom line is that the rules of evidence require proof of the transaction chain with no right to rely on legal presumptions. The banks can’t do that. Press hard on this issue and experience shows that at the very least a good settlement is in the offing and even a perfectly good judgment for the homeowner would be rendered.

The bottom line to keep your eye on the ball is that the Trust doesn’t own the note and never did; the same thing applies to nearly all bogus “beneficiaries” and “mortgagees.”

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

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We have all known that the banks, servicers and trustees have been fabricated, back-dating and forging documents. And they continue to do it because they are getting away with it. In all but a few cases Judges uphold bank objections to reveal the transaction chain in which money is actually exchanged.
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So banks are winning cases based upon legal presumptions stemming from the facial “validity” of the documents. By admitting fabricated documents into evidence and applying, without proper objection, legal presumptions that remove the obligation to actually prove their case, the banks win.
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Homeowners are defenseless because even though they and their attorneys know this is a farce, they have no way to prove it except by access to the only entities that actually have records in which the absence of a real transaction that ever took place — including both the origination of the alleged loan and the presumed acquisition of the loan. .
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But there are several circumstances in which one can argue that the legal presumptions should not be applied and in the absence of the required proof, the party seeking foreclosure can be showed to lack standing. Take for example the lost note, later abandoned and the robo-signed assignment executed by a known robo-signer, which is also later abandoned.
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The lost note is intended to be straight forward — a pleading that says the note was lost, that due diligence has been performed, that the present claimant owns or holds the original note and that the note has not been otherwise negotiated.  It is a lie of course. They never had the note because ti was destroyed intentionally. But they also don’t want to be subject to discovery or requirements of proof as to the chain of possession and the chain of transactions that would prove that the present holder actually owns or holds the note.
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So the tactic employed is to “withdraw” the count stating that the note is lost. And there is where the opportunity for the homeowner comes into play. If they have admitted losing the note, they are admitting that the chain might be broken. By simply withdrawing the lost note count without explanation they have failed to explain how it was found, where it was found and why it was lost.
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In other words the possibility that the note has already been negotiated is still present and the possibility exists that the “original” note is not an original but rather a mechanical reproduction — which leaves the question of the banks either admitting they destroyed it (and explaining that in pleadings, proof at trial or both) or admitting that they cannot produce admissible evidence that they actually own the debt, loan, note or mortgage.
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This possibility is raised to a probability once you establish at least “probable cause” to believe that the foreclosing party is relying upon the utterance of false or fraudulent documentation, at which point they are stripped or should be stripped of the benefits of a legal presumptions that the documents upon which they are relying are true.
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Even if they can come up with the actual original “original” note, they have already put on record that they lost it. Now they withdraw Count I without any amendment to the complaint explaining what happened to the note with no certification of possession and no documents attached to the complaint showing endorsement or assignment at the time of the filing of the lawsuit except that the Linda Green “assignment” was supplied and later abandoned after all the publicity about her which is now in the records I have sent to you.

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So you have 2 “abandonments”: the allegation that the note was lost and the assignment executed by a robo-signer. The banks cover this deficiency by still more paper  — in which the banks file a “corrective” assignment that might withstand scrutiny in place of the original fabricated and forged assignment.
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They want the court to assume that since it is merely a “corrective” assignment that it relates back to the original assignment. But there is no legal presumption that covers that. So if they want to relate the assignment produced AFTER suit was filed with the bogus assignment dated BEFORE the lawsuit was filed then they should be required under the rules of evidence to show and when the assignment really related back to the time they of the transaction in which ownership and rights to enforce were transferred.
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The burden is on the banks to show they had standing before suit was filed or foreclosure was initiated. If they can’t prove by testimony and evidence of proof of payment that they had a transaction in which the loan, debt, note or mortgage was acquired by purchase and sale BEFORE the action was commenced, then they are stuck with their “Corrective” assignment which is obviously filed AFTER the foreclosure suit or forced sale was initiated. ( I need not explore here what they mean by :corrective” other than to say that naming it as a “corrective assignment” doesn’t make it relate back to the prior one.)
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So the only operative assignment is a “corrective” assignment that was filed AFTER the lawsuit was filed. We have no explanation of the chain of possession and there should be no presumptions about the chain of possession since it was their own pleadings that raised the issue.

The only way they reconcile this is by proving that they had an actual transaction resulting in the assignment (the equivalent of a bill of sale) BEFORE the lawsuit. But they have no records listed on their exhibit list showing that they intend to show they actually purchased the loan, debt, note or mortgage before suit was filed. The reason is simple — there was no such transaction. But this time they are not entitled to presumptions since the use of Linda Green’s signature (or some other robo-signor) that was clearly robo-signed has been abandoned and the trustworthiness of the documents are clearly in doubt.

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Under Florida Rules of Evidence on presumptions the proponent must now actually prove an actual transaction without benefit of the legal presumption where the document is at least dubious and does not scream out trustworthiness.

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This could be argued to the Judge as a simple burden of proof problem. The banks must prove their case. The banks have a history in this case of using a fabricated, forged document that they have tacitly admitted by their abandonment of the Linda Green assignment. Therefore they still have a possible case but they must prove the facts of the origination of the loan and the transfers of the loan without benefit of presumptions that those transactions actually took place.

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So you have two problems here that go against the Bank — the failure to explain chain of custody of the lost note and the failure to have an assignment before suit is filed.On both issues there is plenty of case law that says the banks lose in that scenario. But failure to object and I might add failure to educate the judge as to your theory of the case could be fatal.

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So I am suggesting to most lawyers who are not already doing that they file a pretrial memorandum outlining the issues for trial and why you think the court’s ruling’s on evidence should favor of the borrower. There is no real prejudice if the transactions actually took place.

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The only prejudice is that they need to spend a few more minutes showing that the bank, trustee, servicer or whoever paid for the acquisition fo the note and perhaps that the originator actually paid to fund the loan for which the originator is given credit on the note and mortgage.

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If the originator did not fund the loan, that would obviously explain the absence of an actual transaction in which the originator received consideration for the transfer of the loan papers improperly naming the originator as the lender. And it would explain the large fees paid to originator to engage in this pretense despite the Reg Z definition of table funded loans as “predatory per se.”

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Rescission enforcement actions are the next really big thing

Posted on June 8, 2015 by Neil Garfield
For more information on rescission, our rescission package or any other topic, please call 954-495-9867 nor 520-405-1688.
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Rescission enforcement actions are the next really big thing. Its effect is to immediately unencumber the property from any claims of lien or mortgage and any claim on the note which is void and must be returned marked “cancelled”. If the parties collecting or enforcing the loans really have a right to do so they may demonstrate that in court by filing a lawsuit to set aside the rescission based upon any factual grounds they wish to raise, applying the rules of the TILA statutory scheme for rescission. But if they don’t do that within 20 days they waive their defenses. AND if they don’t comply with TILA by returning the canceled note, filing a satisfaction of mortgage and returning all money paid by borrower, then they are barred from making even an unsecured claim for “damages.”
The action to enforce rescission would essentially consist of an allegation that the notice was sent, it has been more than 20 days since the notice was sent, and therefore the parties claiming to be creditors owe (1) return of canceled note, (2) filing a satisfaction of mortgage and (3) return of all money paid by borrower since the inception of the alleged loan contract. We will refuse to get into an argument about whether the rescission should have been sent. THAT is something that the parties would have had to allege in a lawsuit against the borrower(s) to set the rescission aside.

According to TILA, Reg Z and the US Supreme Court (Jesinowski decision) the rescission IS effective (by operation of law) the moment it is put in US Mail. The borrower does not have to be right to send it. THAT issue is left to the banks and servicers to allege in a lawsuit to vacate the rescission. And they must do so within 20 days. All issues that are confusing everyone — statute of limitations, purchase money first mortgage, etc. are questions of fact that need to be raised by the other side. They cannot do so after 20 days. We would move to strike those defenses when raised in our lawsuit to enforce rescission.

There are dozens of lawyers across the country that agree with my interpretation of the TILA rescission statutes and who are filing these rescission enforcement actions. In some cases, Ocwen has agreed that the rescission is effective and even agreed that the original payee was not the lender. That is an interesting juxtaposition of theories. Because if there was no funding by the payee on the note (“lender”) then there is no loan contract. If there is no loan contract, there is nothing to rescind. But the rescission under TILA might still apply as to the note and mortgage and the right to obtain disgorgement of money paid by borrower might be partially blocked by the standard statute of limitations governing contract disputes or the statute regarding tort actions.

It sounds weird, I know. But the fact is that Congress specifically decided that the act of the borrower in sending a notice of rescission cancels the loan and Reg Z (Federal Reserve) says that by operation of law that means the note and mortgage become void as of the date of mailing of the notice of rescission. Void means void, not voidable. It means that the the note and mortgage no longer exist and that is final. So even if the “lender” tries to bring a lawsuit to set aside the rescission they would need to establish standing presumably without the note and mortgage which can no longer be used because they are void. Standing could only be established by alleging that the pleading party is suffering actual damages — which is not really possible if they never paid anything for the loan and even if they did, is also not possible since they still could bring a claim against the borrower (unsecured) for the money that is due as the balance of the loan.

Congress specifically provided this method so that the old “lender” could not block the ability of the borrower to get another loan from a different (and presumably real) lender which would have first priority and would enable the borrower to either pay the old lender or not (if the old lender had not complied with TILA as to its duties in the event of rescission).

It was the specific intent to prevent the old “lender” from stonewalling and thus trap the borrower into a deal he or she didn’t want. And THAT is why the rule is that the note and mortgage are VOID by operation of law regardless of whether or not the “lender” returns the cancels note, satisfies the mortgage or pays the money to disgorge all funds paid by borrower starting with the origination fees, cost of closing and all interest and principal paid up to the date of the rescission.

NOTE: THE RESCISSION IS PROBABLY VOID IF THERE IS NO LOAN CONTRACT LEFT IN EXISTENCE WHEN THE NOTICE IS SENT. IF THERE IS NO CONTRACT THEN THERE IS NOTHING TO RESCIND. THUS I CONCLUDE THAT IF THE SALE HAS OCCURRED, THE NOTE AND MORTGAGE DON’T EXIST ANYMORE AND RESCISSION MIGHT NOT BE POSSIBLE. IF JUDGMENT HAS BEEN ENTERED, THE ISSUE IS LESS CLEAR BECAUSE THE RIGHT TO REDEEM STILL EXISTS.

NOTE: THIS IS NOT A LEGAL OPINION ON ANY SPECIFIC CASE. READERS SHOULD CONSULT WITH A QUALIFIED ATTORNEY WHO IS LICENSED IN THEIR JURISDICTION.

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Statute of LImitations Running on Bank Officers Who Perpetrated Mortage Crisis

Posted on April 28, 2015 by Neil Garfield

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

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see http://www.courant.com/opinion/letters/hc-go-after-mortgage-fraud-perps-20150427-story.html

It appears that the statute of limitations might be running out this year on any claim against the officers of the banks that created the fraudulent securitization process. Eric Holder, outgoing Attorney general, made an unusual comment a few months back where he said that private suits should be brought against such officers. The obvious question is why didn’t he bring further action against these individuals and the only possible answer I can think of is that it was because of an agreement not to prosecute while these officers and their banks “cooperated” in resolving the mortgage crisis and the downturn of the US economy.

People keep asking me what the essential elements of the fraud were and how homeowners can use it. That question involves a degree of complexity that is not easily addressed here but I will try to do so in a few articles.

The first point of reference is that the investment banks sold mortgage backed securities to investors under numerous false premises. The broker dealers sold shares or interests in REMIC Trusts that existed only on paper and were registered nowhere. This opened up the possibility for the unthinkable: an IPO (initial public offering) of securities of an “entity” that would not complain if they never received the proceeds of the sale. And in fact, as I have been advised by accountants and other people who were privy to the inner workings of the Securitization fail (See Adam Levitin) the money from the offering was never turned over to the Trustee of the “Trust” which only existed on paper by virtue of words written by the broker dealers themselves. They created a non existent entity that had no business and sold securities issued by that entity without turning over the proceeds of sale to the entity whose securities had been sold. It was the perfect plan.

Normally if a broker dealer sold securities in an IPO the management and shareholders would have been screaming “fraud” as soon as they learned their “company” was not receiving the proceeds of sale. Here in the case of REMIC Trusts, there was no management because the Trustee had no duties and was prohibited from pretending that it did have any duties. And here in the case of REMIC Trusts, there were no shareholders to complain because they were contractually bound (they thought) to not interfere with or even ask questions about the workings of the Trust. And of course when Clinton signed the law back in 1998 these securities were deregulated and redefined as private contracts and NOT securities, so the SEC couldn’t get involved either.

It was the perfect hoax. brokers and dealers got to sell these “non-securities” and keep the proceeds themselves and even register ownership of interests in the Trust in the name of the same broker dealer who sold it to pension funds and other investors. Back in 2007-2008 the banks were claiming that there were no trusts involved because they knew that was true. But then they got more brazen, especially when they realized that this was an admission of fraud and theft from investors.

Now we have hundreds of thousands of foreclosures in which a REMIC Trust is named as the foreclosing party when it never operated even for a second. It never had any money, it never received any income and it never had any expenses. So it stands to reason that none of the loans claimed to be owned by the Trusts could ever have been purchased by entities that had no assets, no money, no management, and no operations. We have made a big deal about the cutoff date for entry of a particular loan into the loan pool owned by the trust. But the real facts are that there was no loan pool except on paper in self-serving fabricated documents created by the broker dealers.

Investors thought they were giving money to fund a Trust. The Trust was never funded. So the money from investors was used in any way the broker dealer wanted. The investors thought they were getting an ownership interest in a valid note and mortgage. They never got that because their “Trust” did not acquire the loans. But their money was used, in part, to fund loans that were put on a fast track automated underwriting platform so nobody in the position of underwriter could be disciplined or jailed for writing loans that were too rigged to succeed. Then the broker dealers, knowing that the mortgage bonds were worthless bet that the value of the bonds would decrease, which of course was a foregone conclusion. And the bonds and the underlying loans were insured in the name of the broker dealer so the investors are left standing out in the wind with nothing to show for their investment — an interest in a worthless unfunded trust, and no direct claim for the repayment of loans that were funded with their money.

The reason why the foreclosing parties need a foreclosure sale is to create the appearance that the original loan was a valid loan contract (it wasn’t because no consideration actually flowed from the “lender” to the “borrower” and because the loan was table funded, which as a pattern is described in Reg Z as “predatory per se”). By getting foreclosures in the name of the Trust they have a Judge’s stamp of approval that the Trust was either the lender or the successor to the lender and that makes it difficult for anyone to say otherwise. And THAT is why TILA was passed with the rescission option.

So through a series of conduits and sham entities, the Wall Street investment banks lied to the investors and lied to the borrowers about who was in the deal and who was making money off the deal and how much. They lied to the investors, lied to the public, lied to regulatory agencies and lied to borrowers about the quality of the loan products they were selling which could not succeed and in which the broker dealers had a direct interest in making sure that the loans did not succeed. That was the whole reason why the Truth In Lending Act and Reg Z came into existence back in the 1960’s. Holder’s comments are a clue to what private lawyers should do and how much money there is in these cases against the leaders of the those investment banks. Both borrowers and lawyers should be taking a close look at how they get even for the fraud perpetrated upon the American consumer and the American taxpayer.

It is obvious that someone had to be making a lot of money in order to spend hundreds of millions of dollars advertising and promoting 2% loans. There is no profit there unless someone is stealing the money and tricking borrowers into signing loan papers that instantly clouded their title and created two potential liabilities — one to the payee on the note who never had any economic interest in the deal and one to the investors whose money was used to fund the loan. Most investors still don’t realize what happened to their money and many are still getting payments as though the Trust was real — but they are not getting payments or reports from the REMIC Trust.

And most borrowers don’t realize that their identity was stolen, that their loan was cloned, and that each version of their loan that was sold netted another 100% profit to the investment banks, who also sold the bonds to the Federal Reserve after they had already sold the same bonds to investors. Thus the investment banks screwed the investors, screwed the borrowers and screwed the taxpayers while their plan resulted in a cataclysmic failure of the economies around the world. Investors mostly don’t realize that they are never going to see the money they were promised and that the banks are keeping the investors’ money as if it belonged to the bank. Most investors also don’t realize that the investment banks were their servant and that all that money the bank made really belongs to the investor, thus zeroing out the liability of the borrower but creating an enormous profit to the investors. Most borrowers don’t realize that they certainly don’t owe money to any of the foreclosing parties, but that they might have some remote liability to the clueless investors whose money was used to fund this circus.

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TILA (NON-JUDICIAL AND JUDICIAL) Rescission Gets Clearer in Most Respects

Posted on March 13, 2015 by Neil Garfield

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

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It is becoming crystal clear that with help from a competent attorney the options under the TILA rescission process are (a) different from common law rescission and (b) very effective against “lenders” who can no longer hide behind “presumptions”. LIKE THE PRESUMPTIONS THAT HAVE BEEN STRICTLY APPLIED AGAINST HOMEOWNERS, BUT WHICH ARE REBUTTABLE, TILA RESCISSION IS STRICTLY APPLIED AGAINST “LENDERS.” Just as presumptions force the borrower to take the burden of proof on basic facts in the pretender lender’s case, TILA rescission forces the “lender” to take the burden of proof in the borrower’s loan, establishing that there was no basis for rescission. This article covers the law regarding those legal presumptions AND the effects and mechanics of a TILA rescission.

Amongst the things that are clear now is the plain fact that rescission is a private statutory remedy requiring only a letter to give notice of exercising the TILA right of rescission. If a homeowner wants to file suit to enforce the rescission, there is a one year statute of limitations to collect damages or get any requiring the “lender” to comply. But the effective date of rescission remains the same even if the one year statute has passed. In plain language that means that by operation of law you don’t have a mortgage encumbrance on your property if more than 20 days has passed since the rescission was effective (the day you dropped it in a mailbox).

But if you are looking to recover the financial damages provided by TILA (disgorgement of payments etc.) then you need to file suit within one year of the rescission. If you want to clear title with a quiet title action my opinion is that the one year statute of limitations does not apply — because the act provides that the mortgage and note are void by operation of law. Thus the title issue is cleared as of the date of rescission. As argued by the ACLU and as stated by a unanimous Supreme Court the rescission is effective upon notice. There is no requirement of notice AND a lawsuit. So the suit to clear or quiet title is merely based on removing the mortgage from your chain of title because it is (and has been) void since the day of rescission.

I cannot emphasize enough the importance or reading the ACLU brief below. Too many judges and lawyers have become confused over the various provisions of TILA. A lawsuit based upon rescission to to enforce the rights due to the borrower because the rescission is already effective. The lawsuit is NOT the exercise of the right of TILA rescission. The letter declaring the rescission is the exercise of the right of TILA rescission. This is far different from common law rescission.

FOR REBUTTING PRESUMPTIONS See Franklin Decision

FOR ADMISSIONS REGARDING FABRICATION OF DOCUMENTS THUS REBUTTING PRESUMPTIONS See Wells Fargo Foreclosure_attorney_procedure_manual-1

FOR THOROUGH ANALYSIS AND HISTORY OF TILA RESCISSION SEE jesinoski_v._countrywide_home_loans_aclu_amicus_brief

And see this explanation which is almost entirely accurate —

Read this excerpt from the CFPB Amicus Brief (Rosenfeld v. HSBC):
” If the court finds the consumer was entitled to rescind, it will order the procedures specified by 1635 and Reg. Z, or modify them as the case requires…Accordingly, if the court finds the consumer rescinded the transaction because she properly exercised a valid right to rescind under 1635, the lender must be ordered [by the court] to honor the rescission, even if the underlying right to rescind has expired.”
 
I needn’t go further…this is the CFPB talking…and they are the sole authority to promulgate the rules of rescission by Congress. They (the lender) must act within 20 days, regardless of the consumer’s perception of whether or not the rescission is timely. It would be up to a court to determine the exercise of the right…but the lender must be ordered by the court to follow the rules of rescission under TILA and the attendant time frames contemplated therein.
“The rescission process is private, leaving the consumer and lender to working out the logistics of a given rescission.” McKenna, 475 F.3d at 421; accord Belini, 412 F.3d at 25. Otherwise, to leave the creditors in charge of determining timing, the creditors would no doubt stonewall until the time ran after receipt of the notice of rescission. Thus, even valid rescissions would result in creditors claiming that the time to file suit had run out and the statute is then moot. Congress recognized that TILA rescission is necessarily effected by notice and any subsequent litigation must be accomplished within restrictions set against the creditors…not the consumers. This is non-judicial action at its finest. Just like the non-judicial act of foreclosure (in such forums). 
Consummation is a question of fact that would be determined after the creditor performed its required obligations under 1635 (b)…unless suit is brought within 20 days of the notice of rescission…as is required.
“Everyone is a genius, but if one passes judgment on a fish trying to climb a tree, and then continues to tell him that he is stupid, the fish, and everyone else, will believe that, even though his genius has never been discovered.” Albert Einstein.

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Do you know where your loan payments are going? Bet you Don’t!

Posted on February 26, 2015 by Neil Garfield

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

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Submitted from a person who is an anonymous source but who works deep inside an organization where the raw data is available and just to be clear —- I told you so:

Bonding experience

Subject: Bonding experience

Sorry for the title line, low hanging fruit……Anyway, I thought you both will find this of interest.) From the Citibank Trustee website you both have access to per my prior e-mail (or anyone, it is public….) you will find below the listing of the original principal balance of the loans in the various traunches for the WAMU-HE-2 Trust. The balances below are from the PSA on page 8; they track almost identically to the balances as of the funds 1st reporting date on the Citibank website (I have attached below from May 2007); Directly above the May 2007 balances is the current January 2015 balances. Notice anything strange? All principal balances are lower or gone, and reduced by half in the largest traunch (1-A). How can this be you ask?  Did that many loans default and have the homes liquidated and proceeds applied to the loans? OR,  did insurance payments, credit default swaps, TARP money, or buy backs on the loans by Chase (as likely forced by the investors who have that right for non-conforming loans) pay off the loan balances that are now gone? The answer is likely a bit of all the above.

Not to bore you with the details, but if you look at the January 2015 certificate holder statement on Page 5 you will see detail on who lost what, other pages break out reasons for reductions (yes, some of this is due to repurchase, Chase? maybe, unknown). The M-Series traunches appear to have been wiped out completely, which tracks to PSA which shows 1-A-II A’s get distributions 4th (AFTER credit default swaps and derivative holders mind you, who may be from entirely different funds! Like that, your loan payment is not even going to the fund that claims to hold it 1st, 2nd, or 3rd time around), losses last, Hence if you are M-series you are screwed.

So why does this matter in a typical homeowner foreclosure? As XXX and I pointed out to judges too lazy to want to dive into this, if your loan is in Traunch 1-IIA, which report no principal loss (any losses?) the fund has a hard time claiming standing if the certificate holders of your loan suffered no loss. Due to commingling of funds, and cross defaults, when peoples loan payments are distributed to the Servicer (Chase), it puts your payment in the loan pool, and it is likely used to pay someone else’s loan payment (ditto with foreclosure proceeds, if your loan was in M Traunch, a 100% loss was realized years ago, your proceeds go to make someone else’s loan payment). This was never disclosed to the homeowner at loan signing, your payment goes to another, your home is cross collateralized, your home may be covered by a pool level insurance policy, credit default swaps, your payment does not go to whom you bargained it would (TILA, RESPA, REG Z violations anyone?). If your loan was repurchased, the fund is not even the correct foreclosing party anymore, and if servicer advances and credit default swaps cover your loan payments (from swap holders in other funds!!) you are not even in default nor has the fund suffered a claimed loss. You can see what a mess this is, and why Chase and other “Servicers” don’t want to open the books on what happens to the Trust funds money to anyone. Investors in current lawsuits have to sue their own Trustee’s (like Citigroup) to try to get to the “real” books, sound crazy, it’s happening….  since Chase and the fund never legally held my loan due to multiple forgeries and botched assignments, they in essence committed theft through conversion of my loan payments when I made them, because they never held the legal right to accept payments from me.… Like I said, this happens thousands of times daily to thousands of homeowners, and no one, not the government, regulators, judiciary, and especially the banks, want to discuss this mess. LOL, if this all gives you a headache, it should! Same process is now happening on credit cards and auto loans, anything they can securitize…..

see http://www.bloomberg.com/news/articles/2015-02-24/justice-department-probing-auto-loan-securitization-yates-says
 

REMIC 3
As provided  herein, the Trustee shall  make an election  to treat the segregated  pool of assets consisting of the REMIC 2 Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets shall be designated as “REMIC 3.”  The Class R-3 Interest represents  the  sole  class  of  “residual  interests”  in  REMIC  3  for  purposes   of  the  REMIC Provisions.The following  table sets forth (or describes)  the Class  designation,  Pass-Through  Rate and Original Class Certificate Principal Balance for each Class of Certificates that represents one or more of the “regular interests” in REMIC 3 and each class of uncertificated  “regular  interests” inREMIC 3:
Class designation Original Class Certificate Principal Balance Pass-Through

Rate

 Assumed Final

Maturity Date1
1-A $             491,550,000.00 Variable May25, 2047
II-AI $              357,425,000.00 Variable2 May25, 2047
II-A2 $              125,322,000.00 Variable2 May25, 2047
II-A3 $              199,414,000.00 Variable2 May25, 2047
II-A4 $              117,955,000.00 Variable2 May 25,2047
M-1 $                50,997,000.00 Variable2 May25, 2047
M-2 $                44,623,000.00 Variable2 May25,  2047
M-3 $                27,092,000.00 Variable2 May25, 2047
M-4

M-5

M-6

 $                23,905,000.00

$                23, I 08,000.00

$                21,514,000.00

 Variable2

Variable2

Variable2

 May25, 2047

May25, 2047

May25,  2047
M-7 $                20,718,000.00 Variable2 May25,  2047
M-8 $                12,749,000.00 Variable2 May25, 2047
M-9 $                17,531,000.00 Variable2 May25,  2047
Swap 10 N/A Variables May25, 2047
FM Reserve 10

Class C lnterese

 N/A

$                59,762,058.04

 Variables

Variable2

 May25, 2047

May25, 2047
Class P Interest $                            100.00 N/A4 May25,  2047

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Who Are the Creditors?

Posted on October 6, 2014 by Neil Garfield

For litigation support (to attorneys only) and expert witness consultation, referrals to attorneys please call 954-495-9867 or 520 405-1688.

Since the distributions are made to the alleged trust beneficiaries by the alleged servicers, it is clear that both the conduct and the documents establish the investors as the creditors. The payments are not made into a trust account and the Trustee is neither the payor of the distributions nor is the Trustee in any way authorized or accountable for the distributions. The trust is merely a temporary conduit with no business purpose other than the purchase or origination of loans. In order to prevent the distributions of principal from being treated as ordinary income to the Trust, the REMIC statute allows the Trust to do its business for a period of 90 days after which business operations are effectively closed.

The business is supposed to be financed through the “IPO” sale of mortgage bonds that also convey an undivided interest in the “business” which is the trust. The business consists of purchasing or originating loans within the 90 day window. 90 days is not a lot of time to acquire $2 billion in loans. So it needs to be set up before the start date which is the filing of the required papers with the IRS and SEC and regulatory authorities. This business is not a licensed bank or lender. It has no source of funds other than the IPO issuance of the bonds. Thus the business consists simply of using the proceeds of the IPO for buying or originating loans. Since the Trust and the investors are protected from poor or illegal lending practices, the Trust never directly originates loans. Otherwise the Trust would appear on the original note and mortgage and disclosure documents.

Yet as I have discussed in recent weeks, the money from the “trust beneficiaries” (actually just investors) WAS used to originate loans despite documents and agreements to the contrary. In those documents the investor money was contractually intended to be used to buy mortgage bonds issued by the REMIC Trust. Since the Trusts are NOT claiming to be holders in due course or the owners of the debt, it may be presumed that the Trusts did NOT purchase the loans. And the only reason for them doing that would be that the Trusts did not have the money to buy loans which in turn means that the broker dealers who “sold” mortgage bonds misdirected the money from investors from the Trust to origination and acquisition of loans that ultimately ended up under the control of the broker dealer (investment bank) instead of the Trust.

The problem is that the banks that were originating or buying loans for the Trust didn’t want the risk of the loans and frankly didn’t have the money to fund the purchase or origination of what turned out to be more than 80 million loans. So they used the investor money directly instead of waiting for it to be processed through the trust.

The distribution payments came from the Servicer directly to the investors and not through the Trust, which is not allowed to conduct business after the 90 day cutoff. It was only a small leap to ignore the trust at the beginning — I.e. During the business period (90 days). On paper they pretended that the Trust was involved in the origination and acquisition of loans. But in fact the Trust entities were completely ignored. This is what Adam Levitin called “securitization fail.” Others call it fraud, pure and simple, and that any further action enforcing the documents that refer to fictitious transactions is an attempt at making the courts an instrument for furthering the fraud and protecting the perpetrator from liability, civil and criminal.

And that brings us to the subject of servicer advances. Several people  have commented that the “servicer” who advanced the funds has a right to recover the amounts advanced. If that is true, they ask, then isn’t the “recovery” of those advances a debit to the creditors (investors)? And doesn’t that mean that the claimed default exists? Why should the borrower get the benefit of those advances when the borrower stops paying?

These are great questions. Here is my explanation for why I keep insisting that the default does not exist.

First let’s look at the actual facts and logistics. The servicer is making distribution payments to the investors despite the fact that the borrower has stopped paying on the alleged loan. So on its face, the investors are not experiencing a default and they are not agreeing to pay back the servicer.

The servicer is empowered by vague wording in the Pooling and Servicing Agreement to stop paying the advances when in its sole discretion it determines that the amounts are not recoverable. But it doesn’t say recoverable from whom. It is clear they have no right of action against the creditor/investors. And they have no right to foreclosure proceeds unless there is a foreclosure sale and liquidation of the property to a third party purchaser for value. This means that in the absence of a foreclosure the creditors are happy because they have been paid and the borrower is happy because he isn’t making payments, but the servicer is “loaning” the payments to the borrower without any contracts, agreements or any documents bearing the signature of the borrower. The upshot is that the foreclosure is then in substance an action by the servicer against the borrower claiming to be secured by a mortgage but which in fact is SUPPOSEDLY owned by the Trust or Trust beneficiaries (depending upon which appellate decision or trial court decision you look at).

But these questions are academic because the investors are not the owners of the loan documents. They are the owners of the debt because their money was used directly, not through the Trust, to acquire the debt, without benefit of acquiring the note and mortgage. This can be seen in the stone wall we all hit when we ask for the documents in discovery that would show that the transaction occurred as stated on the note and mortgage or assignment or endorsement.

Thus the amount received by the investors from the “servicers” was in fact not received under contract, because the parties all ignored the existence of the trust entity. It was a voluntary payment received from an inter-meddler who lacked any power or authorization to service or process the loan, the loan payments, or the distributions to investors except by conduct. Ignoring the Trust entity has its consequences. You cannot pick up one end of the stick without picking up the other.

So the claim of the “servicer” is in actuality an action in equity or at law for recovery AGAINST THE BORROWER WITHOUT DOCUMENTATION OF ANY KIND BEARING THE BORROWER’S SIGNATURE. That is because the loans were originated as table funded loans which are “predatory per se” according to Reg Z. Speaking with any mortgage originator they will eventually either refuse to answer or tell you outright that the purpose of the table funded loan was to conceal from the borrower the parties with whom the borrower was actually doing business.

The only reason the “servicer” is claiming and getting the proceeds from foreclosure sales is that the real creditors and the Trust that issued Bonds (but didn’t get paid for them) is that the investors and the Trust are not informed. And according to the contract (PSA, Prospectus etc.) that they don’t know has been ignored, neither the investors nor the Trust or Trustee is allowed to make inquiry. They basically must take what they get and shut up. But they didn’t shut up when they got an inkling of what happened. They sued for FRAUD, not just breach of contract. And they received huge payoffs in settlements (at least some of them did) which were NOT allocated against the amount due to those investors and therefore did not reduce the amount due from the borrower.

Thus the argument about recovery is wrong because there really is no such claim against the investors. There is the possibility of a claim against the borrower for unjust enrichment or similar action, but that is a separate action that arose when the payment was made and was not subject to any agreement that was signed by the borrower. It is a different claim that is not secured by the mortgage or note, even if the  loan documents were valid.

Lastly I should state why I have put the “servicer”in quotes. They are not the servicer if they derive their “authority” from the PSA. They could only be the “servicer” if the Trust acquired the loans. In that case they PSA would affect the servicing of the actual loan. But if the money did not come from the Trust in any manner, shape or form, then the Trust entity has been ignored. Accordingly they are neither the servicer nor do they have any powers, rights, claims or obligations under the PSA.

But the other reason comes from my sources on Wall Street. The service did not and could not have made the “servicer advances.” Another bit of smoke and mirrors from this whole false securitization scheme. The “servicer advances” were advances made by the broker dealer who “sold” (in a false sale) mortgage bonds. The brokers advanced money to an account in which the servicer had access to make distributions along with a distribution report. The distribution reports clearly disclaim any authenticity of the figures used, the status of the loans, the trust or the portfolio of loans (non-existent) as a whole. More smoke and mirrors. So contrary to popular belief the servicer advances were not made by the servicers except as a conduit.

Think about it. Why would you offer to keep the books on a thousand loans and agree to make payments even if the borrowers didn’t pay? There is no reasonable fee for loan processing or payment processing that would compensate the servicer for making those advances. There is no rational business reason for the advance. The reason they agreed to issue the distribution report along with money that was actually under the control of the broker dealer is that they were being given an opportunity, like sharks in a feeding frenzy, to participate in the liquidation proceeds after foreclosure — but only if the loan actually went into foreclosure, which is why most loan modifications are ignored or fail.

Who had a reason to advance money to the creditors even if there was no payment by the borrower? The broker dealer, who wanted to pacify the investors who thought they owned bonds issued by a REMIC Trust that they thought had paid for and owned the loans as holder in due course on their behalf. But it wasn’t just pacification. It was marketing and sales. As long as investors thought the investments were paying off as expected, they would buy more bonds. In the end that is what all this was about — selling more and more bonds, skimming a chunk out of the money advanced by investors — and then setting up loans that had to fail, and if by some reason they didn’t they made sure that the tranche that reportedly owned the loan also was liable for defaults in toxic waste mortgages “approved” for consumers who had no idea what they were signing.

So how do you prove this happened in one particular loan and one particular trust and one particular servicer etc.? You don’t. You announce your theory of the case and demand discovery in which you have wide latitude in what questions you can ask and what documents you can demand — much wider than what will be allowed as areas of inquiry in trial. It is obvious and compelling that asked for proof of the underlying authority, underlying transaction or anything else that is real, your opposition can’t come up with it. Their case falls apart because they don’t own or control the debt, the loan or any of the loan documents.

Filed under: AMGAR, CDO, CORRUPTION, discovery, evidence, expert witness, foreclosure defenses | Tagged: , , , , , , , , , , , , , | 36 Comments »

How Do I Use an Expert Declaration?

Posted on July 29, 2013 by Neil Garfield

With judges under pressure to clear their calendar, the strategy of the banks in delaying prosecution of foreclosure cases is coming to an end. And the opportunity for the borrower, as well as a good reason for action, has just begun. An aggressive approach is more likely to yield good results than any strategy predicated upon delay. And judges are prone to blame the delay on the homeowner who wants to stay in his home rent-free for as long as possible.

So having an aggressive plan to prosecute the case with solid answers and affirmative defenses is key to getting the judges curiosity — why is the homeowner trying so hard to move the case along and the bank stonewalling and delaying the action alleging they need relief? Some lawyers, like Jeff Barnes, don’t know how to litigate with kid gloves on. When they take a case it is to draw blood and Barnes has established himself as not only an aggressive attorney but one who often wins a satisfactory result for his clients.

My expert declaration covers the gamut from property issues through UCC and contract issues. Securitization is something I understand very well — how it is intended to be used, how the law got passed exempting it from being characterized as securities or insurance products and how it was sold to Congress and Clinton as an innovative way to spread and reduce risk of loss, thus raising an investment with a medium degree of risk of loss to very low and therefore suitable for stable managed funds who are required to put their money into extremely low risk triple A rated investments.

All that said, for all I know and can say, neither my declaration nor testimony is ever dispositive in the final ruling of the case, with a few exceptions. On the other hand out of hundreds of times my declarations or testimony has been used in court, the number of times the banks have proffered an alternate “expert” to say I was wrong, mistaken or had used defective analysis to reach my conclusions is ZERO. And the banks took my deposition in a class action suit in which I was admitted as an expert witness in Federal Court — the deposition lasted six full working days 9:00am to 5:00pm. About the only negative thing they had to say after hours and hours of testimony was that my opinion was “grandiose” to which I answered that it was not nearly as grandiose as the fraud their clients were perpetrating upon our society.

So the most common question is how can I use your expert declaration? And the first answer I  always give is (a) my declaration, whether notarized or not, is never and should never be a substitute for actual facts applicable to the actual case which requires actual witnesses who have actual knowledge (usually from the opposition in discovery) and (b) you should have a plan for your case that does not call for a knock-out punch in the first hearing. If you think that is going to happen you are deluding yourself.

The most common attack on my affidavit is a motion to strike or a memorandum that alleges that I am not a credible expert. But the rules on admission of expert testimony are so lax that almost anyone can be admitted as an expert but he Judge is not required to presume the expert knows what he is talking about or has anything of value to offer. Thus a proper foundation of facts, timelines, paper trails and money trails needs to be laid out in front of the judge in a manner and form that makes it easy to understand. The declaration is only one step of a multistage process. When the opposition attacks the declaration, they are trying to distract the court from the real issues.

The best and most fruitful uses of an expert declaration are to use them when battling for information through the discovery. That is where cases are often won and lost, where cases end up being settled to the satisfaction of the borrower or lost, pending appeal. The expert declaration tells the court what the expert looked at and raises issues and opinions including the information that is absent which will resolve the issue of whether the forecloser actually has a cause of action upon which relief could be granted (an inquiry applicable to both judicial and non-judicial states).
Expert declarations have been used with success in hearings on discovery because it explains why you need to take the deposition of a specific witness or compel production of certain documents or compel answers to interrogatories. Once that order is entered agreeing that you are entitled to  the information it is often the case that the mater is settled within hours or days.
To a lesser degree expert declarations have been successful in non-judicial states where the homeowner seeks a temporary restraining order. And a fair amount of traction has been seen where it is used to show the court hat there are material issues of fact in dispute to defeat a motion for summary judgment, sometimes effective if there is a cross-motion for summary judgment for the homeowner where there is an effective attack on the affidavit filed in support of the forecloser’s motion for summary judgment.
The least traction for the expert declaration is where homeowners attempt to use it as a substitute for evidence — which means no live witnesses testifying to facts that lay the foundation for introduction of documents into evidence. And there are mixed results on motions to lift stay — but even where effective temporarily the debtor is usually required to file an adversary action.
After you file the declaration along with some pleading that states the purpose of the filing, you will most likely be met with a barrage of attacks on the use of the affidavit. They are trying to bait you into an argument about me and whether anything I said was true. Of course they do not submit an affidavit from an expert who comes to contrary conclusions; but even if the declaration is perfect, it is no substitute for real evidence. It is the reason why you need to get a court order requiring the forecloser to answer discovery and how they should answer it. It is support for why you believe your discovery will lead to admissible evidence or cut short the litigation. The declaration explains why you want to pursue the money trail to see of negotiation of the note and mortgage ever took place. The assignment says yes but if the payment isn’t there, no transaction exists. The UCC and contract law are in complete agreement — offer, acceptance and payment are required to enforce a contract. And on the offer side, you can either start with the investor or the borrower.
In live testimony it is my job to show the court what really happened not by piling presumption on opinions but by pointing to the facts you revealed in discovery and then explaining what transactions actually occurred. The only actual transaction — the only time money exchanged hands was when investors advanced money to be used for the acquisition or origination of loans.
But the intermediaries usurped the money and kept part of it instead of funding mortgages. And the intermediaries diverted title to the loan documents from the investors and claimed ownership so they could create the illusion of an insurable interest and the illusion of a risk of loss justifying the credit default swap contracts.
It was also used by the banks to sell worthless mortgage bonds to the Federal Reserve. We know now that the “trustee” of the REMIC trust never received any of the investment dollars advanced by the investors. The reason we know that the mortgage bonds are worthless is that there is no record of the existence of a trust account for the REMIC pool. Hence, the trust had no money to buy or originate the loan.

But it is nonetheless true that the investors advanced money and the borrowers got some of it. The amount received by or on behalf of the borrower is a legitimate debt owed by the borrowers to the investors as lenders. If you say otherwise, your entire argument will be viewed with justifiable skepticism. But the investors cannot be grouped by REMIC common law trusts under New York law because they too, like the assignments and allonges and endorsements, lack any money or other transfer of consideration in exchange  for the loan.

So we have consideration without a REMIC trust, without an enforceable contract which means that the debt existed but there were no agreed terms — the note and bond terms are very different, contrary to the requirements of TILA and Reg Z. Thus the investors may have received bonds issued by the REMIC trust, but their money never went into the trust contrary to the terms of the prospectus. So the investors are owed the money as a group by the borrowers as a group. That means the only way to refer to the investors as a group (contrary to their belief because they think their money went into the REMIC trust) is a partnership arising by operation of law. That is a common law general partnership. But because equitable liens a NOT allowed by law, they have n way to use the mortgage lien or the note. But they do have a claim, even if it is unsecured.

And the amount owed to the investors is different than the amount of principal on the defective notes and mortgages. That is because the investment bank took more money than it used for funding mortgages and pocketed the difference. So the transaction with the borrower gives rise to a liability to the investor lenders but the borrowers are only one of several co-obligors by contract and through tort theory. And the money received by the intermediary bank that claimed the bond and loans as their own using investor money should be credited to the receivable account of the investor. The argument here is that the investment banks cannot pretend to be agents of the investors for purpose for taking money from the investors and then claim not to be the agent for the purpose of receiving money from co-obligors including the homeowner.

It is only by untangling this mess that the request for modification from the investors can be directed to the right parties but that requires the investors’ identities to be revealed. There can be no meaningful modification, mediation or litigation without getting this straight.
Let’s start with the borrower. The borrower executes a note and mortgage. If the borrower denies ever getting a loan from the payee or mortgagee or beneficiary, then the issue is in dispute as to whether the borrower’s initial transaction was anything more than offer for someone to accept.
TILA says the lender must be disclosed, as well as common sense. If the payee was merely a nominee performing fee for service, then there is no payee and no mortgagee or beneficiary — and under property law there is nobody known to borrower who can execute a satisfaction of mortgage on the day of closing.
So we have the issuance of a note that might qualify as a security that is NOT exempted from registration and security regulations and/or the note and mortgage constitute an offer. The fact that there was no lender disclosed and no disclosed source of funds (a table funded loan labeled predatory per se by Reg Z and TILA) means that the terms of the note and the terms of the security instrument have not been accepted — and at this pointing our example there is only one party who can accept it — the party who loaned actual money to the borrower — I.e., the sourceof the  funds.
Now as it turns out that the source if funds was a group of investors who were not offered the note nor offered the terms expressed on the note and instead they agreed to the terms of the prospectus/indenture. But those terms were immediately breached just as the law was immediately broken when the borrower was tricked into executing a security issuance or an offer.
The investors thought their money was going into a REMIC trust just like the borrower trout that the originator was indeed his lender. Neither the investors nor the borrowers were told that there were dozens of intermediaries who were making money off of the issuance of the bond and the issuance of the note, neither of which bound the investor lender nor the borrower to anything. But nobody except the investment banks acting supposedly as intermediaries knew that the banks were claiming town both the bonds and the loans — at least long enough to trade on them.
Since the borrower did not agree to the terms of the bond and the investor didn’t agree to the terms of the note, they have no offer, they have no acceptance but they do have consideration. I have appeared in several class actions in Phoenix and Reno and dozens of cases in bankruptcy court, civil state and Federal cases.
Where the lawyer used my declaration as a means to an end — discovery, they got good results. Where they tried to suit in lieu of admissible evidence it is not so valuable. A few hundred motions for summary judgment have been turned down based upon my affidavit, but in other cases, the Judge accepted me as an expert but said that my opinion evidence was not supported by supporting affidavits from people with personal knowledge — I.e., competent witnesses to lay a competent foundation. Thus expert declarations are a valuable tool if they are backed up by real facts and issues — a task for the lawyer or pro se litigant, not the expert unless you are going to pay tens of thousands of dollars using the expert’s valuable time to perform clerical work.

Filed under: AMGAR, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, GTC | Honor, Investor, Mortgage, Servicer | Tagged: , , , , , , , , , | 42 Comments »

Notice of Violation Under California Bill of Rights

Posted on December 18, 2012 by Neil Garfield

“If we accept the Bank’s argument, then we are creating new law. Under the new law a borrower would owe money to a non-creditor simply because the non-creditor procured the borrower’s signature by false pretenses. The actual lender would be unable to retrieve money paid to the fake lender and the borrower would receive credit for neither his own payments nor any payment by a third party on the borrower’s behalf.” Neil F Garfield, livinglies.me

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Barry Fagan submitted the Notice below.

Editor’s Notes: Fagan’s Notice gives a good summary of the applicable provisions of the Bill of Rights recently passed by California. The only thing I would add to the demands is a copy of all wire transfer receipts, wire transfer instructions or other indicia of funding or buying the loans. everything I am getting indicates that in most cases they can’t come up with it.

If you went into Chase and applied for a loan and they approved your application but didn’t fund it, you wouldn’t expect Chase to be able to sue you or start foreclosure proceedings for a loan they never funded. It’s called lack of consideration.

If you actually got the loan from BofA but they forgot to have you sign papers, you would still owe the money to them but it wouldn’t be secured because there was no mortgage lien recorded in their name. And BofA would have a thing or two to say to Chase about who is the real creditor — either the one or advanced the money or the one who got documents fraudulently or wrongfully obtained.

So then comes the question of whether Chase could assign their note and lien rights to BofA. If TILA disclosures had been made showing the relationship between the two banks, it might be possible to do so. But in these closings, the actual identity of the creditor (source of funds) was actively hidden from the borrower.

Thus we have a simple proposition to be decided in the appellate and trial courts: can a party who obtains signed loan documentation including a note and mortgage perfect the lien they recorded in the absence of any consideration. The floodgates for fraud would open wide if the answer were yes.

If the answer is NO, then the origination documents and all assignments, indorsements, transfers and allonges emanating from the original transaction without consideration are void. AND if each assignment or transfer recites that it is for value received, and they too had no money exchange hands thus producing lack of consideration, then they cannot even begin to assert themselves as a BFP (Bona Fide Purchaser for value without notice). The part about “without notice” is going to be difficult to sustain in proof since this was a pattern of table funded loans deemed “predatory per se” by Reg Z.

The reason they diverted the document ownership away from the creditor who actually advanced the money was to create the appearance of third party ownership (and transfers, which was why MERS was created) in the documentary chain arising out of the original of the non-existent loan (i.e., no money exchanged hands pursuant to the recitals on the note and mortgage as between the payor and payee). They needed the appearance of ownership was to create the appearance of an ownership and insurable interest.

Thus even though the money did not come from the originator, the aggregator or even the Master Servicer or Trustee of the pool, affiliates of the investment bank who underwrote and sold bogus mortgage bonds, were able (as “owners”) to purchase insurance, credit default swaps, and receive bailouts because they could “document” that they had lost money even though the reality was that the the third party source of funding, and the real creditors were actual parties suffering the loss.

Had those windfall distributions been applied to balances due to the owners of the mortgage bonds, the balance due from the bond would have been correspondingly reduced. AND if the balance due to the creditor had been reduced or paid in full, then the homeowner/borrower’s obligation to that creditor would have been extinguished entitling the homeowner to receipt of a note paid in full and a release of the mortgage lien (or at least cooperation in nullification of the imperfect mortgage lien).

PRACTICE TIP: Don’t just go after the documents that talk about the transaction by which they claim a liability exists from the borrower to one or more pretender lenders. Push for proof of payment in discovery and don’t be afraid to deny the debt, the note or the mortgage.

In oral argument before the Judge, when he or she asks whether you are contesting the note and mortgage, the answer is yes. When asked whether you are contesting the liability, the answer is yes – and resist the temptation to say why. The less said the better. This is why it is better preempt the pretender lenders with your own suit — because all allegations in the complaint must be taken as true for purposes of a motion to dismiss.

Don’t get trapped into disclosing your evidence in a motion to dismiss. If it is set for a motion to dismiss the sole question before the court is whether your lawsuit contains a short plain statement of ultimate facts upon which relief could be granted and all allegations you make must be assumed to be true. When opposing counsel starts to offer facts, you should object reminding the Judge that this is a motion to dismiss, it is not a motion for summary judgment and there are no facts in the record to corroborate the proffer by opposing counsel.

From Barry Fagan:

Re:  Notice of “Material Violations” under California’s Newly Enacted Homeowners Bill of Rights pursuant to California Civil Code sections, 2923.55, 2924.12, and 2924.17.
See attached and below

Reference is made to Wells Fargo’s (“Defendant”) December 13, 2012 response to Barry Fagan’s (“Plaintiff”) October 25, 2012 request for copies of the following:

(i)           A copy of the borrower’s promissory note or other evidence of indebtedness.

(ii)         A copy of the borrower’s deed of trust or mortgage.

(iii)       A copy of any assignment, if applicable, of the borrower’s mortgage or deed of trust required to demonstrate the right of the mortgage servicer to foreclose.

(iv)        A copy of the borrower’s payment history since the borrower was last less than 60 days past due.

Please be advised that I find Defendant’s response to be woefully defective. This letter is being sent pursuant to my statutory obligation to “meet and confer” with you concerning the defects before bringing an action to enjoin any future foreclosure pursuant to Civil Code § 2924.12.

Defendant’s are in violation of both the notice and standing requirements of California law, and the California newly enacted Homeowner Bill of Rights (“HBR”). In July 2012, California enacted the Homeowner Bill of Rights (“HBR”). Among other things, the HBR authorizes private civil suits to enjoin foreclosure by entities that record or file notices of default or other documentsfalsely claiming the right to foreclose. Civil Code § 2923.55 requires a servicer to provide borrowers with their note and certain other documents, if the borrowers request them.

Civil Code § 2924.17 requires any notice of default, notice of sale, assignment of deed of trust, or substitution of trustee recorded on behalf of a servicer in connection with a foreclosure, or any declaration or affidavit filed in any court regarding a foreclosure, to be “accurate and complete and supported by competent and reliable evidence.” It further requires the servicer to ensure it has reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose.

Civil Code § 2924.12 authorizes actions to enjoin foreclosures, or for damages after foreclosure, for breaches of §§ 2923.55 or 2924.17. This right of private action is “in addition to and independent of any other rights, remedies, or procedures under any other law.  Nothing in this section shall be construed to alter, limit, or negate any other rights, remedies, or procedures provided by law.” Civil Code § 2924.12(h). Any Notice of Default, or Substitution of Trustee recorded on Plaintiffs’ real property based upon a fraudulent and forged Deed of Trust shall be considered a “Material Violation”, thus triggering the injunctive relief provisions of Civil Code § 2924.12 & § 2924.17(a) (b).

I therefore demand that Wells Fargo Bank, N.A. provide Barry Fagan with the UNALTERED original Deed of Trust along with the ORIGINAL Note, as the ones provided by Kutak Rock LLP on October 13, 2011 to Ronsin Copy Service were both photo-shopped and fraudulent fabrications of the original documents, thus not the originals as ordered to be produced by Judge Tarle under LASC case number SC112044. Attached hereto and made a part hereof is the October 13, 2011 Ronsin Copy Service Declaration with copies of the altered and photo-shopped Note and Deed of Trust concerning real property located at Roca Chica Dr. Malibu, CA 90265.

Judge Karlan under LASC case number SC117023 “DENIED” Wells Fargo’s Request for Judicial Notice of the very same Deed of Trust, Notice of Default, Substitution of Trustee and the Notice of Rescission concerning real property located at Roca Chica Dr. Malibu, CA 90265.
Attached hereto and made a part hereof is the relevant excerpt of Judge Karlan’s October 23, 2012 Court Order along with a copy of Wells Fargo’s Request for Judicial Notice of those very same documents. Court Order: REQUEST FOR JUDICIAL NOTICE “DEFENDANT’S REQUEST FOR JUDICIAL NOTICE IS DENIED AS TO EXHIBITS A, B, C, D, K, L, & M.” 

As a result of the above stated facts, please be advised that the fraudulently altered deed of trust and photo-shopped Note that you claim to have been previously provided to Barry Fagan shall not be considered in compliance with section 2923.55 and therefore Wells Fargo Bank, N.A. has committed a “Material Violation” under California’s Newly Enacted Homeowners Bill of Rights pursuant to Civil Code sections, 2923.55, 2924.12, and 2924.17 (a) (b).

Please govern yourselves accordingly.

Regards,

/s/Barry Fagan

Barry S. Fagan Esq.

Thank you.

Barry S. Fagan Esq.
PO Box 1213, Malibu, CA 90265-1213
[T] +1.310.717.1790 – [F] +1.310.456.6447

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , | 35 Comments »

9th Circuit Circular Logic: Medrano v Flagstar

Posted on December 13, 2012 by Neil Garfield

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Editor’s Note: If a Court wants to come to a certain conclusion, it will, regardless of how it must twist the law or facts. In this case, the Court found that a letter that challenges the terms of the loan or the current loan receivable is not a qualified written request under RESPA.

The reasoning of the court is that a challenge or question about the real balance and real creditor and real terms of the deal is not related to servicing of the loan and therefore the requirement of an answer to a QWR is not required.

The Court should reconsider its ruling. Servicing of a loan account assumes that there is a loan account that the presumed subservicer has received authorization to service. The borrower gets notice often from companies they never heard of but they assume that the servicing function is properly authorized.

The “servicer” is used too generally as a term, which is part of the problem. The fact that there is a Master Servicer with information on ALL the transactions affecting the alleged loan receivable from inception to the present is completely overlooked by most litigants, trial judges an appellate courts.

The “servicer” they refer to is actually the subservicer whose authority could only come from appointment by the Master Servicer. But the Master Servicer could only have such power to appoint the subservicer if the loan was properly “securitized” meaning the original loan was properly documented with the right payee and the lien rights alleged in the recorded mortgage existed.

If the party asserts itself as the “Servicer” it is asserting its appointment by the Master Servicer who also has other information on the money trial. It should be required to answer a QWR and based upon current law, should be required to answer on behalf of all parties including the Master Servicer and the “trustee” of the loan pool claiming rights to the loan. If there are problems with the transfer of the loan compounding problems with origination of the loan, the borrower has a right to know that and the QWR is the appropriate vehicle for that.

The servicer cannot perform its duties unless it has the or can produce the necessary information about the identity of the real creditor, the transactions by which that party became a creditor and proof of payment or funding of the original loan and proof of payment for the assignments of the loan, along with an explanation of why the “Trustee” for the pool was not named in the original transaction or in a recorded assignment immediately after the “closing” of the loan transaction.

The 9th Circuit, ignoring the realities of the industry has chosen to accept the conclusion that the “servicer” is only the subservicer and that information requested in a QWR can only be required from the subservicer without any duty to provide the data that corroborates the monthly statement of principal and interest due. The new rule from the Federal Consumer Financial Board stating that all parties are subject to the Federal lending laws underscores and codifies industry practice and common sense.

The Court is ignoring the reality that the lender is the investor (pension funds etc.) and the borrower is the homeowner, and that all others are intermediaries subject to TILA, RESPA, Reg Z etc. The servicer appointed by the Master Servicer is a subservicer who can only provide a snapshot of a small slice of the financial transactions related to the subject loan and the pool claiming to own the loan.

They are avoiding the clear premise of the single transaction doctrine. If the investors did not advance money there would have been no loan. If the borrower had not accepted a loan, there would have been no loan. That is the essence of the single transaction doctrine.

Now they are opening the door to breaking down single transactions into component parts that can change the contractual terms by which the lenders loaned money and the borrower borrowed money.

It is the same as if you wrote a check to a store for payment of a TV or groceries and the intermediary banks and the financial data processors suddenly claimed that they each were part of the transaction and there had ownership rights to the TV or groceries. It is absurd. But if the question is one of payment they are ALL required to show their records of the transaction. This includes in our case the investment banker who is the one directing all movements of money and documents.

If the Court leaves this decision in its current form it is challenging the law of unintended consequences where no transaction is safe from claims by third party intermediaries. Even if Flagstar had no authority to service the account, which is likely, they were acting with apparent authority and must be considered an intermediary servicer for purposes of RESPA and a QWR.

PRACTICE TIP: When writing a QWR be more explicit about the connections between your questions, your suspicion of error as to amount due, payments due etc. Show that the amount being used as a balance due is incorrect or might be incorrect based upon your findings of fact. Challenge the right of the “servicer” to be the servicer and ask them who appointed them to that position.

9th Circuit Medrano v Flagstar on Qualified Written Request

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , | 40 Comments »

Message on the Forensic TILA Analysis — It’s a Lot More Than it Appears

Posted on May 22, 2012 by Neil Garfield

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No doubt some of you know that we have had some challenges regarding the Forensic TILA analysis. It’s my fault. I decided that the plain TILA analysis was insufficient for courtroom use based upon the feedback that I was getting from lawyers across the country. Yet I believed then as I believe now that the only law that will actually give real help to the homeowners — past, present and future — is TILA, REG Z and RESPA. Once it dawns on more people that there were two closings, one that was hidden from the borrower which included the real money funding his loan and the other being a fake closing purporting to loan money to the homeowner in a transaction that never happened, the gates will start to open. But I am ahead of the curve on that.

For those patiently waiting for the revisions, I appreciate your words of kindness. And your words of wisdom regarding the content of the report which I have been wrestling with. I especially appreciate your willingness to continue doing business with us despite the lack of organizational skills and foresight that might have prevented this situation. I guess the problem boils down to the fact that when I started the blog in 2007 I never intended it to be a business. But as it evolved and demands grew we were unable to handle it without help from the outside. If I had known I was starting a business at the beginning I would have done things much differently.

At the moment I am wrestling with exactly how I want to portray the impact of the appraisal fraud on the APR and the impact on “reset” payments have on the life of the loan, which in turn obviously effects the APR. I underestimated the computations required to do both the standard TILA Audit and the extended version which I think is the only thing of value. The standard TILA audit simply doesn’t tell the story although there is some meat in there by which a borrower could recover some money. There is also the standard issue of steering the borrower into a more expensive loan than that which he qualified for.

The other thing I am wrestling with is the computational structure of the HAMP presentation so that we can show that we are using reasonable figures and producing a reasonable offer. This needs to be credible so that when the rejection comes, the borrower is able to say that the offer was NOT considered by the banks and servicers because of the obvious asymmetry of results — the “investor” getting a lot less money from the proceeds of foreclosure.

And THAT in turn results in the ability of the homeowner to demand proof (a) that they considered it (b) that it was communicated to the investor (with copies) and (c) that there was a reasonable basis for rejection — meaning that the servicer must SHOW the analysis that was used to determine whether to accept or reject the HAMP proposal. Limited anecdotal evidence shows that like that point in discovery when the other side has “lost” in procedural attempts to block the borrower, the settlement is achieved within hours of the entry of the order.

So I have approached the analysis from the standpoint of another way to force disclosure and discovery as to exactly what money the investor actually lost, whether the investor still exists and whether there were payments received by agents of the creditor (participants in the securitization chain) that were perhaps never credited to the account of the bond holder and therefore which never reduced the amount due to the creditor from the homeowner. My goal here is to get to the point where we can say, based upon admissions of the banks and servicers that there is either nobody who qualifies as a creditor to submit a “credit bid” at auction or that such a party might exist but is different than the party who was permitted to initiate the foreclosure proceedings.

The complexity of all this was vastly underestimated and I overestimated the ability of outside analysts to absorb what I was talking about, take the ball and run with it. Frankly I am wondering if the analysis should be worked up by the people who do our securitization work, whose ability to pierce through the numerous veils has established a proven track record. In the meantime, I will plug along until I am satisfied that I have it right, since I am actually signing off on the analysis, and thus be able to confidently defend the positions taken on the analytical report (Excel Spreadsheet) etc.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , | 34 Comments »

Bringing in the Clowns Through Breach of Fiduciary Duties

Posted on April 23, 2012 by Neil Garfield

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Editor’s Comment: In my many conversations with both attorneys and pro se litigants they frequently express intense frustration about those invisible relationships and entities that permeate the entire mortgage model starting in the 1990’s and continuing to the present day, every day court is in session.

I think they are right. This article takes it as given, whether the courts wish to recognize it or not, that the parties at the closing table with the homeowner were all fiduciaries and included all those who were getting fees paid out of the closing proceeds — in other words paid out either the homeowner’s hapless down payment (worthless the moment it was tendered) or the proceeds of a loan (undocumented as to the source of the loan and documented falsely as to the creditor and the terms of repayment.

This article also takes it as a given, whether the courts are ready to recognize it or not, that the parties at the closing table with the investors who were the source of funds pooled or not were all fiduciaries and included all those who were getting fees paid out of the closing proceeds — in other words paid out either the hopeless plunge into an abyss with no loans purchased or funded until long after the money was in “escrow” with the investment banker in exchange for a completely worthless mortgage backed security without any mortgages backing the security.

But the interesting fact is that while some of the parties were known to the investor, and some of the parties were known to the homeowners, the investor did not know the parties at the closing table with the homeowner; and the borrower did not know the parties at the closing table with the investor.

In point of fact, the borrower did not even know there was a table or an investor or a table funded loan until long after closing, if ever. Remember that for years MERS, the  servicers and others brought foreclosures that are still final (but subject to challenge) while they vigorously denied the very existence of a pool or any investors.

While this is interesting from the perspective of Reg Z that states that a pattern of table-funded loans is to be regarded as “predatory” per se, which the courts have refused to enforce or even recognize, I have a larger target — all the participants in the securitization chain, each of whom actually claims to have been some sort of escrow agent giving rise to a fiduciary relationship per se — meaning that the cause of action is simple and cannot be barred by the economic loss rule because they had no contract with the homeowners and probably had no contracts with the investors.

Again, I warn about the magic bullet. there isn’t one. But this one comes close because by including these fiduciaries by name from your combo title and securitization report and by description where the fake securitization was dubbed “private label” they are all brought into the courtroom and they are all subject to a simple action for accounting which can be amended later to allege damages, or if you think you have enough information already, state your damages.

Based upon my research of the fiduciary relationship there are no limits anywhere if the action is not based upon a direct contract, and some states and culled that down to a “no limit’ doctrine (see Florida cases) except in product liability or similar cases.

The allegation is simply that the homeowner bought a loan product that was known to be defective, poorly documented, if at all, and subject to a shell game (MERS) in which the homeowner would never know the identity of the chosen creditor until the homeowner was maneuvered into foreclosure. There are several potential channels of damages that can be alleged.

Lawyers are encouraged to do about 30 minutes of research into fiduciary liability in your state and match up the elements of the cause of action for breach of fiduciary duty with the securitization documents that either has already been admitted or that has been discovered.

Go through the PSA and look at it from the point of view of assumed agency and escrowing or holding documents, receivables, notes, money and mortgages. Each one of those is low hanging fruit for a breach of fiduciary duty lawsuit.

And of course any party specifically named as a “trustee” whether a trust exists or not raises the issue of trust duties which are fiduciary as well, whether it is the trustee of a “pool” or the trustee on the deed of trust (or more likely the alleged substitution trustee on the DOT).



Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , | 85 Comments »

PRIORITY OF LIENS: TWISTED TAIL OF TITLE FRAUD

Posted on September 7, 2010 by Neil Garfield

THE BOTTOM LINE IS THAT CASE LAW IN VARIOUS CASES REPORTED IN THIS BLOG SHOWS THAT WHEN ONE INSTITUTION CONFRONTS ANOTHER, THE APPARENTLY INFERIOR LIEN BECOMES EITHER SUPERIOR, OR THE ONLY LIEN. CONDOMINIUM ASSOCIATIONS, HOMEOWNER ASSOCIATIONS TAKE NOTE: YOUR LIEN MIGHT BE WORTH THE ENTIRE HOUSE IF YOU FILE FOR A DECLARATORY ACTION RAISING THE PRIORITY OF YOUR LIEN. HELOC AND SECOND MORTGAGE HOLDERS TAKE NOTE AS WELL. AND OF COURSE HOMEOWNERS OR THOSE WHO THINK THEY ARE EX-HOMEOWNERS TAKE NOTE: YOU MIGHT STILL HAVE THE RIGHT TO BRING A QUIET TITLE ACTION AND RECLAIM YOUR PROPERTY — ALLOWING ANY ACTUAL “LOSER” IN THE DEAL TO MAKE THEIR CLAIM BUT BARRING NOMINAL PARTIES FROM WINDFALL PROFITS IN THE ABSENCE OF ANY RISK OR INVESTMENT.

There is practically nobody left who doesn’t see that the “ownership” of the loan is a big red question mark. The question that is unresolved is whether that is relevant to questions of title and foreclosure sales. Here is the issue: In most cases the title record (the official title records books located in the property clerk’s office) show only one “party” to the note (a company identified as a lender) and one “party” to the security instrument — the mortgage or Deed of Trust — (a company identified as the mortgagee or beneficiary most frequently MERS or some other straw man or nominee).

So the first problem is that from the start, the ownership of the note and the ownership of the mortgage are split intentionally by the parties who engineered the “loan” closing. With the exception of a few states where the big banks lobbied for corrective legislation that probably is unenforceable or unconstitutional, it is not possible to enforce a mortgage that is not incident to a note. Each state has adopted the Uniform Commercial Code and its own property laws that make it impossible for one person to get the house and another to get a monetary judgment for the note —- both based upon the same obligation.

  • They must be the same person or there is no enforcement of the security instrument (i.e., no foreclosure). And in those states, the mortgage or deed of trust is not incident to the note unless they have a common “owner.” So even before we get to the issue of securitization of the receivable, we have a problem. There is basically no law that would allow foreclosure of a so-called mortgage or deed of trust in which the holder of the mortgage or deed of trust is different than the holder of the note.

Before we get to the securitization issue, there is one more factor that is covered by Reg Z and the Truth in Lending Act. It is whether the “loan” was table funded. A table funded loan is one in which the party identified as a lender was not the source of the money in the transaction. The prohibition and restriction against these transactions is meant to keep the consumer informed about the identity of the party with whom he/she is doing business and therefore able to decide whether in fact they want to do business with the party who is really funding the loan.

  • The title problem with a table-funded loan is obvious: the note is supposedly a description of the obligation that arises when the borrower accepts the benefits of the monetary advance from the source of funds. In a table funded loan, the note does NOT describe the real parties and therefore is not proper evidence of the obligation and thus cannot be used as a substitute for proof of the obligation.
  • Federal law and rules state that anyone who as a matter of practice is doing table-funded loans, is defined as a predatory lender.
  • This means that if someone wants to enforce the obligation, they must have more than the note to prove their case. This is precisely where the pretender lenders are finessing the courts — because before the antics of the last decade, there was no difference between the obligation and the note and everyone on both sides of even an adversary proceeding usually agreed that the original note was proper evidence of the obligation.
  • This also means that if someone wants to foreclose, they need something more than the note, because the note, as we have seen, is NOT the complete evidence of the obligation — there is another party involved who was undisclosed and who was the source of the funds. So the obligation was between the borrower and the source of the funds. But the borrower was not told or informed that the money being advanced was from another entity.
  • Ordinarily this would not present a major problem, but it still would require corrective action in order to clear title for  purposes of a satisfaction or release of the mortgage or deed of trust, refinance, sale, second mortgage, condominium association lien, homeowner association lien, HELOC, non-judicial sale or judicial sale. Without this corrective action ON RECORD at the county recorder’s office, the documents releasing or transferring title to the property would be fatally defective in that the real party who advanced the funds did not execute a release or satisfaction, leaving the borrower or the borrower’s successor with the exposure of yet another foreclosure or another claim on the original obligation. This defect is either suspect or apparent on its face when you see MERS involved or an “originating Lender” that is not a bank (and usually out of business now).

All of this mind-numbing analysis morphs from nitpicking to highly relevant when securitization enters the picture. Securitization as it was used in actual practice, i.e., real world reality, was simply a process by which the payments were split from the obligation, not the note and reframed as the basis for a third party obligation under the terms of a mortgage bond sold to third party investors. So the source of funding never receives the note or any of the borrower’s closing documents. He receives a mortgage bond in which there are multiple payors, obligors, and contingent liabilities only one of which is the borrower’s obligation to repay the obligation.

There are two primary defects in this process that are of high significance:

  1. In practice, the intermediaries used the documentation for securitization to multiply rather than split the obligation to pay amongst the various payors and co-obligors.
  • This means that for every dollar that was advanced for the benefit of the borrower, an obligation was ADDED to the receivable stream for each payor or co-obligor that was ADDED to the obligation to make payments under the mortgage bond. This is where the intermediaries began to make multiples of the money being funded rather than small basis points as was customary in the industry.
  • Through the use of highly sophisticated cloaked transactions, each dollar funded was multiplied as a nominal receivable which in turn was sold multiple times and insured multiple times in multiple ways.
  • Hence the the total evidence of the borrower’s obligation consists of the closing borrower documents PLUS the closing investor documents. The total accounting consists of the the servicing record of the borrower’s payments PLUS the distribution and tape record of reports and payments to the bond holders.
  • This totality of the evidence reveals that the borrower’s obligation resulted in multiple payments by multiple payors and co-obligors, some of whom made money participating in the sham scheme, and some of whom lost money in the scheme.
  • In most cases, one of the groups that lost money were the original investors who advanced money for their share of the flow of receivables described in the mortgage bond, which included, at all times, the receivables due from third party payors and co-obligors. Other losers were traders and institutions that were creating the appearance of an unregulated but phantom securities market in which profits and losses were apparently made on a daily basis, but which in fact were all accounting entries much like the Madoff scheme.
  • The current foreclosure scheme ignores these factors enabling intermediaries dubbed “pretender lenders” to profit from the confusion by pretending to be lenders when in fact they were never lenders of record and never lenders in the sense that they ever advanced any money. The intermediaries are filing false, fabricated and even forged or back-dated affidavits in the name of “Trustees” for trusts that do not exist or which have been dissolved or paid in whole or in part. The lender having been paid or settled as to the obligation under the mortgage bond thus releases any further claim. The intermediaries profit by pocketing the multiples of payments received, and the borrower suffers from the loss of a home or enforcement of a note that was never the evidence of the obligation.
  2. In practice, the actual source of funding — the party who advanced funds and who received a mortgage bond instead of the evidence of the borrower’s obligation —- NEVER held the note and was never intended to hold the note — and NEVER was the mortgagee or beneficiary and never was intended to be the mortgagee or beneficiary. Thus a declaratory action against the mortgagee or beneficiary of record should succeed in raising the priority of the interest of the plaintiff above that of the record holder of the security instrument, since the record holder has no obligation owed to it, and never was intended to be the recipient of funds nor to have the right or capacity to foreclose on the loan.

THE BOTTOM LINE IS THAT CASE LAW IN VARIOUS CASES REPORTED IN THIS BLOG SHOWS THAT WHEN ONE INSTITUTION CONFRONTS ANOTHER, THE APPARENTLY INFERIOR LIEN BECOMES EITHER SUPERIOR, OR THE ONLY LIEN. CONDOMINIUM ASSOCIATIONS, HOMEOWNER ASSOCIATIONS TAKE NOTE: YOUR LIEN MIGHT BE WORTH THE ENTIRE HOUSE IF YOU FILE FOR A DECLARATORY ACTION RAISING THE PRIORITY OF YOUR LIEN. HELOC AND SECOND MORTGAGE HOLDERS TAKE NOTE AS WELL. AND OF COURSE HOMEOWNERS OR THOSE WHO THINK THEY ARE EX-HOMEOWNERS TAKE NOTE: YOU MIGHT STILL HAVE THE RIGHT TO BRING A QUIET TITLE ACTION AND RECLAIM YOUR PROPERTY — ALLOWING ANY ACTUAL “LOSER” IN THE DEAL TO MAKE THEIR CLAIM BUT BARRING NOMINAL PARTIES FROM WINDFALL PROFITS IN THE ABSENCE OF ANY RISK OR INVESTMENT.

Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, GTC | Honor, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee | Tagged: , , , , , , , | 32 Comments »

APPRAISAL FRAUD IN DETAIL

Posted on May 11, 2010 by Neil Garfield

APPRAISAL FRAUD IS THE ACT OF GIVING A RATING OR VALUE TO A HOME THAT IS WRONG — AND THE APPRAISER KNOWS IT IS WRONG. This can’t be performed in a vacuum because there are so many players who are involved. They ALL must be complicit in the deceit leading to the homeowner signing on the the bottom line and advancing his home as collateral on a loan which at the very beginning is theft of most of the value of the home. It’s like those credit cards they send to people who are financially challenged. $300 credit, no questions asked. And then you get a bill for $297 including fees and insurance. So you end up not with a credit line of $300, but a liability of $300 just for signing your name. It’s a game to the “lenders” because they are not using their own money.

And remember, the legal responsibility for the appraisal is directly with the appraiser, the appraisal company (which usually has errors and omissions insurance) and the named lender in your closing documents. The named “lender” is, according to Federal Law, required to verify the value of the property.

How many of them , if they were using their own money, would blithely accept a $300,000 appraisal on a home that was worth $200,000 last month and will be worth $200,000 next month? You are entitled to rely on the appraisal and the “verification” by the “lender” (see Truth in Lending Act and Reg Z). The whole reason the law is structured that way is because THEY know and YOU don’t. THEY have access to the information and YOU don’t. This is a complex transaction that THEY understand and YOU don’t.

A false appraisal steals money from you because you rely on it to make the deal for refinancing or for the purchase. You think the home is worth $300,000 and so you agree to buy a loan product that puts you in debt for $290,000. But the house is worth $200,000. You just lost $90,000 plus closing costs and a variety of other expenses, especially if you are moving into anew home that requires all kinds of additions like window treatments etc. But the “lender” who is really just a front for the Wall Street and the investor pool that funded the loan, made out like bandits. Yield spread premiums, extra fees, profits, rebates, kickbacks to the developer, the appraiser, the mortgage broker, the title agency, the closing agent, the real estate broker, trustee(s) the investment banking entities that were used in the securitization of your loan, amount in some cases to MORE THAN YOUR LOAN. No wonder they are so anxious to get your signature.

“Comparable” means reference to time, nearby geography, and physical attributes of the home and lot. Here are SOME of the more obvious indicators of appraisal fraud:

  1. Your home is worth 40% of the appraisal amount.
  2. The appraisal used add-ons from the developer that were marked up for the home buyer but which nobody in the secondary market will pay. That kitchen you paid an extra $10,000 for “extras” is included in your appraisal but has no value to anyone else. That’s not an appraisal and it isn’t collateral or fair market value.
  3. The homes in the immediate vicinity of your home were selling for less than your home appraisal when they had the same attributes.
  4. The homes in the immediate vicinity of your home were selling for less than your home appraisal just a few weeks or months before.
  5. The value of your home was significantly less just a  few weeks or months after the closing.
  6. You are underwater: this means you owe more on your obligation than your house is worth. Current estimates are that it might take 20 years or more for home prices to reach the level of mortgages, and that is WITH inflation.
  7. Negative amortization loans usually allow the principal to rise even above the falsely inflated appraisal amount. If that happened, then they knew at the time of the loan that even if the appraisal was not inflated, it still would not be worth the amount of the principal due on the obligation. For example, if your loan is $290,000 and the interest is $25,000 per year, but you were only required to pay $1,000 per month for the first three years, then your Principal was going up by $13,000 per year compounded. So that $300,000 appraisal doesn’t cover the $39,000+ that would be added to your principal balance. The balance at the end of 3 years will be over $330,000 on property APPRAISED at $300,000. No honest appraiser, mortgage broker, or lender, would be complicit in such an arrangement unless they were paid handsomely to do it and they had no risk because they were not using their own money for the loan.

Filed under: foreclosure | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 26 Comments »

Berating the Raters and Appraisers

Posted on April 29, 2010 by Neil Garfield

“of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status.”

Editor’s Note: What homeowners and their lawyers, forensic analysts, and experts need to realize is that the ratings scam on Wall street was only one-half of the equation in a scheme to defraud homeowners. If you don’t understand how an appraisal of a home is the same thing as the rating of the security that was sold to fund the home, then you are missing the point and the opportunity to do something meaningful for borrowers.

TILA and Reg Z make it clear that the LENDER is responsible for verification of the appraisal. The LENDER is responsible for viability of the loan, NOT THE BORROWER. IT’S THE LAW! Instead the media and Wall Street PR and lobbyists are drumming a myth into our heads — that 20 million homeowners with securitized loans cooked up a scheme to get a free house. Where did they meet?

We have ample evidence that the entire scheme depended upon reasonable reliance upon those who were in fact not reliable and who were lying to us. If you bought a house for $600,000, the odds are:

  • the house was actually worth less than $400,000
  • the appraiser put the value at $620,000
  • the rating agency called it a triple AAA loan
  • you thought the house was worth what you were paying
  • the house is now worth $300,000
  • your mortgage is at least $500,000
  • Even if you can afford the payments, you will not be able to sell your home for more than the amount owed on it until at least 15-18 years have passed.
  • You will not be able to sell your home for what you paid for at least another 25-30 years, and that is only with the help of inflation
  • Counting inflation, you will never sell your home for what you paid for it or the amount you thought it was worth when you refinanced it

Besides obvious violations of federal and state lending statutes it is pure common law fraud. You are now faced with options that go from bad to worse, UNLESS you sue the people who caused this and your lawyer understands the basic economics of securitization. Your opposition knows all of this. That is why the cases, for the most part ,never get to trial. These cases are won or lost in demanding discovery, enforcing your demands, and relentless pursuit of the truth.

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP MAY 23-24

April 26, 2010
Op-Ed Columnist

Berating the Raters

Let’s hear it for the Senate’s Permanent Subcommittee on Investigations. Its work on the financial crisis is increasingly looking like the 21st-century version of the Pecora hearings, which helped usher in New Deal-era financial regulation. In the past few days scandalous Wall Street e-mail messages released by the subcommittee have made headlines.

That’s the good news. The bad news is that most of the headlines were about the wrong e-mails. When Goldman Sachs employees bragged about the money they had made by shorting the housing market, it was ugly, but that didn’t amount to wrongdoing.

No, the e-mail messages you should be focusing on are the ones from employees at the credit rating agencies, which bestowed AAA ratings on hundreds of billions of dollars’ worth of dubious assets, nearly all of which have since turned out to be toxic waste. And no, that’s not hyperbole: of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status.

What those e-mails reveal is a deeply corrupt system. And it’s a system that financial reform, as currently proposed, wouldn’t fix.

The rating agencies began as market researchers, selling assessments of corporate debt to people considering whether to buy that debt. Eventually, however, they morphed into something quite different: companies that were hired by the people selling debt to give that debt a seal of approval.

Those seals of approval came to play a central role in our whole financial system, especially for institutional investors like pension funds, which would buy your bonds if and only if they received that coveted AAA rating.

It was a system that looked dignified and respectable on the surface. Yet it produced huge conflicts of interest. Issuers of debt — which increasingly meant Wall Street firms selling securities they created by slicing and dicing claims on things like subprime mortgages — could choose among several rating agencies. So they could direct their business to whichever agency was most likely to give a favorable verdict, and threaten to pull business from an agency that tried too hard to do its job. It’s all too obvious, in retrospect, how this could have corrupted the process.

And it did. The Senate subcommittee has focused its investigations on the two biggest credit rating agencies, Moody’s and Standard & Poor’s; what it has found confirms our worst suspicions. In one e-mail message, an S.& P. employee explains that a meeting is necessary to “discuss adjusting criteria” for assessing housing-backed securities “because of the ongoing threat of losing deals.” Another message complains of having to use resources “to massage the sub-prime and alt-A numbers to preserve market share.” Clearly, the rating agencies skewed their assessments to please their clients.

These skewed assessments, in turn, helped the financial system take on far more risk than it could safely handle. Paul McCulley of Pimco, the bond investor (who coined the term “shadow banks” for the unregulated institutions at the heart of the crisis), recently described it this way: “explosive growth of shadow banking was about the invisible hand having a party, a non-regulated drinking party, with rating agencies handing out fake IDs.”

So what can be done to keep it from happening again?

The bill now before the Senate tries to do something about the rating agencies, but all in all it’s pretty weak on the subject. The only provision that might have teeth is one that would make it easier to sue rating agencies if they engaged in “knowing or reckless failure” to do the right thing. But that surely isn’t enough, given the money at stake — and the fact that Wall Street can afford to hire very, very good lawyers.

What we really need is a fundamental change in the raters’ incentives. We can’t go back to the days when rating agencies made their money by selling big books of statistics; information flows too freely in the Internet age, so nobody would buy the books. Yet something must be done to end the fundamentally corrupt nature of the the issuer-pays system.

An example of what might work is a proposal by Matthew Richardson and Lawrence White of New York University. They suggest a system in which firms issuing bonds continue paying rating agencies to assess those bonds — but in which the Securities and Exchange Commission, not the issuing firm, determines which rating agency gets the business.

I’m not wedded to that particular proposal. But doing nothing isn’t an option. It’s comforting to pretend that the financial crisis was caused by nothing more than honest errors. But it wasn’t; it was, in large part, the result of a corrupt system. And the rating agencies were a big part of that corruption.

Filed under: bubble, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop | Tagged: , , , , , , , , , , , | 7 Comments »

Reg Z TILA Amendment requires new owners and assignees of mortgage loans to notify consumers of the sale or transfer

Posted on April 1, 2010 by Neil Garfield

The Federal Reserve Board has issued an interim final rule under Regulation Z to implement the recent Truth in Lending Act (TILA) amendment that requires new owners and assignees of mortgage loans to notify consumers of the sale or transfer.

While mostly helpful in foreclosure defense,  the rule leaves open the question of ownership of the loans. Because of the practice of “assignment” of the loans to a special purpose vehicle, the Fed stopped there in its inquiry. If it had taken one step further it would have seen that the indenture to the mortgage backed bond conveyed an ownership interest in the loans supposedly assigned. it also leaves open the problem of whether the loans were accepted into the pool or were time-barred or were defective for failure to meet the requirements of recordation or recordable form set forth in the enabling documents.

The TILA requirement has been in effect since the May 20, 2009, enactment of the Helping Families Save Their Homes Act of 2009. Compliance with the specifics of the new rule is optional until January 19, 2010. As a result, new owners may (but need not) rely on the new rule immediately to ensure they are in compliance with TILA. Violations give rise to liability for statutory damages, including up to $4,000 per violation in individual actions or up to $500,000 in a class action.

The transfer notice requirement applies to all closed-end and open-end consumer-purpose mortgage loans secured by a consumer’s principal residence. It requires any person that acquires more than one mortgage loan in any 12-month period to provide a transfer notice without regard to whether the new owner would otherwise be a “creditor” subject to TILA. Mere servicers of mortgage loans and investors in mortgage-backed securities or other interests in pooled loans do not acquire legal title to loans and are not subject to the new rule. However, trusts or other entities acquiring legal title to the securitized loans are subject to the rule. The notice requirement is triggered by a transfer of the underlying loan, regardless of whether the assignment is recorded. Thus, assignees are not exempt from the duty to provide notice merely because the mortgage (as opposed to the note) is in the name of Mortgage Electronic Registration Systems (MERS), for example.

The new rule does not affect the separate notification requirement under the Real Estate Settlement Procedures Act (RESPA) for servicing transfers on mortgage loans. Accordingly, new owners who acquire both legal title to a mortgage loan and the servicing rights will need to satisfy both the TILA and RESPA notification requirements.

  • The notice must be given on or before the 30th calendar date after the date the new owner acquires the loan, with the acquisition date deemed to be the date that the acquisition is recognized in the new owner’s books and records. In the case of short-term repurchase agreements, the acquirer is not required to give the notice if the transferor has not treated the transfer as a loan sale on its own books and records. However, if a repurchase does not occur, the acquirer must give the notice within 30 days after it recognizes the transfer as an acquisition on its books and records.
  • The notice must be given even where the new and former owners are affiliates, but a combined notice may be sent where one company acquires a loan and subsequently transfers it to another company so long as the content and timing requirements are satisfied as to both entities.
  • The notice must contain the information specified by the new rule, including contact information for any agents used by an owner to receive legal notices and resolve payment issues.
  • The required information also includes a disclosure of the location where ownership of the debt is recorded. If a transfer has not been recorded in the public records at the time the notice is provided, a new owner may satisfy this requirement by stating that fact.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, expert witness, Fannie MAe, foreclosure, HERS, Investor, MODIFICATION, Mortgage, securities fraud, Servicer | Tagged: , , , , , , , , , , , , , , , , , , | 6 Comments »

Foreclosure Defense and Offense: Right of Rescission Reg Z

Posted on May 16, 2008 by Neil Garfield

§ 226.15  Right of rescission. 

  (a)  Consumer’s right to rescind.  (1)(i) Except as provided in paragraph (a)(1)(ii) of this section, in a credit plan in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind: each credit extension made under the plan; the plan when the plan is opened; a security interest when added or increased to secure an existing plan; and the increase when a credit limit on the plan is increased. 
      (ii)  As provided in § 125(e) of the act, the consumer does not have the right to rescind each credit extension made under the plan if such extension is made in accordance with a previously established credit limit for the plan. 
    (2)  To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram, or other means of written communication. Notice is considered given when mailed, or when filed for telegraphic transmission, or, if sent by other means, when delivered to the creditor’s designated place of business. 
    (3)  The consumer may exercise the right to rescind until midnight of the third business day following the occurrence described in paragraph (a)(1) of this section that gave rise to the right of rescission, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, 36whichever occurs last. If the required notice and material disclosures are not delivered, the right to rescind shall expire three years after the occurrence giving rise to the right of rescission, or upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with § 125(f) of the act. 
    (4)  When more than one consumer has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers. 
  (b)  Notice of right to rescind.  In any transaction or occurrence subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind (one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act). The notice shall identify the transaction or occurrence and clearly and conspicuously disclose the following: 
    (1)  The retention or acquisition of a security interest in the consumer’s principal dwelling. 
    (2)  The consumer’s right to rescind, as described in paragraph (a)(1) of this section. 
    (3)  How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business. 
    (4)  The effects of rescission, as described in paragraph (d) of this section. 
    (5)  The date the rescission period expires. 
  (c)  Delay of creditor’s performance.  Unless a consumer waives the right to rescind under paragraph (e) of this section, no money shall be disbursed other than in escrow, no services shall be performed, and no materials delivered until after the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded. A creditor does not violate this section if a third party with no knowledge of the event activating the rescission right does not delay in providing materials or services, as long as the debt incurred for those materials or services is not secured by the property subject to rescission. 
{{12-31-07 p.6659}} 
  (d)  Effects of rescission.  (1)  When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void, and the consumer shall not be liable for any amount, including any finance charge. 
    (2)  Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest. 
    (3)  If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer’s option, tender of property may be made at the location of the property or at the consumer’s residence. Tender of money must be made at the creditor’s designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer’s tender, the consumer may keep it without further obligation. 
    (4)  The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.
  (e)  Consumer’s waiver of right to rescind.  (1)  The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind. Printed forms for this purpose are prohibited, except as provided in paragraph (e)(2) of this section. 
    (2) The need of the consumer to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1993, pursuant to 42 U.S.C. 5170, to be a major disaster area because of severe storms and flooding in the Midwest. 36a In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster. 
    (3)  The consumer’s need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1994 to be a major disaster area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding in the South. 36b In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster. 
    (4)  The consumer’s need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during October 1994 to be a major disaster area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding in Texas. 36c In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster. 
  (f)  Exempt transactions.  The right to rescind does not apply to the following: 
    (1)  A residential mortgage transaction. 
    (2)  A credit plan in which a state agency is a creditor. 
{{12-31-07 p.6660}} 

[Codified to C.F.R. § 226.15] 

[Section 226.15 amended at 54 Fed. Reg. 24688, June 9, 1989, effective June 7, 1989, but compliance is optional until November 7, 1989; 58 Fed. Reg. 40583, July 29, 1993; 59 Fed. Reg. 40204, August 5, 1994, effective July 29, 1994; 59 Fed. Reg. 63715, December 9, 1994, effective December 8, 1994; 66 Fed. Reg. 17338, March 30, 2001, effective March 30, 2001; 72 Fed. Reg. 63474, November 9, 2007, effective December 10, 2007, the mandatory compliance date is October 1, 2008] 

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