Estoppel: When the Bank Tells You to Stop Making Payments

IMPORTANT PRACTICE NOTE: The use of the doctrine of estoppel on the facts presented in this article is only a temporary solution. If a representative of the bank told you to stop paying and then declared you in default and foreclose  it is unfair and that is exactly why we have the doctrine of estoppel. However, on these facts, the doctrine can only be applied for as long as the issue of modification or settlement is on the table. Whether it can be bootstrapped into an action for slander of title or breach of contract is an issue that will be decided by the courts.

My opinion is that on these facts the doctrine of estoppel will not serve as the foundation for an action for slander of title or breach of contract.

However, my opinion is that a lawsuit for intentional interference in the contractual rights of another could be brought if an intermediary between you and the servicer or between you and the creditor instructed you to stop making payments if you wish to seek a modification or settlement. 

If you are making that allegation you obviously want to say that the party who made that representation fraudulently induced you to believe that they have the authority to do it, but in fact lacked that authority inasmuch as  the sub servicer is almost certainly going to deny that they had the authority to make such representations.  In discovery the truth will come out —  the representative had been instructed to make those representations to homeowners by a sub servicer who lacked actual authority to make collections or decisions concerning the disposition of the loan because the entire paper trail of the securitization chain was false. This will enable you to sue both the representative and the sub servicer who gave the instruction. (Make sure you seek the advice of an attorney who is licensed in the jurisdiction in which a property is located and is familiar with these issues and does research to corroborate and fortify the arguments).

If you then received a declaration of default, notice of sale or a foreclosure lawsuit it could be argued that the intermediary was not a party with whom the homeowner was in privity. This argument would be fortified by a denial from the sub servicer that the intermediary had any authority make that statement.

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

EDITOR’S ANALYSIS AND COMMENT:  Judges seem to find it hard to believe that a creditor would tell the borrower to stop making payments. It sounds ridiculous. But the fact remains that the majority of the homeowners who have been declared in default were told exactly that by a representative with apparent authority to speak for the sub servicer and apparent authority to speak for the creditor.

I would suggest that anyone reading this article who has received that instruction from a person, party or institution draft an affidavit that is notarized that can be used by other parties to show the judge that this is a pattern of conduct that permeates the entire foreclosure industry. You can send those affidavits to me at NeilFGarfield@Hotmail.com  and without charge we will make those available to any lawyer or pro se litigant in need of those affidavits.  And by the way, let your lawyer draft the affidavit and retain an original copy which means you should be signing two of them each of which is notarized separately.

Those affidavits should include any information regarding subsequent correspondence, telephone calls or instructions from the same or different representative of the alleged sub servicer or creditor. And it should include any events in which the  sub servicer claim to have lost your submission of documents that were requested. As a practice hand, it is my opinion that no such submission should be made without a specific offer from the homeowner certified by a real estate professional.

This can subsequently be used as corroboration of the allegation that sub servicer neither considered the modification request or the modification proposal.  In addition it will fortify the allegation that the creditor was never informed of the offer and that therefore the sub servicer or representative is in violation of the laws of the nation and potentially of the state in which the property is located.

The Wall Street banks have created the illusion that they don’t want to foreclose but they have no other choice. In fact they have engaged in a pattern of conduct that made foreclosure an inevitable conclusion. Most people believe that the banks don’t want the property and therefore they would not foreclose if there was a real opportunity to settle or modified below with the assistance of the federal government under HAMP and HARP. Of course when you are dealing with Wall Street strategies the situation is  always more complex than the simplistic arguments used by attorneys seeking foreclosure or defending claims from borrowers.

It is hard to argue that the banks don’t want property when they have walked away from hundreds of thousands of homes that were emptied as a result of the wrongful foreclosure and eviction of the homeowner. In places like Cleveland and Detroit tens of thousands of homes were literally bulldozed because entire neighborhoods lost all of their residents and the homes became headquarters for drug deals and other illicit activities.

The simple truth is that the banks are not nearly as interested in the property as they are in the foreclosure. It is the foreclosure sale that creates the illusion of a stamp of approval from the state government that the entire securitization scheme was valid and it creates the reality of a presumption of the validity of the deed issued at the so-called auction of the property upon submission of  false credit bid from a non-creditor who is a stranger (not in privity) to the transaction alleged.

Their motivation is also quite simple, to wit: they have already received insurance proceeds and the proceeds of credit default swaps far in excess of the principal supposedly due on the note. If the loan were converted from “nonperforming” to “performing” it is highly likely that the Wall Street banks and their affiliates would be responsible for refunding the insurance money and proceeds of credit default swaps, all of which frequently amounted to multiples as high as 42 times the amount of the note.

The Dodd-Frank Law  makes it illegal for any servicer or representative of a creditor to engage in the consideration of a modification or settlement regarding the loan and at the same time pursue foreclosure. But even without that law, the doctrine of promissory estoppel accomplishes the same result.

I would point out that the reason that provision was made part of the Dodd-Frank  law was that there was no dispute as to the fact that servicers were encouraging people to stop making payments if they wanted to see an approval on a modification of their loan, a short sale of the property, or any type of settlement whatsoever.

The doctrine of promissory estoppel can be used both offensively in the nonjudicial states and defensively in the judicial states. It is important for a lawyer who is licensed in the jurisdiction in which the property is located to do the research on the statutes and case law dealing with promissory estoppel. The state and federal system do have differences.

In general, the elements of promissory estoppel consists of a promise or representation from one party that leads another party to reasonably rely on that promise or representation and act to their own detriment.  Generally it is not important that the benefits of the statement or action by the first party result in a benefit to that party. It is generally understood that the detriment to the homeowner as a result of the promise or representation may be all that is required in order to establish promissory estoppel, which of course must be properly alleged in a lawsuit or affirmative defenses depending upon whether the case is in a nonjudicial jurisdiction or a judicial jurisdiction.

There is no legal or business reason to tell a homeowner to stop paying if they want their loan modified, or if they want their property approved for short sale, or they want to settle with the creditor or creditors, the identity of which is closely guarded by the Wall Street banks and all of the parties in the securitization chain that turns out to be more of a paper chain of sham transactions than anything else.

The reason why homeowners are being told to stop making payments and why they are given trial modifications that are subsequently denied status as permanent modification is that the goal is foreclosure in order to keep the illicit proceeds of insurance and credit default swaps. As soon as the homeowners are told to stop making payments, and subsequent payments are often returned, the securitization parties are slowly edging the borrower into a position where it is impossible for them to make up the payments and therefore inevitable that the foreclosure will proceed. And the reason why becomes impossible for them to make up the payments is that they are told  that the back payments at worst will be added to the end of the loan. They are told this to make sure that the borrower spends the money and no longer has the money to bring the loan current.  It is a perfect storm for the Wall Street banks.

If the borrower is taken the trouble to send a qualified written request or a debt validation letter and will fortify the claim because the sub servicer or other representative will have failed to  provide proof of payment or funding for the acquisition or the origination of the loan and will have failed to provide proof of authority to represent the creditor and further failed to identify the creditor so that the authority to represent could be confirmed.

Sitting on the desk of the governor of the state of Florida is a crazy bill that would make it impossible for most homeowners to defend wrongful foreclosures. If he signs the bill into law the banks will be cheering, but not for long. Using the doctrine of estoppel the foreclosure will be stopped dead in most cases assuming the homeowner was in fact instructed to  cease making  payments and was promised that if they follow the rules their request for modification would be considered —  which is something which is required under existing federal law dating back to the time of TARP.

If the homeowner takes the position in litigation that all payments that were due were in fact paid, and that in fact the homeowner believes he has overpaid, a question of fact emerges that probably cannot be handled in the summary proceedings under what might be the new Florida law and similar laws passed in other jurisdictions.  If the homeowner also takes the position that he is neither in privity with nor does he owe any money to either the party bringing the foreclosure proceedings, this raises additional questions of fact that must be dealt with under the rules of evidence in a properly noticed hearing.

PRACTICE NOTE: Procedurally I have come to the opinion that in order to take control of the narrative away from parties who are essentially strangers to the transaction, lawyers should issue subpoenas rather than notices under the Rules of Civil Procedure. Those subpoenas should go out immediately upon receipt of any notice of foreclosure or any lawsuit seeking foreclosure. The subpoenas should ask for a competent witness to testify at deposition and require the witness produce proof of payment or consideration in the acquisition or origination of the loan. The subpoena should specify the type of information you are seeking, to wit: a canceled check, wire transfer receipt, and ACH confirmation, or check 21 confirmation. The failure of the opposing party to respond even if they file timely objections are motions to quash will raise issues as to the amount of any payment alleged to have been missed in the amount of any principal alleged to be unpaid. If I am right, the Florida law may well turn out to be a landmine for the banks from which they cannot recover.

Don’t Take Advice from Banks! It’s All Scripted to Get You in Foreclosure and then Default

IL AG ISSUES NEW SUBPOENAS TO LPS AND NTC

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

MADIGAN ISSUES SUBPOENAS TO LPS, NationWide Title Clearing ; WIDENS ‘ROBOSIGNING’ PROBE

FROM STOPFORECLOSURENOW.COM

MADIGAN ISSUES SUBPOENAS TO LPS, NationWide Title Clearing ; WIDENS ‘ROBOSIGNING’ PROBE

Chicago — Attorney General Lisa Madigan today expanded her investigation into “robosigning” practices, issuing subpoenas against two national mortgage servicing support providers. The subpoenas are the latest effort in Madigan’s ongoing probe into the fraudulent practices used by banks and other mortgage institutions that contributed to the collapse of the U.S. housing market and the subsequent global financial crisis.

Madigan issued subpoenas against Lender Processing Services Inc. and Nationwide Title Clearing Inc., two Florida-based corporations that provide “document preparation services” and other loan management services to mortgage lenders for use against borrowers who are in default, foreclosure or bankruptcy.

“Foreclosure became a rubber-stamping operation that robbed many homeowners of the American Dream without a fair and accurate process,” Attorney General Madigan said. “I will not relent in my investigation into the fraudulent practices by lenders and others that caused and exacerbated the mortgage crisis and the resulting massive foreclosure crisis.”

Lender Processing Services (LPS) provides loan servicing support for more than 50 percent of all U.S. mortgages. More than 80 financial institutions use LPS to service more than 30 million loans. These loans have an outstanding principal balance exceeding $4.5 trillion.

Nationwide Title Clearing (NTC) provides a range of mortgage loan services to eight of the top 10 lenders and mortgage servicers in the country. NTC specializes in creating, processing and recording mortgage assignments, which are often needed for a lender to foreclose on a borrower.

Madigan will investigate reported allegations that LPS and NTC engaged in the practice of “robosigning” legal documents filed with the court to foreclose on borrowers. Robosigning occurs when an individual has no knowledge of the information contained in the document and often doesn’t even read or understand the document that he or she is signing. The use of robosigned documents was pervasive as lenders foreclosed on borrowers’ homes. The probe will also include a complete review of the accuracy of the systems and services that LPS and NTC provide to the large lenders including servicing platforms, foreclosure attorney interaction with these platforms and the assignment of mortgage process.

Attorney General Madigan said former employees of LPS, NTC, or former employees of any residential mortgage servicer or bank who have knowledge of any unlawful practices relating to mortgage servicing or the execution of documents should call her Homeowner Helpline at 1-866-544-7151 to aid in the investigation.

NY Issues More Subpoenas on Foreclosures

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

“Raymond H. Brescia, assistant professor of law at Albany Law School, said: “We’re seeing a disproportionate number of cases in the foreclosure context where questionable filings have been made. I think it’s easy to say this is the largest and most wide-ranging fraud against the courts in the United States. Lawyers have to have a good-faith basis for the factual assertions they make to the court; they are responsible if they file pleadings that are baseless.”

So what we have here is THREE DIFFERENT DEALS — THE REAL ONE REFLECTED BY THE EXCHANGE OF MONEY, THE COVER DEAL WHICH WAS THE ORIGINAL SECURITIZATION SCHEME THAT NOBODY FOLLOWED, AND THE FABRICATED AND FORGED DOCUMENT SCHEME IN WHICH WOULD-BE FORECLOSERS ATTEMPTED TO CONFORM THE DOCUMENTS TO THE EVIDENCE THEY EITHER CREATED OR COULD NOT AVOID. – Neil Garfield

GET COMBO TITLE AND SECURITIZATION SEARCH, REPORT, ANALYSIS ON LUMINAQ


EDITOR’S COMMENT: The answer is obvious. But who will ask the question? HOW AND WHY DID THESE NEWLY CREATED FORECLOSURE MILLS GET STARTED, AND WHY DID THEY RESORT TO FRAUD TO PUSH THROUGH FORECLOSURES WHERE THE BORROWER WAS OBVIOUSLY IN DEFAULT?

  1. NO DEFAULT: First, we know that the mortgagee or beneficiary stated on the note and security instrument is NOT the party seeking foreclosure nearly all the time. Since this new party neither loaned any money nor did they purchase the receivable, there is no default as to THEM. And since these parties have no actual rights of agency or representation, neither the attorney nor the client belong in court. So they needed to create a default, even if the servicer was continuing to make payments to the creditor. That was untrue, so it follows that any documents declaring otherwise would also be untrue. They depended upon the obvious fact that the borrower had ceased making payments to carry the day, and it worked. Judges granted foreclosure and denied borrower defenses in an overwhelming majority of cases. It just didn’t seem credible that the banks would come in foreclosing on loans that didn’t exist, that the bank didn’t own, and that the lawyer and a foreclosure mill had cooked up fabricated and forged documents. Why would they do that? THERE WAS NO DEFAULT BECAUSE THE REAL CREDITOR CONTINUED TO GET PAID. AND THERE COULDN’T BE A DEFAULT, AS PER THE NOTE, BECAUSE THE NOTE WAS A FICTION DESCRIBING A TRANSACTION THAT NEVER TOOK PLACE.
  2. NO CREDITOR: It turns out that virtually none of the mortgages were funded by the party to whom the promissory note was made payable and that often MERS or some other entity was named as the holder of a security interest, thus splitting the note and security instrument. It also turns out that the lender was parting with his funds under a set of assumptions and representations that were never communicated to the borrower, not the least of which was the identity of the real lender or even that a real lender existed at all. Thus the original transaction in which the investor’s money was put to use, in part, to fund mortgages, some of which was to fund a specific loan was subject to documents (PSA, mortgage bond indenture, etc.) containing many provisions relating directly to the trail money, none of which were communicated to the borrower, or even that such documentation existed at all. The real creditor — the ONLY party that parted with money — is neither present in the courtroom nor do they want to be. They have chosen to sue the investment banking firms for selling them mortgage bonds that were fake — i.e., with nothing in the pool or some awkward argument for saying the loans should be “considered” to be in the pool even if they were not. Thus the foreclosures are initiated by disinterested parties out of greed — not to redress a loss that THEY had. Wall Street went along with the continuing PONZI scheme because it has given them more cover to scapegoat the foreclosure mills as being the cause of the mortgage mess.
  3. NO DOCUMENTS: “NO DOC” loans became “NO-DOC Foreclosures. The mortgage documents signed at “closing” recited a transaction that never occurred, while the real transaction and the real parties neither knew nor accepted the terms, much less in writing. The note and mortgage (deed of trust) are invalid, fatally defective from a title perspective without a new signature from the borrower on documents that reflect an actual agreement between borrower and lender.
  4. NO MONEY: The money for funding the mortgage was wired in to the closing agent bypassing the supposed “lender” at closing or using them as merely a fee-based service, conduit ( like a messenger). Any money paid by the borrower was paid not to the party named as payee on the note but to third parties who used the mere fact that a receivable existed to create exotic instruments that multiplied the apparent value of the receivables to nose bleed levels that could never be sustained. THEN they divided up the new proceeds after having already bilked the investors out of money to fund the non-existent loans, they bilked more investors and speculators on the viability of the exotic derivative instruments, whose value was entirely dependent on the value and enforceability of the note and security instrument named a “mortgage loan.”
  5. NO DEAL: There being no deal, no documentation and no money trail that the would-be foreclosers can or would disclose, they made up a whole set of “facts” (fabrication of documents) by describing a scheme that was different from the actual money transaction between borrower and lender, different from the securitization infrastructure that was originally laid out in the PSA, Assignment and Assumption Agreement, Prospectus etc. Naturally since these documents never existed before and did not reflect the the terms originally understood by borrower and lender, they needed forgery by $10 per hour robo-signers. So what we have here is THREE DIFFERENT DEALS — THE REAL ONE REFLECTED BY THE EXCHANGE OF MONEY, THE COVER DEAL WHICH WAS THE ORIGINAL SECURITIZATION SCHEME THAT NOBODY FOLLOWED, AND THE FABRICATED AND FORGED DOCUMENT SCHEME IN WHICH WOULD-BE FORECLOSERS ATTEMPTED TO CONFORM THE DOCUMENTS TO THE EVIDENCE THEY EITHER CREATED OR COULD NOT AVOID.

New York Subpoenas 2 Foreclosure-Related Firms

By GRETCHEN MORGENSON

Eric T. Schneiderman, the New York attorney general, has issued subpoenas to the state’s largest foreclosure law firm and a related company, indicating that his office has some doubts about the effort by state attorneys general to resolve questionable foreclosure practices among the nation’s top banks.

The New York investigation appears to center on two of the state’s foreclosure industry giants: the Steven J. Baum firm, headquartered in Amherst, N.Y., and Pillar Processing, a default servicing firm set up by Mr. Baum that was spun off in 2007. Representing JPMorgan Chase, Wells Fargo and other large banks, the Baum firm has handled an estimated 40 percent of foreclosure cases in the state. Pillar Processing provides extensive services to the firm.

A spokesman for Mr. Schneiderman declined to comment. Mr. Baum said in an e-mail: “The firm will cooperate with the attorney general in this matter. We are confident that after a full review by the attorney general they will find no wrongdoing.”

Attorneys general across the country have been working on ways to rectify foreclosure improprieties by the nation’s biggest banks and have entered into negotiations in recent weeks with these institutions about a national settlement. Tom Miller of Iowa is leading that effort. While Mr. Schneiderman has been participating, his new investigation points to the possibility that he will take a different path.

Large foreclosure law firms have come under scrutiny in states outside New York. Last year, the Florida attorney general began investigating the David J. Stern firm, the largest in that state. That investigation is continuing, but the law firm stopped bringing foreclosure cases last month.

Like the Stern firm, Mr. Baum’s operation flourished as the mortgage crisis deepened. Since the end of 2007, it has filed more than 50,000 new foreclosure cases in New York, according to data compiled by the New York State Unified Court System. The firm employs approximately 70 lawyers.

Along with the attorney general, federal prosecutors in Manhattan have requested information about the Baum firm’s practices, according to a lawyer who has represented borrowers against the firm. The lawyer spoke on condition of anonymity because the communications with the prosecutors were private. A spokesman for the Department of Justice declined to comment.

Scrutiny of the Baum firm has increased in recent months after significant errors surfaced nationwide in legal paperwork used by banks to seize delinquent borrowers’ homes. For example, documents detailing how much borrowers owe have been signed by bank representatives who say they have not verified the information. Other problems involve the questionable notarization of documents, or paperwork indicating that the foreclosure process was begun without providing proof that the entities involved had the legal right to foreclose.

The Baum firm has drawn rebukes on its legal practices from judges in several New York jurisdictions. Judges in courts across the state have rejected scores of cases filed by the Baum firm, saying it has failed to provide the documentation necessary to commence foreclosure.

Last November, Judge Scott Fairgrieve in Nassau County district court imposed sanctions of $5,000 on the Baum firm in a foreclosure case and required it to pay more than $14,000 in fees to the borrower’s lawyers. When awarding the sanctions, the judge wrote: “Bringing legal proceedings when there is no legal right to do so, due to lack of standing, stalls the efficient administration of justice in the system.”

Paul D. Stone, a lawyer in Tarrytown, N.Y., has been defending a foreclosure case against the Baum firm since 2009. “I’ve never seen any firm file such ill-conceived, ill-researched, nonfactual materials with a court,” Mr. Stone said. The judge overseeing his case recently ordered Mr. Baum’s firm to pay some of the borrower’s legal costs.

Hoping to eliminate defective filings, last fall New York courts began requiring lawyers bringing foreclosure cases to attest to the accuracy of their papers.

The Baum firm was founded in 1972 by Marvin R. Baum and has been overseen by Steven J. Baum, his son, since the elder man died in 1999.

Steven Baum created Pillar Processing in 2007, a provider of real estate default services, and it is located in the same office complex in Amherst as the law firm. Pillar was purchased in 2007 by Tailwind Capital, a New York hedge fund; some of Pillar’s debt and equity is also held by Ares Capital, a publicly traded investment company in New York City. Representatives of Tailwind did not respond to an e-mail seeking comment. An Ares spokesman declined to comment.

Pillar Processing’s default servicing practices have attracted criticism from Cecelia G. Morris, bankruptcy judge in the Southern District of New York. In a court hearing on Feb. 5, 2008, Judge Morris said she would no longer accept any material from Pillar Processing in her court and added that if more paperwork from Pillar came in, she would deny the motions associated with it.

Linda M. Tirelli, a lawyer in White Plains who represents homeowners, discussed three current foreclosure cases in which she faces the Baum firm. “The documents don’t make sense in any of them,” she said. In another foreclosure being defended by Ms. Tirelli, a lawyer for the bank told the court that the Baum firm had filed inaccurate documents as it sought to take over a borrower’s property. After trying unsuccessfully to find every link in the chain of title on the property, the Baum firm prepared inaccurate papers to fill in what was missing, according to court documents.

Speaking generally and not specifically about the Baum firm, Raymond H. Brescia, assistant professor of law at Albany Law School, said: “We’re seeing a disproportionate number of cases in the foreclosure context where questionable filings have been made. I think it’s easy to say this is the largest and most wide-ranging fraud against the courts in the United States. Lawyers have to have a good-faith basis for the factual assertions they make to the court; they are responsible if they file pleadings that are baseless.”

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