TBW Taylor Bean Chairman Arrested On Fraud Charges

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

Editor’s Note: TBW has been high on my list of incompetent fraudsters. I always thought it was a stupid risk to “sell” mortgages and “sell” the servicing rights (probably to their own entity), and then take the servicing back. Stupid maybe, but they had no choice. The entire Taylor Bean operation wreaks of fraud and inconsistencies.

Bottom Line: If you have a TBW as the originating “lender” this article indicates, as we have known all along, that they were using OPM (Other People’s Money) and they were NOT the lender even though they said they were. It is highly likely that few, if any, of the loans were actually “securitized” because the loans were either nonexistent as described, never accepted by any pool (even though there might be a pool out there that claims ownership) and that none of the assignments were ever completed.

Thus your claims against TBW (including appraisal fraud, predatory loan practices, deceptive loan practices, fraud etc.) are properly directed, to wit: TBW still owns the paper, although the obligation is subject to an equitable unsecured claim from investors who funded the loan.

June 16, 2010

Executive Charged in TARP Scheme

By ERIC DASH

Federal prosecutors on Wednesday accused the former chairman of Taylor, Bean & Whitaker, once one of the nation’s largest mortgage lenders, of masterminding a fraud scheme that cheated investors and the federal government out of billions of dollars and led to last year’s sudden failure of Colonial Bank.

The executive, Lee B. Farkas, was arrested late Tuesday in Ocala, Fla., after a federal grand jury in Virginia indicted him on 16 counts of conspiracy, bank fraud, wire fraud and securities fraud. Separately, the Securities and Exchange Commission brought civil fraud charges against Mr. Farkas in a lawsuit filed on Wednesday.

Prosecutors said the fraud would be one of the biggest and most complex to come out of the housing collapse and the government’s huge bailout of the banking industry. In essence, they described an elaborate shell game that involved covering up the lender’s losses by creating fake mortgages and passing them along to private investors and government agencies.

Federal officials became suspicious after Colonial BancGroup, the main source of financing for Mr. Farkas’s company, tried to obtain $553 million in bailout money from the Troubled Asset Relief Program. The TARP application, filed in early 2009, was contingent on the bank first raising $300 million from private investors.

According to the S.E.C. complaint, Mr. Farkas and his partners said they would contribute $150 million, two private equity firms would each contribute $50 million, and a “friends and family” investor group would contribute another $50 million. “In truth, neither of the $50 million investors were private equity investors and neither ever agreed to participate,” the complaint said.

Mr. Farkas pocketed at least $20 million from the fraud, which he used to finance a private jet and a lavish lifestyle that included five homes and a collection of vintage cars, prosecutors said.

But the case is likely to expand beyond Mr. Farkas. The complaints cite the involvement of an unnamed Colonial Bank executive and other co-conspirators in the suspected fraud, and prosecutors said they might hold others accountable down the road.

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Officials said the many layers of the scheme resulted in more than $1.9 billion of losses to investors; a $3 billion loss to the Department of Housing and Urban Development, which guaranteed many of the loans that Mr. Farkas’s company sold; and a $3.6 billion hit to the Federal Deposit Insurance Corporation, which had to take over Colonial Bank and pay its depositors after many of the bank’s assets were found to be worthless.

The complaints also list BNP Paribas and Deutsche Bank, which provided financing to Mr. Farkas’s company, as victims of the suspected fraud. Together, they lost $1.5 billion.

According to the complaints, the fraud started as early as 2002 with an effort to conceal rising operating losses at Taylor, Bean & Whitaker, a mortgage lender founded by Mr. Farkas. The first stage involved an attempt to hide overdrafts on a credit line the company had with Colonial Bank. As those overdrafts grew, prosecutors contend, Mr. Farkas and his associates started selling fake mortgage assets to Colonial Bank in exchange for tens of millions of dollars.

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

The transactions were “designed to give the false appearance that the loans were being sold into the secondary mortgage market,” Mr. Breuer said. “In fact, they were not.”

By 2008, prosecutors contend, the scheme had entangled the federal government. Investigators in the Office of the Special Inspector General for TARP took notice of the size of Colonial Bank’s bailout application and became suspicious of the accuracy of the bank’s statements.

That led investigators to alert other federal officials and draw a connection between Colonial Bank and Taylor, Bean & Whitaker, whose offices were raided by federal agents in August 2009. Both companies would soon stop operating.

“We knew it was a longstanding and close relationship between Colonial and T.B.W., and we decided that we needed to take a much closer look,” Neil M. Barofsky, the TARP special inspector general, said at a news conference on Wednesday. Investigators also discussed the situation with Treasury officials to “make sure the money would not go out the door.”

Federal officials have conducted nearly 80 criminal and civil investigations into companies that accepted TARP money, but so far they have filed charges in only one other case. In March, the head of Park Avenue Bank in Manhattan was accused of trying to defraud the government bailout program.

Pot Calls Kettle Black: Deutsch V BOA

See DEUTSCHEBANKv BANKOFAMERICA

This is an action for (1) damages for breach of contract resulting from BOA’s
failure to secure and safeguard over $1.25 billion worth of cash and mortgage loans that it was contractually obligated to secure on behalf of DB and (2) contractual indemnity for the losses caused by BOA’s negligent performance of its duties to DB.

Ocala was established for the sole purpose of providing funding for mortgage
loans originated by Taylor, Bean & Whitaker Mortgage Corp. (“TBW”). Mortgages purchased by Ocala were required to conform to the requirements of, and were intended to be sold to, the Federal Home Loan Mortgage Corporation (“Freddie Mac”), a government-sponsored entity that is implicitly backed by the full faith and credit of the United States government.

WET AND DRY MORTGAGES

One vital mechanism protecting DB against risk was the requirement that DB’s investment be at all times over-collateralized by a combination of cash and “dry” mortgages purchased by Ocala. “Dry” mortgages are mortgages that have been reviewed by the lender and are actually in the lender’s possession at the time the mortgage loan is acquired by the lender. By contrast, “wet” funding of mortgages is riskier from the lender’s perspective because financing is provided to a borrower before the mortgage note has been received and reviewed by the lender (i.e., when the ink on the mortgage note is still “wet”). The lender providing wet funding for TBW was Colonial Bank (“Colonial”). In making its investment in Ocala on June 30, 2008, DB insisted that its investment be used only for dry mortgages.

DB trusted that BOA, one of the nation’s largest and most well-known financial institutions, would perform the gatekeeper function reasonably and responsibly. DB’s confidence was echoed by Moody’s Investors Service, which, in assigning Ocala an investment grade rating, emphasized the importance of BOA’s role and stated that risk to DB and other noteholders was “mitigated by the resources, capability and credit strength of BOA as the trustee, collateral agent, depositary and custodian to provide critical program support services, including: certifying the borrowing base and checking the delinquency triggers before the issuance of Ocala’s ABCP; checking in the loan files and creating a collateral transmittal report; and managing the orderly wind-down of the program.” Moody’s ABCP Market Review (July 13, 2009). see Asset Backed Commercial Paper Review

As it turned out, the faith of DB and other investors was misplaced. In myriad ways, BOA failed to carry out its various duties designed to protect DB’s investment, and these failures substantially damaged Ocala and DB’s investment.


Foreclosure Defense: WHERE’S THE NOTE?

In the context of the Mortgage Meltdown-Securitization Frenzy, it just might be possible that most of the promissory notes issued by homeowners on refinancing or purchasing their homes are lost and destroyed. It might even be all of them. If that is the case, it can be argued that nobody is entitled to receive payments under this unique circumstance. It sounds silly, but the documents from each closing, which more and more resemble the issuance of a security, and the securitization process that led up to the sale of asset backed securities to investors, parsed the notes and security instruments to such an extreme that there is no one party who has possession, control, custody, authority or even knowledge enough to enforce the terms of the note or the mortgage.

At this point it appears to us in our investigation, that the actual real party(ies) in interest cannot be identified by anyone.

As we probe deeper into this mess, many thins are becoming apparent, not the least of which was that the alleged financial geniuses who became “gurus” were simply ordinary people who understood barely enough of the process to SELL it.

We have not found, thus far, anyone in the financial industry or any text, treatise or book, that contains a complete and valid description of the logistics of the typical mortgage meltdown transaction — starting with pre-sales to hood-winked investors of asset backed securities (often before any loan was closed) and ending with the loan closing on the ground where some poor sap had been convinced that he/she was a real estate investor.

EVERYONE WE KNOW HAS SOME KNOWLEDGE OF PART OF THE PROCESS BUT NOBODY HAS KNOWLEDGE OF THE TOTAL PROCESS — AND THIS APPEARS INTENTIONAL TO CREATE THE FACADE OF PLAUSIBLE DENIABILITY WHEN THE MESS EXPLODED, WHICH MANY OF THE PLAYERS KNEW WOULD HAPPEN SOONER OR LATER. 

The promissory note is the instrument that is being enforced at a mortgage foreclosure, or in the non-judicial sale states (which we contend violates fundamental due process rights) where the process of notice of sale commences.

In the judicial sale states the “lender” must file a foreclosure action and start off with alleging that they are the owner of the note and possess the rights under the mortgage. They say that they were the one that the borrower(s) was supposed to pay and they have not received payment. But in this unique context, the “lender” is not the actual lender and never was.

We know Taylor Bean is filing foreclosure suits affirmatively alleging that they don’t have the note and don’t know where it is. We know that Wells’ Fargo has been found to have pre-sold the mortgage loan PRIOR TO LOAN closing and was never the real party in interest even though their name was used at closing. It appears that every loan from 2001-2008 is subject to the analysis in these pages. It is possible that loans prior to that date might also be affected.

When you or your client appeared at closing to get the loan and refinance the home or purchase the home, they had already pre-sold or pre-arranged the sale of your loan to a mortgage aggregator. This “sale” involved assignments and begins the process of parsing the various documents into what becomes, in the end, meaningless gibberish. The straightforward nature of the foreclosure process has become a corkscrew of reverse logic, lost documents, dubious powers and even more dubious obligations to pay on the note. 

We have found no situation, as yet, where the original note has appeared or where there is any allegation that anyone knows where it is. We are receiving streaming reports that the notes are lost or destroyed. ANd we have some suspicions, that the actual rights to the enforcement of the note and/or mortgage, and perhaps the physical custody of the notes, actually might reside in the Cayman Islands or some such safe harbor, where a structured investment vehicle with no actual interest in the note or mortgage is holding all or some of the rights of the “lender” by virtue of transmittal documents or assignments that conflict with other assignments in the securitization process. 

Thus it may fairly be argued that there is no known person to the borrower against which he can exercise his rights of rescission, no known person or entity to whom payment may fairly be made without risking a claim for payment from third parties who claim entitlement from assignments or pledges that may or may not be valid, in whole or in part.

THIS IS WHY THE FIILNG OF A BANKRUPTCY ON BEHALF OF A BORROWER SEEKING TO FORESTALL FORECLOSURE MAY RESULT IN ATTORNEY MALPRACTICE OR EVEN BAR GRIEVANCES — AS TO BOTH THE LAWYER FOR THE PETITIONER AND THE LAWYER FOR THE ALLEGED LENDER.

THE “LENDER” IS ACTUALLY UNKNOWN. THE AMOUNT OF MONEY OWED, IF ANY, IS UNLIQUIDATED BECAUSE OF THE RIGHT TO RESCISSION, AND THE RIGHT TO RECEIVE REFUNDS, REBATES AND DAMAGES. AND THE SECURITY INSTRUMENT IS AT BEST CONTINGENT AND PROBABLY VOID BECAUSE OF THE RIGHT TO RESCIND. UNDER TILA, SECURITIES LAWS AND OTHER FRAUDULENT AND DECEPTIVE PRACTICES LAWS AT THE FEDERAL AND STATE LEVEL. 

IF THE SCHEDULES ARE FILED PROPERLY, THEN WHEN THE “LENDER’ FILES A MOTION TO LIFT THE AUTOMATIC STAY, THE BURDEN THEN FALLS ON THE LENDER TO PROVE ITS CASE BEFORE GETTING THE ORDER LIFTING THE STAY. ON THE PETITIONER’S SCHEDULES, IT IS SHOWN THAT THE “LENDER” IS MERELY A LOAN SERVICER OR OTHER THIRD PARTY THAT NO LONGER HAS ANY INTEREST IN THE NOTE NOR POSSESSION OR AUTHORITY TO PROCEED IN FORECLOSURE. THIS “LENDER” IS SHOWN AS HAVING A CONTINGENT, UNLIQUIDATED CLAIM OF UNKNOWN AMOUNT, AND IT IS UNSECURED.

“JOHN DOE” ET AL IS LISTED ON THE SCHEDULES AS BEING PARTIES WHO DESPITE DEMAND FROM THE BORROWER, ARE NOT DISCLOSED BUT WHO MAY HAVE A CLAIM AGAINST THE PETITIONER. AND JANE DOE IS ALSO AN  DISCLOSED PARTY(IES) WHOSE OWN OBLIGATIONS HAVE BEEN MERGED WITH THE THE PETITIONER.

It would be the position of the Petitioner that the payment has been either made or is covered by a sinking fund, insurance, co-borrower payment, third party payment or fund from proceeds of the sale of asset backed securities. 

At this point there is little doubt that the assignments or sales of the note were split off or parsed from the obligation to pay in the securitization process. Other parties were either substituted as obligors under the note, co-borrowers, etc. Thus the mortgage service provider could at best only state what they have received from a particular borrower on a particular piece of property securing a particular note.

But this servicer cannot state whether OTHER payments have been made upstream that cover the revenue from the borrower’s note. And neither the servicer (nor the Trustee in non-judicial sale states) can state that they have possession of the original note, or any document from the current holder of the original note because the note is gone. In fact they cannot state or assert they know where such documentation exists or even that they know who would know where such documentation or authority exists. 

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