Optical Illusions and Cognitive Delusions Are the Foundations For Erroneous Decisions by Homeowners, Their Lawyers, and Judges

By the time most lawyers are retained to represent a homeowner, the homeowner has already created damage. The lawyer’s task is magnified by the need to first perform damage control before asserting claims and defenses. The bottom line is that homeowners lack credibility when they assert defenses that conflict with their own behavior and their own prior statements.

It was back in 2006 when I decided to do something about what the investment banks were doing in the lending marketplace. The biggest mistake I made was grossly underestimating the power of groupthink. Running a close second to that mistake, I grossly overestimated the ability and willingness of the public to overcome their ignorance of the methods and results of securitization.

My message was simple. There was no securitization of debt. Any claims regarding the right to administer, collect or enforce any debt in the context of securitization claims were false. By definition, securitization of debt requires sale of the debt. By definition, sale of the debt requires purchase of the debt, which is then reflected on accounting ledgers.

This simple scenario simply was not happening. But Wall Street was saying that it was happening because they needed to say that in order to claim a foundation for their claims of securitization of debt (false) and their ability to enforce.

None of it was true. [Not even for transactions that were initially conventional loans]. There has been no truth to this since the investment banks entered the lending marketplace for homeowners around 1995. But the investment banks were smart enough to employ the main tactics of every successful scheme: (1) develop a national narrative, (2) use false labels that are promoted into common usage and (3) get everyone involved addicted to the flow of money. Compare with OxyContin and Madoff.

It seems that the biggest obstacle to changing the trajectory of enforcement and Foreclosure had already been studied repeatedly by psychologists and sociologists around the world. We humans have an irrational belief in our own choices. The more ignorant we are, the more confident we tend to be in our abilities to handle a situation.

This phenomenon actually has a name: the Dunning-Kruger effect. Wall Street banks have actually weaponized this effect. It results in optical illusions and cognitive delusions in which the observer has complete confidence.

Both homeowners and institutional investors came to believe that transactions with homeowners could be described as mortgage loans, simply because the intent of the homeowners was to obtain a loan and the homeowners executed documents that are normally associated with the origination of a mortgage loan. One could say that this is an optical illusion that result in a cognitive delusion.

It is an illusion in most cases because the transaction was not intended to produce a business case for earning revenue or profit from the receipt of interest from homeowners. The business case for the apparent “lender” (false label) was strictly limited to the sale of securities. Without the sale of securities that simply would have been no transactions at all with homeowners.

Yes, they might have secured a conventional loan from someone else but a real lender would have had a stake in the viability of the loan, the payment of interest and the return of principal. A real lender would have an interest in using the lowest possible appraisal from the highest quality appraisers.

A real lender would not have offered money without any assertion or proof of income, assets, job, or any other possibility of making payments. A real lender would not have offered low payments just to close the deal followed by crushing payments that could never be paid.

And a real lender would not have accepted the skyrocketing prices of assets that were far above any standard metric for the valuation of assets. Home values reflect median income. Wall Street changed that metric to home values reflecting the availability of cash in transactions that were immediately damaging to homeowners.

Wall Street is not stupid. They have always understood that they could increase, pressure for a bubble and make money trading securities based upon rising prices. And they have always known that they could bet against the market, knowing it would crash.

And since the attributes of a loan transaction were irrelevant to the investment banks, they eliminated the essential role of a loan account or any account receivable that was due from the homeowner. This one feature enabled them to sell a virtual debt dozens of times without liability for the fraudulent sale of an actual debt more than once.

Continual use of labels has produced a level of groupthink that should be compared to concrete. Almost everyone except the labels of “trustee” “trust,” “servicer,” etc. as if those labels could be trusted as a description of a company that is claimed to be acting in a certain role. None of that is true either. Even the claim is an illusion because when you dig down you find that the company on the letterhead never made the claim — someone else produced the document or pleading.

And the biggest obstacle for homeowners, therefore, is their understandable lack of motivation into wading into a pool of terms and business models about which they know nothing.

It’s a problem because in the period between the origination of their false transaction and time of enforcement they have accepted, admitted and even used the same terms that were asserted by machines and remote persons who have only one goal in mind — make more money through foreclosure for profit rather than a foreclosure to reduce a nonexistent loan account.

It’s a missed opportunity because if there had been compliance with law, the investment banks would have been required to disclose their presence, indeed their dominance, in the origination of the homeowner transaction and to disclose the estimated revenue and profits that would be generated from the sale of securities. This is already the law, since the 1960s.

In turn, that would have resulted in homeowners bargaining for better terms including a bigger piece of the pie in exchange for accepting a virtual creditor instead of a real one. Homeowners were entitled to share in the revenue generated from the sale of securities because they were accepting a brand new risk — a virtual creditor with no risk of loss, whose interest was in selling securities (not a viable loan as required by the Federal Truth In Lending Act).

Early action by homeowners can create the foundation for both defenses and claims that are completely meritorious. But most homeowners are not motivated to even inquire into their rights or the status of the transaction that they called a “loan.”

By the time most lawyers are retained to represent a homeowner, the homeowner has already created damage. The lawyer’s task is magnified by the need to first perform damage control before asserting claims and defenses. The bottom line is that homeowners lack credibility when they assert defenses that conflict with their own behavior and their own prior statements.

PRACTICE NOTE SUPPLIED BY BILL PAATALO:

Excellent post!
This is why a great target for subpoena and deposition is the “label’s” assigned “Risk Manager.” This party is often named in the PSA and is really the PMK, not the robo-witness who shows up on behalf of both the label and the trustee. It is the “Risk Manager” that instructs all parties to do what they do. The Risk Manager knows where the bodies are buried, and if not, the label will have a hard time explaining its rights to enforce anything and the harm it has suffered.
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Neil F Garfield, MBA, JD, 74, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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Rescission: Equitable Tolling Extends Statute of Limitations

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

Important Message: This blog should NEVER be used as a substitute for competent legal advice from an attorney licensed in the jurisdiction in which your property is located.

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see http://openjurist.org/784/f2d/910/king-v-state-of-california-d-m

The most popular question I get here on the blog and on my radio show is what happens when the three year statute has run? The answers are many. First is the question of whether it ever started running. If the transaction was not actually consummated with anyone in the chain of parties claiming rights to collect or enforce the loan it would be my opinion that the three day right of rescission has not begun to run. That would be a remedy to an event in which the note and mortgage (or deed of trust) has been signed and delivered but the loan was never funded by the originator any creditor in the chain of “ownership.” The benefit of the three day rescission is that you don’t need a reason to do it. But in order to do that you need to be careful that you are not stating that there was a closing because that would be consummation and therefore the right to rescind unconditionally ran three days after that “Closing.”

Second is the three year statute of limitations. The same reasoning applies.  But it also raises the question of non-disclosure and withholding information. The rather obvious delays in prosecuting foreclosures on alleged “defaults” are clearly a Bank strategy for letting the 3 year statute run out and then claim the homeowner cannot rescind because the closing was more than 3 years ago. That is where the doctrine of equitable tolling comes into play. A party who violates TILA and fails to disclose material facts and continues to hide them from the borrower should not be permitted to benefit from continuing the violation beyond the apparent statute of limitations. People keep asking why the banks wait so long to prosecute foreclosures. The answer is that it is because they have no right to do so and they are running out the apparent statute of limitations on rescission and TILA disclosure actions.

Third is a procedural issue. According to TILA the “lender” who receives such a notice of rescission is (1) obligated to send it to the “real” lender and (2) must file a declaratory action against the borrower within 20 days in order to avoid the rescission. If they don’t file the 20 day action, they waive the objections they could have raised. So far I have not heard of one case in which such an action has been filed. I think the reason for that is that nobody can file an action in which they establish standing. Such a party would be obliged to allege that they are the “lender” or “creditor” as defined by TILA. That means they either loaned the money or bought the loan for “valuable consideration” just like it says in Article 9 of the UCC. Then they would have to prove that allegation before any burden shifted to the borrower to answer or file affirmative defenses against the action filed by this putative “lender.”

CAVEAT: The doctrine of equitable tolling is remedial as is the statute, but it is fairly strictly construed. I’m am quite confident that the best we will get from the courts is that the 3 day and 3 year rules and other limitations in TILA starts running the moment you knew or should have known the facts that had been withheld from you at “closing.” The fact that you are not a lawyer and did not realize the significance of this will not allow you to delay the start of the statute running after the date of discovery of the facts, whether you understood them or not.  But this is a two-edged sword. The current practice of objecting to any QWR, DVL or discovery question without answering the truth about the claimed chain of ownership or servicers on the loan corroborates the borrowers allegation that the parties are continuing to withhold this information. So a well-framed TILA defense might serve as the basis for enforcing your rights of discovery and rights to answers on your Qualified Written Request or Debt Validation Letter.

Additional Caveat: The doctrine of equitable tolling has been applied with respect to the one year statute of limitations on TILA disclosures but it remains open as to whether it would be otherwise applied. From the 9th Circuit —

“Section 1640(e) provides that “[a]ny action under this section may be brought within one year from the date of the occurrance of the violation.” We have not yet determined when a violation occurs so as to commence the one-year statutory period. See Katz v. Bank of California, 640 F.2d 1024, 1025 (9th Cir.), cert. denied, 454 U.S. 860, 102 S.Ct. 314, 70 L.Ed.2d 157 (1981). Three theories have been used by other circuits to determine when the statutory period commences: (1) when the credit contract is executed; (2) when the disclosures are actually made (a “continuing violation” theory); (3) when the contract is executed, subject to the doctrines of equitable tolling and fraudulent concealment (limitations period runs from the date on which the borrower discovers or should reasonably have discovered the violation). See Postow v. OBA Federal S & L Ass’n, 627 F.2d 1370, 1379 (D.C.Cir.1980) (adopting “continuing violation” theory in some situations); Wachtel v. West, 476 F.2d 1062, 1066-67 (6th Cir.), cert. denied, 414 U.S. 874, 94 S.Ct. 161, 38 L.Ed.2d 114 (1973) (rejecting “continuing violation” theory, statutory period commences upon execution of loan contract); Stevens v. Rock Springs National Bank, 497 F.2d 307, 310 (10th Cir.1974) (rejecting “continuing violation” theory); Jones v. TransOhio Savings Ass’n., 747 F.2d 1037, 1043 (6th Cir.1984) (applying equitable tolling and fraudulent concealment).”

Hats off to James Macklin who sent me this email:

Hang on to your hats fella’s…in Sargis’ ruling … back in 2012…he confirms the equitable tolling principles of TILA as I had argued…just saw this again while reviewing…to wit:
“The Ninth Circuit applies equitable tolling to TILA’s … statute of limitations (King v. California, 784 F.2d 910, 914 (9th Cir. 1986).
“Equitable Tolling is applied to effectuate the congressional intent of TILA.”, Id.
Courts have construed TILA as a remedial statute, interpreting it liberally for the consumer.” (Id. Citing Riggs v. Gov’t Emps. Fin. Corp., 623 F.2d 68, 70-71 (9th Cir. 1980).
 Specifically the 9th Circuit held: “[T]he limitations period in section 1640(e) runs from the date of consummation of the transaction but that the doctrine of equitable tolling may, in appropriate circumstances, suspend the limitations period until the borrower discovers or had the reasonable to discover the fraud or non-disclosures that form the basis of the TILA action.” 
Gentlemen…I give you proof positive that the statute tolls and the fact that the term “consummation” is also subject to broad interpretation as we know…the loan could not have consummated if what we allege is found to be true… However, the non-disclosures language used by the 9th Circuit gives rise to possible myriad rescissions upon discovery of those non-disclosures…
James L. Macklin, Managing Director
Secure Document Research(Paralegal Services/Legal Project Management)

California Trial Court INserts Reason Into Chaotic World of Foreclosure

Editor’s Comment: There is no question that the primary tactic of all pretender lenders in the false claims of securitization is that they should not have to prove the transactions. According to the banks they only have to bring a storybook to class that talks about the transaction. The story book consists of the original promissory note, deed of trust (mortgage) and alleged sales or transfers of the note or loan. These documents talk ABOUT the transaction in which money exchanged hands but here are no pictures showing the transaction itself — like a picture of me handing you $100 on a note you signed saying you owe me $100.

But what if you signed the note to get the loan and then I didn’t give you the loan? No money exchanged hands. The answer appears to be that I can still sue you as the holder of the note but the presumption that I am the owner of the note or that the note is evidence of the debt is rebutted by your testimony and denial of ever having received the money. So I can sue but I can’t win.

Suppose you got the real loan from someone else the same day. I could point to that transaction to show that you DID receive the money and if you didn’t know  how to handle that argument, you would end up paying off a loan you never received. Or you would point out to the Judge that the cancelled check is made out from someone else than me and that I failed to show privity or agency between me and the third party.

The problem is that in most cases, the storybook is a fairy tale. The payee never loaned the money and was a naked nominee along with MERs who was also a naked nominee, leaving no party in interest on either the note or the mortgage (deed of trust). Neither the designated “lender” nor the designated nominee holder of the security (MERS) handled, funded or accepted any money from the borrower.

The reason why the banks have gotten this far is that the illusion was complete when the money arrived at the closing table. It was assumed that the money came from the payee or secured party. It was further assumed that assignments and transfers of the loan would not have taken place unless there was proof of payment exhibited by the assignor. It never occurred to anyone that the money had not come from the originators but from an undisclosed third party whose name should have been on the note and mortgage. It never occurred to anyone, despite the clear provisions of TILA, that there was a duty to disclose to the borrower with whom he or she was dealing and how much they were making in profit or fees or other compensation out of this little loan. In some cases the profit exceeded the loan itself.

In Discovery, the principal thing you want to see is the proof of payment and proof of loss. The proof of loss is a showing that the holder actually paid money for the loan. In nearly all cases, no such transaction exists. Proof of payment is the same thing but together they require an answer to whether the trust still exists and whether the mortgage bond has since been renegotiated or sold or reconstituted into a different asset pool.

This is why most cases end in discovery. The bankers are the ones with unique access to the information you need, without which they submit a credible explanation of where the documents went, where they were last seen and to whom they were being sent. At some point, the bankers are forced to fess up that they don’t have the original note, they didn’t pay for the loan, they don’t own the loan, and thus have no right to submit a credit bid at auction. They will be forced to admit that the funding for the loan came from a third party undisclosed to Borrower and whose compensation was undisclosed to borrower, and that this was intentionally hidden from both the investor/lenders and the borrowers — for the sole purpose of collecting insurance and credit default swap money diverting it from the investors.

If the investors prove that they are entitled to the insurance and credit default swap money, then their loan balances will be correspondingly reduced with each dollar received (which they should have received in the first place). The investors’ receivable account would be correspondingly reduced which means that the receivable from borrowers would be correspondingly reduced since the creditor is not entitled to more than one payment. This in turn would have substantially reduced the principal due by borrowers, the number of “defaults”, the number of underwater borrowers and increased the number of settlements and modifications.

Further, the terms agreed to by the borrower were changed and contradicted by the conversion of the loan receivable to a bond receivable based upon indentures of a bond wherein a trust or REMIC was supposedly buying the loans.

But if you look for the actual monetary transaction between the trust and the party supposedly endorsing the note or selling the loan to the trust, the transaction in which money exchanged hands is entirely missing. No cancelled check, no wire transfer receipt, no wire transfer instructions, no ACH confirmation, no check 21 confirmation. It simply isn’t there which means that the investor money never funded the trust, and thus the trust lacked the funds to purchase the loans.

The bankers do a perfect two-step at this point. First they they ARE agents of the trust or REMIC and that is what made the transaction legal and enforceable, then they say they were NOT agents of the investors when it came to receiving insurance, credit default swaps proceeds or federal bailouts. I can find no support in the law of principal and agent that supports their position and I doubt if there is any such support.

In the case below, the bankers are essentially saying that for purposes of the discovery the claims of the borrower should be treated as a story book with no likelihood of success whereas the stories in the bankers’ comic book (i.e., the note and mortgage) should be taken seriously. The trial Court disagrees and lands squarely on its feet simply following common sense, precedent and existing rules. Discovery granted.

250068 – Taylor v. JP Morgan Chase
On 4 Dec.2012, Plaintiff served deposition notices for Deborah Brignac (hereafter “Brignac”) and Colleen Irby (hereafter “Irby”), officers of Defendant California Reconveyance Co. (hereafter “CRC”), along with a deposition notice for another person not involved in this motion, Luis Alvarado (hereafter “Alvarado”).  (Naicker Dec., ¶2, Ex.A).   Plaintiff set the depositions for 10 Jan.2013.  (Ibid.)  Defendants served objections on January 4, 2013, asking P to withdraw the deposition notices.  (Id., ¶4, Ex.B).  Defendants asserted that the depositions would cause unnecessary burden, expense, and intrusion which would outweigh the benefits of the discovery, arguing that certain of Plaintiff’s claims lacked merit, thus rendering the discovery unwarranted.  (Ibid.)  Defendants also objected on the ground that Plaintiffs had “unilaterally” served the deposition notices with a chosen date without first meeting and conferring with Defendants about acceptable dates.  (Ibid.)  Defendants move to quash the deposition notices of Brignac and Irby, or, in the alternative, to issue a protective order. Defendants argue that Brignac and Irby can have no information likely to lead to discovery of admissible evidence because Brignac only signed an assignment (the 1st Assignment) of the deed of trust (Deed) which was rescinded and Irby’s sole alleged role was to sign the subsequent assignment  (2nd Assignment), and Plaintiff’s claims regarding the conduct in which they may have been involved, are invalid.
Plaintiff opposes this motion, arguing that the deponents both possess likely relevant information because they are officers of CRC, they both signed assignments of the Deed involved in this case, so were personally involved in Plaintiff’s transactions at some point, and Plaintiff needs information on the murky transactions amongst the Defendants, about which he is otherwise unable to obtain information.
A party may serve written objections or risk waiving any problems with a deposition notice.  (Code of Civ. Proc. § 2025.410(a)).  A party may also file a motion for an order staying the deposition and quashing the deposition notice.  Code of Civ. Proc. § 2025.410.  A “deposition is stayed pending determination of motion.”  (Code of Civ. Proc. § 2025.410(c)).
A party may “promptly” seek a protective order before, during, or after a deposition.  (CCP section 2025.420).
On a motion for a protective order, the court, “for good cause shown, may make any order that justice requires to protect any party… from unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.”   (Code of Civ. Proc. § 2025.420).   The burden of proof is on the party seeking the protective order to demonstrate “good cause.”  (Emerson Elec. Co. v. Sup.Ct. (1997) 16 Cal.4th 1101, 1110).
Defendants’ arguments appear to be entirely groundless.  Defendant’s argue, essentially, that P’s claims are invalid on the merits so any deposition of these witnesses would be a waste of time and thus the burdens would outweigh the benefits.  That argument is completely invalid since there is no basis for a party to argue that another party has no right to obtain evidence supporting a claim simply because the claim may fail.  The appropriate methods for raising such arguments are demurrer, which has failed, or judgment on the pleadings, or summary judgment or adjudication and Defendants present no authority indicating that this is a valid basis for avoiding deposition.   Defendants also argue that the deponents will not likely provide relevant information because Plaintiff has been able to allege nothing more than the fact that they signed two assignments of his Deed.  This is unpersuasive since, as Plaintiff argues, he is not likely to have any information of the inner workings of the Defendant corporations absent discovery.  What Plaintiff has shown, and Defendants admit, indicates that these two witnesses clearly have at least some personal involvement beyond simply beyond being potentially knowledgeable officers, and thus are to some degree percipient witnesses to some of the events at issue in this action.  Defendants also argue that the notices are improper because Plaintiff served them without first warning Defendants that he was going to notice the depositions or without first obtaining an agreed deposition date.  These arguments are not supported by authority.
Accordingly, Defendant’s motion to quash and for a protective order is denied.
 
Sanctions
Code of Civil Procedure section 2025.420(d) states that on a motion for a protective order the court “shall” impose monetary sanctions on the losing party unless that party acted with substantial justification or other circumstances make sanctions unjust.
Both parties seek monetary sanctions.  In this case, the motion lacks merit and Plaintiff’s opposition was warranted.  Plaintiff seeks sanctions of $875 for about 2.5 hours spent at $350 an hour; Defendants seek sanctions of $3,460. The court awards sanctions to Plaintiff in the amount of $875.  Defendant’s request for sanctions is denied.
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