SCOTUS Revives Qui Tam Actions

Until this decision I had assumed that Qui Tam actions were essentially dead in relation to the mortgage meltdown. Now I don’t think so.

The question presented is whether actions brought by a private person acting as a relator on behalf of a government entity can bring claims for damages under the False Claims Act. Such actions are barred by the statute of limitations, which requires a violation to be brought within six years of the violation or three years “after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances.”[3] 

In a unanimous decision the Court held that the tolling period applies to private relator actions. This does not by any stretch of the imagination create a slam dunk. Relators must have special knowledge of the false claim and the damage caused to the government. It will still be necessary to argue in an uphill battle that the true facts of the securitization scheme are only now unfolding as more evidence appears that the parties claiming foreclosure are neither seeking nor receiving the benefit of sale proceeds on foreclosed property.

Some claims might relate back to the origination of mortgages and some relate to the trading of paper creating the illusion of ownership of loans. Still others may relate to the effect on local and State government (as long as the Federal government was involved in covering their expenses) in the bailout presumably for losses incurred as a result of default on mortgage loans in which there was no loss to the party who received the bailout, nor did such bailout proceeds ever find the investors who actually funded the origination or acquisition of loans.

And remember that a relator needs to prove special knowledge that is arguably unique. The statute was meant to cover whistleblowers from within an agency or commercial enterprise but is broader than that. The courts tend to restrict the use of Qui Tam actions when brought by a relator who is not an “insider.”

See https://www.natlawreview.com/article/supreme-court-recognizes-longer-statute-limitations-qui-tam-plaintiffs-false-claims

See Review of False Claims Act 18-315_1b8e

See Cochise Consultancy, Inc. v. United States ex rel. Hunt

I also find some relevance in the decision penned by J. Thomas writing for the court as it applies to TILA Rescission, FDCPA claims, RESPA claims and other claims based upon statute:

Because a single use of a statutory phrase generally must have a fixed meaning, see Ratzlaf v. United States, 510 U. S. 135, 143, interpretations that would “attribute different meanings to the same phrase” should be avoided, Reno v. Bossier Parish School Bd., 528 U. S. 320, 329. Here, the clear text of the statute controls. Cochise’s reliance on Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U. S. 409, is misplaced. Nothing in Graham County supports giving the phrase “civil action under section 3730” in §3731(b) two different meanings depending on whether the Government intervenes. While the Graham County Court sought “a construction that avoids . . . counterintuitive results,” there the text “admit of two plausible interpretations.” Id., at 421, 419, n. 2. Here, Cochise points to no other plausible interpretation of the text, so the “ ‘judicial inquiry is complete.’ ” Barnhart v. Sigmon Coal Co., 534 U. S. 438, 462. Pp. 4–8. (e.s.)

Point of reference:

I still believe that local governments are using up their time or might be time barred on a legitimate claim that was never pursued — that the trading of loans and certificates were transactions relating to property interests within the State or County and that income or revenue was due to the government and was never paid. A levy of the amount due followed by a lien and then followed by a foreclosure on the mortgages would likely result in either revenue to the government or government ownership of the mortgages which could be subject to negotiations with the homeowners wherein the principal balance is vastly reduced and the government receives all of the revenue to which it is entitled. This produces both a fiscal stimulus to the State economy and much needed revenue to the state at a cost of virtually zero.

In Arizona, where this strategy was first explored it was determined by state finance officials in coordination with the relevant chairpersons of select committees in the State House and Senate and the governor’s office that the entire state deficit of $3 Billion could have been covered. Intervention by political figures who answered to the banks intervened and thus prevented the deployment of this strategy.

I alone developed the idea and introduced it a the request of the then chairman of the House Judiciary committee. We worked hard on it for 6 months. Intervention by political figures who answered to the banks intervened and thus prevented the deployment of this strategy. It still might work.

See also

http://www.mondaq.com/unitedstates/x/809786/White+Collar+Crime+Fraud/False+Claims+Act+Statute+of+Limitations+Relators+Now+Get+Up+to+10+Years+to+File+Suit

The Court also held that the relator’s knowledge does not trigger the limitations period. The statute refers to knowledge of “the official of the United States charged with responsibility to act in the circumstances[.]” Had the Court interpreted this provision to include relators, fears of protracted tolling by relators would largely dissipate because the qui tam action would have to be filed within three years of the relator’s knowledge or six-years of the violation, whichever is later. The Court rejected this approach, finding the express reference to “the” government official excludes private citizen relators. The Court held it is the government’s knowledge that triggers the limitations period.

The Court, however, left unanswered the question of which government official’s knowledge triggers the limitations period. The government argued in its briefs and at oral argument that such official is the Attorney General or delegate. As we have noted in prior posts (see Holland & Knight’s Government Contracts Blog, “ Self-Disclosure and the FCA Statute of Limitations: Cochise Consultancy, Inc. v. United States v. ex. rel. Billy Joe Hunt,” March 27, 2019), there is a broader question as to whether knowledge by governmental actors outside of DOJ, including knowledge trigged by self-disclosure, should start the limitations period. The Court did not rule on this question, though its decision hints at an interpretation that includes only the Attorney General. If true, DOJ becomes the sole repository for disclosures that trigger the limitations period. That is, unless defendants can argue that DOJ “should have known” of the violation when investigative bodies such as the Office of Inspector General or the FBI have actual knowledge of the violation … more on this latter issue is sure to come.

Looming Title Problems from Fabricated, Fraudulent Forged Documents

The one thing that is perfectly clear is that at some point the state legislatures who govern title to property already have a huge problem brewing under their feet. There is no doubt in my mind, that the solution will follow the example of the Murphy Act in Florida when title became unintelligible some 80 years ago.

The new acts will essentially reset title as of a certain date. All the previous illegal and potentially criminal actions will be ignored. All the people who were swindled out of their life savings will also be ignored, because in the end it is the banks who control legislation, not the people.

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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see http://www.vice.com/read/when-you-buy-a-house-but-dont-actually-own-it

You have two problems looming here.

The first and largest problem is that most, nearly all, of the foreclosures were void and fraudulent. The credit bid was accepted from a party who was not the creditor. THAT probably means that any deed on foreclosure was and is void. In some states there is a “statute of limitations” on the void title which is waived if you don’t try to make it right before the one-year statute runs out. In Florida, after one year, you can get damages (i.e., money) but you can’t reclaim your title even from a void, fraudulent foreclosure. Hence the Florida legislature institutionalized fraud in exchange for campaign donations.

The second problem is even worse and might not be correctable by legislation or even a court order. For those who sent a notice of rescission and the “lender” did nothing, there is no doubt that if the rescission was sent within 3 years of the fabricated “closing” that the nonexistent “loan contract” was canceled and the note and mortgage were rendered void as of the date of mailing of the notice of rescission.

Under Federal Law that notice of rescission rendered the mortgage or deed of trust void along with the note. Therefore any action on the loan contract, the note or the mortgage or deed of trust after rescission is void because those “instruments” are void. Void=Nothing. As far as I have been able to determine, there is no statute of limitations on “nothing.”

It gets worse. If the homeowner recorded the rescission, then according to State law, there is notice to the world that title derived from the mortgage is void. And there is no statute of limitations on that either, as far as I can tell.

Anyone who has taken title arising from either of the above scenarios has no title. If and when the day comes that they are forced to defend the illusion of their “title” they will quickly find out that the title insurer will be of no help and will deny coverage. And the same holds true for lenders — but the lenders don’t care because their goal is merely to perpetuate the illusion of securitization.

Nearly all the foreclosures in the past 10 years fall under the first category, the second category or both. Any legislation that deprives the owner of property without due process (i.e., judicial action) violates the 14th Amendment to the constitution.

Judicial action is void if it is based upon nonexistent facts. The facts are nonexistent if they were never proffered in court or found, based upon competent evidence to be true, by the trier of fact. That is missing from virtually all foreclosures.

Accordingly, it is my opinion that this another situation where the constitution be damned. The courts and legislatures are continuing to advance nonsense: the pretense of valid loan contracts, valid notes, valid mortgages and valid foreclosure sales to valid creditors submitting a valid credit bid.

Ask these lawmakers and law interpreters four questions:

  • did you hear or see any evidence that identified the party to whom the payments from the borrower were forwarded?
  • If not, why did you assume that such a party existed and had authorized the parties in court to act on collateral for the benefit of the real creditor?
  • did you hear or see any evidence that connects the real creditors with the parties who appeared in court?
  • If not, why did you assume that such a connection existed with an unidentified entity?

 

Renters and Owners: Beware of Craig’s List

The marketplace is filled with “listings” on Craig’s List for rental of properties at prices that are too good to be true. The scammers are posing as local property owners who actually are out of town. They change the locks, enter the house, and prepare it for sale or rent. The owner comes back and finds a renter who demands that the lease be enforced as to possession, because the scammers were either apparent agents or actual agents of the owners. Suddenly the owner of a parcel becomes embroiled in litigation that takes their home off the market and possibly forces them into foreclosure or bankruptcy.

Prospective renters are taking a risk if they do not confirm the title of the property, the status of the property with respect to foreclosure, and the actual identity of the “broker” and the “owner” demanding proof thereof. If you put down first and last month rent, plus security of whatever, you could be kicked out in a matter of days unless you can show that the owner received some portion of those funds. The funds will never be recovered from thieves who are spending the money as they get it.

More sophisticated scammers are sending deposit checks to the real owner to have them cash it. When that happens, the law enforcement people might have no choice but to call it a civil matter. It is not inconceivable for the renter to challenge the title of the owner in such a situation although the law states otherwise.

The acceptance of the money (consideration) is one thing. But if the complaint says that a stranger stole their identity and then sold or rented the house, they might be opening the door for a challenge to that owner if defective title was acquired in a foreclosure sale that was faked by the banks, or where title was obtained from someone who obtained defective title.There is an open question about the right to challenge title where the sole reason for the eviction alleged is that the title is in the hands of the Plaintiff. Under the rules, a simple denial of that fact is a question of fact that must be heard by the court.

If it stays in a summary eviction proceeding the trial could be in a matter of days. But if the renter files in a higher court using causes of action challenging the right of the present “owner” to challenge the executed transaction because they didn’t suffer any damage (i.e., they didn’t own the house anyway and therefore were not entitled to proceeds of sale or rental)

That being the case, the argument could be made that the “strangers” had as much right to pose as the owners and agents of the named owners with or without their knowledge. Unlikely any renter would win on such an issue but possible that it could get by a motion to dismiss and tie up the property in litigation for months plus appeals.

This is the problem (see Grethen Morgneson’s article in New York Times about MERS) caused by MERS and pretender lenders, none of whom handle any money, accept any payments, or engage in any financial transactions with the homeowner who thinks they are getting a loan from the named payee. They are ALL naked nominees without a stake in the transaction.

The situation gets thick with fog as documents are piled on documents each one reciting that the previous document was valid even though the original document at the base of the pile was invalid, unenforceable and lacked the essential attributes of a valid contract — offer, acceptance of the same terms as the offer, and consideration (funding).

Short Sales Rising Sharply

Whether it is just battle fatigue or simply good business sense, homeowners are looking at short sales, getting cash for keys and trying to get relocation fees to move. The banks are loosening up their standards for short-sales because failure to do so clearly reveals their malevolent intent to steal homes that they could not otherwise get if the judicial system starts operating properly.

That more and more judges are starting to scrutinize the documents and the actual transfer of money from one party to another, it is becoming increasingly apparent that the documents are for a transaction that is non-existent and that the loan is not supported by any documents — because the loan came from a third party with no connection to the loan originator.

Then comes the horrific problem with title which at some point will need to be addressed much as Florida did with the Murphy Act. Title must be reset because at this point there is practically no such thing as clear title as result of the work done by Wall Street.

The title problem can easily be minimized with a signature from the homeowner which is what is required in a short-sale, as opposed to a robo-signature from an unauthroized person signing a deed for the bank in an REO sale.

The last problem is that at the end of this year forgiveness of debt becomes taxable, which is bad for short sales after December 31, 2012. So the rush is on to get them done — but that is probably premature because the law will probably be extended by the lame duck congress after the elections. Everybody seems to want the extension.

See congress working on extension of tax exemption at Rain City Guide Blog by Craig

Wrong Bailout

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Editor’s Comment:

It isn’t in our own mainstream media but the fact is that Europe is verging on  collapse. They are bailing out banks and taking them apart (something which our regulators refuse to do). The very same banks that caused the crisis are the ones that are going to claim they too need another bailout because of international defaults. The article below seems extreme but it might be right on target.

From the start the treatment of the banks had been wrong-headed and controlled by of course the banks themselves. With Jamie Dimon sitting on the Board of Directors of the NY FED, which is the dominatrix in the Federal Reserve system, what else would you expect?

The fact is that, as Iceland and other countries have proven beyond any reasonable doubt, the bailout of the banks is dead wrong and it is equally wrong-headed to give them the continued blank check to pursue business strategies that drain rather than infuse liquidity in economies that are ailing because of intentional acts of the banks to enrich themselves rather than the countries that give them license to exist.

The bailout we proposed every year and every month and practically every day on this blog is the only one that will work: reduce household debt, return things to normalcy (before the fake securitization of mortgages and other consumer and government debt) and without spending a dime of taxpayer money.  The right people will pay for this and the victims will get some measure of relief — enough to jump start economies that are in a death spiral.

Just look at home mortgages. They were based upon layers of lies that are almost endless and that continue through the present. But the principal lie, the one that made all the difference, was that the mortgage bonds were worth something and the real property was worth more than the supposed loans. With only a few exceptions those were blatant lies that are not legal or permissible under any exemption claimed by Wall Street. Our system of laws says that if you steal from someone you pay for it with your liberty and whatever it is you stole is returned to the victim if it still exists. And what exists, is millions of falsely created invalid illegal instruments recorded in title registries all over the country affecting the title of more than 20 million households.

All we need to do is admit it. The loans are unsecured and the only fair way of handling things is to bring all the parties to the table, work out a deal and stop the foreclosures. This isn’t going to happen unless the chief law enforcement officers of each state and the clerks of the title registry offices wake up to the fact that they are part of the problem. It takes guts to audit the title registry like they did in San Francisco and other states, cities and counties. But the reward is that the truth is known and only by knowing the truth will we correct the problem.

The housing market is continuing to suffer because we are living a series of lies. The government, realtors and the banks and servicers all need us to believe these lies because they say that if we admit them, the entire financial system will dissolve. Ask any Joe or Josephine on the street — the financial system has already failed for them. Income inequality has never been worse and history shows that (1) the more the inequality the more power those with wealth possess to keep things going their way and (2) this eventually leads to chaos and violence. As Jefferson said in the Declaration of Independence, people will endure almost anything until they just cannot endure it any longer. That time is coming closer than anyone realizes.

Only weeks before France erupted into a bloody revolution with gruesome dispatch of aristocrats, the upper class thought that the masses could be kept in line as long as they were thrown a few crumbs now and then. That behavior of the masses grew from small measures exacted from a resisting government infrastructure to simply taking what they wanted. Out of sheer numbers the aristocracy was unable to fight back against an entire country that was literally up in arms about the unfairness of the system. But even the leaders of the French Revolution and the Merican revolution understood that someone must be in charge and that an infrastructure of laws and enfrocement, confidence in the marketplace and fair dealing must be the status quo. Disturb that and you end up with overthrow of existing authority replaced by nothing of any power or consequence.

Both human nature and history are clear. We can all agree that the those who possess the right stuff should be rich and the rest of us should have a fair shot at getting rich. There is no punishment of the rich or even wealth redistribution. The problem is not wealth inequality. And “class warfare” is not the right word for what is going on — but it might well be the right words if the upper class continue to step on the rest of the people. The problem is that there is no solution to wealth inequality unless the upper class cooperates in bringing order and a fair playing field to the marketplace —- or face the consequences of what people do when they can’t feed, house, educate or protect their children.

LaRouche: The Glass-Steagall Moment Is Upon Us

Spanish collapse can bring down the Trans-Atlantic system this weekend

Abruptly, but lawfully, the Spanish debt crisis has erupted over the past 48 hours into a systemic rupture in the entire trans-Atlantic financial and monetary facade, posing the immediate question: Will the European Monetary Union and the entire trans-Atlantic financial system survive to the end of this holiday weekend?



Late on Friday afternoon, the Spanish government revealed that the cost of bailing out the Bankia bank, which was nationalized on May 9, will now cost Spanish taxpayers nearly 24 billion euro—and rising. Many other Spanish banks are facing imminent collapse or bailout; the autonomous Spanish regions, with gigantic debts of their own, are all now bankrupt and desperate for their own bailout. Over the last week, Spanish and foreign depositors have been pulling their money out of the weakest Spanish banks in a panic, in a repeat of the capital flight out of the Greek banks months ago. 



The situations in Greece, Italy, Portugal, and Ireland are equally on the edge of total disintegration—and the exposure of the big Wall Street banks to this European disintegration is so enormous that there is no portion of the trans-Atlantic system that is exempt from the sudden, crushing reality of this collapse.



Whether or not the system holds together for a few days or weeks more, or whether it literally goes into total meltdown in the coming hours, the moment of truth has arrived, when all options to hold the current system together have run out.

Today, in response to this immediate crisis, American political economist Lyndon LaRouche issued a clarion call to action. Referring to the overall trans-Atlantic financial bubble, in light of the Spanish debt explosion of the past 48 hours, LaRouche pinpointed its significance as follows:

“The rate of collapse now exceeds the rate of the attempts to overtake the collapse. That means that, essentially, the entire European system, in its present form, is in the process of a hopeless degeneration. Now, this is something comparable to what happened in Germany in 1923, and they’ve caught themselves in a trap, where a rate of collapse exceeds the rate of their attempt to overtake yesterday.

“So therefore, we’re in a new situation, and the only solution in Europe, in particular, is Glass-Steagall, or the Glass-Steagall equivalent, with no fooling around. Straight Glass-Steagall — no bailouts! None! In other words, you have to collapse the entire euro system. The entirety of the euro system has to collapse. But it has to collapse in the right way; it has to be a voluntary collapse, which is like a Glass-Steagall process. This means the end of the euro, really. The euro system is about to end, because you can’t sustain it.

“Everything is disintegrating now in Europe. It can be rescued very simply, by a Glass-Steagall type of operation, and then going back to the currencies which existed before. In other words, you need a stable system of currencies, or you can’t have a recovery at all! In other words, if the rate of inflation is higher than the rate of your bailout, then what happens when you try to increase the bailout, you increase the hysteria. You increase the rate of collapse. In other words, the rate of collapse exceeds the rate of bailout.

“And now, you have Spain, and Portugal implicitly, and the situation in Greece. Italy’s going to go in the same direction. So the present system, which Obama’s trying to sustain, in his own peculiar way, is not going to work. There’s no hope for the system. Nor is there any hope for the U.S. system in its present form. The remedies, the problems, are somewhat different between Europe and the United States, but the nature of the disease is the same. They both have the same disease: It’s called the British disease. It’s hyperinflation.

“So, now you’re in a situation where the only way you can avoid a rate of hyperinflation beyond the rate of hyper-collapse is Glass-Steagall, or the equivalent. You have to save something, you have to save the essentials. Well, the essentials are: You take all the things that go into the bailout category, and you cancel them. How do you cancel them? Very simple: Glass-Steagall. Anything that is not fungible in terms of Glass-Steagall categories doesn’t get paid! It doesn’t get unpaid either; it just doesn’t get paid. Because you remove these things from the categories of things that you’re responsible to pay. You’re not responsible to bail out gambling, you’re not responsible to pay out gambling debts.

“Now, the gambling debts are the hyperinflation. So now, we might as well say it: The United States, among other nations, is hopelessly bankrupt.

“But this is the situation! This is what reality is! And what happens, is the entire U.S. government operation is beyond reckoning. It is collapsing! And there’s only one thing you can do: The equivalent of Glass-Steagall: You take those accounts, which are accounts which are worthy, which are essential to society, you freeze the currencies, their prices, and no bailout. And you don’t pay anything that does not correspond to a real credit. It’s the only solution. The point has been reached—it’s here! You’re in a bottomless pit, very much like Germany 1923, Weimar.

“And in any kind of hyperinflation, this is something you come to. And there’s only one way to do it: Get rid of the bad debt! It’s going to have to happen.

“The entire world system is in a crisis. It’s a general breakdown crisis which is centered in the trans-Atlantic community. That’s where the center of the crisis is. So, in the United States, we’re on the verge of a breakdown, a blowout; it can happen at any time. When will it happen, we don’t know, because we’ve seen this kind of thing before, as in 1923 Germany, November-December 1923, this was the situation. And it went on after that, but it’s a breakdown crisis. And that’s it.

“Those who thought there could be a bailout, or they had some recipe that things were going to be fine, that things would be manageable, that’s all gone! You’re now relieved of that great burden. You need have no anxiety about the U.S. dollar. Why worry about it? Either it’s dead or it’s not! And the only way it’s not going to be dead, is by an end of bailout. That’s the situation.

“We don’t know exactly where the breakdown point comes. But it’s coming, because we’re already in a system in which the rate of breakdown is greater than the rate of any bailout possible! And there’s only one way you can do that: Cancel a whole category of obligations! Those that don’t fit the Glass-Steagall standard, or the equivalent of Glass-Steagall standard: Cancel it, immediately! We don’t pay anything on gambling debts. Present us something that’s not a gambling debt, and we may be able to deal with that.”

LaRouche concluded with a stark warning:

“If you think that this system is going to continue, and you can find some way to get out of this problem, you can not get out of this problem, because you are the problem! Your failure to do Glass-Steagall, is the problem. And it’s your failure! Don’t blame somebody else: If you didn’t force through Glass-Steagall, it’s your fault, and it continues to be your fault! It’s your mistake, which is continuing!

“And that’s the situation we have in Europe, and that, really, is also the situation in the United States.

“But that’s where we are! It’s exactly the situation we face now, and there’s no other discussion that really means much, until we can decide to end the bailout, and to absolutely cancel all illegitimate debt—that is, bailout debt!

“There’s only one solution: The solution is, get rid of the illegitimate disease, the hyperinflation! Get rid of the hyperinflationary factor. Cancel the hyperinflation! Don’t pay those debts! Don’t cancel them, just don’t pay them! You declare them outside the economy, outside the responsibility of government: We can no longer afford to sustain you, therefore, you’ll have to find other remedies of your own. That’s where you are. It had to come, it has been coming.”


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Recording and Auctions: AZ Maricopa County Recorder Meets with Homeowners

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Phoenix, May 23, 2012: Last night we had the pleasure of meeting with Helen Purcell, Maricopa County Recorder, after having met with Tom Horne, AZ Attorney General and Ken Bennett, the AZ Secretary of State on issues relating to mortgages, robo-signing, notary fraud, etc.  Many thanks again to Darrell Blomberg whose persistence and gentle demeanor produced these people at a meeting downtown. See upcoming events for Darrell on the Events tab above.

The meeting was video recorded and plenty of people were taking notes. Purcell described the administrative process of challenging documents. By submitting a complaint apparently in any form, if you identify the offending document with particularity and state your grounds, again with particularity, the Recorder’s office is duty bound to review it and make a determination as to whether the document should be “corrected” by an instrument prepared by her office that is attached to the document.

If your complaint refers to deficiencies on the face of the document, the recorder’s office ought to take action. One of the problems here is that the office handles electronic recording via contracts who sign a Memorandum of Understanding with her office and become “trusted submitters.” Title companies, law offices, and banks are among the trusted sources. It appears to me that the mere submission of these documents in electronic form gives rise to the presumption that they are valid even if the notarization is plainly wrong and defective.

If the recording office refuses to review the document, a lawsuit in mandamus would apply to force the recorder to do their job. If they refer matters to the County Attorney’s office, the County Attorney should NOT be permitted to claim attorney client privilege to block the right of the person submitting the document or objection from know the basis of the denial. You have 10 years to challenge a document in terms of notary acknowledgement which means that you can go back to May 24, 2002, as of today.

One thing that readers should keep in mind is that invalidating the notarization does not, in itself, invalidate the documents. Arizona is a race-notice state though which means the first one to the courthouse wins the race. So if you successfully invalidate the notarization then that effectively removes the offending document as a recorded document to be considered in the chain of title. Any OTHER document recorded that was based upon the recording of the offending document would therefore NOT be appropriately received and recorded by the recording office.

So a Substitution of Trustee that was both robo-signed and improperly notarized could theoretically be corrected and then recorded. But between the time that the recorder’s correction is filed (indicating that the document did not meet the standards for recording) and the time of the new amended or corrected document, properly signed and notarized is recorded, there could be OTHER instruments recorded that would make things difficult for a would-be foreclosure by a pretender lender.

The interesting “ringer” here is that the person who signed the original document may no longer be able to sign it because they are unavailable, unemployed, or unwilling to again participate in robosigning. And the notary is going to be very careful about the attestation, making sure they are only attesting to the validity of the signature and not to the power of the person signing it.

It seems that there is an unwritten policy (we are trying to get the Manual through Darrell’s efforts) whereby filings from homeowners who can never file electronically, are reviewed for content. If they in any way interfere with the ability of the pretender lender to foreclose they are sent up to the the County Attorney’s office who invariably states that this is a non-consensual lien even if the word lien doesn’t appear on the document. I asked Ms. Purcell how many documents were rejected if they were filed by trusted submitters. I stated that I doubted if even one in the last month could be cited and that the same answer would apply going back years.

So the county recorder’s office is rejecting submissions by homeowners but not rejecting submissions from banks and certain large law firms and title companies (which she said reduced in number from hundreds to a handful).

What the pretenders are worried about of course, is that anything in the title chain that impairs the quality of title conveyed or to be covered by title insurance would be severely compromised by anything that appears in the title record BEFORE they took any action.

If a document upon which they were relying, through lying, is then discounted by the recording office to be NOT regarded as recorded then any correction after the document filed by the homeowner or anyone else might force them into court to get rid of the impediment. That would essentially convert the non-judicial foreclosure to a judicial foreclosure in which the pretenders would need to plead and prove facts that they neither know or have any evidence to support, most witnesses now being long since fired in downsizing.

The other major thing that Ms Purcell stated was that as to MERS, she was against it from the beginning, she thought there was no need for it, and that it would lead to breaks in the chain of title which in her opinion did happen. When asked she said she had no idea how these breaks could be corrected. She did state that she thought that many “mistakes” occurred in the MERS system, implying that such mistakes would not have occurred if the parties had used the normal public recording system for assignments etc.

And of course you know that this piece of video, while it supports the position taken on this blog for the last 5 years, avoids the subject of why the MERS system was created in the first place. We don’t need to speculate on that anymore.

We know that the MERS system was used as a cloak for multiple sales and assignments of the same loan. The party picked as a “designated hitter” was inserted by persons with access to the system through a virtually non-existence security system in which an individual appointed themselves as the authorized signor for MERS or some member of MERS. We know that these people had no authorized written  instructions from any person in MERS nor in the members organization to execute documents and that if they wanted to, they could just as easily designated any member or any person or any business entity to be the “holder” or “investor.”

The purpose of MERS was to put a grand glaze over the fact that the monetary transactions were actually off the grid of the claimed securitization. The single transaction was between the investor lenders whose money was kept in a trust-like account and then sued to fund mortgages with the homeowner borrower. At not time was that money ever in the chain of securitization.

The monetary transaction is both undocumented and unsecured. At no time was any transaction, including the original note and mortgage (or deed of trust) reciting true facts relating to the loan by the payee of the note or the secured party under the mortgage or deed of trust. And at no time was the payee or secured holder under the mortgage or deed of trust ever expecting to receive any money (other than fees for pretending to be the “bank”) nor did they ever receive any money. At no time did MERS or any of its members handle, disburse or otherwise act even as a conduit for the funding of the loan.

Hence the mortgage or deed of trust secured an obligation to the payee on the note who was not expecting to receive any money nor did they receive any money. The immediate substitution of servicer for the originator to receive money shows that in nearly every securitization case. Any checks or money accidentally sent to the originator under the borrower’s mistaken impression that the originator was the lender (because of fraudulent misrepresentations) were immediately turned over to another party.

The actual party who made the loan was a large group of institutional investors (pension funds etc.) whose money had been illegally pooled into a PONZI scheme and covered over by an entirely fake and fraudulent securitization chain. In my opinion putting the burden of proof on the borrower to defend against a case that has not been alleged, but which should be (or dismissed) is unfair and a denial of due process.

In my opinion you stand a much greater chance of attacking the mortgage rather than the obligation, whether or not it is stated on the note. Admitting the liability is not the same as admitting the note represents the deal that the borrower agreed to. Counsel should object immediately, when the pretender lender through counsel states that the note is or contains a representation of the deal reached by the borrower and the lender. Counsel should state that borrower denies the recitations in the note but admits the existence of an obligation to a lender whose identity was and remains concealed by the pretender in the foreclosure action. The matter is and should be put at issue. If the Judge rules against you, after you deny the validity of the note and the enforceability and validity of the note and mortgage, then he or she is committing reversible error even if the borrower would or probably would lose in the end as the Judge would seem to predict.

Trial is the only way to find out. If the pretenders really can prove the money is owed to them, let them prove it. If that money is theirs, let them prove it. If there is nobody else who would receive that money as the real creditor, let the pretender be subject to discovery. And they MUST prove it because the statute ONLY allows the actual creditor to submit a “credit bid” at auction in lieu of cash. Any auction in which both the identity of the creditor and the amount due was not established was and remains in my opinion subject to attack with a motion to strike the deed on foreclosure (probably on many grounds) based upon failure of consideration, and anyone who bids on the property with actual cash, should be considered the winner of the auction.

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Editor’s Comment:

The number of people passing up the administrative review process is appallingly low, considering the fact that many if not most homeowners are leaving money on the table — money that should rightfully be paid to them from wrongful foreclosure activity (from robo-signing to outright fraud by having non-creditors take title and possession).

The reason is simple: nobody understands the process including lawyers who have been notoriously deficient in their knowledge of administrative procedures, preferring to stick with the more common judicial context of the courtroom in which many lawyers have demonstrated an appalling lack of skill and preparation, resulting in huge losses to their clients.

The fact is, administrative procedures are easier than court procedures especially where you have mandates like this one. The forms of complaints and evidence are much more informal. It is much harder for the offending party to escape on a procedural technicality without the cause having been heard on the merits. 

The banks were betting on two thngs when they agreed to this review process — that people wouldn’t use it and that even if they used it they would fail to state the obvious: that the money wasn’t due or in default, that it was paid and that only a complete accounting from all parties in the securitization chain could determine whether the original debt was (a) ever secured and (b) still existence. They knew and understood that most people would assume the claim was valid because they knew that the loan was funded and that they had executed papers that called for payments that were not made by the borrower.

But what if the claim isn’t valid? What if the loan was funded entirely outside the papers they signed at closing? What if the payments were not due? What if the payments were not due to this creditor? And what if the payments actually were made on the account and the supposed creditor doesn’t exist any more? Why are you assuming that the paperwork at closing was any more real than the fraudulent paperwork they submitted during foreclosure?

People tend to think that if money exchanged hands that the new creditor would simply slip on the shoes of a secured creditor. Not so. If the secured debt is paid and not purchased then the new debt is unsecured even if the old was secured. But I repeat here that in my opinion the original debt was probably not secured which is to say there was no valid mortgage, note and could be no valid foreclosure without a valid mortgage and default.

Wrongful foreclosure activity includes by definition wrongful auctions and results. Here are some probable pointers about that part of the foreclosure process that were wrongful:

1. Use the fraudulent, forged robosigned documents as corroboration to your case, not the point of the case itself.

2. Deny that the debt was due, that there was any default, that the party iniating the foreclosure was the creditor, that the party iniating the foreclosure had no right to represent the creditor and didn’t represnet the creditor, etc.

3. State that the subsitution of trustee was an unauthorized document if you are in a nonjudicial state.

4. State that the substituted trustee, even if the substitution of trustee was deemed properly executed, named trustees that were not qualified to serve in that they were controlled or owned entities of the new stranger showing up on the scene as a purported “creditor.”

5. State that even if the state deemed that the right to intiate a foreclosure existed with obscure rights to enforce, the pretender lender failed to establish that it was either the lender or the creditor when it submitted the credit bid.

6. State that the credit bid was unsupported by consideration.

7. State that you still own the property legally.

8. State that if the only bid was a credit bid and the credit bid was invalid, accepted perhaps because the auctioneer was a controlled or paid or owned party of the pretender lender, then there was no bid and the house is still yours with full rights of possession.

9. The deed issued from the sale is a nullity known by both the auctioneer and the party submitting the “credit bid.”

10. Demand to see all proof submitted by the other side and all demands for proof by the agency, and whether the agency independently investigated the allegations you made. 

 If you lose, appeal to the lowest possible court with jurisdiction.

Many Eligible Borrowers Passing up Foreclosure Reviews

By Julie Schmit

Months after the first invitations were mailed, only a small percentage of eligible borrowers have accepted a chance to have their foreclosure cases checked for errors and maybe win restitution.

By April 30, fewer than 165,000 people had applied to have their foreclosures checked for mistakes — about 4% of the 4.1 million who received letters about the free reviews late last year, according to the Office of the Comptroller of the Currency. The reviews were agreed to by 14 major mortgage servicers and federal banking regulators in a settlement last year over alleged foreclosure abuses.

So few people have responded that another mailing to almost 4 million households will go out in early June, reminding them of the July 31 deadline to request a review, OCC spokesman Bryan Hubbard says.

If errors occurred, restitution could run from several hundred dollars to more than $100,000.

The reviews are separate from the $25 billion mortgage-servicing settlement that state and federal officials reached this year.

Anyone who requests a review will get one if they meet certain criteria. Mortgages had to be in the foreclosure process in 2009 or 2010, on a primary residence, and serviced by one of the 14 servicers or their affiliates, including Bank of America, JPMorgan Chase, Citibank and Wells Fargo.

More information is at independentforeclosurereview.com.

Even though letters went to more than 4 million households, consumer advocates say follow-up advertising has been ineffective, leading to the low response rate.

Many consumers have also grown wary of foreclosure scams and government foreclosure programs, says Deborah Goldberg of the National Fair Housing Alliance.

“The effort is being made” to reach people, says Paul Leonard, the mortgage servicers’ representative at the Financial Services Roundtable, a trade group. “It’s hard to say why people aren’t responding.”

With this settlement, foreclosure cases will be reviewed one by one by consultants hired by the servicers but monitored by regulators.

With the $25 billion mortgage settlement, borrowers who lost homes to foreclosure will be eligible for payouts from a $1.5 billion fund.

That could mean 750,000 borrowers getting about $2,000 each, federal officials have said.

For more information on that, go to nationalmortgagesettlement.com.

HOAs Retaliate Against Banks Skipping Out on Paying Maintenance Expenses

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Editor’s Comment: 

Having had the experience of representing Condominium Associations, Cooperatives and Homeowners Associations in Florida on a large scale, I am acutely aware of the pain they feel when “neighbors” don’t pay their monthly fees. The rest of the homeowners must pick up the slack and in many cases there were special assessments against the owners to pay for the shortfall.

The Banks, always playing the game, would get their Judgement of Foreclosure and then postpone the actual sale indefinitely because they could and because they didn’t want the liability of association dues, association compliance etc. So Florida actually had to pass a law that required the bank to start paying maintenance after they received a Final Judgment of foreclosure. Apparently, judging from the article below, that law has been rescinded or eviscerated by the intensive bank lobbying going on in all 50 state legislatures and in Congress.

With the foreclosure crisis desiccating entire neighborhoods, it sometimes comes down to a handful of homeowners who are paying the tab for the maintenance of the entire complex. So those homeowners, who were now on the Board of directors of the association jumped in and are now getting the benefits of self-help through renting abandoned homes and condos as though they owned it. In some cases they are turning a profit, attracting new buyers in and getting a pretty good bang for their buck — if they do it right.

You might remember the uproar that occurred when I reported that a number of people were making this situation  into a business model: by renting out at lower rates homes that were abandoned by both the homeowner and the “bank” or other pretender lender that put the home into default and foreclosure, these “entrepreneurs” are making money on assets that don’t belong to them.

That is a bad thing, right? Only if you are not a bank or pretender lender who are doing exactly the same thing. If a non-creditor took title to property by submitting a credit bid, then they don’t have real title. Whether they sell it or rent it out, they are making money off of an asset that was never owned by them and in which they never had any financial interest, risk or loss.

That of course is the problem with the corruption of our title system, and the failure of due process, especially in the non-judicial states where foreclosures are routinely processed on behalf of non-creditors who submit “credit bids” at auction. My answer as previously posted, is that the HOA and the homeowner should collude with each other the same way that the substituted trustees collude with the pretender lender. The  homeowner falls behind in payments causing the association to sue for those payments and to foreclose on the lien. The lawsuit names the homeowner and all other lenders on record reciting in the pleading that the existing mortgage on record has been satisfied or abandoned.

We all know that in many cases the lender of record is a sham corporation that was created to front as straw-man for the real lenders (investors). So the court enters a default against the lender of record, and then awards judgment to the association along with a sale date during which period the homeowner redeems the property with a settlement agreement in which the court quiets title to the homeowner.

At that point, if any party wishes to foreclose, whether they are in a judicial state or otherwise, they must proceed judicially by pleading and proving that they were a real party in interest and that they should have received notice of the foreclosure by the Association. In many cases, where it is institution versus association or another institution the same arguments advanced by homeowners are advanced by the association or institution.

The difference is that the argument coming from a creditor is taken far more seriously by the courts —- all the way up to the Supreme Court of the state (like the Landmark case in Kansas). In all such cases I have reviewed, the court found and was affirmed in its finding that the foreclosure by the first creditor to get to the mat won the case. This is one of several reasons why I have given my permission to start a national law firm rolling out into all 50 states. In a word, “if you want something done right, you have to do it yourself.”

Canceled foreclosure sales saddle neighbors, HOAs with expenses

By Mark Puente

Kathy Lane envisioned a picturesque neighborhood with tree-lined streets when she moved to FishHawk Ranch in 2004.

These days, she stares at an eyesore.

Two doors away, the back yard of an abandoned home overflows with trash; rain pours in open windows; weeds have overgrown the lawn. The pool, filled with black muck, draws swarms of bugs.

“I was expecting well-kept yards,” Lane said. “I live two doors from a dump. If it goes up in flames and catches our house on fire, who is responsible?”

The foreclosure crisis has littered the region with thousands of abandoned homes. The houses sit idle as banks have been slow to seize them in the final stage of the foreclosure process, the public auction.

Although recent headlines proclaim the worst of the housing crisis is over, the decrepit homes are a constant reminder that cleaning up the foreclosure mess remains a work in progress.

The house on Lane’s street in Lithia went into foreclosure in 2008 and has been vacant for more than a year. Aurora Loan Services had set an auction for February but canceled it.

It’s an oft-repeated pattern.

In the last 12 months, lenders have canceled auctions on 4,204 properties in Pinellas and Hillsborough counties. Sales have been canceled two, three, even nine times on some homes.

In many cases, banks delay seizures to avoid having to pay maintenance bills or homeowner association fees. Meanwhile, neighbors fend off vandals and thieves and worry about property values falling because of the deteriorating houses.

The repeated cancellations burden the court system.

“These never seem to go away,” said Thomas McGrady, chief judge of the Pinellas-Pasco County Circuit. “It’s a nuisance.”

Taxpayers also pay for the delays.

Hillsborough Circuit Judge Herbert Baumann Jr. said the Clerk of Courts’ workers spend hours filing paperwork when banks repeatedly cancel auctions.

“It does create more work,” he said. “Clerks do expend a lot of resources on this.”

• • •

No neighborhood is immune.

Even the tony streets in Tampa’s Avila and St. Petersburg’s Snell Isle have “lost houses.”

While the homes sit in limbo, homeowners associations lose money when lenders delay taking titles. The associations may mow lawns and make minor repairs, but that forces other residents to shoulder higher assessments.

Associations have few options to force lenders to sell the homes.

HOAs can seize properties through foreclosure when owners stop paying monthly assessments. Some go a step further by renting out the seized properties to recoup lost dues. Still, those actions cost the associations thousands in legal fees.

Lane, the FishHawk Ranch resident, is baffled by the banks’ inaction.

“Every day you expect a poltergeist,” she said. “We have to live here.”

She isn’t alone.

Tampa-based Rizzetta & Co. manages more than 100 community associations with 32,000 homes in Florida, including most associations in FishHawk Ranch. The firm has been deluged in recent years with calls about the abandoned homes and delinquent assessments.

Pete Williams, a Rizzetta manager, attributes the canceled auctions to money.

“The banks never want to take ownership,” he said. “They have to pay the fees going forward. The costs are considerable.”

Even McGrady, the Pinellas-Pasco judge, believes money is behind the canceled sales.

“After a while, you begin to question their motives,” the judge said.

• • •

On the flip side, some experts contend that the banks’ slowness helps stabilize the real estate market. Putting thousands of homes for sale at once could depress prices. Letting them trickle to the market brings higher prices.

And some cancellations occur because lenders and homeowners agree to loan modifications or because homeowners and defense attorneys find errors in bank documents.

The cancellations are currently down in Hillsborough and Pinellas. But that’s because lenders halted foreclosures in late 2010 amid allegations they used robo-signers and false documentation to speed up the foreclosure process.

Still, the delays have allowed some owners to live free for years and dodge assessments.

In June 2009, a Pasco judge granted U.S. Bank a final judgment to seize a home in the Valencia Gardens subdivision in Land O’Lakes. U.S. Bank scheduled the auction for September 2009 but has canceled it eight times. The most recent cancellation occurred last month.

The homeowners have lived in the home but have not paid dues to the Valencia Gardens Homeowners Association. The association is objecting to the cancellations and has asked a judge to order the bank to sell the home. Thirty-eight delinquent homeowners owe the association $56,000.

The shortfall has forced the HOA to convert water fountains into flower beds and to scale back on other projects, said Gail Spector, the president.

The group began cracking down on delinquent residents last year by threatening foreclosure lawsuits against them. Spector knows residents have lost jobs but said other homeowners shouldn’t be burdened with the unpaid dues.

“You have to treat everybody the same,” Spector said. “We are fixing and paying for everything. That’s not fair.”

Leonard J. Mankin, a Clearwater-based law firm, represents hundreds of associations across Florida. Attorney Brandon Mullis has asked a judge to sanction U.S. Bank and to force the sale of the home in Valencia Gardens.

It is now common, he said, for banks to cancel auctions seven or eight times in many foreclosure cases.

Mullis questions why lenders file court documents saying they are “negotiating or reviewing for possible loss mitigation options” when the houses have been vacant a year or longer.

He is fighting another case in Palm Harbor. The Bank of New York Mellon has canceled seven auctions — even though the homeowner defaulted on the mortgage in 2008. The bank canceled the seventh auction in February because it wanted to exhaust options to prevent the foreclosure.

Mullis scoffed.

“This action leaves the burden to fall on those neighboring residents who are forced to pay higher assessments while the property next door further deteriorates,” he said.

The Florida Bankers Association disagrees.

Anthony DiMarco, executive vice president, said lenders are overwhelmed with thousands of foreclosures and aren’t cancelling sales to skirt maintenance and assessments.

“They are trying to move cases forward,” he said. “We’d rather keep people in homes.”

Banks Getting Nervous as Legal Prospects Dim

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Just How Relevant is the Multi-State Settlement?

Editor’s Comment: There are jokes going around about how you can’t fix stupid. We should add that you can’t fix title either unless you throw out hundreds of years of law and  market expectations. No settlement will clear title, nor will it absolve the Banks of criminal responsibility — but the latter can be settled by AG’s too willing to grab for the public relations coup and not willing to stand up for the citizens of their state.

Yves Smith has captured the flavor of the moment in the article below. The Banks seeking a settlement had better be careful what they wish for. As events unfold outside the boundaries of the settlement, they may have put themselves in the position of already admitting to the fraud, without any meaningful protection against liability —- civil or criminal — for screwing up the title registries around the country.

In the end they will either be required to pay far more than this settlement to get signatures that clear up chains of title or they will be forced to fold their tents. The ultimate responsibility for fixing the title problem will come back to the banks who created them because nobody else will do it. Their assumption that they could finesse their way out of this was and remains, well, stupid.

After all this time, it is hard to imagine that we are only half way through this game. It is the second half that will determine the fate of the banks and our nation.

by Yves Smith SEE FULL ARTICLE ON NAKEDCAPITALISM.COM

The Administration, through the nominal head of the bank settlement negotiations, Iowa attorney general Tom Miller, has moved its final deadline for a deal yet again, this time to Thursday.

One event of the day was a non-event. New York AG Eric Schneiderman has scheduled a conference call to the media on the settlement for 6 PM, then postponed it indefinitely 10 minutes before the scheduled time. One can presume that whatever he had intended to say was rendered moot by events…but what events? The only thing one can infer is that he is presumably still negotiating. Per Reuters (hat tip Lambert):

Last Friday New York filed a lawsuit that conflicted with part of the settlement. His office has been in discussions with bank lawyers to move forward with both the lawsuit and the settlement, according to two other sources familiar with the matter.

According to another person familiar with Schneiderman’s thinking, the tenuous nature of the talks caused the postponement. Schneiderman still is a holdout, that person said.

So, reading between the lines, it looks as if Schneiderman saw his MERS lawsuit as not inconsistent with the settlement (remember, Delaware and Massachusetts both have filed MERS suits, and the Massachusetts suit targets the five biggest servicers along with MERS) and the banks begged to differ. This is consistent with the report by Loren Berlin in Huffington Post:

Bank executives argue that New York attorney general Eric Schneiderman is using the lawsuit to go after claims already covered under the settlement, said the source.

But perhaps the biggest news was that Florida is now among the states not yet signed up. This is pretty surprising, given that Republican AG Pam Bondi had the nerve to hector California’s Kamala Harris last week for not joining the settlement. Although some reports indicated that Florida had gotten a sweetened deal, the HuffPo story says she wants a side deal, which is what California would get.

So far, the states that are listed as not yet agreeing to the settlement are California, Florida, New York, Nevada, Delaware, Arizona, and Massachusetts. The bad thing about this list, from the officialdom’s perspective, is that it includes the states that were the epicenters of the housing bust.

But while the claim is that these states will eventually fall into line, it is the banks that now appear to be the serious holdouts, as news reports we highlighted yesterday indicated. From Huffington Post:

Bank concerns reached fever pitch on Friday when the New York State attorney general’s office sued Bank of America, JP Morgan Chase and Wells Fargo, accusing the banks of deceptive and fraudulent use of a private database used to register mortgages.

“I think it’s fair to say that the banks are becoming an obstacle to completing this settlement now,” said the source, who spoke on condition of anonymity.

The banks clearly don’t want to be exposed to MERS litigation. While Schneiderman and Massachusetts’ Coakley face some hurdles in pinning liability on the banks (they have MERS, foreclosure mills, and vendors like LPS as scapegoats liability shields), the bad press and the exposure of document defects would embolden and aid stressed homeowners and thus be damaging to them.

The other interesting tidbit of the day was the report by Shahien Nasiripour of the Financial Times that the Administration is pushing hard to get this deal closed. That could be inferred by the way HUD chief Shaun Donovan has taken a high profile role, including talking to “progressive” media (yours truly is apparently in a special category, “incorrigible”).

But the FT piece reveals that some core constituencies aren’t buying what the Administration is selling:

Aides to President Barack Obama have in recent weeks courted civil rights groups and borrower advocacy organisations, scheduling meetings and calls in an attempt to gain support for the expected settlement and muffle criticism from key political allies…

The meetings have occasionally served as a “gripe session”, as one participant called them, because many of Mr Obama’s most ardent supporters have criticised the pending deal’s terms for the degree of relief provided and the extent of the release from legal claims it provides for banks desperate to minimise mortgage-related liability…

Janis Bowdler, a housing expert at the National Council of La Raza, the largest US Hispanic civil rights group, said the settlement would be a good start for the White House as it seeks to prove it is doing all it can for homeowners.

“Wrapping up the settlement now is the right thing to do, but it’s only going to be a win for them politically if they follow up with the financial crimes task force,” Ms Bowdler said…“Otherwise, if this is it, and they’re satisfied with just $25bn, I don’t think that will be enough to convince voters that they were doing all they could to fix the housing market.”

Missouri Indictment Gives Notice of Title Defects to All Buyers

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See Full Indictment: Microsoft-Word-DOCXIndictment.docx_

“Defendant, acting knowingly in concert with its employees, with the purpose to defraud, used as genuine or transferred with the knowledge or belief that it would be used as genuine, a writing, namely Deed of Release number 2009020598, knowing that it had been made or authenticated so that it purported to have been made by another, or that it had been made so that it purported to have been made by authority of one who did not give such authority.”

“Defendant acting knowingly in concert with its employees, with the purpose to mislead the Boone County Recorder of Deeds, a public servant in the performance of her duty, submitted or invited reliance on a writing, namely Deed of Release number 2009020598, which Defendant knew to be lacking in authenticity, and which stated a fact material to the purposes for which the writing was offered.”

EDITOR’S ANALYSIS: The Missouri Indictment comes as a surprise to many who viewed AG Koster as just someone on the sidelines. It constitutes just one indictment from one County in the State of Missouri. Presumably, since Koster said the investigation was ongoing, there will be similar indictments from other Missouri counties and perhaps other states will be emboldened to do the right thing: set the record straight by establishing a pattern of fraudulent conduct by the Banks and servicers designed to cover up defective documentation arising from the origination of the mortgage loans all the way through eviction of homeowners by strangers (pretenders) to the transaction.

What strikes me as particularly interesting for the future of this ongoing saga, is the effect these indictments will have on title claims in warranty deeds, mortgage deeds, deeds of trust and satisfactions of mortgages. Specifically, anyone who buys or loans money on property needs to be very careful about what they are doing, because now they have actual notice of title defects. They are no longer a bona fide purchaser for value without notice.

The significance of this cannot be over-stated. Most of the recordings in county title registries relate to mortgages in which there was a claim (either on record or off-record through MERS) of some type of transfer, sale or securitization of the loan. It now appears as though most of those filings have at least some fabricated, forged or altered documentation that once upon a time had carried a presumption of validity.

That presumption is eviscerated, in my opinion, by the indictment and the various media reports, so much so that the burden is now on the banks and servicers to plead and prove their case that even if the documentation contains defects, the loan is still documented and the enforcement of the loan is permissible. Judges and lawyers would do well to reconsider the presumptions that are at work in the foreclosure arena and change their strategies accordingly — demanding that the the banks and servicers assume the burden of persuasion in all foreclosures — judicial and non-judicial.

Trustees on deeds of trust and the lawyers who represent pretender foreclosers have lost a key element of protection for their contributions to this mess. They have actual notice of the problem and while the indictments are not convictions, the combined total data that has emerged in media reports and civil and criminal actions by the chief law enforcement officers of each state puts NOTICE on the table, to wit: they know that there is a high probability that the documents upon which they rely in pursuing foreclosures are false declarations lacking in authority. 

Trustees on deeds of trust, who have never done the due diligence required under the statutes enabling their existence now have an added duty that they are ignoring — to demand proof of the veracity of the declarations, instructions and documentation they receive.

But the impact of the NOTICE factor is much broader. There are only a few million foreclosures. But there are tens of millions of transactions that were recorded in refinancing, sales, foreclosure sales, credit bids (from creditors who were not creditors), and other fatal flaws in the release, satisfaction or recording of new mortgages. All of those mortgage transaction need to be re-examined, which is why the regulatory agencies that told borrowers to pound salt just a year ago are now monitoring compliance with cease and desist orders against all the major banks and servicers.

The issue of title is one of notice and recordation. Even if the regulatory authorities miss something, or law enforcement misses something, the facts are now in the public domain that lead to a reasonable requirement of due diligence, which means insisting on proof of the truth of the declarations (and the authority to make those declarations) contained in the documents upon which the pretenders, the Courts and lawyers relied. In my opinion, that means there is a cloud on all titles for all residential transactions that were completed from 1996 through the present.

The enormity of that statement does not escape me. because it means that even innocent new buyers and lenders who loaned money on the purchase of a foreclosed home might have the security interest impaired, which is another way of saying they don’t have the collateral they thought they had. And the title companies, bracing for the onslaught of lawsuits for coverage that if, sustained, would bankrupt all of them, are not ready to lay down and die. The title companies have every intention of fighting liability, saying that they too were deceived by the fraud, and that they never intended to insure such a risk.

That pretty much leaves home buyers and lenders out in the cold. The buyers might not ever get clear title and the lender might not have a perfected lien securing the loan they made to the buyer — all through no fault of the buyer or the new lender (unless the lender is one of the securitization players in which case they knew, or had notice, of the actual defects in the chain of title.

The bottom line is that right now, many if not most properties in the country are under a cloud and, based upon the facts we know, are probably subject to breaks and defects in the chain of title that are not repairable without the signature of the homeowner(s) who were in the chain. That signature is getting very expensive to procure as more and more homeowners and prior homeowners realize that they might have a completely enforceable right to title and possession of properties long since foreclosed and from which they were long since evicted. This will leave the new ‘buyers’ without a house and with a debt and it will leave the new lenders with an unsecured debt from someone who must pay to live elsewhere.

The new brand of investors who are buying foreclosed properties together with the lenders who are financing these purchasers are relying upon taking title from someone who doesn’t have it and getting a satisfaction (release and reconveyance) from someone who never owned the loan. The dirty big secret here is that all the documents are tainted and most of them will be proven to be defective, most of which fatally defective.

That doesn’t mean that the obligation that the borrowers’ undertook is off the table. It just means that it is unsecured and not subject to foreclosure and that the asset (the home that was foreclosed or refinanced or re-sold) might still be an asset that belongs to them or in bankruptcy parlance, an asset of the bankruptcy estate.

On the other hand it doesn’t mean that the obligation is on the table either. If the investors, who are the only true lenders or creditors in those transactions, do not seek collection or enforcement against the homeowners because they have already been paid or because of any other reason, then as far as the mortgage obligation is concerned, there may be liability without enforcement.

That is where the fraud and  false declarations come in. Knowing that the investors would not even attempt to enforce the loans, the banks began this systematic fraudulent scheme to insert themselves into transactions in which they had no interest. They didn’t loan the money and they didn’t buy the loan, but they managed to persuade most of the American judiciary that being the “holder” of the note was sufficient. As the public records will attest, they were never acting for the investors. They were acting for themselves, because it was these interlopers (pretenders) who took title by submitting a “credit bid” to an auctioneer controlled by the banks.

The Missouri indictment and what follows will be a test of how much these banks and servicers have to pay the piper for their horrendous acts of fraud and chicanery that brought down world economies and our own economy in the name of naked greed.

URBAN INSTITUTE: DECADES OF FORECLOSURES TO COME

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EDITOR’S NOTE: For those seeking to buy a home to live in, and for those seeing to buy a “bargain” for investment BEWARE! The pressure on this housing market will not stop until the foreclosures are stopped and the real process of modification and settlement begins.

Downward pressure on the housing market can’t be manipulated successfully at these volume levels. Everyone knows that there are millions of homes that are not YET for sale but will be if the present inventory is ever sold out. And most people are getting to know enough information about title to realize that they might be buying the property from someone who doesn’t own it or who acquired title through fraudulent or defective means.

Canadian buyers are looking for “bargains” under $100,000. They are in for a rude surprise when they discover that the price drops well below what they aid even at these levels.

SEE FULL STORY ON HOUSING WIRE

by KERRI PANCHUK

The number of seriously delinquent mortgages in the nation’s largest metropolitan areas slowed this year, according to a new study from the Urban Institute. But foreclosures remain a burden on the housing market, prompting the policy research group to call for a resolution to the housing crisis to ensure the foreclosure backlog is cleared out in a reasonable time period.

The institute said the serious delinquency rate in the 100 largest metro areas slowed to 9.3% in June from 10.4% in December 2009, according to data from Foreclosure-Response.org. The Urban Institute said the serious delinquency rate is classified as the share of loans in foreclosure, plus all of those that are more than 90 days in arrears.

“The foreclosure inventory that is building up is going to take an incredibly long time for lenders to clear,” said Leah Hendey, research associate at the Washington firm. “At the current pace of foreclosure sales, we are looking at a process that could take decades to complete. It is critical that the status of these properties be resolved quickly if we want to stabilize communities and housing markets.”

This decline was driven by a drop in delinquent loans, which fell to 3.7% in June from 5.5% in December 2009.


In hard-hit areas like Riverside and Stockton, Calif., the foreclosure rate declined significantly, dropping 1.9 percentage points and 1.7 percentage points from the peak two years ago.

Florida, New York and Illinois experienced a different shift in the market with foreclosure rates climbing in cities throughout those states.

In Tampa, the foreclosure rate jumped 2.8 percentage points, and in Chicago, it grew 2.3 percentage points. Those three states are judicial foreclosure states, which force a court to make a final decision before a property can leave the process. This leads to a growing backlog, the Urban Institute said.

Mortgage originations are down in all of the 100 metro areas surveyed, as well. Some of the largest drops occurred in Buffalo, N.Y., where originations fell 39% this year, and Miami, where new home loans fell 82%, the report said.

Write to Kerri Panchuk.


 

WATCH OUT! BEFORE YOU BUY THAT NEXT PROPERTY — TITLE ISSUES

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GRAVE PITFALLS IN BUYING A HOME TODAY

If you are paying cash, that is no protection against later claims of owners who never legally lost title or gave title notwithstanding what is recorded in the title registry. Those documents if false would return the prior owner to title and possession of the property. That would leave you literally out in the cold without home or the money you put into the deal. And as we have already seen, the fact that a title company or even an ACTUAL lender (actually lending their own money) is willing to close doesn’t mean that title is clear. Both have been consisting violating basic underwriting standards of the industry for at least 15 years.

If there is or was one or more loans going back perhaps 10-15 years in the chain title, they were probably subject to some claim of securitization. If securitization is an issue the plain truth is that the players in the securitization chain can’t tell you what you need to know about title. They just don’t know because they never cared. There is a big difference between

  • WHAT THEY SAID THEY DID — that would be the closing documents with the borrower
  • WHAT THEY SAID THEY WERE GOING TO DO — that would be the closing documents with the investor — the securitization documentation
  • WHAT THEY ACTUALLY DID — that would be the actual money trail — where it came from, where it went, or kept it, or passed it on, and who was ultimately receiving the bulk of the payments or proceeds of payments from the borrower, the servicer, other third parties, insurers or federal bailout.

Each of these factor into title or potential claims on title. each of these factor into any foreclosure and subsequent sale. And ultimately each of these will need to be cleared through signatures and recorded affidavits of all the possible participants, a court order quieting title or both.

CASE IN POINT: I know of a situation in Phoenix where the famed foreclosure mill Tiffany and Bosco is involved. There was a foreclosure and then there was a deed from husband to wife. Obviously that raises eyebrows. If there was a foreclosure and it was valid then the husband to wife deed is a wild deed and can be ignored. But the husband and wife deed is corroborated by the fact that one of them or both were on the original deed and the original mortgage that was foreclosed. So the husband -wife deed is not clearly wild — it is questionable at best and at worst, part of the proof that the foreclosure sale was illegal, ineffective or invalid. 

Now the property went apparently from the party who submitted the successful bid at an “auction” that may or may not have been authorized because it was ordered or conducted by a “Substitute trustee”by virtue of a substitution of trustee that may or may not be an authenticated document. And the Notice of Default and Notice of Sale may or may not have named the actual creditor. In most cases, it does not appear that the substitution of trustee names the actual creditor, which is why the judicial states have a much larger backlog of foreclosures than non-judicial where the pretender lenders get away with substituting fabricated paperwork in lieu of actual chain of title.

Thus the highest probability is that if you are buying a residential piece of real estate, there are title questions that are overhanging the transaction. This is a bad thing that endangers your investment and your plans but not so bad that it can’t be fixed. I think I would get an affidavit from Bosco saying that to his knowledge and belief there are no facts, documents or circumstances under which any third party could claim an interest in the real property other than as stated in the commitment — and that he is in a position to know. That affidavit should be executed in recordable form along with the Warranty Deed when they close. Considering what we know, an affidavit from the witnesses and notary saying that Bosco actually signed it would be in order as well and also executed in recordable form and recorded as attachments to the deed. If they refuse to do the affidavits, then watch out.

The seller is said to be an LLC and the title company already wants to know who that LLC is, who formed it and  what chain of authority is present to convey title. There are a thousand reasons why title is being portrayed this way. But it is possible that Bosco was the successful bidder, that Bosco created the LLC and that Bosco named himself as Trustee. The conveyance from husband to wife indicates an outstanding interest in the property. If the policy contains an exception for this conveyance it is giant loophole in title and the insurance. The commitment says they want details on the incorporation of the LLC. I would ask for those documents as well.

But overall, this is not evidence, in and of itself that the whole thing is a sham. The 24 month period referred to in the commitment represents a common look back period for the commitment. It doesn’t mean that is all the work they will do. I think the whammy will come when they issue the actual policy. THAT will be materially different from this commitment. And they say so right in the commitment.

Leaving off Schedule A, considering the naming of the Seller and buyer later on, does not seem wrong and in fact is common practice so the commitment is not used in lieu of a policy. Many people if they read anything, read the commitment. The commitment is basically a preview but not the real thing. The practice in the industry is to issue the commitment with exculpatory language such that when they issue a policy that is materially different from the commitment, you probably won’t notice it.

I think you must take the position that the title to this property is probably hopelessly mired in doubt and clouds. But here is what you could do. You could file a quiet title action based upon the questions raised by the commitment, with cooperation of T&B et al and name everyone in the universe. After the time for answers has come and gone, the defaults are entered and final judgment is entered. Then title is clear. The burden of doing so SHOULD be on the seller, but they might insist on you doing it yourself.

The lawsuit should recite the fact that there are questions of title relating to the securitization or attempted securitization of the loan. It should be served on the last known servicer and the last “lender”. The lawsuit should occur BEFORE the closing which means that the seller LLC should be the plaintiff. And the deal should be that if the Judge doesn’t sign the order, there is no deal and all money is refunded.

If you follow this I believe that you will receive something practically nobody else has — clear title. As the title issues become more and more in the news, the fact that you received a clear title order from a Judge would increase both marketability AND price when you want to sell it. And remember, the Final Judgment signed the judge must (a) be clocked in with clerk who gives you a certified copy and then (b) the certified copy recorded in the title registry of the county in which the property is located. Do that as soon as you can lay hands on the Judge’s Final order.

Check with a licensed attorney knowledgeable in real estate and title issues and who has some working knowledge of securitization before you take any action based upon this article. This is for general information only and not meant as advice on any particular case. You should not proceed with the purchase of anything as important as a house without the assistance of an attorney licensed in the jurisdiction in which the property is located.

 

Florida Duval County Clerk, Delaware AG Sue MERS

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The MERS System is not a legal system of record or a replacement for public land records. No interests are transferred on the system—they are only tracked,” Smith, Merscorp vice president of corporate communications, wrote in a response to emailed questions. “MERS does not have or maintain any document recording system, public or private, and does not do anything to compete with or supplant the public records for land located in the County records.” MERSCORP Spokesperson

Florida Clerk, Delaware AG Sue MERS

County and state officials are turning up the heat on MERS, as recent lawsuits filed in Florida and Delaware challenge the validity and accuracy of the mortgage industry-controlled loan registry.

The most recent lawsuit was filed by a county clerk in Florida, and seeks class action status to represent the state’s 67 counties. The complaint alleges the use of MERS does not comply with state property laws and has cost municipalities millions in unpaid recording fees.

Jim Fuller, the clerk of Duval County, filed suit against Merscorp Inc. and its wholly owned subsidiary, Mortgage Electronic Registration Systems, Inc., on Oct. 31, claiming civil conspiracy, unjust enrichment, as well as fraudulent and negligent misrepresentation. The suit also seeks a hearing to determine the validity of tracking note transfers on the MERS System and a court injunction to prohibit the use of MERS in Florida.

“MERS has usurped the rights and privileges of the Florida Clerks of Court by establishing, maintaining and inducing lenders to use its private recording system, which unlawfully interferes and competes with the public recording system,” the suit, filed in state circuit court, reads.

Merscorp spokesperson Janis Smith said the suit’s allegations are inaccurate and false.

“The MERS System is not a legal system of record or a replacement for public land records. No interests are transferred on the system—they are only tracked,” Smith, Merscorp vice president of corporate communications, wrote in a response to emailed questions. “MERS does not have or maintain any document recording system, public or private, and does not do anything to compete with or supplant the public records for land located in the County records.”

Tim Volpe, a Jacksonville, Fla.-based attorney serving as outside counsel for Duval County, claims that when MERS is named on county land records, it creates an illegal disconnect between the mortgage document and the promissory note that allows the owner of the promissory note to change without being recorded in land records—keeping borrowers in the dark about who holds their debt.

“Both the note and mortgage are to be recorded. The principle issue we’re trying to get at is the punitive distinction of MERS being the mortgagee while the note is shifted from one to another up through the typical securitization process,” Volpe said in a phone interview. “The principle concern about the disconnect is that the public records are not complete insofar as the true beneficial owner of the mortgage is not reflected in the public records.”

In previous challenges to mortgage liens filed in the name of MERS, the Reston, Va.-based company has relied on agency laws to defend its position as both the legal holder of the mortgage, and as an agent acting on behalf of the owner of the promissory note.

Smith said MERS is the true owner of the mortgage, and is not, in the complaint’s words, a “straw man” placeholder listed in public records.

“The ‘owner of the loan’ is the party who has possession of the promissory note, but the promissory note is not, and has never been, and is not required to be disclosed or filed in the public records,” she wrote.

Following a subpoena issued against MERS earlier this year, on Oct. 27, Delaware Attorney General Joseph “Beau” Biden filed a lawsuit claiming MERS engages in deceptive trade practices. The complaint cites a review of 100 foreclosures in New Castle County during 2010 that showed discrepancies between MERS records and the entities that participated in the foreclosure.

In a press statement, Smith said the claims in the Texas case are without legal or factual merit and that MERS complies with state laws. In a separate statement about the allegations in Delaware, Smith said the MERS business model is “straightforward and transparent,” adding that “[T]he lawsuit they filed was unexpected, and we disagree with the allegations made in their complaint.”

MASS SUPREME COURT CLARIFIES: YOU CAN’T SELL WHAT YOU DON’T OWN — MISSING HOMEOWNER WINS CASE WITHOUT KNOWING IT

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WRONGFUL FORECLOSURE IS NOT THE FOUNDATION FOR TITLE

PROSPECTS FOR TITLE PROBLEMS ACROSS THE NATION ARE MUSHROOMING

EDITOR’S NOTE: Likening the claims of the bank and the person who received a “quitclaim” deed to a Brooklyn Bridge transaction, the Court simply stated the most basic law: you can’t sell what you don’t own. But the reasoning of this Supreme Court decision, citing cases from long ago that are as valid to day as when they first decided, also goes directly to the issue of whether title can be challenged in an eviction arising from a foreclosure case.

The rule that a tenant cannot challenge the title of his landlord in an eviction case makes sense — if it is a landlord tenant case. But foreclosure cases are not landlord tenant cases. The fallacy of applying the rule to foreclosure cases is obvious and just as simple as the Massachusetts Supreme Court decision itself.

In a landlord-tenant case the allegation is that the defendant is a tenant under a lease and that they didn’t pay their rent under the lease terms. To allow title challenges that frankly are not really relevant would be to clog the courts with unnecessary litigation and stretch out the time a tenant  could stay without paying rent. Thus the rule that says you can’t raise defects in title in an eviction action between landlord and tenant. The allegation is made that by the Landlord that he is the Landlord, that the defendant is a tenant and that there is a lease, with the payment due of $x dollars per month  or per week and that the tenant did not pay — which has caused the landlord damage and therefore they need the possession of the property back so they can receive rent again to pay the mortgage, maintenance etc.

Foreclosure cases are much different. Here the allegation is that the Plaintiff is the owner, not a landlord as in the landlord-tenant case. Further, the allegation is that the occupant was the owner and isn’t anymore. The allegation MUST be that the change occurred as a result of a foreclosure that was duly prosecuted and in which there was a proper sale in which the Plaintiff obtained title and in which the rights to ownership and thus possession by the homeowner were foreclosed.

In civil procedure EVERYWHERE what is alleged is presumed to be true only in a motion to dismiss. If the allegations are denied, then there must be evidence from the plaintiff proving their allegations. In this case in Massachusetts as is the case in thousands of other instances, the evidence clearly shows that US bank was not the mortgagee when it initiated foreclosure.

Therefore US BANK could not foreclose. But it did anyway. And because they received a deed, they say that is enough. But a homeowner need only deny the allegations of the foreclosure and the sale and force the Plaintiff to prove it obtained real title in proper form and substance. Here is where US Bank fails and therefore the case was dismissed (in this case not an eviction, but a suit to quiet title against a homeowner who cannot be found).

If the allegation supporting the eviction action is faulty and cannot be proven, then the occupant wins. Those are the rules. If you make an allegation you must prove it with real evidence — not with presumptions that would allow people to sell the Brooklyn Bridge 100 times and make claims of presumption of title.

SEE 10.18.2011 Mass Sup Ct Bevi;aqua

Nemo Dat Trumps Bona Fide Purchaser

posted by Adam Levitin

The Massachusetts Supreme Judicial Court just handed down a second
major mortgage foreclosure ruling, Bevilacqua v. Rodriguez.  The case
was an Ibanez follow-up dealing with the rights of a purchaser at an
invalid foreclosure sale. I thought this was a no brainer case and
said so in an amicus brief co-authored with some of the Credit Slips
crew. As the trial court noted, the foreclosure sale purchaser has to
lose otherwise I could actually sell you the Brooklyn Bridge or some
other property I don’t own.

What was cool about this case from an academic perspective was that it
pitted two heavyweight, Latin-inscribed principles of commercial law
against each other:  the nemo dat quod non habet principle (you can’t
give what you don’t have) and the bona fide purchaser principle (one
who takes in good faith for value and without notice of defect will
get legal protection against claims). While these are both venerable
principles of commercial law, there should have been no question that
nemo dat prevails. It is arguably the foundational principle of
commercial law:  the most one party can transfer to another are the
rights it has.
We have one critical carve-out to that principle, the
holder-in-due-course doctrine, but the holder-in-due-course is much
like the bona fide purchaser:  it only applies if you take in good
faith and without notice of defect. And if you’re buying at a
non-judicial foreclosure sale, you’ve got notice of possible defect
(and one might argue about good faith). It’s a little like the problem
of finding a bargain when shopping–if it’s too good of a deal, it
could be a fraudulent transfer.

And so the Massachusetts Supreme Judicial Court held.  If the
foreclosure was done improperly, the foreclosing party didn’t have
title to the property and thus couldn’t transfer title to the
purchaser. The court didn’t dismiss the suit with prejudice, so Mr.
Bevilacqua could get the property–if the foreclosure is done right in
the first place, but that means starting over again.

A lot of people think that the ruling in Bevilacqua will kill the REO
market. I doubt it. It might make it a bit harder to get title
insurance, but the title insurers have to keep issuing titles because
they need the cash flow. If there’s a widespread problem, they’re
already insolvent, so why not keep on doing business? There’s no tort
of deepening insolvency (at least in Delaware).

As with Ibanez, the Supreme Judicial Court merely upheld very sensible
principles that shouldn’t be controversial:  you need to be the
mortgagee to foreclose and you can’t sell what you can’t deliver.
What’s kind of astounding is that the banks have had the chutzpah to
challenge these basic principles of commercial law, as if centuries of
commercial law jurisprudence should suddenly bend to their
convenience. This is the same sort of arrogance that engendered the
creation of MERS and the Article 9 mortgage transfer process.

There’s a third case awaiting decision from the Massachusetts Supreme
Judicial Court, Eaton v. Fannie Mae, which deals with the question of
whether a “naked mortgagee”–a mortgagee that isn’t the
noteholder–can foreclose. I filed an amicus arguing no way no how,
but we’ll see how the court rules.

Malpractice Lawyers Take Aim at Their Colleagues on Foreclosure and Title Issues

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Lately I have been receiving calls and emails from people investigating the possibility of suing a lawyer who was involved in either their foreclosure defense, bankruptcy, or even the closing on a resale, short-sale or modification. Some big names are looking at this area as the next big area for malpractice. The stakes are pretty high, since the starting point in damages is the amount of the loan — and may involve several loans.

Most lawyers have been telling clients that they borrowed the money and that the only real defensive actions they can offer are modifications, delay and potentially help with short-sales. But the real liability comes with people who are NOT in foreclosure. If the title includes “securitized” loan transactions there is a pretty good chance that title is corrupted. And THAT means some court action down the road. It is a ticking time bomb.

Lawyers who fail to advise their clients of possible defenses, statutes of limitations on TILA rescission, common law rescission, and lawsuits for breach of contract and fraud, are now in a position where the facts are so widely known that their ignorance may be their undoing. Those transactional lawyers dealing in sales of residential real estate are particularly at risk because the negotiations regarding the content of the title policy and the failure to advise clients that even with the title policy the new buyer could end up in court, might be actionable.

It is obvious that the question of title is a live issue now. Whether it will be settled by some legislative “reset” button or it is resolved on a case by case basis, clients are not likely to be very forgiving when they learn they had defenses, their bankruptcy schedules were filed incorrectly and their closings were incomplete. When the time comes that people end up in court long after they thought the matter was concluded by foreclosure, short-sale or modification, they are going to be unhappy — and they are going to look for someone other themselves to pay for the defense in litigation and any damage award.

A client who has been threatened with foreclosure should be told that there are cases and theories in which homes have been saved by raising issues relating to the authority of the party making the demand, the amount demanded, and that there are grounds for filing causes of action for appraisal fraud, violations of TILA and other factors. Lawyers whoa re unfamiliar with securitization and who have never read a pooling and servicing agreement will be caught broad-sided upon learning that the loan may never have been transferred, the lien may never have been perfected, and the loan is not even in default because the servicer agreed to make the payments regardless of receipt from the borrower.

Lawyers should contact their malpractice carriers and ask about protective language to insert in their retainer agreements, which, as every bar association will tell you, should be in writing.

A legal malpractice case consists of two cases in every instance. First there is the “mistake” that is alleged to have been committed by the offending lawyer. But then comes the hard part — proving damages. In order to prove damages you must prove that but for the error of the attorney you would have had a result that was far more favorable than the one you you got. At the very least you must show that there was a very high likelihood that you could have saved your house, received damages, or otherwise obtained relief.

And there is the rub. It seems that only those lawyers specializing in malpractice are actually mastering the details of securitized loans and the corrupting effect on title. Most lawyers are steering clear of the issues and still filing, for example, bankruptcy schedules that show the home as being secured by a perfected lien and admitting it is in default. In the world of securitized loans it is highly likely that their assumption is true, but that the admission produces the inevitable result of an order lifting the automatic stay which in turn is treated by state courts (improperly) as res judicata (the matter has already been litigated, and can’t be re-litigated under the Rooker-Feldman doctrine). The foreclosure goes through smoothly with the lawyer basically admitting the key issues that COULD be put at issue and require a trial on the merits and facts. But this example is not enough to make the case.

After proving the liability part by showing the error, the malpractice lawyer must then show that the borrower would have won or was likely to win. It is here that an interesting anomaly arises. The malpractice lawyers are scrutinizing each scrap of paper in evaluating these cases and finding that the the players don’t add up and in fact the record itself often proves that the wrong party foreclosed on a mortgage that probably was never perfected into a lien against the property. So far so good. That means the foreclosure was wrongful and the title and possession must be returned to the homeowner(s) who were foreclosed and evicted. That might be enough to complete the case, but the malpractice carrier for the lawyer who committed the error will probably raise an additional issue: would the homeowner have been able to keep the home in the long run?

Here again, it is only the meticulous work of a malpractice lawyer that reveals the answer, which in many cases, is YES, they would have — but that is only because they performed the work that was really necessary to analyze each of the four corners of every document. The obligation might exist, but there is no accounting from the creditor nor is the creditor identified. The fact that the obligation is not secured is in itself good evidence that the homeowner would have ended up with the home, free and clear of encumbrance and the ability to even wipe out the obligation in bankruptcy as being unsecured or otherwise negotiate it down to realistic levels after credits for lending violations, appraisal fraud etc.

With widely publicized fraud, forgery, fabrication and misrepresentation (by banks who have inserted themselves into the collection process) being heralded by main stream media, lawyers who take a brief history from the client and browse the paperwork are going to come to the wrong conclusion, give the wrong advice, take the wrong action and potentially end up with malpractice liability that could wipe them out financially.

TITLE ISSUES ERUPT BETWEEN THE GIANTS OF THE INDUSTRY

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EDITOR’S NOTE: As we turn the corner and enter a new inning in the “game” of securitization, the real issues are starting to erupt as the players get nasty with each other and not just with homeowners. As pointed out to me recently by a pro se litigant with experience in the real estate industry (Dan Earl), nobody can actually issue a warranty deed without incurring substantial exposure to liability and litigation. And anyone who who accepts such a deed does so at their peril — IF there was a loan anywhere in the chain of title that was or is subject to claims of securitization or sale into the secondary market.

In recognition of this monumental problem, Freddie Mac is experimenting with throwing the burden onto title agents, closing agents and even real estate brokers demanding that they execute affidavits attesting to facts that they probably don’t know anything about. The result is an uproar. Without the affidavit, the transaction doesn’t close. That means fees are not earned by these agents.  So Freddie is essentially blackmailing these people into covering tracks and continuing the policy of plausible deniability.

This ploy can’t work. Those who insure the agents won’t cover liability on the affidavits. In fact, the title policies already issued are not going to be honored if the question of title comes up and it relates to securitization of any loan in the chain of title. The title companies are going to claim that the lien was not perfected, the title representations were untrue and that they did not assume risks that were undisclosed — i.e., the same argument that is being made for homeowners as to whether the mortgage has been perfected as a lien.

Eventually, there does not seem to be any way out of this mess except the path of honesty and application of existing law. The result will force a recalibration of the value of the mortgages, the mortgage bonds and the interests of all concerned. But that is exactly what is required to stop the housing industry from continuing its free fall, dragging the rest of the economy down with it. The simple fact is that the essential details of the closing were not disclosed to the borrower or the title carrier. In fact, they were misrepresented. Whether you call it fraud or negligence, the result is that title is corrupted and needs to be corrected.

The question remains: who do you want to save — the country or the banks?

Agents hold on to your wallets as this could cost you big time!  This is just too big and important to let one blog article suffice.  And developments on this are occurring quickly.  The problem was pointed out in my re-blog Freddie Mac Short Sale Addendum – Item #13 – I DON’T THINK SO!!  on September 9, 2011.

On September 3rd there had been a telephone conference call between ALTA (American Land Title Association) staff in Washington, DC and Freddie Mac’s Short Sale team to specifically discuss the addendum reproduced in Freddie Mac Short Sale Addendum – Item #13 – I DON’T THINK SO!! .  No resolution was then reached and as of today, none has been presented.

According to the below emailed alert to certain ALTA members (including our title underwriter), the problem with the document goes much further than even reported in my earlier blog article.  ALTA points out that (1) the document requires closing and escrow agents to certify information that is not available to them; (2) the document places a negligent misrepresentation standard on the escrow / closing agent that requires the escrow / closing agent to use reasonable efforts to determine if the transaction is arm’s length – without setting forth what those reasonable efforts would or could be; and (3) the document requires that the document be signed by the escrow / closing agent individually, without corporate protection, meaning that if there is a loss because of fraud or misrepresentation by any party to the transaction, the agent could be fully and personally liable. SINCE REAL ESTATE AGENTS ALSO SIGN THIS DOCUMENT, THE SAME LIABILITY AND RISK AFFECTS THEM AS WELL.

I am checking with my E&O carrier to see if they will cover such a claim.  If they don’t, then I cannot risk my own capital and family wealth for the meager fees of a short sale closing, and I suspect anyone who actually realizes what this document does, also will not close such a sale.

For any of you that think this is negotiable, here is a response I got today when I told a Bank of America negotiator on a Freddie Mac loan that I can’t sign if the E&O won’t cover the claim. “Thank you for letting me know.  Without the document we cannot proceed with the short sale and must decline the file.  How long do you think it will take for your E & O carrier to make a decision as to allow you to sign the document?  I cannot have any outstanding files, so should I decline the file at this time or do you think this is something that can be checked on quickly?

Fraud is a big problem with some markets of distressed property and I have written about it in several articles – often times with flipsters phoo phooing the concept as being fraud: SHORT SALE FLIP – QUESTIONABLE METHODSShort Sales and Title Insurance – Critical Look at Hybrid Closing SchemesIS SHORT SALE FLIPPING CRIMINAL ACTIVITY?.

ALTA is looking for examples where the Addendum is causing hardship to borrowers and consumers.  If you have any please send the information to Steve Gottheim, Legislative and Regulatory Counsel to ALTA at steve@alta.org.

Here is the information transmitted by ALTA:

ALTA Meets With Freddie Mac Short Sale Team About Troublesome Addendums
On Friday, ALTA staff held a conference call with members of Freddie Mac’s Short Sale team about the industry’s concerns over new short sale addendums. These addendums are intended to help prevent short sale fraud (which is on the rise) by requiring all of the parties involved in the transaction to sign an affidavit attesting that it is a true arms-length transaction.

The addendums present three concerns for the industry. First, the affidavit requires a closing or escrow agent to certify information that is not available to them, in particular whether the transaction is arms length. The relationship between the buyer and seller may not be evident from the public record information or their identification documents. Second, the affidavit places a negligent misrepresentation standard on the escrow agent. Unlike a “to the best of my knowledge standard” a negligence standard requires the escrow agent to use the reasonable efforts of an ordinary person to determine whether the transaction is arms length. Instead of laying out clearly what the escrow agent must do to release themselves from liability, the escrow agent is at risk of liability if fraud is discovered after signing the affidavit. Lastly, the affidavit requires the escrow agent to sign the transaction in a personal capacity as well as in a corporate capacity. Thus if fraud is discovered, then Freddie or the servicer can go after the escrow agent’s personal property and monies in addition to going after the corporation.

Before signing any of these addendums, ALTA suggests escrow agents reach out to their attorneys to discuss the legal risks and whether the agent has the authority to sign the document. It might also be good practice to review your companies E & O insurance policy to determine whether these addendums are within the scope of that policy.

While the short sale team expressed sympathy for the title industry’s concerns and were open to discussing potential solutions, Freddie’s general counsel is not keen on removing the requirement all together unless the problem becomes a bigger issue. Over the next few weeks, ALTA staff will be working with interested parties to develop potential solutions. If you would like to learn more or have any comments please contact ALTA’s Legislative and Regulatory Counsel Steve Gottheim at steve@alta.org

_________________________________________________________________________

Copyright 2011 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660   RPZ99@Florida-Counsel.comFLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW – We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com

See our easy to understand articles at:

TABLE OF CONTENTS – SHORT SALE AND LOAN MODIFICATION ARTICLES

LAWYERS TAKE NOTE! COURTS ARE ALLOWING TITLE QUESTIONS IN EVICTIONS

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“The mere fact that the pretenders are avoiding trials at all costs is proof unto itself that they do not have the goods, they do not have title, they are not the creditor and they are merely sneaking into the system to fill the void created by the the real creditors (investor/lenders) who want no part of the foreclosure process nor any need to defend against predatory, deceptive or illegal lending practices. ” — Neil Garfield

OREGON COURT DENIES EVICTION: SHOULD HAVE BEEN A QUIET TITLE LAWSUIT

EDITOR’S NOTE: The eviction laws were mostly designed for landlord tenant situations. Once again, pretender lenders are using questionable practices using laws that don’t apply to the cases they are bringing. But ever since Judge Shack in New York and Judge Boyco in Ohio started questioning whether the homeowners were actually getting their day in court, the courts have been shifting away from the old rules.

The old rules basically prevent a tenant from questioning the title of his landlord as a defense to an eviction. The reason is obvious. You sign a lease with someone, pay them for a while and then stop paying — the issue of who has title title is  basically irrelevant. You have a  contract (lease) either oral or written, you breached it, and so the summary procedure for eviction makes it easier on landlords to get tenants out and begin renting the apartment, condo or house. The only real defense is payment and some issues like retaliatory eviction for reporting health problems, and similar landlord tenant issues. You see these laws in Arizona, Florida and every other state I’ve looked at.

Along comes massive foreclosures and instead of having a contract with the landlord you have a claim by someone you never heard of, with paperwork you’ve never seen, much of it unrecorded, and claiming default without being the creditor or even establishing that they represent the creditor. So in non-judicial states for example, this is the first time you have seen, met or had any day in court and you are told that you are in a court of limited jurisdiction and that if you want to raise issues regarding fraudulent or wrongful foreclosure you need to do it in another court. In the meanwhile, the court is going to evict you no matter how much proof you have that the party doing the evicting obtained title illegally and may never have obtained title.

As I have been saying for 4 years, eviction is not a remedy to anyone claiming to have a right to possession of a foreclosed home unless there has been an opportunity to examine all the claims of the pretender lenders to actual ownership of the obligation and the possession of the proper paperwork. Even in judicial states this is not working right because the foreclosures are considered clerical by judges and many of them don’t believe, or at least didn’t believe until recently, that the banks would be so arrogant and stupid as to make claims on mortgages that were never perfected as liens and never transferred to them or anyone else.

So here we have an Oregon judge that spots the issue and simply states that this is not an eviction, it is a quiet title issue and if you want possession you need to prove title. If you want to prove title, considering the defects that are apparent and alleged by the homeowner then you need to file a quiet title action. This is the same as I have been saying for years. If they really had the goods and they really could prove that US Bank, or BOA was going to lose money because of the alleged default on the obligation, then all they needed to do was go to trial on a few dozen of these cases and the issues raised by homeowners would go away. Instead the issues are growing in volume and sincerity.

The mere fact that the pretenders are avoiding trials at all costs is proof unto itself that they do not have the goods, they do not have title, they are not the creditor and they are merely sneaking into the system to fill the void created by the the real creditors (investor/lenders) who want no part of the foreclosure process nor any need to defend against predatory, deceptive or illegal lending practices.

Categorized | STOP FORECLOSURE FRAUD

Court rulings complicate evictions for lenders in Oregon

Court rulings complicate evictions for lenders in Oregon

“Those issues give credence to Defendan’t argument that this case is better brought as one to quiet title and then for ejectment.”

OregonLive-

Another Oregon woman successfully halted a post-foreclosure eviction after a judge in Hood River found the bank could not prove it held title to the home.

Sara Michelotti’s victory over Wells Fargo late last week carries no weight in other Oregon courts, attorneys say. But it illustrates a growing problem for banks  — if the loans’s ownership history isn’t recorded properly, foreclosed homeowners might be able to fight even an eviction.

“There’s this real uncertainty from county to county about what that eviction process is going to look like for the lender,” said Brian Cox, a real estate attorney in Eugene who represented Wells Fargo.

Michelotti’s case revolved around a subprime mortgage lender, Option One Mortgage Corp., that went out of business during the housing crisis. Circuit Court Judge Paul Crowley ruled that it was not clear when or how Option One transferred Michelotti’s mortgage to American Home Mortgage Servicing Inc., which foreclosed on her home and later sold it to Wells Fargo.

IMPERFECT LIENS TRANSFERRED BY IMPERFECT MEANS

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FANNIE MAE: Servicers Required to Report Title Defects and “Repurchase”

EDITOR’S NOTE: STEP BY STEP, the noose tightens. 

Fannie Mae bought nothing and they know it. And they bought it from someone who had bought nothing and knew it. Nobody cared while the money was flowing. Now with the water level falling, the stumps are showing and the results are catastrophic for banks and servicers who thought they had beat the system.

Under the new rules, effective October 1, 2011, servicers must examine and report on the status of title, especially those that are supposedly in delinquency, default or foreclosure. Of course we know they won’t. But, it being a rule from the the Federal government and all, what is to stop you from asking in discovery for their report which is due before they continue to initiate foreclosure? Will they  fudge that too? Will it be signed? By whom?

If title is bad, which is the case in probably 98% of all cases, then the obligation to repurchase applies, according to Fannie. The money isn’t there to “repurchase” an empty bag, so then what? The aggregator that “Sold” it was merely saying they were selling it without ever having it. The originator never had it to begin with, which is why the mortgage is not attached to the land as a perfected lien. STEP BY STEP.

  • So who has a lien? Answer: NOBODY. There is no lien.
  • Who owns the obligation from the borrower? Answer: the partnership of investors whose money can be traced to funding the mortgages.
  • Who owes the investors the money that wasn’t used to fund mortgages? Answer: investment banks who sold them bogus mortgage bonds.
  • Who owes the investors the rest of the money that was lost? Answer: lots of people including rating agencies, auditors, and other enablers.

SEE FANNIE MAE servicing guidelines svc1108

Title Defects
With respect to each first lien mortgage sold to Fannie Mae, the following warranties, among others, are made to Fannie Mae:
    that the mortgage is a valid and subsisting lien on the property,

    that the property is free and clear of all encumbrances and liens having priority over it
except for liens for real estate taxes, and liens for special assessments, that are not yet due
and payable, and

that the mortgage and any security agreements, chattel mortgages, or equivalent
documents relating to it have been properly signed, are valid and their terms may be enforced by us, our successors and assigns.
Announcement SVC-2011-08R    Page 23
If loans referred to foreclosure cannot proceed because of title defects,

    the servicer must notify Fannie Mae of the issue, and

    Fannie Mae reserves the right to require repurchase of such loans if the defects are not
resolved within 90 days of the attorney’s (or trustee’s) discovery of the defects or, at Fannie Mae’s option, to pursue other remedies, including the assessment of compensatory fees for the delay caused by the title defects.
Delays by title insurance companies in processing and resolving claims, or disputes with title insurance companies over coverage issues will not excuse the servicer from its repurchase obligations or prevent the imposition of compensatory fees.

JUDGE MARGERET MANN (SO. CA BKR) PLUNGES INTO DETAILS AND COMES UP WITH WELL-REASONED DECISION

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SEE 42-in_RE_Cruz_vs_Aurora

AURORA LOAN SERVICES LLC, SCME MORTGAGE BANKERS INC, ING BANK FSB, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS ALL BITE THE DUST, SUBJECT TO LIABILITY AND NO ABILITY TO FORECLOSE WITHOUT COMPLYING WITH LAW.

Salient points of Judge Mann’s Decision:

  1. TRUTH IN LENDING  was dismissed because they were time-barred. LESSON: Don’t ignore TILA claims or TILA audits. Get a forensic Analysis as early as possible, assert them immediately, assert rescission as soon as possible. TILA has teeth, but if you assert it late in the game.
  2. YOU CAN’T FORECLOSE ON UNRECORDED INSTRUMENTS: Judge Mann came right out and said the California Supreme Court would not and could not decide otherwise. Any other holding would defeat the purpose of recording and create uncertainty in the marketplace. This will cause a lot of grief to pretenders. It is getting harder for them to come up with people who are willing to lie, forge or fabricate documents. Getting a notary to affix their signature and seal will soon be a thing of the past unless the signature, the person and the document is real.
  3. THE ASSUMPTION THAT THE LOAN IS IN DEFAULT IS STILL A PROBLEM: As long as lawyers and pro se litigants are willing to concede that the obligation was in default, they are giving up their largest chip — i.e., that the loan was not in default and the loan was not subject to a perfected lien for the same reason that the court cites in its opinion. Our loan level analysis shows repeatedly that in most cases the servicer is continuing to make payments and reporting to investors that the loan is performing even as they send delinquency letter’s notices of default and notices of sales. The Court missed this point because nobody brought it up. Don’t expect the Court to do your work for you. If you have reason to believe that the servicer is still paying on your loan you should be stating that the loan is not in de fault, denying any delinquency to the creditor and objecting to any action that is based upon the premise of “default.” Note that if the servicer is paying your bills, the servicer MIGHT have a right of action against you, but it certainly isn’t under the terms of the note or mortgage.
  4. THE ASSUMPTION THAT A VALID PERFECTED MORTGAGE LIEN EXISTS IS STILL A PROBLEM: Again, the problem is not with the Courts but with the lawyers and pro se litigants who simply assume that this is not an issue. Put yourself in the banks’ shoes. If all you had were nominees for undisclosed principals on the note and mortgage would you be OK with that? No? Then the lien was never perfected, which means for legal purposes it doesn’t exist. Just because it shows in black and white doesn’t make it true. LESSON: Deny the lien exists, deny it was perfected and make them prove how it was perfected. They can’t. In most cases neither the mortgage originator nor the nominee beneficiary (MERS) had a disclosed lender or beneficiary, nor did they incorporate the real terms of  the payment to the investor/lenders. If this was a law school exam and the student wrote that the loan was perfected, the grade would be “F”.
  5. THE ISSUE OF FEDERAL PREEMPTION AND THEREFORE JURISDICTION AND VENUE ARE STILL IN FLUX: This Judge found that federal preemption prevents the homeowner from alleging TILA as state claims. The courts are not decided on this and the issue of res judicata and Rooker -Feldman will come into play once the issue is really resolved with finality. Beware then how you assert a claim and that you don’t let the statute of limitations run out by failing to assert the right claim under TILA in the right court. better to get dismissed than to find out that you are time-barred.
  6. WRONGFUL FORECLOSURE IS A TITLE ISSUE NOT A FAIRNESS OR TECHNICAL ISSUE: Judge Mann, correctly in my opinion, states that an assignment from MERS must be allowed in order to clear up title. But, she states that without recording an interest within the chain of title, you have no right to foreclose under the states recording laws. I think this is right, and I think it applies in all 50 states. LESSON: Plead your wrongful foreclosure, slander of title and quiet title cases as title cases and stop adding extra things that you think may them juicier. Either the title is right or it is wrong. There is no middle ground.
  7. MERS ISSUE IS STILL OBSCURE: While the assignment from MERS, if recorded clears up one part it leaves another part undecided again because it wasn’t raised properly. There is a difference between “bare record title” and an “interest in the land.” The MERS assignment is like a quit-claim deed from someone without any interest in the land and used to clear up the chain of title on paper, but it does not convey any interest. MERS on its website and in the public domain specifically disclaims any interest in the obligation, note or mortgage. That is its selling point to members who use its “Service.” And that is why it can’t foreclose and it is subject to cease and desist orders from regulators. As with other affidavits or quit-claims to clear up apparent clouds on title, the recorded assignment or quitclaim does nothing to convey a larger interest than that possessed by the grantor. LESSON: If the pretenders want to foreclose they can’t rely on the MERS assignment. They must file a credible affidavit that states that the affiant was the undisclosed principal in the original transaction with the borrower and that it joins in or separately assigns the actual interest in the obligation, note or mortgage. In my opinion, this is the only way to perfect the original “lien.” Whether it will relate back to the original transaction is an issue the courts must decide.
  8. NO DIFFERENCE BETWEEN A DEED OF TRUST AND A MORTGAGE: Pretenders who try to elevate a deed of trust above a mortgage are headed for a brick wall. Courts never liked non-judicial foreclosure in the first place. They are not about to to reverse centuries of law and provide higher status to a non-judicial foreclosure or the instruments that allow it. ONLY the statutes that provide for extra care on the part of the trustee are constitutional, since due process is the only way anyone in this country can be deprived of life, liberty or property. LESSON: Pound on the issue that the pretender cannot prevail in a judicial foreclosure so they are trying to get away with it in a non-judicial foreclosure. If you want to see how this will eventually unfold, look at Florida and other states that had similar issues in their “Contracts for deed.” Despite clear contractual language the courts have universally held they are mortgages and that they must be foreclosed as mortgages.

START WITH THE WRONG ASSUMPTION — END UP WITH THE WRONG RESULT

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EDITOR’S ANALYSIS: I keep encountering the same myth, which is being overlooked by people on all sides; virtually none of the mortgages were ever sold to Fannie or Freddie. It doesn’t matter if they have it on their website as being owned by them. It doesn’t matter that pretenders are using false representations, fabricated documents and forged documents. The property was not sold pure and simple.

The “seller” in virtually every case was NOT the originator. And the originator never sold or transferred the obligation, note and mortgage to anyone. It doesn’t take a rocket scientist: ergo the property was not sold. Fannie and Freddie are holding zippo. Any money they paid was paid for nothing. Any property interest they are showing on their books is false.

TAXPAYERS  are getting the shaft over and over again, while hidden liabilities for slander of title, trespass and a myriad of other claims pile up, for which the GSEs (Fannie and Freddie) could be liable. The money for the purchase of these loans came from taxpayers. What did taxpayers get? ZIPPO.

BY JENNIFER DIXON

DETROIT FREE PRESS STAFF WRITER

Key documents

Last summer, Fannie Mae executives decided the mortgage giant was “suffering delays in the processing of its foreclosures.”

These documents reveal how Fannie Mae addressed those delays, including a letter to GMAC Mortgage spelling out its new policies to assess compensatory fees and require banks to get its written permission to delay foreclosure sales on loans more than 12 months in arrears. The records also include letters to six lenders setting performance goals for the third quarter of 2010.

Tell us your story

Have you been through the nightmare of foreclosure? Have you struggled to get help from the federal government’s Making Home Affordable programs or the Hardest Hit Fund? Do you have a tale to tell? E-mail your story, 300 words or less, along with your e-mail address and phone number, to getpublished@freepress.com or by using the “Submit News” tab on the Free Press smartphone app. We’ll select the best and share them on freep .com .

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Part one of a three-part series.

Part two: Fannie Mae and Freddie Mac’s fire sales are crippling metro Detroit communities, leaders say

Part three: Homeowners share their frustrations: We got roadblocks, not help

Inside Fannie Mae: Confidential records show how Fannie Mae breaks the rules | How metro Detroit homeowners can get help | Who are Fannie Mae and Freddie Mac? | Programs for financially troubled homeowners haven’t helped much to date | One family’s story of heartbreak in mortgage scandal | How this report was compiled | Accountability, answers are lacking

In early December, a senior executive at Fannie Mae assured members of the Senate Banking Committee in Washington that the mortgage giant was doing everything possible to address the foreclosure crisis.

“Preventing foreclosures is a top priority for Fannie Mae,” Terence Edwards, an executive vice president, told the panel. “Foreclosures hurt families and destabilize communities.”

But confidential documents obtained by the Free Press show that Fannie Mae has pushed an agenda at odds with those public assurances.

The records cover Fannie Mae’s foreclosure decisions on more than 2,300 properties, a snapshot from among the millions of mortgages Fannie handles nationally. The documents show Fannie Mae has told banks to foreclose on some delinquent homeowners — those more than a year behind — even as the banks were trying to help borrowers save their houses, a violation of Fannie’s own policy.

Fannie Mae has publicly maintained that homeowners would not lose their houses while negotiating changes to mortgages under the federal Home Affordable Modification Program, or HAMP.

The Free Press also obtained internal records revealing that the taxpayer-supported mortgage giant has told banks that it expected them to sell off a fixed percentage of foreclosed homes. In one letter sent to banks around the country last year, a Fannie vice president made clear that Fannie expected 10%-12% of homes in foreclosure to proceed to sale.

Taken together, the documents offer an unprecedented window into how Fannie decides whether to allow borrowers to exhaust all options to keep their homes. “It’s scary, it really is,” said Leisa Fenton of Clarkston, who is among an untold number of people whose homes were sold in foreclosure even though they had been assured their homes were safe while they sought mortgage relief from Washington.

Her family’s home was sold at auction in October. “We just keep praying the Lord is going to work it out,” she said.

Alan White, a law professor at Valparaiso University and a leading national expert on the foreclosure crisis, reviewed the records for the Free Press and said they show Fannie Mae — which is regulated by the Federal Housing Finance Agency — is sabotaging the nation’s foreclosure prevention efforts and helping drive down home values.

“Fannie just wants to clean up its balance sheet and get these loans off the books while taxpayers are eating these losses,” White said, referring to the multibillion-dollar federal bailout of Fannie Mae in 2008 and the rising cost to taxpayers.

“And Treasury and the FHFA are letting them get away with it. It’s a huge waste. Wealth is being destroyed, people are losing houses needlessly, and taxpayers are losing money.”

Fannie Mae officials declined to be interviewed and would not address the issues raised in the records obtained by the Free Press, including a lengthy series of questions provided by e-mail.

But a former Fannie Mae executive, Javid Jaberi, whose name is on some of the documents, said the internal records merely reflect an effort by Fannie Mae to get banks to respond more quickly when loans are delinquent, even if that means pushing some foreclosed homes to sale.

In an interview Wednesday, Jaberi said there is plenty of blame to go around. Borrowers often didn’t understand their options. Banks weren’t doing enough to help borrowers to get mortgage relief. And HAMP’s documentation rules, he said, were too complex.

“Everyone is to blame,” Jaberi said, including Fannie Mae.

Fannie spokesman Andrew Wilson said in a statement Fannie is “committed to preventing foreclosures whenever possible.”

“We encourage homeowners to reach out as early as possible … to pursue modifications and other foreclosure prevention solutions.”

Various lenders — Bank of America, GMAC Mortgage, CitiMortgage and Chase — would not discuss Fannie’s policies.

Records reveal foreclosure tactics

Fannie Mae and many of the nation’s top banks have faced considerable criticism for doing little to stem foreclosure sales, which grew by 1.6 million last year. Investigations by other news media outlets showed that Fannie Mae (and the banks that directly service home loans) help only a sliver of people promised relief, and often delay or bungle applications for modifications. Other reports showed Fannie has punished banks that were too slow to foreclose.

The documents obtained by the Free Press indicate, for the first time, that Fannie wasn’t simply indifferent to helping homeowners, but launched a concerted effort to force seriously delinquent borrowers from their homes.

Fannie’s foreclosure policy — what an August 2010 document calls “our new delay initiative” — focused on homeowners more than 12 months late on their mortgages, including people actively negotiating loan modifications. That stance conflicts with the government’s (and Fannie’s) rules, which are meant to insulate people while they seek loan relief under HAMP.

Mortgage companies, of course, can’t wait forever for delinquent borrowers to catch up on their payments. But critics argue that Fannie Mae’s confidential foreclosure policy is not only at odds with its public assurances, but adds to the inventory of vacant homes across the nation and lowers property values for everyone.

According to White, the Valparaiso professor, foreclosing on a home typically costs Fannie Mae far more than a successful loan modification. But, he and others say, Fannie is willing to absorb higher losses because it knows taxpayers — not Fannie Mae — will eventually reimburse the loss.

Since 2008, when the government took over Fannie Mae and its sister company, Freddie Mac, the mortgage giants have cost taxpayers $141 billion, with estimates that the bill could eventually reach as high as $389 billion.

Fannie Mae and Freddie Mac are significant players in the foreclosure crisis; they own or guarantee more than half of all existing single-family mortgages and about two-thirds of all new U.S. home mortgages. Fannie also administers the U.S. Treasury Department’s $29.9-billion foreclosure prevention initiative — Making Home Affordable, which includes HAMP — that was launched by President Barack Obama in 2009.

Everyone loses

Fannie Mae doesn’t lend directly to homeowners. It buys loans from banks, guarantees them, and relies on the banks to service the loans directly. Fannie funds its mortgage investments by issuing debt securities in domestic and international capital markets.

Fannie Mae, according to rules outlined on its Web site, has told banks that service its loans that they “should not proceed with a foreclosure sale” until a borrower has been evaluated for a loan modification under HAMP. That squares with HAMP’s written rules, which forbid banks from completing foreclosures without first weighing a person’s eligibility for a modification.

According to RealtyTrac, which tracks U.S. foreclosures, 1.6 million homes were sold in foreclosure last year, including 78,704 in Michigan. It’s unclear from the records how many could have kept their homes had Fannie not enacted its confidential foreclosure policy.

Metro Detroit leaders say Fannie Mae’s actions are destabilizing neighborhoods and driving down home values. They pleaded with federal regulators to help.

“Local governments are trying to keep people in their homes and keep property values up, and here you have a government bureaucracy ripping (those efforts) to shreds,” said Wayne County Executive Robert Ficano.

“It doesn’t make sense.”

Adam Taub, a Southfield lawyer who works with people trying to save their homes, said Fannie is “being very, very aggressive, very proactive, in trying to kick people out. … They’re putting a lot of pressure on” the banks.

He said he had several cases in which banks were willing to modify loans but Fannie Mae was unwilling to cooperate. He said he had no way to know whether Fannie’s policy affected those cases.

“They’re making their books look better, and making neighborhoods look worse, and that hurts everybody’s property values,” Taub said.

The confidential records reviewed by the Free Press include notations on more than 2,300 homes in which banks asked Fannie to delay foreclosure sales while homeowners sought modifications or other relief, including short sales — in which a lender lets the borrower sell a home for less than what is owed.

In one instance, from August 2010, Bank of America requested a 45-day delay for a Wisconsin homeowner who owed $124,610 and was 32 months delinquent. The bank said the borrower was applying for a loan modification through HAMP and “it appears that all financial documents have been received and we are waiting for an underwriter to be assigned.”

Fannie Mae’s response: “Per our new delay initiative, any loan over 12 months deliq must be on an active payment plan with monthly payments coming in. Therefore, this request to postpone is declined. Please proceed to sale.”

IndyMac Mortgage Services sought a delay for a Hawaii borrower who provided all records required by HAMP. The homeowner, 22 months behind, owed $412,225. Fannie: “Proceed with foreclosure.”

The records do not identify any homeowners by name.

Wilson, the Fannie Mae spokesman, would not address these or other specific documents, saying only that Fannie evaluates delay requests case by case and has approved some delays “if the situation warranted it.”

Indeed, Fannie officials approved some brief delays, records show — with conditions.

In October, Bank of America sought a delay for a California borrower who was 24 months behind, owed $230,449 and had filled out a HAMP loan package. Fannie agreed to delay sale until early November, but noted:

“BANK OF AMERICA RESPONSIBLE FOR ALL FEES/COSTS ASSOCIATED WITH THIS POSTPONEMENT DUE TO DELAY IN PROCESSING … DOCS TIMELY.”

Meg Burns, chief of policy at FHFA, which oversees Fannie Mae, said foreclosure sales are delayed “all the time. We suspend foreclosure processing all the time. … There are plenty of postponements.”

Burns said if anyone is to blame for home losses, it’s the banks for not dealing sooner with homeowners.

FHFA officials also noted that Fannie and Freddie are adopting new rules in October that provide incentives and penalities to encourage servicers to work with delinquent borrowers at an early stage.

Edward DeMarco, FHFA’s acting director, has said the new policies should give homeowners a greater understanding of the process and minimize taxpayer losses by ensuring loans are serviced efficiently and fairly.

FHFA also noted that since Fannie and Freddie were taken into conservatorship, they have completed more than 900,000 loan modifications.

Fannie Mae’s foreclosure policy is also being applied to seriously delinquent borrowers in programs other than HAMP, records show.

In one case last October, Bank of America sought a delay for a Michigan borrower seeking a loan modification who owed $65,542 and was two years behind, but whose finances were improving.

“Borrower is reflecting positive monthly cash flow of $914.77 and may be able to afford a modified payment,” the bank wrote. Fannie refused, noting the lengthy delinquency: “Proceed to sale.”

Ira Rheingold, executive director of the National Association of Consumer Advocates, said, “It’s rarely in anyone’s best interest to kick out a struggling homeowner who is trying to stay in their home, particularly in cities like Detroit whose housing market is devastated.”

He said it’s absurd Fannie is taking actions “devastating to the homeowners and communities they’re supposed to be serving. It really is obscene.”

Jamison Brewer, a lawyer with Michigan Legal Services in Detroit, said Fannie’s actions are contrary to what borrowers seeking modifications are being told — that foreclosure sales are put on hold while they apply for HAMP.

“Our tax money went into Fannie,” he said. “It’s just ridiculous.”

Requests for short sale delays are likewise being denied, the internal records show.

In October, Bank of America sought a delay for a California borrower who owed $416,786, was 13 months behind, and trying to close a short sale. “LOAN IS IN DOCUMENT COLLECTION PHASE,” the bank noted. “FILE HAS HAD 0 PREVIOUS POSTPONEMENTS.” Fannie Mae declined, noting simply, “Too delinquent.”

Sticking taxpayers with the losses

White, the Valparaiso professor, said Fannie’s decision to target homeowners who are more than a year delinquent doesn’t allow for changes in some people’s financial situations, such as a new job or higher pay.

He is among a bipartisan collection of critics who say Fannie is less concerned with helping homeowners than in pushing the cost of troubled mortgages to taxpayers.

For example, White said, if a home with a $200,000 mortgage is foreclosed and Fannie nets $80,000 from its sale, Fannie loses $120,000. But because Congress authorized the Treasury Department to reimburse Fannie as part of the government’s takeover, taxpayers eat the losses.

“Fannie would rather foreclose all the bad and marginal mortgages now, even at very high loss rates, while losses are on the taxpayer, so that when it is once again a private company, these risky mortgages will be gone, and will not result in losses for its shareholders,” he said.

“Treasury and Congress have given Fannie a blank check, but Fannie knows the checkbook will be taken away sooner or later.”

Fannie Mae has made it difficult in other ways for borrowers to keep their homes.

Take the case of a woman represented by lawyer Lorray Brown of the Michigan Poverty Law Program.

The Eaton County woman lost her home in foreclosure and was facing eviction when she persuaded a bank to lend her $170,000 to buy the property back from Fannie Mae. Brown said Fannie initially rejected her client’s offer, insisting on the full $184,000 the woman owed — $14,000 more than the woman could raise.

Fannie did not accept the woman’s offer until January, after months of wrangling. Had Fannie Mae won the fight, it would certainly have spent more than $14,000 on legal fees and foreclosures costs while displacing a family and leaving another home vacant.

Fannie lawyers referred questions to headquarters, which declined to comment.

Well before Edwards, the Fannie Mae executive, testified before the Senate committee that the mortgage giant was doing all it could to prevent foreclosures, Fannie Mae was making plans to punish banks that were not selling foreclosed homes quickly enough, records show. The records obtained by the Free Press buttress documents reported by the Washington Post earlier this year.

“Fannie Mae is suffering delays in the processing of its foreclosures,” according to one unsigned, Aug. 31, 2010, memo. The memo, a “talking points” summary for Fannie Mae management, outlined its plans to fine banks for delaying foreclosure on seriously delinquent homeowners.

As an example, the memo notes, a bank would be fined $5,218 at the time of foreclosure on a house with a mortgage balance of $121,000 and 22 months late.

The memo said Fannie Mae was initially targeting mortgages 18 or more months delinquent to “scrub and clean up servicers’ existing portfolios.”

In a June 18, 2010, letter, Jaberi, then Fannie Mae’s vice president, also cited fines in a letter to GMAC.

“Fannie Mae urges you to begin more closely managing delays in the processing of our foreclosure cases as soon as possible,” Jaberi wrote, adding: “You must keep the contents of this letter and the requirements confidential.”

In the interview Wednesday, Jaberi confirmed that versions of that letter went to all banks that serviced Fannie Mae mortgages.

Fannie Mae also sent letters in June 2010 warning at least six lenders that Fannie projected and expected “approximately 10%-12% of monthly foreclosure inventory will go to sale.”

Bert Ely, a banking consultant based in Alexandria, Va., who reviewed the letters for the Free Press, said they show Fannie “wants to force these default situations into a foreclosure sale” and raised questions about whether Fannie is setting arbitrary targets.

“When you have a uniform approach like that, it makes you wonder whether they are just pushing action by the servicers irrespective of local market conditions,” he said.

Kurt Eggert, a law professor at Chapman University in Orange, Calif., who has testified before Congress on mortgage issues, said it’s unrealistic to expect banks to hit uniform targets because “they have a different mix of mortgages. … And some are much better at modifying mortgages than others.”

Jaberi denied that Fannie took a cookie-cutter approach with banks. Fannie was merely “trying to create a dialogue between Fannie Mae and the servicer. … These are nonperforming assets and need to be resolved. … We were putting more pressure on the servicers to do their jobs.”

Alys Cohen, staff attorney for the National Consumer Law Center, noted that Fannie threatened no punishment to banks that denied a loan modification to qualified homeowners, but did threaten to punish banks that didn’t foreclose fast enough.

“That results in many qualified homeowners ending up in foreclosure,” she said.

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