Rescission and Moving to Strike Pleadings of “Holder”

Posted on November 6, 2015 by Neil Garfield

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This is for general information only. Get a lawyer.

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THIS IS REALLY DIRECTED AT LAWYERS WHO ARE DEALING WITH RESCISSION. NO LAYMAN SHOULD ACT ON THIS WITHOUT CONSULTING WITH A LICENSED ATTORNEY IN THEIR JURISDICTION.

Among the zillions of email requests I have been receiving are emails from lawyers who are trying to get their heads around rescission. It seems to me that their problem is one of procedure rather than substance. So here is the answer I sent to one such lawyer.

I keep wondering about something here with respect to rescission. To be consistent with your position that the rescission was effective upon mailing and that the note and DOT are void, it would seem to me that the proper motion would be a motion to strike those portions of their brief dealing with the effectiveness of the rescission. The Supreme Court has already decided that.

But further — the record is devoid of any evidence that the parties attacking you are or ever were actual creditors. It seems to me that these parties lack standing to attack the rescission because their standing was only as good as them holding the note and mortgage which are now void. I think they are using a magician’s act — getting the court to assume they are lenders or creditors when in fact nothing in the record supports that. They insisted in the trial court that none of your foreclosure defenses were good because they were “holders”. But now they are “holders” of void instruments.

If anyone is going to be contesting the rescission they would need to do the following:

  1. They must be an injured party with standing — i.e., loss of finance charges on the loan along with fees etc that they loaned or paid for. Such a party cannot rely on void instruments to establish standing.
  2. They must file an action within 20 days of receipt of the rescission.
  3. The action would need to allege that the borrower rescinded the loan improperly.
  4. The prayer for relief would be to enter an order vacating the rescission because of whatever reason they think it was wrong.

Some courts are side-stepping this issue and allowing the foreclosure to proceed without ever granting relief that was sought by the “holder” who is being presumed as creditor. But they do so without ever entering an order vacating the rescission which means that the rescission is still standing and the note and mortgage are still void. It’s another pretender scenario. The banks and courts are pretending that the rescission was not effective even though it clearly is effective by operation of law on the day of mailing because the highest court in the land has accepted that with finality and unanimously.

What your opposition is doing here is creatively attempting to avoid basic pleading requirements and using motion practice and the appeal as a vehicle for sidestepping the basic requirements of getting relief in court. Hence the motions in the trial court and the brief in the appellate court should be struck with prejudice as raising issues that are untimely and on issues in which the jurisdiction of the trial court and the appellate court has not been invoked.

The Motion to Strike is based on jurisdiction which can be raised at any time. What you could be saying is that their brief should be struck because it is a disguised effort to obtain relief without ever having filed a lawsuit alleging a short plain statement upon which relief could be granted.

By filing the Motion to Strike it redirects the appellate court to the focus of your brief.

So in states where the homeowner sues somebody to stop them from attempting to enforce the note and mortgage, there is a tricky question of how to express the objection to standing and jurisdiction. To another lawyer I wrote:

This is legal procedure — not substantive arguments about why the banks are horrible. You need to have California cases on standing and jurisdiction. This is tricky because you are right, you did sue them so how can the court not have jurisdiction to hear arguments? The answer is that if I sue you for throwing a ball through my window, you can’t “answer” or file a “motion to dismiss” on the basis that I ran over your bicycle. You must file a counterclaim. They didn’t. So there is no jurisdiction to hear what is in essence a “Motion” instead of affirmative pleading of facts, standing and prayer for relief. I see no way that I am not right on this in view of the Supreme Court decision. Any other interpretation would mean that the rescission was NOT effective until a judge rules on it — directly opposite to the law of the land.

  1. You sued them for a TRO to stop them from proceeding with foreclosure.
  2. Your basis for doing includes the rescission.
  3. You did not sue them to make the rescission effective — hence you did not invoke the jurisdiction of the court on that point. In fact your point is that they are NOT the right parties to do anything and they have no standing and had no standing in the trial court except as to the issue of why they were acting like creditors when they were not.
  4. The fact that you sued them for one thing doesn’t mean they can “Defend” a case that was never filed and never needs to be filed — a lawsuit to make the rescission effective.
  5. Their defensive motions do not ask for the rescission to be vacated. Hence the court’s jurisdiction has NOT been invoked on that issue — neither side is pleading for relief that the rescission is either effective (you) or vacated (them).
  6. THAT is why the trial court did not and could not enter an order vacating the rescission. And THAT means that the rescission is still effective and time has run out on the ability of anyone to file an action to vacate the rescission.
  7. Thus THEY are attempting to do a little side step — since they obviously don’t have the ability to plead and prove they are the creditors or that they are representative of creditor X — they instead are trying the “everyone knows that…” defense so they are not required to plead or prove facts that would show the date of consummation, adequacy of disclosures, etc.
  8. The only way the trial court or any court could have entered an order vacating the rescission would be by pleading facts that include the rescission is complete but wrongful.
  9. The only way ANYONE could bring that claim for relief (Vacating the rescission) is if they had standing — according to THEIR pleading and their proof. They didn’t do that. They are seeking to walk around the TILA rescission procedures despite the clear language of the statute and a unanimous Supreme Court decision.
  10. You sued them because they were claiming to be holders of instruments entitling them to foreclose. Now that point is moot because the rescission is effective upon mailing and the instruments they claim to hold are void anyway.
  11. Thus it is improper for the banks, servicers, trustees etc. to file anything in court “contesting” the effectiveness of the rescission or assuming that the rescission was wrongful without filing a complaint alleging facts that establish standing, injury and the wrongful nature of the rescission. Their argument on appeal is the same as the court below — that the rescission was clearly wrongful or that it was somehow not effective because of no tender, no lawsuit etc.
  12. Hence their entire position is procedurally incorrect and should be struck. If they want the relief of vacating the rescission they must bring a lawsuit to do that — just as the statute says. Since they blew the time, not even the creditor can do that anymore and couldn’t anyway because they were at no time the actual creditors or “injured parties” by the allegedly wrongful rescission. Neither the trial court nor the appellate court has had their jurisdiction invoked by either the Plaintiff or the Defendant as to the whether the rescission was effective or should be vacated.

Filed under: foreclosure | Tagged: , , , | 77 Comments »

Objections and Preserving Your Rights on Appeal: From, Whose Lien Is It Anyway? by Neil F Garfield

Posted on May 14, 2012 by Neil Garfield

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Editor’s Comment:

Foreclosure cases are won or lost on procedure more than on the merits of the case offered by either side. Lawyer and especially pro se litigants tend to use the right of appeal, as though it was a vehicle for entertaining evidence, objections or motions that should have been made. These make up a large percentage of the 85% of cases that are affirmed on appeal.[1]

The appellate court rarely has even the power to consider affidavits or other evidence that was not proffered and which does not show up on the record on appeal sent by the clerk of the court on the “trial” level. The appellate court is limited to what DID happen and not what SHOULD have happened. If the matter was properly raised in the lower court, then the matter may be considered by the appellate court. If not, then they must simply state that the grounds for appeal were not properly preserved for appeal and affirm the decision of the lower court Judge.

In foreclosure cases, most of the objections that should be made are known in advance and quite probably should be brought or offered as a motion in limine before the actual hearing, so that the complete focus of the court is on the issue that  would be presented by opposing counsel  and the objections raised by the borrower homeowner. In those cases, where the objections are known in advance, you should not only state that you have an objection, but the state the reasons for your objection and include a memorandum of law on the point, complete with copies of the most relevant cases.

Most of the errors that I see on the trial court level amounts to denial of due process in that the Court refuses to hear the merits or to allow the parties to conduct discovery. If that is the case in your case, you should mention it even though it is “fundamental error” that the appellate court could hear even without raising the objection contemporaneously with the subject of your objection.

This assures (along with the transcription from a court reporter) that everything about that objection was stated, presented and denied, if such is the case. It might also alert the Judge that you are ready to make such an appeal. If the objection is procedural relating to whether a proper foundation has been laid for the introduction of evidence, or whether the Court is accepting the proffer of counsel without any evidence in the record to support it, then you must make that point clearly and with support from citations in your own state. If the court refuses to hear the objections in limine then you still have the matters raised as part of the court record but you must raise the objection in the hearing or you might well have waived them unless your main point (ill advised) is that the court abused its discretion in denying the motion in limine without hearing it on the merits.

In every case I have seen reversed on appeal, there was something in the record that contradicted or nothing in the record that supported the position taken on appeal.

There are no magic words or bullets on objections. What is necessary is that you state it, without rambling on tangent subjects, with sufficient specificity so that the appellate court will understand in a flash what your objection related to, and what grounds and what law upon which you were relying. Do not combine objections. If you have more than one then state that you have 2 or more objections and proceed with the first.

The mistake I see in appeals and trial proceedings is that the attorney for the homeowner borrower remains silent while opposing counsel states facts that are not in the record (because there has not been an adversary proceeding and that you deny those facts, as they are in issue between the two sides). In many cases the Judge takes silence as a concession that the facts are true as stated and that your defense relates to something other than contesting the facts being proffered by opposing counsel.

The appellate court might agree, particularly if you are not clear in immediately identifying the fact that there was a real transaction in which money exchanged hands and then another event which involved the signing of papers but in which there was no actual transaction. The fact that the borrower believed the papers to be true while everyone else knew they were not, cannot now be used to further the fraud upon your client.

____________________

[1] It has been pointed out by some bankruptcy court judges that out of the three possibilities for appeal of a bankruptcy court ruling, petitioners and their counsel usually bypass the appeal laterally to the sitting District Court Judge charged with hearing civil cases with Federal jurisdiction and with hearing appeals from decisions made in the bankruptcy court. Sources tell us that the percentage of reversals and remand is possibly as high as 50% when brought to the District Judge rather than the BAP or Circuit Court of Appeals.

Filed under: foreclosure | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 23 Comments »

Mark Stopa: Preparing for Trial In a Foreclosure Case

Posted on May 12, 2011 by Neil Garfield

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EDITOR’S NOTE: Stopa makes some very good points for lawyers to consider, the main one being that you should make it as hard as possible for the would-be forecloser to prove their case. If they really have the goods, they will prove it; but as we have seen time after time, the documents are fabricated, even forged and they have no witnesses to authenticate the documents. The mistake made by lawyers and pro se litigants alike is that they know they signed a note and they assume the note was valid. So they shy away from denying the authenticity of the documents or the validity of the documents. That is a mistake.

Start at the beginning. Look carefully at the documents and see if they actually describe the transaction as you NOW understand it given the claims of securitization and transfers. Look even more carefully — the so-called original note might be mechanically fabricated indicating that they did not proffer the original note into evidence — which means that the original note is still out there, somewhere, in the hands of someone else. Of course it also means that the attorney and his/her client are attempting to perpetrate a fraud upon the court, especially if the attorney’s office had anything to do with fabricating or signing the documents offered at a hearing or at trial.

If you start from the premise that the documents are invalid, not the originals, and do not describe the transaction that actually occurred — as to parties or terms — then you are on the right track. To assume otherwise, is to give up most of your ground before you even begin. And of course that means a gift to the pretender lender who is now attempting to foreclose on a home using a loan that it did not fund or purchase.

Preparing for Trial In a Foreclosure Case by Mark Stopa

Posted on May 11, 2011 by Mark Stopa http://www.stayinmyhome.com
I have a trial tomorrow in a foreclosure case. It’s in Lee County, of course – the county where the judges prosecute cases by setting trials sua sponte. Right now, I’m earnestly preparing for trial, but I thought I’d take a break to discuss the two issues are paramount in virtually every foreclosure case/trial. Depending on the facts of a particular case, there may be other issues, of course, but these two issues are critical to a Plaintiff’s ability to win at trial and should, in my view, be vigorously defended in virtually every case:

1. Introducing the Note into evidence.

2. Proving the homeowner’s default in payments and the amount owed.

Re. the former, we all know the Plaintiff must introduce the original Note into evidence, failing which a foreclosure judgment cannot lawfully be entered. The fact that a Note is “self-authenticating” makes this seem like a low hurdle – the Plaintiff’s attorney simply needs to hand the original Note to the judge and it will be admitted into evidence. Fortunately for homeowners, it’s not that simple.

Under Fla. Stat. 673.3081, if a homeowner denies the authenticity of a Note or the signatures thereon in the pleadings, the Plaintiff must authenticate the Note, and its signatures, at trial. There is still a presumption the Note and all signatures are authentic, but by contesting authentication, a homeowner can force the bank to authenticate the Note at trial. This may be harder than you think. For instance, if I challenge the authenticity of a blank indorsement, the Plaintiff must put on testimony from someone who can swear, under oath, that he/she saw the indorsement executed or that he/she recognizes the signature and it is authentic. Similarly, if I challenge the authenticity of the Note, the Plaintiff must present a witness who can testify he/she saw the homeowner sign the Note or who recognizes the homeowner’s signature based on other documents. The way that Notes change hands between banks, neither of these things would be very easy, and I doubt the Plaintiffs’ lawyers will be prepared to deal with these evidentiary issues. In other words, it’s quite possible that if the homeowner preserves these evidentiary objections at trial, the Plaintiff’s lawyers won’t be prepared for them and won’t even have the requisite witness(es) at trial to testify.

Re. the second issue, testimony at trial must generally be based on personal knowledge. That means the Plaintiff must testify to events he/she has seen with his/her eyes or heard with his/her ears. This is virtually impossible to do with regard to proving a homeowner did not pay a mortgage payment or proving the amount owed, so the Plaintiff invariably must rely on documents to prove these facts. This is permissible, but only if the Plaintiff can introduce these documents under the business records exception to the hearsay rule.

Again, this is harder than you think. The Plaintiff must show: (1) the documents are a memorandum, report, record, or data compilation; (2) made at or near the time of the event; (3) by or from information transmitted by a person with knowledge; (4) kept in the course of regularly conducted business activity; and (5) that it was the regular practice of that business to make such a record. All five elements must be satisfied or the documents cannot be used as evidence at trial.

I’m not trying to teach anyone how to practice law. Rather, my point is that there are virtually always things that can be done to make it difficult for a bank to prevail in a foreclosure case; these are just two examples. So don’t give up – keep fighting foreclosure!

Mark Stopa

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , | 39 Comments »

WISCONSIN APPEALS CT: AURORA IS NOT OWNER OF NOTE — TRIAL COURT REVERSED

Posted on March 25, 2011 by Neil Garfield

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EDITOR’S NOTE: WISCONSIN COURT GETS IT: HEARSAY, PROOF, HOLDER NOT THE SAME AS CREDITOR, ETC. AFFIDAVIT THROWN OUT FOR LACK OF PERSONAL KNOWLEDGE. In short everything we have been saying here was followed by the Court. Expect more decisions like this coming from other states.

In other words, false papers and representations by counsel are no substitute for good old-fashioned proof. And proof is what the pretenders don’t have which is why they are pretenders — and losers. The parties initiating foreclosures, declaring the defaults, denying modifications, and buying the home at auction with a “credit bid” are and always have been tricksters who have now screwed up at least 10 million real estate transactions and probably closer to 100 million real estate transactions. These are the people who received the bailout, while the buyers of empty bogus mortgage bonds and the owners of homes with undocumented loans looked on in disbelief.

The great securitization scam, the appraisal fraud, the predatory lending and the TILA violations are coming to light in a wave that possibly not even the trillion dollar banking oligarchy can stop. This case is one of dozens of examples.

STOP FORECLOSURE FRAUD

WIS. APPEALS COURT REVERSED “FAILED MERS ASSIGNMENT, FAILED AFFIDAVIT, FAILED STANDING, FAILED CASE” AURORA v. CARLSEN

WIS. APPEALS COURT REVERSED “FAILED MERS ASSIGNMENT, FAILED AFFIDAVIT, FAILED STANDING, FAILED CASE” AURORA v. CARLSEN

AURORA LOAN SERVICES LLC,

PLAINTIFF-RESPONDENT,

V.

DAVID J. CARLSEN AND NANCY L. CARLSEN,

DEFENDANTS-APPELLANTS.

APPEAL from a judgment of the circuit court for Rock County:

JAMES WELKER, Judge. Reversed.

Before Vergeront, P.J., Lundsten and Blanchard, JJ.

¶1 LUNDSTEN, J. This appeal involves a foreclosure action initiated by Aurora Loan Services against David and Nancy Carlsen. Following a court trial, the circuit court granted judgment of foreclosure in favor of Aurora, finding that Aurora is the holder of the note and owner of the mortgage and that the Carlsens were in default. We conclude that the circuit court’s finding that Aurora was the holder of the note, a finding essential to the judgment, is not supported by admissible evidence. We therefore reverse the judgment.

Background

¶2 Aurora Loan Services brought a foreclosure suit against David and
Nancy Carlsen, alleging that Aurora was the holder of a note and owner of a
mortgage signed by the Carlsens encumbering the Carlsens’ property. The
Carlsens denied several allegations in the complaint and, especially pertinent here,
denied that Aurora was the holder of the note. Aurora moved for summary
judgment, but that motion was denied.

¶3 A trial to the court was held on June 9, 2010. Aurora called one of
its employees, Kelly Conner, as its only witness. Aurora attempted to elicit
testimony from Conner establishing a foundation for the admission of several
documents purportedly showing that Aurora was the holder of a note that
obligated the Carlsens to make payments and that the Carlsens were in default. It
is sufficient here to say that the Carlsens’ attorney repeatedly objected to questions
and answers based on a lack of personal knowledge and lack of foundation, and
that the circuit court, for the most part, sustained the objections. Aurora’s counsel
did not move for admission of any of the documents into evidence. After the
evidentiary portion of the trial, and after hearing argument, the circuit court made
findings of fact and entered a foreclosure judgment in favor of Aurora. The
Carlsens appeal. Additional facts will be presented below as necessary.

Discussion

¶4 It is undisputed that, at the foreclosure trial, Aurora had the burden
of proving, among other things, that Aurora was the current “holder” of a note
obligating the Carlsens to make payments to Aurora. Because Aurora was not the
original note holder, Aurora needed to prove that it was the current holder, which
meant proving that it had been assigned the note. There appear to be other failures
of proof, but in this opinion we focus our attention solely on whether Aurora
presented evidence supporting the circuit court’s findings that “the business
records of Aurora Loan Services show … a chain of assignment of that … note”
and that “Aurora is the holder of the note.”

¶5 As to assignment of the note, the Carlsens’ argument is simple: the
circuit court’s findings are clearly erroneous because there was no admissible
evidence supporting a finding that Aurora had been assigned the note. The
Carlsens contend that, during the evidentiary portion of the trial, the circuit court
properly sustained objections to Aurora’s assignment evidence, but the court then
appears to have relied on mere argument of Aurora’s counsel to make factual
findings on that topic. We agree.

¶6 We focus our attention on a document purporting to be an
assignment of the note and mortgage from Mortgage Electronic Registration
Systems to Aurora. At trial, this document was marked as Exhibit D. Although
Aurora’s counsel seemed to suggest at one point that certain documents, perhaps
including Exhibit D, were certified, the circuit court determined that the
documents were not certified. Under WIS. STAT. § 889.17,1 certified copies of
certain documents are admissible in evidence based on the certification alone.
Aurora does not contend that Exhibit D is admissible on this basis.

¶7 Aurora argues that Conner’s testimony is sufficient to support the
circuit court’s finding that Aurora had been assigned the note. Our review of her
testimony, however, reveals that Conner lacked the personal knowledge needed to
authenticate Exhibit D. See WIS. STAT. § 909.01 (documents must be
authenticated to be admissible, and this requirement is satisfied “by evidence
sufficient to support a finding that the matter in question is what its proponent
claims”). Relevant here, Conner made general assertions covering several
documents. Conner either affirmatively testified or agreed to leading questions
with respect to the following:

  • · She works for Aurora.
  • · She “handle[s] legal files” and she “attend[s] trials.”
  • · “Aurora provided those documents that are in [her] possession.”
  • · She “reviewed the subject file” in preparing for the hearing.
  • · She declined to agree that she is the “custodian of records for

    • Aurora.”

  • · She “look[s] at documentation … [does] not physically handle

    • original notes and documents, but [she does] acquire
    documentation.”

  • · “Aurora [is] the custodian of records for this loan.”
  • · She is “familiar with records that are prepared in the ordinary course
    of business.”
  • · She has “authority from Aurora to testify as to the documents, of
    [Aurora’s] records.”

As it specifically pertains to Exhibit D, the document purporting to evidence the
assignment of the note and mortgage from Mortgage Electronic Registration
Systems to Aurora, Conner testified:

  • · Aurora has “possession of Exhibit D.”
  • · Exhibit D is “an assignment of mortgage.”

With respect to possession of Exhibit D, Conner did not assert that Exhibit D was
an original or that Aurora had possession of the original document. For that
matter, Conner did not provide a basis for a finding that any original document she
might have previously viewed was what it purported to be.2

¶8 Thus, Conner did no more than identify herself as an Aurora
employee who was familiar with some unspecified Aurora documents, who had
reviewed some Aurora documents, and who had brought some documents,
including Exhibit D, to court. Although Conner was able to say that Exhibit D, on
its face, was an assignment, she had no apparent personal knowledge giving her a
basis to authenticate that document. See WIS. STAT. § 909.01.

¶9 Aurora points to various provisions in WIS. STAT. chs. 401 and 403,
such as those relating to the definition of a “holder” (WIS. STAT.
§ 401.201(2)(km)), to a person entitled to enforce negotiable instruments (WIS.
STAT. § 403.301), and to the assignment of negotiable instruments (WIS. STAT.
§§ 403.203, 403.204, and 403.205). This part of Aurora’s argument addresses the
underlying substantive law regarding persons entitled to enforce negotiable
instruments, such as the type of note at issue here, but it says nothing about
Aurora’s proof problems. That is, Aurora’s discussion of the underlying law does
not demonstrate why Exhibit D was admissible to prove that Aurora had been
assigned the note and was, under the substantive law Aurora discusses, a party
entitled to enforce the note.

¶10 Similarly, Aurora discusses the relationship between a note and a
mortgage and, in particular, the equitable assignment doctrine. But here again
Aurora’s discussion fails to come to grips with Aurora’s failure to authenticate
Exhibit D, the document purporting to be an assignment of the note to Aurora.
Aurora points to testimony in which Conner asserted that Aurora acquired and
possessed Exhibit D, but possession of Exhibit D is meaningless without
authentication of the exhibit.

¶11 Aurora argues that we may look at the “record as a whole,”
including summary judgment materials, to sustain the circuit court’s factual
findings. Thus, for example, Aurora asks us to consider an affidavit filed with its
summary judgment motion. In that affidavit, an Aurora senior vice-president
avers that the note was assigned to Aurora, that the assignment was recorded with
the Rock County Register of Deeds, and that Aurora is the holder of the note. This
argument is meritless. Aurora was obliged to present its evidence at trial. It could
not rely on the “record as a whole” and, in particular, it could not rely on summary
judgment materials that were not introduced at trial. See Holzinger v. Prudential
Ins. Co., 222 Wis. 456, 461, 269 N.W. 306 (1936). For that matter, even if Aurora
had, at trial, proffered the affidavit of its senior vice-president, the affidavit would
have been inadmissible hearsay. See WIS. STAT. § 908.01(3) (“‘Hearsay’ is a
statement, other than one made by the declarant while testifying at the trial or
hearing, offered in evidence to prove the truth of the matter asserted.”).

¶12 In sum, Aurora failed to authenticate Exhibit D, the document
purporting to be an assignment of the note. Thus, regardless of other alleged proof
problems relating to that note and the Carlsens’ alleged default, the circuit court’s
finding that Aurora was the holder of the note is clearly erroneous—no admissible
evidence supports that finding. Aurora failed to prove its case, and it was not
entitled to a judgment of foreclosure.

By the Court.—Judgment reversed.

_______________________________________

1 All references to the Wisconsin Statutes are to the 2009-10 version unless otherwise noted.


2 Our summary of Conner’s testimony omits several assertions Conner made that were
stricken by the circuit court. Similarly, we have not included examples of the circuit court
repeatedly sustaining hearsay and foundation objections. For example, the court repeatedly
sustained objections to Aurora’s attempts to have Conner testify that Aurora “owns” the note.
Aurora does not and could not reasonably argue that the Carlsens have not preserved their
authentication objections. The Carlsens’ attorney repeatedly and vigorously objected on hearsay,
foundation, and authentication grounds. The record clearly reflects that the Carlsens were
objecting to the admission of all of Aurora’s proffered documents on the ground that Conner
lacked sufficient knowledge to lay a foundation for admission.



		

			Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , ,  |			46 Comments »

RULE BY BANKS INSTEAD OF RULE OF LAW: WHERE IS THE U.S.A.?

Posted on February 25, 2011 by Neil Garfield

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EDITOR’S COMMENT: We must face the fact that neither the media nor the regulators are going to admit our true status. Reporters blithely refer to a $600 trillion CFTC “industry” that in fact is so full of vapor it probably doesn’t amount to more than 3% of that figure. They report Madoff as the largest PONZI scheme ever without considering that the securitization scheme was 200 times the size of Madoff’s scheme and worked the same way with different window dressing.

The word is FRAUD. It was intentional deception designed to make money for intermediaries to the detriment and complete loss of both real parties to the actual cash transactions — the investors who advanced the money and the homeowners who put their houses on the edge of a cliff created by Wall Street.

Let’s be clear: The homeowners signed onto a non-existent deal that was sold through non-existent mortgage bonds to investors who advanced considerably more than the amount funded in loans. Virtually all the money and property is going to the intermediaries, leaving investors with the holographic image of an empty paper bag — hence the term holding the bag —- and leaving the homeowners with no way to save their homes because those who control the psych campaign in the media and those who SHOULD be examining this tragedy are all complicit in a strategy of cover-up and papering over the mess.

  • EVERY TIME THE INQUIRY IS LIMITED TO THE PAPERWORK WE MISS THE POINT — BECAUSE THE PAPERWORK REFERS TO A TRANSACTION THAT NEVER OCCURRED — NOT WITH THE HOMEOWNER AND NOT WITH THE INVESTOR.

The GREAT SECURITIZATION PONZI SCHEME has had victims and consequences far beyond the usual loss of life savings of suckers who went for the bait. This is a cancer growing on our society that will have consequences greater than Watergate and even greater than slavery. Our country is at great peril and while we can talk about it, debate it and call to action — the consequences could be very grave unless there is ACTION in the streets and the halls of power, unless people realize that we are all being victimized by this scam even if we never took out a mortgage.

Banks Pushing Back Hard on Inadequate Mortgage “Settlement” Trial Balloon

Today, February 25, 2011, 6 hours ago | Yves SmithGo to full article

No sooner have the preliminary outlines of an inadequate settlement of mortgage servicing abuses been leaked, but the banking industry is engaged in a full court press to stop it.

The astonishing part is that the banking industry continues to maintain that it really didn’t do anything wrong, all it did was make some technical errors. That so grossly understates the degree of its recklessness and malfeasance as to be beyond Belief.

It’s no surprise that the so-called Foreclosure Task Force which spent a mere eight weeks reviewing servicer activities and didn’t find much. The timeframe of its exam assured that it would not verify servicer records and accounts against borrower experience and records. It is almost certain that they also did not look at how servicer software credited payments and charges, when there is widespread evidence of violations of agreements with borrowers and RESPA.

And to the extent they looked at “improprieties” in foreclosure documents, it’s a given that they did not go beyond robosigning, when that is arguably the least significant form of malfeasance. There is ample evidence of fraud to cover for the failure to convey notes to securitization trusts, ranging from the misuse of lost note affidavits to document fabrication (bogus allonges being the most common fix).

In addition, pooling and servicing agreements also have specific provisions as to level and procedures for charging certain fees. Yet studies have determined that a specific servicer will apply the same charges across all borrowers and investors, irrespective of the requirements of particular securitizations. So it’s blindingly obvious that this exam was cursory, looking at one or two points of failure in a slapdash fashion and completely ignoring other issues that are at least as important.

And the most important issue that was and continues to be ignored is: why are servicers counterfeiting transfer documents in the first place? It’s pretty obvious why all the authorities are trying to ignore the worst form of chicanery. But it is not clear why the parties most directly harmed, the investors, are doing nothing, at least so far.

As an attorney and former Congressional staffer pointed out by e-mail, the problem with the failure to convey assets into the trust as stipulated in the pooling and servicing agreement is not breach of contract issue. It is a contract formation failure issue and the remedy is restitution. And if you argue that the contract was never formed, that would seem to surmount a restriction in pooling and servicing agreement that 25% of the investors need to band together to sue the trustee to then enforce the contract.

RMBS investors thus have a nuclear weapon in their hands. If they want deep principal mods, and we are told in no uncertain terms that they do, a credible threat of litigation on this front ought to bring recalcitrant banks and trustees to heel, quickly. The last thing the mortgage industrial complex wants is litigation on an issue that would both call into question the validity of RMBS and if successful, would leave the banks with massive damages. And you don’t need to do this publicly and rattle the markets; some investors with the right legal top guns could spell out the consequences if the banks failed to get off their duffs and enter into serious negotiations.

Now perhaps these very conversations are underway now, but I strongly suspect not. The continued arrogance of the banksters is a big tell. And you therefore have to wonder why nothing of the kind is happening. A sad but obvious reason is fixed income investors don’t have any incentives to rattle the cage. Their job is just to beat the index by a little bit and call it a victory. We are also told that some investors are afraid of rattling their relationship with their banks, since they depend on them for information (hate to tell you, but if you think your bank is your friend, I have a bridge I’d like to sell you). But there are some investors, such as the major public pensions fund like Calpers, who take a more aggressive stance.

But there is a second, more ugly, possibility. I’m not a fan of conspiracy theories, but it would not be a stretch to imagine that if the Fed or the Treasury were to get wind of any such contemplated litigation, they’d use every avenue at their disposal to discourage it. China is already worried about the wind-down of Fannie and Freddie. What would the reaction be if the US media were to start discussing, as Adam Levitin put it in Congressional testimony, that RMBS are not mortgage backed securities?

Now contrast this magnitude of mess with the banking industry howls over comparatively meager punishments, per the Wall Street Journal:

The nation’s largest banks haven’t yet seen a proposal that is designed to help resolve mortgage-servicing errors that affected troubled borrowers. But industry executives are bristling at the administration’s new approach, disagreeing that principal reductions will help borrowers and, in turn, the broader housing market….

The proposal “would bring with it enormous costs that would far outweigh any potential benefits,” Chris Flanagan, a Bank of America Corp. mortgage strategist, said in a research note Thursday.

Even an amount of $20 billion “would accomplish little” in addressing borrowers who currently owe $744 billion more on their mortgages than their homes are worth, Mr. Flanagan added.

Yves here. You have to love the contradictions: principal mods won’t work (funny, private investors Chris Flowers and Wilbur Ross beg to differ) but we won’t offer a solution of our own. And even if mods did work, it would take a much bigger number, but we can’t have that because even a paltry number is way way too much. Note we have this posture co-existing with Timothy Geithner doing a “Mission Accomplished” tour in Europe.
The Journal did provide more details as to how a program might work. It at least has a few teeth in it:

Any settlement that includes loan write-downs would require banks such as Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. to complete modifications within one year from the settlement’s date, said people familiar with the matter. Banks could face additional fines if they don’t comply with the terms of the settlement, and they would have to hire independent auditors to provide monthly updates on their progress and compliance with the terms.

Penalties could be assessed depending on the volume of loans that are 90 days or more delinquent in each bank’s servicing portfolio, and by the extent of any deficiencies uncovered by bank examiners, these people said.

Any settlement that includes loan write-downs would require banks such as Bank of America, Wells Fargo and J.P. Morgan Chase to complete modifications within one year from the settlement’s date, said people familiar with the matter.

Elizabeth Warren of the Consumer Financial Protection Bureau has floated a figure of about $25 billion for a unified settlement, according to people familiar with the situation.

The push for write-downs likely would focus on loans that banks service on behalf of other parties, and not for loans that they hold on their books. The settlement would require servicers to comply with existing investor contracts, and some of those contracts could complicate efforts because they give investors authority to reject reductions of loan balances.

The requirement to comply with contracts is bizarre; a settlement like this presumably could not override third party agreements (but it could acknowledge that fees would be waived in the event program compliance conflicted with the requirements of an agreement). Foreclosure defense attorneys did not like the idea of the servicers running these programs and wanted to see an independent party in charge.

An American Banker article by Cheyanne Hopkins on the same topic is pure industry stenography. Some extracts:

Are servicers being hit with a $20 billion fine?
No. Regulators have not agreed on a dollar figure, and $20 billion is in the words of one source involved in the negotiations “a crazy figure.”

Some banking regulators are arguing against an amount that high; it seems the big force behind a huge number is the Consumer Financial Protection Bureau and the state attorney generals.

A monetary penalty will no doubt be levied, but government officials disagree over what the fine should cover. Bank regulators see it as a penalty for being sloppy while other officials see the money as a way to repay wronged borrowers. On Thursday, regulators on both sides said an agreement has not been met.

Keep in mind, too, that in order for this to be a global settlement, all of the government entities involved would have to agree, as would the banks. While banks acknowledge their servicing systems need improvement, they continue to argue that the vast majority of foreclosures were justified.

So notice all the drive by shootings in one little section. The settlement leak is deemed to be “huge” and “crazy” when it is by any objective standard (except the banks’ intolerance for pain) way too low. The people pushing for the settlement are the evil CFPB and the state AGs (who said they were doing this in tandem? The AGs might decide to join forces, but tactically that is a foolish and unnecessary move. Regulatory violations are a completely different kettle of fish than state law violations. If the state AGs did join, it would fit the fact pattern of Tom Miller, the Iowa AG heading the effort, saving face while engaging in a sell out). And the writer perpetuates the fiction that the banks have the right to negotiate with the authorities on a equal footing. Sadly, regulators have become so craven and complicit that that has become their default posture, but the government has the ability to make life very painful for the banks (let’s just start with REMIC violations) but chooses not to use its considerable leverage.

Now get this part later on:

I read the settlement will include principal reductions. Is that true?

Not yet. While it’s true that some agencies want to force the banks to cut principal on troubled loans, that issue is one of several that’s unsettled. It is clear that any settlement will include some kind of enhanced modification program. The Federal Deposit Insurance Corp., for example, has been pushing a program that would streamline modifications in return for a clearer path to foreclosure if the borrower redefaults.

But the banks are adamantly opposed to forced principal reductions, and it’s unclear if regulators can make them, especially since the agencies don’t even agree. The CFPB and Department of Housing and Urban Development want a strong principal reduction program, but the OCC wants to instead focus on fixing safety and soundness problems.

Aha! So it isn’t just the evil CFPB and the state AGs who want principal mods, as the writer suggested earlier; HUD wants them too. And it appears the only agency that isn’t keen is, predictably, the banking industry toadies at the OCC.

No matter where the regulators really stand, it serves the industry to promote the image that the two sides are far apart and the regulators are not at all unified, regardless of where the facts actually lie. But the fact that such a meager amount is likely to be walked back is testament yet again to the fact that we now have rule by banks, with occasional gestures to disguise that fact, rather than rule of law.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , | 6 Comments »

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