NY Monroe Case: Default entered against homeowner — CASE DISMISSED on Standing — US Bank Never refiled.

Posted on July 12, 2018 by Neil Garfield

multiple choice robo-pleading

NO PLEADING: HOMEOWNER WON ANYWAY

I have held off on discussing this case until some time passed. As far as I now know US Bank, like several cases I won, has not refiled for foreclosure. There is a good reason for that. US Bank is not the Plaintiff. The Plaintiff is named as a REMIC Trust, for which the attorneys claim that US Bank is the Trustee.

As such the Plaintiff does not own nor have any interest in the loan either as owner or servicer. Hence the named trustee (U.S. Bank) is named but it has nothing to do since the trust is nonexistent and in all events no attempt has ever been made to entrust the subject mortgage into the fiduciary hands of U.S Bank.

And THAT is because the only party with an equitable interest in the debt is a group of investors whose money was used to fund the origination or acquisition of the loan. The investors meanwhile think that their money was placed in trust and then used to purchase, not originate, loans.

Every once in a while a wily judge catches on from the face of the documentation. This judge ruled against US Bank as Trustee for a named REMIC Trust because he didn’t believe US Bank or the Trust was actually related to the subject loan. He gave them a chance to correct their pleading, but apparently out of fear of perjury, the lawyers for the nonexistent trust backed off, apparently permanently.

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see Memorandum and Order – USBank Trust NA as Trustee for LSF9 MPT v Monroe

Quoting from the complaint field by lawyers for their supposed client, a nonexistent trust with a completely denuded trustee, the court includes their own allegation in its ruling:

2 (“Plaintiff is the owner and holder of the subject Note and Mortgage or has been delegated authority to institute this Mortgage foreclosure action by the owner and holder of the subject Note and Mortgage.”);

What does that even mean? This is a perfect example of multiple choice robo-pleading. Either the Plaintiff is the owner and holder of the subject note or mortgage or they are not. If they own the debt,  they don’t say as much and certainly didn’t offer any proof at their uncontested hearing on damages. It’s pretty hard to lose an uncontested hearing but US Bank has done it multiple times, as reported in this case.

If they have been delegated authority by the owner and holder of the subject note and mortgage, they fail to say who delegated that authority and how the delegation occurred. Since the express purpose of the trust was to own the debt, note and mortgage and make payments to investors based upon the trust’s ownership of the debt, note and mortgage, Demoting the trust to the status of a conduit or agent would be completely adverse to the express wording and authority granted in the trust.

Actually that kind of wording is exactly what enables the players to claim interest in notes and mortgages adverse to the interests of the parties whose money was directly used to fund the origination and acquisition of loans.

 

Here are some revealing quotes from the District Judge:

The Complaint does not contain any details concerning U.S. Bank’s role as trustee or the powers it has over the trust property (including the mortgage here). (e.s.)

The party asserting subject matter jurisdiction carries the burden of proving its existence by a preponderance of the evidence. E.g., Makarova, 201 F.3d at 113; Augienello v. FDIC, 310 F. Supp. 2d 582, 587–88 (S.D.N.Y. 2004). This is true even on a motion for default judgment, since the principle that a default deems the well-pleaded allegations of the complaint to be admitted is inapplicable when a court doubts the existence of subject matter jurisdiction. Transatlantic Marine, 109 F.3d at 108.

2 While some of these issues were discussed elsewhere by U.S. Bank’s counsel, e.g., Dkt. No. 7, they were not included in the affidavit filed in support of default judgment.

“When a default is entered, the defendant is deemed to have admitted all of the well- pleaded factual allegations in the complaint pertaining to liability.” Bravado Int’l Grp. Merch. Servs., Inc. v. Ninna, Inc., 655 F. Supp. 2d 177, 188 (E.D.N.Y. 2009) (citing Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). “While a default judgment constitutes an admission of liability, the quantum of damages remains to be established by proof unless the amount is liquidated or susceptible of mathematical computation.” Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974); accord, e.g., Bravado Int’l, 655 F. Supp. 2d at 190. “[E]ven upon default, a court may not rubber-stamp the non-defaulting party’s damages calculation, but rather must ensure that there is a basis for the damages that are sought.” United States v. Hill, No. 12-CV-1413, 2013 WL 474535, at *1 (N.D.N.Y. Feb. 7, 2013)

In the past year, U.S. Bank’s attorneys—Gross Polowy—have repeatedly failed to secure default judgments in similar foreclosure cases before this Court. E.g., U.S. Bank Tr., N.A. v. Dupre, No. 15-CV-558, 2016 WL 5107123 (N.D.N.Y. Sept. 20, 2016) (Kahn, J.); Nationstar Mortg. LLC v. Moody, No. 16-CV-279, 2016 WL 4203514 (N.D.N.Y. Aug. 9, 2016) (Kahn, J.); Nationstar Mortg. LLC v. Pignataro, No. 15-CV-1041, 2016 WL 3647876 (N.D.N.Y. July 1, 2016) (Kahn, J.); cf. Ditech Fin. LLC v. Sterly, No. 15-CV-1455, 2016 WL 7429439, at *4 (N.D.N.Y. Dec. 23, 2016) (denying a motion for default judgment due to a defective notice of pendency); OneWest Bank, N.A. v. Conklin, No. 14-CV-1249, 2015 WL 3646231, at *4 (N.D.N.Y. June 10, 2015) (same). In each case, Gross Polowy’s motion was denied for one of two reasons: either the complaint failed to sufficiently allege subject matter jurisdiction, e.g., Dupre, 2016 WL 5107123, at *2–5, or the motion for default judgment failed to meet the requirements of the Court’s Local Rules, e.g., Moody, 2016 WL 4203514, at *2. Here, both of these failures are present.

The Complaint also includes no allegations concerning U.S. Bank’s ability to proceed under its own citizenship, despite bringing this case on behalf of the “LSF9 Master Participation Trust.” Compl.

While U.S. Bank is the nominal plaintiff in this case, it is longstanding federal law that “court[s] must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.” Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980). “Where an agent acts on behalf of a principal, the principal, rather than the agent, has been held to be the real and substantial party to the controversy. As a result, it is the citizenship of the principal—not that of the agent—that controls for diversity purposes.” Hilton Hotels Corp. v. Damornay Antiques, Inc., No. 99-CV-4883, 1999 WL 959371, at *2 (S.D.N.Y. Oct. 20, 1999) (citing Airlines Reporting Corp. v. S&N Travel, Inc., 58 F.3d 857, 862 (2d Cir. 1995)). At issue here is the application of this rule in lawsuits brought by a trustee on behalf of a trust. —3 Gross Polowy should be aware of this rule because they were “foreclosure counsel” for the plaintiff-appellee in Melina, 827 F.3d at 216–17, though in fairness it seems they were replaced by Hogan Lovells for both the subject matter jurisdiction issue and the subsequent appeal, id. at 216; OneWest Bank, N.A. v. Melina, No. 14-CV-5290, 2015 WL 5098635 (E.D.N.Y. Aug. 31, 2015), aff’d, 827 F.3d 214.

In Navarro, the Court held that trustees can be the real parties in controversy—regardless of the type of trust—provided that they “are active trustees whose control over the assets held in their names is real and substantial.” 446 U.S. at 465; see also Carden v. Arkoma Assocs., 494 U.S. 185, 191 (1990) (noting that, if the trustees are “active trustees whose control over the assets held in their names is real and substantial,” they are brought “under the rule, ‘more than 150 years’ old, which permits such trustees ‘to sue in their own right, without regard to the citizenship of the trust beneficiaries’” (quoting Navarro, 446 U.S. at 465–66)). The continued validity of this rule was endorsed by the Court in Americold. 136 S. Ct. at 1016.

If U.S. Bank wishes to proceed in federal court, it must, within thirty (30) days, move to amend its Complaint to address the deficiencies identified in this order. This motion to amend must be prepared in accordance with Local Rule 7.1(a)(4), which establishes the form for such a motion and lists the required papers. With that motion, to resolve the Court’s doubts concerning subject matter jurisdiction, U.S. Bank must also provide its articles of association (along with any other documentation required to establish the location of its main office), the trust instrument for the LSF9 Master Participation Trust,4 and any other documentation required to show that U.S. Bank’s control over the trust assets is real and substantial. Failure to comply with this Memorandum-Decision and Order when moving to amend the Complaint may result in the denial of the motion or sanctions. L.R. 1.1(d).

 

4 In the Dupre case discussed above, U.S. Bank also was instructed to file the trust instrument for the LSF8 Master Participation Trust (presumably another securitization vehicle for mortgage debt) in order to establish subject matter jurisdiction. 2016 WL 5107123, at *2. When it did file the trust instrument, “the text . . . was almost entirely redacted,” and the only visible portion seemed to oppose the notion that U.S. Bank was an active trustee with real and substantial control over the trust assets. Id. at *2, *4. This failure should not be repeated here, and filing documents under seal or with redactions requires advance permission of the Court. L.R. 83.13; see also Lugosh v. Pyramid Co. of Onondaga, 435 F.3d 110, 119–20 (2d Cir. 2006) (describing the standard for restricting public access to judicial documents).

 

Filed under: burden of pleading, discovery, evidence, Fabrication of documents, foreclosure, foreclosure mill, jurisdiction, legal standing, Mortgage, Motions, Pleading, trustee | Tagged: , , , , , , , , | 7 Comments »

Impact of Serial Asset Sales on Investors and Borrowers

Posted on June 7, 2018 by Neil Garfield

The real parties in interest are trying to make money, not recover it.

The Wilmington Trust case illustrates why borrower defenses and investor claims are closely aligned and raises some interesting questions. The big question is what do you do with an empty box at the bottom of an organizational chart or worse an empty box existing off the organizational chart and off balance sheet?

At the base of this is one simple notion. The creation and execution of articles of incorporation does not create the corporation until they are submitted to a regulatory authority that in turn can vouch for the fact that the corporation has in fact been created. But even then that doesn’t mean that the corporation is anything more than a shell. That is why we call them shell corporations.

The same holds true for trusts which must have beneficiaries, a trustor, a trust instrument, and a trustee that is actively engaged in managing the assets of the trust for the benefit of the beneficiaries. Without the elements being satisfied in real life, the trust does not exist and should not be treated as though it did exist.

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About Neil F Garfield, M.B.A., J.D.

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The banks have been pulling the wool over our eyes for two decades, pretending that the name of a REMIC Trust invokes and creates its existence. They have done the same with named Trustees and asserted “Master Servicers” of the asserted trust. Without a Trustor passing title to money or property to the named Trustee, there is nothing in trust.

Therefore whatever duties, obligations, powers or restrictions that exist under the asserted trust instrument do not apply to assets that have not been entrusted to the trustee to administer for the benefit of named beneficiaries.

The named Trustee or Servicer has nothing to claim if their claim derives from the existence of a trust. And of course a nonexistent trust has no claim against borrowers in which the beneficiaries of the trust, if they exist, have disclaimed any interest in the debt, note or mortgage.

The serial nature of asserted transfers in which servicing rights, claims for recovery of servicer advances, and purported ownership of note and mortgage is well known and leaves most people, including judges and regulators scratching their heads.

An assignment of mortgage without a a transfer of the indebtedness that is claimed to be secured by a mortgage or deed of trust means nothing. It is a statement by one party, lacking in any authority to another party. It says I hereby transfer to you the power to enforce the mortgage or deed of trust. It does not say you can keep the proceeds of enforcement and it does not identify the party to whom the debt will be paid as proceeds of liquidation of the home at or after the foreclosure sale.

As it turns out, many times the liquidation results in surplus funds — i.e., proceeds in excess of the asserted debt. That should be turned over to the borrower, but it isn’t; and that has spawned a whole new cottage industry of services offering to reclaim the surplus proceeds.

In most cases the proceeds are less than the amount demanded. But there are proceeds. Those are frequently swallowed whole by the real party in interest in the foreclosure — the asserted Master Servicer who claims the proceeds as recovery of servicer advances without the slightest evidence that the asserted Master Servicer ever paid anything nor that the asserted Master Servicer would be out of pocket in the event the “recovery” of “servicer advances” failed.

The foreclosure of the property proceeds with full knowledge that whatever the result, there are no creditors who will receive any money or benefit. The real parties are trying to make money, not recover it. And whatever proceeds or benefits might arise from the foreclosure action are grabbed by a party in a self-proclaimed assertion that while the foreclosure was brought in the name of a trust, the proceeds go to a different third party in derogation of the interests of the asserted trusts and the alleged investors in those trusts who are somehow not beneficiaries.

So investors purchase certificates in which the fine print usually says that for their own protection they disclaim any interest in the underlying debt, note or mortgages. Accordingly we have a trust without beneficiaries.

The existence of those debts, notes or mortgages becomes irrelevant to the investors because they have a promise from a trustee who is indemnified on behalf of a trust that owns nothing. The certificates are backed by assets of any kind. Even if they were “backed” by assets, the supposed beneficiaries have disclaimed such interests.

Thus not only does the trust own nothing even the prospect of security has been traded off to other investors who paid money on the expectation of revenue from the notes and mortgages claimed by the asserted trust through its named trustee.

In the end you have a name of a trust that is unregistered and never asserted to be organized and existing under the laws of any jurisdiction, trustee who has no duties and even if such duties were present the asserted trust instrument strips away all trustee functions, no beneficiaries, and no res, and no active business requiring administration nor any business record of such activity.

Yet the trust is the entity that  is chosen as the named Plaintiff in foreclosures. But the way it reads one is bound to believe that assumption that is not and never was true or even asserted: that the case involves the trustee bank for anything more than window dressing.

It is the serial nature of the falsely asserted transfers that obscures the real parties in interest in both securities transactions with investors and loans with borrowers. The unavoidable conclusion is that nothing asserted by the banks (players in  falsely claimed securitization schemes) is real.

Filed under: CASES, CORRUPTION, Eviction, evidence, Fabrication of documents, foreclosure, Servicer | Tagged: , , , , , , , , , , , | 9 Comments »

Bank Business Model is Foreclosure NOT “Repayment”

Posted on April 20, 2015 by Neil Garfield

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

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see http://newswire.net/newsroom/pr/00088375-6-tricks-banks-use-to-drive-homeowners-into-foreclosure.html

For many years it has been apparent most observers of the mortgage crisis that the Banks have switched their traditional role of creditor seeking to get paid to something else — a “servicer” or “Trustee” seeking foreclosure. in fact, in multiple cases where the homeowner has had sufficient funds to pay off the “debt” upon proof of ownership and balance, the banks have actually argued in court that they should not be required to accept the money. They argue that is their election to seek foreclosure. Judges did not agree, but they still are pursuing a business model of exactly that — seeking foreclosure rather than payment.

An important quote from the above article strips the tip off of the iceberg —

When a bank assigns the risk of a loan to the investors of a securitized trust, the “bank” is no longer a traditional bank that gets the benefit when mortgage payments are made.  Instead, the bank has become a servicer that actually benefits disproportionately from foreclosure on a homeowner’s property.

Note the language that says at some point the Banks decide where to assign the risk of loss to investors. It is only after they have sold the loans, obtained insurance payments, Government funds, credit default swap bets, and other things that make every loan a virtual fountain of money. This also suggests that the risk of loss had not been assigned to investors before which means by definition in most cases that the alleged transfer to the trust was an illusion.

[PRACTICE HINT FOR LAWYERS: Given that it may be possible to show that the servicer has an economic interest in the outcome, and that its interest is enhanced by foreclosure rather than modification or settlement, the foreclosure defense lawyer might argue that the servicer is not entitled to the same presumptions that would apply to a “disinterested party.” And that can lead you into forcing them to prove the real facts instead of having the court accept presumed “facts” that are actually false.]

The article states

Most homeowners are unaware that their mortgage banks make more money from foreclosure than actual payment.  Mortgage banks give as few modifications as possible and comply minimally with statutes put in place to protect borrowers, all while employing tricks to “cash in” on homeowners’ defaults, pushing them to foreclosure.  The banks take the risk of litigation because few people sue, but getting legal assistance as soon as possible can make the difference between homeowners asserting their rights or losing their homes while being bulldozed by the bank.

In other words the banks know that they have no right foreclosing and that they are gaming the system pretending to be lenders, servicers or trustees for essentially nonexistent trusts. And they know they will lose some cases. And in some cases the sanctions or punitive damage awards is in the millions of dollars. But it doesn’t matter. The fact remains that they are still successfully pushing through wrongful foreclosures by the thousands for each one they lose. And since it is not their money at risk, this is a perfectly acceptable business model.

So the article points to 6 common tricks that banks sue to push homeowners into foreclosure. These tricks work because on some level most borrowers still trust the bank’s representations of ownership and balance and don’t think to challenge the basic foundation of the party claiming to be servicer or trustee or owner of the debt. There is no default if the alleged debt never existed. That doesn’t mean you didn’t get a loan. But ti does mean that you didn’t get the loan that is referenced in the closing documents including the note and mortgage.

The six tricks:

Bank Trick #1:  Refusing Payments

Bank Trick #2:  Switching Service[r]s During Modification

Bank Trick #3:  Breaching a Modification Contract

Bank Trick #4:  Extra Fees & Escrow Accounts

Bank Trick #5:  False Notices [like including an amount required to reinstate that is completely without any basis]

Bank Trick #6:  Multiple Modifications

Foreclosure is clearly the fattest pot of gold possible and it’s for this reason foreclosure is the bank’s primary goal.

If a homeowner spots any of the above tricks, the best thing to do is immediately seek legal assistance in order to avoid the situation from getting any worse.

Filed under: foreclosure | Tagged: , , | 27 Comments »

Trustees on REMICs Face a World of Hurt

Posted on June 18, 2013 by Neil Garfield

DID YOU EVER WONDER WHY TRUSTEES INSTRUCTED THE INVESTMENT BANKS TO NOT USE THEIR NAME IN FORECLOSURES?

Editor’s Comment: Finally the questions are spreading over the entire map of the false securitization of loans and the diversion of money, securities and property from investors and homeowners. Read the article below, and see if you smell the stink rising from the financial sector. It is time for the government to come clean and tell us that they were defrauded by TARP, the bank bailouts, and the privileges extended to the major banks. They didn’t save the financial sector they crowned it king over all the world.

Nowhere is that more evident than when you drill down on the so-called “trustees” of the so-called “trusts” that were “backed” by mortgage loans that didn’t exist or that were already owned by someone else. The failure of trustees to exercise any power or control over securitization or to even ask a question about the mortgage bonds and the underlying loans was no accident. When the whistle blowers come out on this one it will clarify the situation. Deutsch, US Bank, Bank of New York accepted fees for the sole purpose of being named as trustees with the understanding that they would do nothing. They were happy to receive the fees and they knew their names were being used to create the illusion of authenticity when the bonds were “Sold” to investors.

One of the next big revelations is going to be how the money from investors was quickly spirited away from the trustee and directly into the pockets of the investment bankers who sold them. The Trustee didn’t need a trust account because no money was paid to any “trust” on which it was named the trustee. Not having any money they obviously were not called upon to sign a check or issue a wire transfer from any account because there was no account. This was key to the PONZI scheme.

If the Trustees received money for the “trust” then they would be required under all kinds of laws and regulations to act like a trustee. With no assets in a named trustee they could hardly be required to do anything since it was an unfunded trust and everyone knows that an unfunded trust is no trust at all even if it exists on paper.

Of course if they had received the money as trustee, they would have wanted more money to act like a trustee. But that is just the tip of the iceberg. If they had received the money from investors then they would have spent it on acquiring mortgages. And if they were acquiring mortgages as trustee they would have peeked under the hood to see if there was any loan there. to the extent that the loans were non-confirming loans for stable funds (heavily regulated pension funds) they would rejected many of the loans.

The real interesting pattern here is what would have happened if they did purchase the loans. Well then — and follow this because your house depends upon it — if they HAD purchased the loans for the “trust” there would have no need for MERS, no trading in the mortgages, and no trading on the mortgage bonds except that the insurance would have been paid to the investors like they thought it would. The Federal Reserve would not be buying billions of dollars in “mortgage bonds” per month because there would be no need — because there would be no emergency.

If they HAD purchased the loans, then they would have a recorded interest, under the direction as trustees, for the REMIC trusts. And they would have had all original documents or proof that the original documents had been deposited somewhere that could be audited,  because they would not have purchased it without that. Show me the note never would have gotten off the ground or even occurred to anyone. But most importantly, they would clearly have mitigated damages by receipt of insurance and credit default swaps, payable to the trust and to the investment banker, which is what happened.

No, Reynaldo Reyes (Deutsch bank asset manager in control of the trustee program), it is not “Counter-intuitive.” It was a lie from start to finish to cover up a PONZI scheme that failed like all PONZI schemes fail as soon as the “investors” stop buying the crap you are peddling. THAT is what happened in the financial crisis which would have been no crisis. Most of the loans would never have been approved for purchase by the trusts. Most of the defaults would have been real, most of the debts would have been real, and most importantly the note would be properly owned by the trust giving it an insurable interest and therefore the proceeds of insurance and credit default swaps would have been paid to investors leaving the number of defaults and foreclosures nearly zero.

And as we have seen in recent days, there would not have been a Bank of America driving as many foreclosures through the system as possible because the trustee would have entered into modification and mitigation agreements with borrowers. Oh wait, that might not have been necessary because the amount of money flooding the world would have been far less and the shadow banking system would be a tiny fraction of the size it is now — last count it looks like something approaching or exceeding one quadrillion dollars — or about 20 times all the real money in the world.

At some point the dam will break and the trustees will turn on the investment banks and those who are using the trustee’s name in vain. The foreclosures will stop and the government will need to fess up tot he fact that it entered into tacit understandings with scoundrels. When you sleep with dogs you get fleas — unless the dog is actually clean.

Stay Tuned for more whistle blowing.

In Countrywide Case, Trustees Failed to Provide Oversight on Mortgage Pools

Filed under: CDO, CORRUPTION, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , | 88 Comments »

Assignment must exist in writing, even if the court says it doesn’t need recording

Posted on August 24, 2012 by Neil Garfield

Dan Hanacek, who will be at the conference in Emeryville tomorrow, and Charles Cox can be reached through our customer service number 520-405-1688. Dan is a lawyer with whom I am engaged in mentoring and resourcing in Northern California cases and Charles helps people all over the country. The tide is turning. The basic principles of title in place for hundreds of years, TILA in place for dozens of years and RESPA in place for dozens of years will yet win the day. Title analysis and attorney advice is crucial to making the write choices and communication with a party purporting to be either a lender or servicer. Don’t assume you know what they are saying is correct. Not even the original note can be admitted because of the thousands of instances in which the “original” is a Photoshopped version that is not the original note and therefore does not contain the original signature of the borrower.

Editor’s Note:

With Banks and servicers playing fast and loose with the rules of procedure, the rules of evidence and black letter law it well to remember BASIC BLACK LETTER LAW. An assignment without delivery is probably a nullity. An assignment that isn’t even in writing is (a) not proper under most existing laws and (b) requires the allegation of an oral “assignment” to be explained as to why it wasn’t in writing before, just like a lost or destroyed note.

The assignment can only be valid and used if the assignee is capable of accepting it, paying for it and either acceptance is for the assignee or as an authorized agent. The Notice Default does not give the Trustee or even the original mortgagee where there has been an assignment, the right to declare default. Then it becomes the representation of the trustee, who is supposed to be objective and disinterested in the result.

For the Trustee to issue a notice of sale and notice of default on behalf of the supposed beneficiary, means that the trustee is no longer accepting the responsibilities of the trustee to act with due diligence and good faith toward both the trustor and the beneficiary.

Hence the substitution of trustee is an offer which has not and cannot be accepted. Any actions taken by the trustee in a notice of default or any other notice or collection letter is out of bounds. The only reason the banks do this is to hide behind yet another layer of people and entities so when the arrest warrants are issued, they can claim plausible deniability that the wrong procedure was being followed. This is poppycock. The beneficiary supposedly knows whether or not he is the creditor entitled to submit a credit bid at auction based upon the the existence of a properly kept loan receivable account reflected on the CREDITOR’s books.

This is just another example where the banks and servicers have borrowed the identity of the creditor, claimed that said identity is private and privileged, and then used it for their own advantage to the detriment of both the lender-investor and the borrower.

Witness this exchange between two of our golden boys — Dan Hanacak and Charles Cox:

Dan wrote:

1624.  (a) The following contracts are invalid, unless they, or some
note or memorandum thereof, are in writing and subscribed by the
party to be charged or by the party's agent:
   (2) A special promise to answer for the debt, default, or
miscarriage of another, except in the cases provided for in Section
2794.
   (3) An agreement for the leasing for a longer period than one
year, or for the sale of real property, or of an interest therein;
such an agreement, if made by an agent of the party sought to be
charged, is invalid, unless the authority of the agent is in writing,
subscribed by the party sought to be charged.
 
Would this section not require the following:
  1. Assignments must be in writing as they are “…for the sale of real property, or of an interest therein.”
  2. Immediately contradict the Gomes holding as it assumes that the authority of the agent has already been subscribed by the party to be charged and pre-empts any challenge by the injured party to the alleged contract.

And Charles Cox wrote back:

I’ve just been drafting argument against TDSC (in opposition to their demurrer)  for the proposition of their authority (as an agent for the beneficiary) in which (as is common) they attempt to use an agent they have assigned, to record a NOD (usually prior to an assignment being recorded) which I refute as follows:

In P&A p.10:26-p.11:27: TDS wrongfully states a “title company representative as agent for T.D.” could validate a Notice of Default which by the terms of the purported Deed of Trust (“NOD”.)  By the terms of the purported Deed of Trust, a NOD is required to be executed or caused to be executed by the “Lender” not the trustee nor the Trustee’s sub-agent as was done here (see Compl. Exh. 1 p.13 ¶ 22 second paragraph.) TDS’s citations are inapposite relating to “authorized agents” (meaning, authorized by the principal, not by another agent.)  Pursuant to CCC § 2304, an agent cannot act for an agent without the express authority of the principal.  CCC § 2322(b) does not allow an agent to define the scope of the agency (which TDS is attempting to do here).  CCC § 2349(4) requires authorization by the principal.  CCC § 2350 states an agent’s sub-agent is the agent of the agent, not of the principal and has NO connection to the principal.

TDS misstates CCC § 2349(1) as it relates to allowing an agent to delegate acts which are purely mechanical.  The statute actually states:

“An agent, unless specially forbidden by his principal to do so, can delegate his powers to another person in any of the following cases, and in no others:
1. When the act to be done is purely mechanical (emphasis added)”
   Note the statute states “another person” not another agent or sub-agent.  The alleged “notice of default” TDS refers to (Plaintiffs are not sure which one, having not been identified in TDS’s P&A but assume as follows:) was signed by “LSI TITLE COMPANY AS AGENT FOR T.D. SERVICE COMPANY,” NOT merely by “a title company representative”  or “person” as statutorily authorized.  This, notwithstanding that authorizing recording a Notice of Default is hardly “purely mechanical.”  This is yet another attempt by TDS to mislead the Court.  
   TDS’s citation of Wilson v. Hyneck cannot be relied on because it is an unpublished opinion and is inapposite anyway. 
    TDS’s further arguments (P&A p.11:5-27) fail for the reasons detailed above.

Plaintiffs Complaint contains sufficient facts constituting Plaintiffs’ cause of action specifically against TDS.  Nothing stated in this section of TDS’s Demurrer provides available grounds sufficient to sustain Defendants’ Demurrer (see p.2:19-25 above.)

Defendant fails to meet the legal standards to sustain its Demurrer.  See Plaintiffs’ Section III below.

Defendant’s Demurrer is without merit and must be overruled.

Amazing how these guys fail to accept responsibility for anything they do!

Charles
Charles Wayne Cox
Email: mailto:Charles@BayLiving.com or Charles@LDApro.com

 

Filed under: bubble, CDO, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: , , , , , , , , | 64 Comments »

MERS: No Agency with Undisclosed Rotating “Principals”

Posted on August 17, 2012 by Neil Garfield

THE WASHINGTON SUPREME COURT DECISION WILL BE USED EXTENSIVELY AT THE EMERYVILLE AND ANAHEIM CLE WORKSHOPS.

The Stunning clarity of the decision rendered by the Washington Supreme Court, sitting En Banc, corroborates the statements I have made on this blog and under oath that they might just as well have put the name “Donald Duck” in as the mortgagee or beneficiary.

The argument, previously successful, has been that even if the entity MERS had nothing to do with financial transaction and even if they didn’t know about the transaction because the “knowledge” was all contained on a database that nobody at MERS checked for authenticity or veracity, the instrument was still valid. This coupled with a “public policy”argument that if the courts were to rule otherwise none of the MERS “mortgages” would be valid thus making the creditor unsecured.

The Washington Supreme court rejected that argument and further added that if such was the result, then it was through no fault of the borrower. SO now we have a situation where the law in the State of Washington is that MERS beneficiary instruments do not establish a perfected lien and therefore there is no opportunity to foreclose using either non-judicial or judicial means. A word of caution here is that this applies right now as law only in that state but that it closely follows the Landmark decision in Kansas Supreme Court. But the decision is extremely persuasive and reinvigorates the fight over whether the loans were secured loans or unsecured — especially powerful in bankruptcy courts.

It should be noted that the Washington Supreme Court has wider application than might appear at first blush. This is because the question was certified not from a state judge but from a federal court. Thus in Federal Courts, the decision might be all the more persuasive that MERS, which never had anything to do with the financial transaction, never handled a dime of the money going in or out of the loan receivable account, and never had any person with personal knowledge who could identify and verify that there was a disclosed principal for whom they were acting should be identified as a non-stakeholder with bare (naked) title recited in a fatally defective instrument.

This does not mean the obligation vanishes. It just means that they can’t foreclose through non-judicial foreclosure and probably can’t foreclose even through judicial means unless they accompany it with a request that the court reconstruct the mortgage — in which case they would need to allege and prove that the disclosed parties were the sources of funds for the origination of the loans, which in most cases, they were not.

The actual parties who were the source of funds either still exist or have been settled or traded out into new investment vehicles. This is why putting intense pressure to move the discovery along is so powerful. You are demanding what they should have had when they started the foreclosure timeline with a defective notice of default signed by a person who had no idea what the loan receivable account looked like or even the identity of the party or entity that had the loan booked as a loan receivable.

You’ll remember that MERS issued a proclamation to everyone that nobody should use its name in foreclosures in 2011. But that doesn’t address the underlying fatal defect of the MERS business model and the instruments that recite MERS as the mortgagee or beneficiary.

Th reasoning behind the rejection of the “Agency” argument is also very important. The court states that “While we have no reason to doubt that the lendersand their assigns control MERS, agency requires a specific principal that is accountable for the acts of its agent. If MERS is an agent, its principals in the two cases before us remain unidentified.12 MERS attempts to sidestep this portion of traditional agency law by pointing to the language in the deeds of trust that describe MERS as “acting solely as a nominee for Lender and Lender’s successors and assigns.” Doc. 131-2, at 2 (Bain deed of trust); Doc. 9-1, at 3 (Selkowitz deed of trust.); e.g., Resp. Br. of MERS at 30 (Bain). But MERS offers no authority for the implicit proposition that the lender’s nomination of MERS as a nominee rises to an agency relationship with successor noteholders.13 MERS fails to identify the entities that control and are accountable for its actions. It has not established that it is an agent for a lawful principal.” Hat tip again to Yves Smith on picking up on that before I did.

And the court even went further than that on the issue of modification that I have been pounding on for so long — how can you submit a request for modification with a proposal unless you know the identity of the secured party and the identity of any party or stakeholder who is unsecured? Hoe can anyone settle or modify a claim without knowing the identity of the claimant or the actual status of the claim as affected by payments of co-obligors? “While not before us, we note that this is the nub of this and similar litigation and has caused great concern about possible errors in foreclosures, misrepresentation, and fraud. Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult.”

BUT WAIT! THERE IS MORE! The famed Deutsch bank acting as trustee ruse is also exposed by the court, leaving doubt ( a question of material fact that is in dispute) as to the identity and character of the creditor and the status of the loan. Without those nobody can state with personal knowledge that the principal due is now this figure or that and that the following fees apply. The Supreme Court in the footnotes takes this on too, although it wasn’t argued (but will be in the future I can assure you): “It appears Deutsche Bank is acting as trustee of a trust that contains Bain’s note, along with many others, though the record does not establish what trust this might be.”

The Court also is not shy. It also takes on the notion that the borrower is not entitled to know the identity of the creditor or principal and that the borrower only has a right to know the identity of the servicer. This of course is patently absurd argument. If it were true anyone could assert they were the servicer and you could not look behind that assertion to determine its veracity.

“MERS insists that borrowers need only know the identity of the servicers of their loans. However, there is considerable reason to believe that servicers will not or are not in a position to negotiate loan modifications or respond to similar requests. See generally Diane E. Thompson, Foreclosing Modifications: How Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 755 (2011); Dale A. Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It, 37 Pepp. L. Rev. 737, 757-58 (2010). Lack of transparency causes other problems. See generally U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) (noting difficulties in tracing ownership of the note).”

And lastly, about making the rules up as you along, and moving the goal posts around, the Court challenges the argument and rejects the MERS position that the parties are free to contract as they choose despite any statutory language. Specifically the question what is what is the definition of a beneficiary. In Washington as in other states, the definitions of the Act apply to all transactions described and there is no room for anyone to change the law by contract. “Despite its ubiquity, we have found no case—and MERS draws our attention to none—where this common statutory phrase has been read to mean that the parties can alter statutory provisions by contract, as opposed to the act itself suggesting a different definition might be appropriate for a specific statutory provision.”

And again corroborating my work and manuals on the livinglies store. the Court finally addresses for the first time that I am aware, the essential reason why all this is so important. It is the auction itself and the acceptance of the credit bid from a non-creditor. Besides the challenges as to whether the substitution of trustee and instructions to trustee are valid, nobody can claim title suddenly born as a result of a “transfer” or assignment” or other document from MERS, an entity that had specifically claimed any interest in the obligation. The Court concludes that you either have the proof of being the actual creditor to whom the obligation is owed, in which case you can submit a credit bid if it is properly secured, or you must pay cash.

“Other portions of the deed of trust act bolster the conclusion that the legislature meant to define “beneficiary” to mean the actual holder of the promissory note or other debt instrument. In the same 1998 bill that defined “beneficiary” for the first time, the legislature amended RCW 61.24.070 (which had previously forbidden the trustee alone from bidding at a trustee sale) to provide:
(1) The trustee may not bid at the trustee’s sale. Any other person, including the beneficiary, may bid at the trustee’s sale.
(2) The trustee shall, at the request of the beneficiary, credit toward the beneficiary’s bid all or any part of the monetary obligations secured by the deed of trust. If the beneficiary is the purchaser, any amount bid by the beneficiary in excess of the amount so credited shall
18
Bain (Kristin), et al. v. Mortg. Elec. Registration Sys., et al., No. 86206-1
be paid to the trustee in the form of cash, certified check, cashier’s check, money order, or funds received by verified electronic transfer, or any combination thereof. If the purchaser is not the beneficiary, the entire bid shall be paid to the trustee in the form of cash, certified check, cashier’s check, money order, or funds received by verified electronic transfer, or any combination thereof. Laws of 1998, ch. 295, § 9, codified as RCW 61.24.070. As Bain notes, this provision makes little sense if the beneficiary does not hold the note.”

Thus this court has now left open the possibility of challenging wrongful foreclosures both in equity and at law for damages (slander of title etc.) It would be hard to believe that Washington State Attorneys won’t pounce on this opportunity to do some good for their clients and themselves.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , | 21 Comments »

Pensioners Will Feel the Pinch from Illegal Mortgages and Foreclosures

Posted on May 30, 2012 by Neil Garfield

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Editor’s Comment:

There are many people whose opinion produces the resistance of government to rip up the banks that got us into this economic mess. They all say government is too big, that we already have too much regulation and that Obama is the cause of the recession. Their opinions are based largely on the fact that they perceive the borrowers as deadbeats and government assistance as another “handout.” 

But when it comes down to it, it’s easy to make a decision based upn ideology if the consequences are not falling on you. Read any news source and you will see that the pension funds are taking a huge hit as a rsult of illegal bank activities and fraudulent practices leaving the victims and our economy in a lurch.

The article below is about public pensions where the pension funds and the governmental units took a monumental hit when the banks sucked the life out of our economy. TRANSLATION: IF YOU DEPEND UPON PENSION INCOME YOU ARE LIKELY TO FIND OUT YOU ARE SCREWED. And even if you don’t depend upon pension income, you are likely to be taxed for the shortfall that is now sitting in the pockets of Wall Street Bankers.

Think about it. If the Banks were hit hard like they were in Iceland andother places (and where by the way they still exist and make money) then your pension fund would not have the loss that requires either more taxes or less benefits. And going after the banks doesn’t take a dime out of pulic funds which should (but doesn’t) make responsible people advocating austerity measures rejoice. They still say they don’t like the obvious plan of getting restitution from thieves because the theives are paying them and feeding them talking points. And some of us are listening. Are you?

Public Pensions Faulted for Bets on Rosy Returns

By: Mary Williams Walsh and Danny Hakim

Few investors are more bullish these days than public pension funds. While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called “indefensible.”

Now public pension funds across the country are facing a painful reckoning. Their projections look increasingly out of touch in today’s low-interest environment, and pressure is mounting to be more realistic. But lowering their investment assumptions, even slightly, means turning for more cash to local taxpayers — who pay part of the cost of public pensions through property and other taxes.

In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent, which would be one of the sharpest reductions by a public pension fund in the United States. But that change would mean finding an additional $1.9 billion for the pension system every year, a huge amount for a city already depositing more than a tenth of its budget — $7.3 billion a year — into the funds.

But to many observers, even 7 percent is too high in today’s market conditions.

“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.” Public retirement systems from Alaska to Maine are running into the same dilemma as they struggle to lower their assumed rates of return in light of very low interest rates and unpredictable stock prices.

They are facing opposition from public-sector unions, which fear that increased pension costs to taxpayers will further feed the push to cut retirement benefits for public workers. In New York, the Legislature this year cut pensions for public workers who are hired in the future, and around the country governors and mayors are citing high pension costs as a reason for requiring workers to contribute more, or work longer, to earn retirement benefits.

In addition to lowering the projected rate of return, Mr. North has also recommended that the New York City trustees acknowledge that city workers are living longer and reporting more disabilities — changes that would cost the city an additional $2.8 billion in pension contributions this year. Mr. North has called for the city to soften the blow to the budget by pushing much of the increased pension cost into the future, by spreading the increased liability out over 22 years. Ailing pension systems have been among the factors that have recently driven struggling cities into Chapter 9 bankruptcy. Such bankruptcies are rare, but economists warn that more are likely in the coming years. Faulty assumptions can mask problems, and municipal pension funds are often so big that if they run into a crisis their home cities cannot afford to bail them out. The typical public pension plan assumes its investments will earn average annual returns of 8 percent over the long term, according to the Center for Retirement Research at Boston College. Actual experience since 2000 has been much less, 5.7 percent over the last 10 years, according to the National Association of State Retirement Administrators. (New York State announced last week that it had earned 5.96 percent last year, compared with the 7.5 percent it had projected.)

Worse, many economists say, is that states and cities have special accounting rules that have been criticized for greatly understating pension costs. Governments do not just use their investment assumptions to project future asset growth. They also use them to measure what they will owe retirees in the future in today’s dollars, something companies have not been permitted to do since 1993.

As a result, companies now use an average interest rate of 4.8 percent to calculate their pension costs in today’s dollars, according to Milliman, an actuarial firm.

In New York City, the proposed 7 percent rate faces resistance from union trustees who sit on the funds’ boards. The trustees have the power to make the change; their decision must also be approved by the State Legislature.

“The continued risk here is that even 7 is too high,” said Edmund J. McMahon, a senior fellow at the Empire Center for New York State Policy, a research group for fiscal issues.

And Jeremy Gold, an actuary and economist who has been an outspoken critic of public pension disclosures, said, “If you’re using 7 percent in a 3 percent world, then you’re still continuing to borrow from the pension fund.” The city’s union leaders disagree. Harry Nespoli, the chairman of the Municipal Labor Committee, the umbrella group for the city’s public employee unions, said that lowering the rate to 7 percent was unnecessary.

“They don’t have to turn around and lower it a whole point,” he said.

When asked if his union was more bullish on the markets than the city’s actuary, Mr. Nespoli said, “All we can do is what the actuary is doing. He’s guessing. We’re guessing.”

Vermont has lowered its rate by 2 percentage points, but for only one year. The state recently adopted an unusual new approach calling for a sharp initial reduction in its investment assumptions, followed by gradual yearly increases. Vermont has also required public workers to pay more into the pension system.

Union leaders see hidden agendas behind the rising calls for lower pension assumptions. When Rhode Island’s state treasurer, Gina M. Raimondo, persuaded her state’s pension board to lower its rate to 7.5 percent last year, from 8.25 percent, the president of a firemen’s union accused her of “cooking the books.”

Lowering the rate to 7.5 percent meant Rhode Island’s taxpayers would have to contribute an additional $300 million to the fund in the first year, and more after that. Lawmakers were convinced that the state could not afford that, and instead reduced public pension benefits, including the yearly cost-of-living adjustments that retirees now receive. State officials expect the unions to sue over the benefits cuts.

When the mayor of San Jose, Calif., Chuck Reed, warned that the city’s reliance on 7.5 percent returns was too risky, three public employees’ unions filed a complaint against him and the city with the Securities and Exchange Commission. They told the regulators that San Jose had not included such warnings in its bond prospectus, and asked the regulators to look into whether the omission amounted to securities fraud. A spokesman for the mayor said the complaint was without merit. In Sacramento this year, Alan Milligan, the actuary for the California Public Employees’ Retirement System, or Calpers, recommended that the trustees lower their assumption to 7.25 percent from 7.75 percent. Last year, the trustees rejected Mr. Milligan’s previous proposal, to lower the rate to 7.5 percent.

This time, one trustee, Dan Dunmoyer, asked the actuary if he had calculated the probability that the pension fund could even hit those targets.

Yes, Mr. Milligan said: There was a 50-50 chance of getting 7.5 percent returns, on average, over the next two decades. The odds of hitting a 7.25 percent target were a little better, he added, 54 to 46.

Mr. Dunmoyer, who represents the insurance industry on the board, sounded shocked. “To me, as a fiduciary, you want to have more than a 50 percent chance of success.”

If Calpers kept setting high targets and missing them, “the impact on the counties won’t be bigger numbers,” he said. “It will be bankruptcy.”

In the end, a majority decided it was worth the risk, and voted against Mr. Dunmoyer, lowering the rate to 7.5 percent.


Filed under: foreclosure | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 12 Comments »

FRAUD: The Significance of the Game Changing FHFA Lawsuits

Posted on September 15, 2011 by Neil Garfield

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FHFA ACCUSES BANKS OF FRAUD: THEY KNEW THEY WERE LYING

“FHFA has refrained from sugar coating the banks’ alleged conduct as mere inadvertence, negligence, or recklessness, as many plaintiffs have done thus far.  Instead, it has come right out and accused certain banks of out-and-out fraud.  In particular, FHFA has levied fraud claims against Countrywide (and BofA as successor-in-interest), Deutsche Bank, J.P. Morgan (including EMC, WaMu and Long Beach), Goldman Sachs, Merrill Lynch (including First Franklin as sponsor), and Morgan Stanley (including Credit Suisse as co-lead underwriter).  Besides showing that FHFA means business, these claims demonstrate that the agency has carefully reviewed the evidence before it and only wielded the sword of fraud against those banks that it felt actually were aware of their misrepresentations.”

It is no stretch to say that Friday, September 2 was the most significant day for mortgage crisis litigation since the onset of the crisis in 2007.  That Friday, the Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac, sued almost all of the world’s largest banks in 17 separate lawsuits, covering mortgage backed securities with original principal balances of roughly $200 billion.  Unless you’ve been hiking in the Andes over the last two weeks, you have probably heard about these suits in the mainstream media.  But here at the Subprime Shakeout, I like to dig a bit deeper.  The following is my take on the most interesting aspects of these voluminous complaints (all available here) from a mortgage litigation perspective.

Throwing the Book at U.S. Banks

The first thing that jumps out to me is the tenacity and aggressiveness with which FHFA presents its cases.  In my last post (Number 1 development), I noted that FHFA had just sued UBS over $4.5 billion in MBS.  While I noted that this signaled a shift in Washington’s “too-big-to-fail” attitude towards banks, my biggest question was whether the agency would show the same tenacity in going after major U.S. banks.  Well, it’s safe to say the agency has shown the same tenacity and then some.

FHFA has refrained from sugar coating the banks’ alleged conduct as mere inadvertence, negligence, or recklessness, as many plaintiffs have done thus far.  Instead, it has come right out and accused certain banks of out-and-out fraud.  In particular, FHFA has levied fraud claims against Countrywide (and BofA as successor-in-interest), Deutsche Bank, J.P. Morgan (including EMC, WaMu and Long Beach), Goldman Sachs, Merrill Lynch (including First Franklin as sponsor), and Morgan Stanley (including Credit Suisse as co-lead underwriter).  Besides showing that FHFA means business, these claims demonstrate that the agency has carefully reviewed the evidence before it and only wielded the sword of fraud against those banks that it felt actually were aware of their misrepresentations.

Further, FHFA has essentially used every bit of evidence at its disposal to paint an exhaustive picture of reckless lending and misleading conduct by the banks.  To support its claims, FHFA has drawn from such diverse sources as its own loan reviews, investigations by the SEC, congressional testimony, and the evidence presented in other lawsuits (including the bond insurer suits that were also brought by Quinn Emanuel).  Finally, where appropriate, FHFA has included successor-in-interest claims against banks such as Bank of America (as successor to Countrywide but, interestingly, not to Merrill Lynch) and J.P. Morgan (as successor to Bear Stearns and WaMu), which acquired potential liability based on its acquisition of other lenders or issuers and which have tried and may in the future try to avoid accepting those liabilities.    In short, FHFA has thrown the book at many of the nation’s largest banks.

FHFA has also taken the virtually unprecedented step of issuing a second press release after the filing of its lawsuits, in which it responds to the “media coverage” the suits have garnered.  In particular, FHFA seeks to dispel the notion that the sophistication of the investor has any bearing on the outcome of securities law claims – something that spokespersons for defendant banks have frequently argued in public statements about MBS lawsuits.  I tend to agree that this factor is not something that courts should or will take into account under the express language of the securities laws.

The agency’s press release also responds to suggestions that these suits will destabilize banks and disrupt economic recovery.  To this, FHFA responds, “the long-term stability and resilience of the nation’s financial system depends on investors being able to trust that the securities sold in this country adhere to applicable laws. We cannot overlook compliance with such requirements during periods of economic difficulty as they form the foundation for our nation’s financial system.”  Amen.

This response to the destabilization argument mirrors statements made by Rep. Brad Miller (D-N.C.), both in a letter urging these suits before they were filed and in a conference call praising the suits after their filing.  In particular, Miller has said that failing to pursue these claims would be “tantamount to another bailout” and akin to an “indirect subsidy” to the banking industry.  I agree with these statements – of paramount importance in restarting the U.S. housing market is restoring investor confidence, and this means respecting contract rights and the rule of law.   If investors are stuck with a bill for which they did not bargain, they will be reluctant to invest in U.S. housing securities in the future, increasing the costs of homeownership for prospective homeowners and/or taxpayers.

You can find my recent analysis of Rep. Miller’s initial letter to FHFA here under Challenge No. 3.  The letter, which was sent in response to the proposed BofA/BoNY settlement of Countrywide put-back claims, appears to have had some influence.

Are Securities Claims the New Put-Backs?

The second thing that jumps out to me about these suits is that FHFA has entirely eschewed put-backs, or contractual claims, in favor of securities law, blue sky law, and tort claims.  This continues a trend that began with the FHLB lawsuits and continued through the recent filing by AIG of its $10 billion lawsuit against BofA/Countrywide of plaintiffs focusing on securities law claims when available.  Why are plaintiffs such as FHFA increasingly turning to securities law claims when put-backs would seem to benefit from more concrete evidence of liability?

One reason may be the procedural hurdles that investors face when pursuing rep and warranty put-backs or repurchases.  In general, they must have 25% of the voting rights for each deal on which they want to take action.  If they don’t have those rights on their own, they must band together with other bondholders to reach critical mass.  They must then petition the Trustee to take action.  If the Trustee refuses to help, the investor may then present repurchase demands on individual loans to the originator or issuer, but must provide that party with sufficient time to cure the defect or repurchase each loan before taking action.  Only if the investor overcomes these steps and the breaching party fails to cure or repurchase will the investor finally have standing to sue.

All of those steps notwithstanding, I have long argued that put-back claims are strong and valuable because once you overcome the initial procedural hurdles, it is a fairly straightforward task to prove whether an individual loan met or breached the proper underwriting guidelines and representations.  Recent statistical sampling rulings have also provided investors with a shortcut to establishing liability – instead of having to go loan-by-loan to prove that each challenged loan breached reps and warranties, investors may now use a statistically significant sample to establish the breach rate in an entire pool.

So, what led FHFA to abandon the put-back route in favor of filing securities law claims?  For one, the agency may not have 25% of the voting rights in all or even a majority of the deals in which it holds an interest.  And due to the unique status of the agency as conservator and the complex politics surrounding these lawsuits, it may not have wanted to band together with private investors to pursue its claims.

Another reason may be that the FHFA has had trouble obtaining loan files, as has been the case for many investors.  These files are usually necessary before even starting down the procedural path outlined above, and servicers have thus far been reluctant to turn these files over to investors.  But this is even less likely to be the limiting factor for FHFA.  With subpoena power that extends above and beyond that of the ordinary investor, the government agency may go directly to the servicers and demand these critical documents.  This they’ve already done, having sent 64 subpoenas to various market participants over a year ago.  While it’s not clear how much cooperation FHFA has received in this regard, the numerous references in its complaints to loan level reviews suggest that the agency has obtained a large number of loan files.  In fact, FHFA has stated that these lawsuits were the product of the subpoenas, so they must have uncovered a fair amount of valuable information.

Thus, the most likely reason for this shift in strategy is the advantage offered by the federal securities laws in terms of the available remedies.  With the put-back remedy, monetary damages are not available.  Instead, most Pooling and Servicing Agreements (PSAs) stipulate that the sole remedy for an incurable breach of reps and warranties is the repurchase or substitution of that defective loan.  Thus, any money shelled out by offending banks would flow into the Trust waterfall, to be divided amongst the bondholders based on seniority, rather than directly into the coffers of FHFA (and taxpayers).  Further, a plaintiff can only receive this remedy on the portion of loans it proves to be defective.  Thus, it cannot recover its losses on defaulted loans for which no defect can be shown.

In contrast, the securities law remedy provides the opportunity for a much broader recovery – and one that goes exclusively to the plaintiff (thus removing any potential freerider problems).  Should FHFA be able to prove that there was a material misrepresentation in a particular oral statement, offering document, or registration statement issued in connection with a Trust, it may be able to recover all of its losses on securities from that Trust.  Since a misrepresentation as to one Trust was likely repeated as to all of an issuers’ MBS offerings, that one misrepresentation can entitle FHFA to recover all of its losses on all certificates issued by that particular issuer.

The defendant may, however, reduce those damages by the amount of any loss that it can prove was caused by some factor other than its misrepresentation, but the burden of proof for this loss causation defense is on the defendant.  It is much more difficult for the defendant to prove that a loss was caused by some factor apart from its misrepresentation than to argue that the plaintiff hasn’t adequately proved causation, as it can with most tort claims.

Finally, any recovery is paid directly to the bondholder and not into the credit waterfall, meaning that it is not shared with other investors and not impacted by the class of certificate held by that bondholder.  This aspect alone makes these claims far more attractive for the party funding the litigation.  Though FHFA has not said exactly how much of the $200 billion in original principal balance of these notes it is seeking in its suits, one broker-dealer’s analysis has reached a best case scenario for FHFA of $60 billion flowing directly into its pockets.

There are other reasons, of course, that FHFA may have chosen this strategy.  Though the remedy appears to be the most important factor, securities law claims are also attractive because they may not require the plaintiff to present an in-depth review of loan-level information.  Such evidence would certainly bolster FHFA’s claims of misrepresentations with respect to loan-level representations in the offering materials (for example, as to LTV, owner occupancy or underwriting guidelines), but other claims may not require such proof.  For example, FHFA may be able to make out its claim that the ratings provided in the prospectus were misrepresented simply by showing that the issuer provided rating agencies with false data or did not provide rating agencies with its due diligence reports showing problems with the loans.  One state law judge has already bought this argument in an early securities law suit by the FHLB of Pittsburgh.  Being able to make out these claims without loan-level data reduces the plaintiff’s burden significantly.

Finally, keep in mind that simply because FHFA did not allege put-back claims does not foreclose it from doing so down the road.  Much as Ambac amended its complaint to include fraud claims against JP Morgan and EMC, FHFA could amend its claims later to include causes of action for contractual breach.  FHFA’s initial complaints were apparently filed at this time to ensure that they fell within the shorter statute of limitations for securities law and tort claims.  Contractual claims tend to have a longer statute of limitations and can be brought down the road without fear of them being time-barred (see interesting Subprime Shakeout guest post on statute of limitations concerns.

Predictions

Since everyone is eager to hear how all this will play out, I will leave you with a few predictions.  First, as I’ve predicted in the past, the involvement of the U.S. Government in mortgage litigation will certainly embolden other private litigants to file suit, both by providing political cover and by providing plaintiffs with a roadmap to recovery.  It also may spark shareholder suits based on the drop in stock prices suffered by many of these banks after statements in the media downplaying their mortgage exposure.

Second, as to these particular suits, many of the defendants likely will seek to escape the harsh glare of the litigation spotlight by settling quickly, especially if they have relatively little at stake (the one exception may be GE, which has stated that it will vigorously oppose the suit, though this may be little more than posturing).  The FHFA, in turn, is likely also eager to get some of these suits settled quickly, both so that it can show that the suits have merit with benchmark settlements and also so that it does not have to fight legal battles on 18 fronts simultaneously.  It will likely be willing to offer defendants a substantial discount against potential damages if they come to the table in short order.

Meanwhile, the banks with larger liability and a more precarious capital situation will be forced to fight these suits and hope to win some early battles to reduce the cost of settlement.  Due to the plaintiff-friendly nature of these claims, I doubt many will succeed in winning motions to dismiss that dispose entirely of any case, but they may obtain favorable evidentiary rulings or dismissals on successor-in-interest claims.  Still, they may not be able to settle quickly because the price tag, even with a substantial discount, will be too high.

On the other hand, trial on these cases would be a publicity nightmare for the big banks, not to mention putting them at risk a massive financial wallop from the jury (fraud claims carry with them the potential for punitive damages).  Thus, these cases will likely end up settling at some point down the road.  Whether that’s one year or four years from now is hard to say, but from what I’ve seen in mortgage litigation, I’d err on the side of assuming a longer time horizon for the largest banks with the most at stake.

Article taken from The Subprime Shakeout – www.subprimeshakeout.com
URL to article: the-government-giveth-and-it-taketh-away-the-significance-of-the-game-changing-fhfa-lawsuits.html

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SPECTRE OF FRAUD OF ALL TYPES HAUNTING BOFA, CITI, CHASE, WELLS ET AL

Posted on August 6, 2011 by Neil Garfield

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New York AG Schneiderman Comes out Swinging at BofA, BoNY
Posted By igradman On August 5, 2011 (4:28 pm) In Attorneys General

This is big.  Though we’ve seen leading indicators over the last few weeks that New York Attorney General Eric Schneiderman might get involved in the proposed Bank of America settlement over Countrywide bonds, few expected a response that might dynamite the entire deal.  But that’s exactly what yesterday’s filing before Judge Kapnick could do.

Stating that he has both a common law and a statutory interest “in protecting the economic health and well-being of all investors who reside or transact business within the State of New York,” Schneiderman’s petition to intervene takes a stance that’s more aggressive than that of any of the other investor groups asking for a seat at the table.

Rather than simply requesting a chance to conduct discovery or questioning the methodology that was used to arrive at the settlement, the AG’s petition seeks to intervene to assert counterclaims against Bank of New York Mellon for persistent fraud, securities fraud and breach of fiduciary duty.

Did you say F-f-f-fraud?  That’s right.  The elephant in the room during the putback debates of the last three years has been the specter of fraud.  Sure, mortgage bonds are performing abysmally and the underlying loans appears largely defective when investors are able to peek under the hood, but did the banks really knowingly mislead investors or willfully obstruct their efforts to remedy these problems?  Schneiderman thinks so.  He accuses BoNY of violating:

Executive Law § 63(12)’s prohibition on persistent fraud or illegality in the conduct of business: the Trustee failed to safeguard the mortgage files entrusted to its care under the Governing Agreements, failed to take any steps to notify affected parties despite its knowledge of violations of representations and warranties, and did so repeatedly across 530 Trusts. (Petition to Intervene at 9)

By calling out BoNY for failing to enforce investors’ repurchase rights or help investors enforce those rights themselves, the AG has turned a spotlight on the most notoriously uncooperative of the four major RMBS Trustees.  Of course, all of the Trustees have engaged in this type of heel-dragging obstructionism to some degree, but many have softened their stance.

since investors started getting more aggressive in threatening legal action against them.  BoNY, in addition to remaining resolute in refusing to aid investors, has now gone further in trying to negotiate a sweetheart deal for Bank of America without allowing all affected investors a chance to participate.  This has drawn the ire of the nation’s most outspoken financial cop.

And lest you think that the NYAG focuses all of his vitriol on BoNY, Schneiderman says that BofA may also be on the hook for its conduct, both before and after the issuance of the relevant securities.  The Petition to Intervene states that:

Countrywide and BoA face liability for persistent illegality in:
(1) repeatedly breaching representations and warranties concerning loan quality;
(2) repeatedly failing to provide complete mortgage files as it was required to do under the Governing Agreements; and
(3) repeatedly acting pursuant to self-interest, rather than
investors’ interests, in servicing, in violation of the Governing Agreements. (Petition to Intervene at 9)

Though Countrywide may have been the culprit for breaching reps and warranties in originating these loans, the failure to provide loan files and the failure to service properly post-origination almost certainly implicates the nation’s largest bank.  And lest any doubts remain in that regard, the AG’s Petition also provides, “given that BoA negotiated the settlement with BNYM despite BNYM’s obvious conflicts of interest, BoA may be liable for aiding and abetting BNYM’s breach of fiduciary duty.” (Petition at 7) So much for Bank of America’s characterization of these problems as simply “pay[ing] for the things that Countrywide did.”

As they say on late night infomercials, “but wait, there’s more!”  In a step that is perhaps even more controversial than accusing Countrywide’s favorite Trustee of fraud, the AG has blown the cover off of the issue of improper transfer of mortgage loans into RMBS Trusts.  This has truly been the third rail of RMBS problems, which few plaintiffs have dared touch, and yet the AG has now seized it with a vice grip.

In the AG’s Verified Pleading in Intervention (hereinafter referred to as the “Pleading,” and well worth reading), Schneiderman pulls no punches in calling the participating banks to task over improper mortgage transfers.  First, he notes that the Trustee had a duty to ensure proper transfer of loans from Countrywide to the Trust.  (Pleading ¶23).  Next, he states that, “the ultimate failure of Countrywide to transfer complete mortgage loan documentation to the Trusts hampered the Trusts’ ability to foreclose on delinquent mortgages, thereby impairing the value of the notes secured by those mortgages. These circumstances apparently triggered widespread fraud, including BoA’s fabrication of missing documentation.”  (Id.)  Now that’s calling a spade a spade, in probably the most concise summary of the robosigning crisis that I’ve seen.

The AG goes on to note that, since BoNY issued numerous “exception reports” detailing loan documentation deficiencies, it knew of these problems and yet failed to notify investors that the loans underlying their investments and their rights to foreclose were impaired.  In so doing, the Trustee failed to comply with the “prudent man” standard to which it is subject under New York law.  (Pleading ¶¶28-29)

The AG raises all of this in an effort to show that BoNY was operating under serious conflicts of interest, calling into question the fairness of the proposed settlement.  Namely, while the Trustee had a duty to negotiate the settlement in the best interests of investors, it could not do so because it stood to receive “direct financial benefits” from the deal in the form of indemnification against claims of misconduct.  (Petition ¶¶15-16) And though Countrywide had already agreed to indemnify the Trustee against many such claims, Schneiderman states that, “Countrywide has inadequate resources” to provide such indemnification, leading BoNY to seek and obtain a side-letter agreement from BofA expressly guaranteeing the indemnification obligations of Countrywide and expanding that indemnity to cover BoNY’s conduct in negotiating and implementing the settlement.  (Petition ¶16)  That can’t be good for BofA’s arguments that it is not Countrywide’s successor-in-interest.

I applaud the NYAG for having the courage to call this conflict as he sees it, and not allowing this deal to derail his separate investigations or succumbing to the political pressure to water down his allegations or bypass “third rail” issues.  Whether Judge Kapnick will ultimately permit the AG to intervene is another question, but at the very least, this filing raises some uncomfortable issues for the banks involved and provides the investors seeking to challenge the deal with some much-needed backup.  In addition, Schneiderman has taken pressure off of the investors who have not yet opted to challenge the accord, by purporting to represent their interests and speak on their behalf.  In that regard, he notes that, “[m]any of these investors have not intervened in this litigation and, indeed, may not even be aware of it.” (Pleading ¶12).

As for the investors who are speaking up, many could take a lesson from the no-nonsense language Schneiderman uses in challenging the settlement.  Rather than dancing around the issue of the fairness of the deal and politely asking for more information, the AG has reached a firm conclusion based on the information the Trustee has already made available: “THE PROPOSED SETTLEMENT IS UNFAIR AND INADEQUATE.” (Pleading at II.A)  Tell us how you really feel.

[Author’s Note: Though the proposed BofA settlement is certainly a landmark legal proceeding, there is plenty going on in the world of RMBS litigation aside from this case. While I have been repeatedly waylaid in my efforts to turn to these issues by successive major developments in the BofA case, I promise a roundup of recent RMBS legal action in the near future.  Stay tuned…]

Article taken from The Subprime Shakeout – http://www.subprimeshakeout.com

 

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 36 Comments »

New Workshop on Motion Practice and Discovery

Posted on May 6, 2010 by Neil Garfield

why-you-should-attend-the-discovery-and-motion-practice-workshop

VISIT LIVINGLIES STORE FOR FREE VIDEOS AND OTHER RESOURCES

START WINNING CASES!!

May 23-24, 2010 2 days. 9am-5pm. Neil F Garfield. CLE credits pending but not promised. Register Now. Seating limited to 18. INCLUDES LUNCH AND EXTENSIVE MANUAL OF FORMS, NARRATIVE AND CASES. An in-depth look at securitized residential mortgages and deeds of trust. Latest cases on standing, nominees, splitting note from security instrument, bankruptcy strategies, expert declarations, forensic analysis reports.

Lawyers, paralegals, experts, forensic analysts will all benefit from this. This workshop includes monthly follow-up teleconferences and continuing on-going support with advance copies of articles, cases and analysis.

  1. STRATEGIC REVIEW: WHY THESE CASES ARE BEING WON AND LOST IN MOTION PRACTICE.
  2. SECURITIZATION REVIEW
  3. USE OF FORENSIC REPORTS AND EXPERT DECLARATIONS
  4. RAISING QUESTIONS OF FACT IN CREDIBLE MANNER
  5. SETTING UP AN EVIDENTIARY HEARING
  6. FOLLOW THE MONEY
  7. OBLIGATION, NOTE, BOND, MORTGAGE, DEED OF TRUST ANALYSIS
  8. TILA, RESPA, QWR, DVL AND RESCISSION — WHY JUDGES DON’T LIKE TILA RESCISSION AND HOW TO OVERCOME THEIR RESISTANCE.
  9. NOTICE OF DEFAULT, TRUSTEE, STANDING, REAL PARTY IN INTEREST EXAMINED AND REVIEWED
  10. INVESTORS, REMICS, TRUSTS, TRUSTEES, BORROWERS, CREDITORS, DEBTORS, HOMEOWNERS
  11. FACT EVIDENCE ON MOTIONS
  12. FORENSIC EVIDENCE ON MOTION
  13. EXPERT EVIDENCE ON MOTION
  14. ORAL ARGUMENT
  15. WHAT TO FILE
  16. WHEN TO FILE
  17. EMERGENCY MOTIONS — MOTION TO LIFT STAY, MOTION TO DISMISS, TEMPORARY RESTRAINING ORDERS, MOTION TO COMPEL DISCOVERY
  18. DISCOVERY: INTERROGATORIES, WHAT TO ASK FOR, HOW TO ASK FOR IT AND HOW TO ENFORCE IT. REQUESTS TO PRODUCE. REQUESTS FOR ADMISSIONS. DEPOSITIONS UPON WRITTEN QUESTIONS.
  19. FEDERAL PROCEDURE
  20. STATE PROCEDURE
  21. BANKRUPTCY PROCEDURE
  22. ETHICS, BUSINESS PLANS, AND PRACTICAL CONSIDERATIONS

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Trustee May Not Delegate But Usually Does

Posted on April 27, 2010 by Neil Garfield

Most “Trustees” or Substitute Trustees get a package from some unknown source with everything already prepared and instructions to proceed. That is the exact opposite of the protections intended by the legislature in this statute under Arizona law. Your state is probably the same.

33-803.01. Trustee of trust deed; delegation of duties

A. A trustee shall not delegate the following duties:

1. The preparation and execution of any of the following:

(a) The notice of trustee sale.

(b) The cancellation of notice of sale.

(c) The trustee’s deed upon sale.

2. The receipt and response to requests for reinstatement or payoff amounts.

B. This section does not prohibit the trustee from using clerical or office staff employed by the trustee and under the trustee’s direct and immediate supervision to assist in the duties prescribed by subsection A.

Filed under: CORRUPTION, Eviction, expert witness, foreclosure, Forensic Analysis Workshop, GTC | Honor, HERS, Investor, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop | Tagged: , , , , , , , , , | Leave a comment »

Moral Hazard in Non-Judicial Sale: Trustee commits violations of FDCPA and other statutes!

Posted on April 11, 2010 by Neil Garfield

From Eaine B

Editor’s Note: I have long advocated sending letters, objections to sale and complaints against “trustees” named (or substituted) on deeds of trust who initiate foreclosure proceedings. Indeed, it is highly probable that because of statutes attempting to protect the trustee from liability, the trustee is at best usually named only as a nominal party in a lawsuit challenging the legality of the non-judicial sale, demanding the identity and contact information of the creditor and getting a full accounting from the real creditor.

I would argue that this reader’s comment is more on target than they even know. Because that is the point — knowledge. If the “trustee” knowingly proceeds when it KNOWS there is a question of title, a question of who is the creditor, and knows that this loan was sold to third parties that have not been disclosed to the Trustor nor the Trustee, then the trustee is more than a nominal party, to wit: they are a co-venturer in a  fraudulent scheme.

Typically non-judicial action commences under a “substitute trustee”.  One would ask why it was necessary to call in a “substitute trustee” from the bullpen, when the current one is just fine. The only possible answer is that the old trustee either doesn’t want any part of this, or won’t do it without following industry standards to confirm ownership etc. It would seem fairly obvious that if the existing trustee is still in business and continues to qualify as a trustee, the only rational reason to change trustees is because the actors wish to do business with people who won’t ask questions.

Often the “substitution of trustee” is backdated, undated or dated after the notice of sale, notice of default etc., so there is a simple procedural angle to set back the sale if you are actually reading the documents, and getting a title report.

More substantively, the “substitute trustee” is granted that position by a party who in all probability does not have the power to grant it — but that requires a forensic analysis, title report, and probably a lawsuit to establish. For example, if some person unknown to MERS assumes the title of “assistant Vice president of Mortgage Electronic Registration Systems” and signs the substitution of trustee or any other document, they probably lack the power to do so, or they lack the documentation showing they have the power to do so.

This actually runs to the core of moral hazard in non-judicial states. Anyone who knows you have missed payments, could file a “substitution of Trustee” document in the county records, send you a notice of default, notice of sale and sell your property to the highest bidder — all BEFORE your real servicer (who we know is only a pretender lender) even knows about it. It is a scam waiting to happen. The scammer then takes the money and runs. Meanwhile you have most likely given up and left the house so it is now abandoned. This scenario can only happen in non-judicial states, where the statute authorizing a non-judicial foreclosure sale ASSUMES that the right party is doing the right thing under proper authority.

When mortgages were simple, and securitization was only an idea, the opportunity for abuse in non-judicial states was present but generally controllable because your true lender had control of the loan, they knew when you were delinquent, and they would be in touch with you, during which time it might come out that you had already received a notice of sale from a “substitute trustee.”

In the world of securitization where the potential real parties in interest are almost infinite in number, where the credit report is used rather than the title report, and where various layers of companies are used to create plausible deniability, insulation from liability and the ability to move things around “off-balance sheet” or “off record” at the county recorder’s office, the potential for abuse is practically infinite. And true to form, my experience is that virtually every foreclosure in a non-judicial state contains at least the taint of this abuse and often facially shows the failure to use proper documentation.

Comment submitted by Eaine B—–

Trustee commits violations of Fair Debt Collections Practice Act!
A good cause of action against Northwest Trustee Services Inc, Routh Crabtree Olsen PS is that I have found they sell your private information to the public. Go to http://www.usa-foreclosoure.com and find your foreclosure….then buy for $39.00 a copy of the title report that is supposed to be private between the trustee and the beneficiary. Any public person can order your report online. This is mail and interstate violations. Make a complaint to the Bar association, and the FTC and your state Attorney General.
Call the title company on the top of the form and ask them. Then perhaps you can file a suit against Routh Crabtree Olsen and Northwest Trustee Services Inc for violations of 15 USC 1692 Fair Debt Collection Practices Act violation. It’s triple damages. Most likely they will have sent you a letter from Routh Crabtree Olsen. One I got even quotes the 15 USC 1692. So obviously THEY know about it. The owner of Routh, Crabtree and Olsen is Stephen Routh and Lance Olsen. Routh has various companies in AK, MT, AZ, CA etc. Just look at the list on the various web sites. http://www.usa-foreclosure.com has the same address as Routh Crabtree Olsen and Northwest Trustee Services and as Routh in AK.
Also, the process serving company that they use is owned by them.

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