Predominant Interest Defines “True Lender”

Based on the totality of the circumstances, the Court concludes that CashCall, not Western Sky, was the true lender. CashCall, and not Western Sky, placed its money at risk. It is undisputed that CashCall deposited enough money into a reserve account to fund two days of loans, calculated on the previous month’s daily average and that Western Sky used this money to fund consumer loans. It is also undisputed CashCall purchased all of Western Sky’s loans, and in fact paid Western Sky more for each loan than the amount actually financed by Western Sky. Moreover, CashCall guaranteed Western Sky a minimum payment of $100,000 per month, as well as a $10,000 monthly administrative fee. Although CashCall waited a minimum of three days after the funding of each loan before purchasing it, it is undisputed that CashCall purchased each and every loan before any payments on the loan had been made. CashCall assumed all economic risks and benefits of the loans immediately upon assignment. CashCall bore the risk of default as well as the regulatory risk. Indeed, CashCall agreed to “fully indemnify Western Sky Financial for all costs arising or resulting from any and all civil, criminal or administrative claims or actions, including but not limited to fines, costs, assessments and/or penalties . . . [and] all reasonable attorneys fees and legal costs associated with a defense of such claim or action.”

Accordingly, the Court concludes that the entire monetary burden and risk of the loan program was placed on CashCall, such that CashCall, and not Western Sky, had the predominant economic interest in the loans and was the “true lender” and real party in interest. [E.S.]

See 8-31-2016-cfpb-v-cash-call-us-dist-ct-cal

Federal District Court Judge John Walter appears to be the first Judge in the nation to drill down into the convoluted “rent-a-bank” (his term, not mine) schemes in which the true lender was hidden from borrowers who then executed documents in favor of an entity that was not in the business of lending them money. This decision hits the bulls eye on the importance of identifying the true lender. Instead of blindly applying legal presumptions under the worst conditions of trustworthiness, this Judge looked deeply at the flawed process by which the “real lender” was operating.

A close reading of this case opens the door to virtually everything I have been writing about on this blog for 10 years. The court also rejects the claim that the documents can force the court to accept the law or venue of another jurisdiction. But the main point is that the court rejected the claim that just because the transactions were papered over doesn’t mean that the paper meant anything. Although it deals with PayDay loans the facts and law are virtually identical to the scheme of “securitization fail” (coined by Adam Levitin).

Those of you who remember my writings about the step transaction doctrine and the single transaction doctrine can now see how substance triumphs over form. And the advice from Eric Holder, former Attorney General under Obama, has come back to mind. He said go after the individuals, not just the corporations. In this case, the Court found that the CFPB case had established liability for the individuals who were calling the shots.

SUMMARY of FACTS: CashCall was renting the name of two banks in order to escape appropriate regulation. When those banks came under pressure from the FDIC, CashCall changed the plan. They incorporated Western Sky on the reservation of an an Indian nation and then claimed they were not subject to normal regulation. This was important because they were charging interest rates over 100% on PayDay loans.

That fact re-introduces the reality of most ARM, teaser and reverse amortization loans — the loans were approved with full knowledge that once the loan reset the homeowner would not be able to afford the payments. That was the plan. Hence the length of the loan term was intentionally misstated which increases the API significantly when the fees, costs and charges are amortized over 6 months rather than 30 years.

Here are some of the salient quotes from the Court:

CashCall paid Western Sky the full amount disbursed to the borrower under the loan agreement plus a premium of 5.145% (either of the principal loan amount or the amount disbursed to the borrower). CashCall guaranteed Western Sky a minimum payment of $100,000 per month, as well as a $10,000 monthly administrative fee. Western Sky agreed to sell the loans to CashCall before any payments had been made by the borrowers. Accordingly, borrowers made all of their loan payments to CashCall, and did not make a single payment to Western Sky. Once Western Sky sold a loan to CashCall, all economic risks and benefits of the transaction passed to CashCall.

CashCall agreed to reimburse Western Sky for any repair, maintenance and update costs associated with Western Sky’s server. CashCall also reimbursed Western Sky for all of its marketing expenses and bank fees, and some, but not all, of its office and personnel costs. In addition, CashCall agreed to “fully indemnify Western Sky Financial for all costs arising or resulting from any and all civil, criminal or administrative claims or actions, including but not limited to fines, costs, assessments and/or penalties . . . [and] all reasonable attorneys fees and legal costs associated with a defense of such claim or action.”

Consumers applied for Western Sky loans by telephone or online. When Western Sky commenced operations, all telephone calls from prospective borrowers were routed to CashCall agents in California.

A borrower approved for a Western Sky loan would electronically sign the loan agreement on Western Sky’s website, which was hosted by CashCall’s servers in California. The loan proceeds would be transferred from Western Sky’s account to the borrower’s account. After a minimum of three days had passed, the borrower would receive a notice that the loan had been assigned to WS Funding, and that all payments on the loan should be made to CashCall as servicer. Charged-off loans were transferred to Delbert Services for collection.

“[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied, . . ., unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.”
Restatement § 187(2). The Court concludes that the CRST choice-of-law provision fails both of these tests, and that the law of the borrowers’ home states applies to the loan agreements.

after reviewing all of the relevant case law and authorities cited by the parties, the Court agrees with the CFPB and concludes that it should look to the substance, not the form, of the transaction to identify the true lender. See Ubaldi v. SLM Corp., 852 F. Supp. 2d 1190, 1196 (N.D. Cal. 2012) (after conducting an extensive review of the relevant case law, noting that, “where a plaintiff has alleged that a national bank is the lender in name only, courts have generally looked to the real nature of the loan to determine whether a non-bank entity is the de facto lender”); Eastern v. American West Financial, 381 F.3d 948, 957 (9th Cir. 2004) (applying the de facto lender doctrine under Washington state law, recognizing that “Washington courts consistently look to the substance, not the form, of an allegedly usurious action”); CashCall, Inc. v. Morrisey, 2014 WL 2404300, at *14 (W.Va. May 30, 2014) (unpublished) (looking at the substance, not form, of the transaction to determine if the loan was usurious under West Virginia law); People ex rel. Spitzer v. Cty. Bank of Rehoboth Beach, Del., 846 N.Y.S.2d 436, 439 (N.Y. App. Div. 2007) (“It strikes us that we must look to the reality of the arrangement and not the written characterization that the parties seek to give it, much like Frank Lloyd Wright’s aphorism that “form follows function.”).4 “In short, [the Court] must determine whether an animal which looks like a duck, walks like a duck, and quacks like a duck, is in fact a duck.” In re Safeguard Self-Storage Trust, 2 F.3d 967, 970 (9th Cir. 1993). [Editor Note: This is akin to my pronouncement in 2007-2009 that the mortgages and notes were invalid because they might just as well have named Donald Duck as the payee, mortgagee or beneficiary. Naming a fictional character does not make it real.]

In identifying the true or de facto lender, courts generally consider the totality of the circumstances and apply a “predominant economic interest,” which examines which party or entity has the predominant economic interest in the transaction. See CashCall, Inc. v. Morrisey, 2014 WL 2404300, at *14 (W.D. Va. May 30, 2014) (affirming the lower court’s application of the “predominant economic interest” test to determine the true lender, which examines which party has the predominant economic interest in the loans); People ex rel. Spitzer v. Cty. Bank of Rehoboth Beach, Del., 846 N.Y.S.2d 436, 439 (N.Y. App. Div. 2007) (“Thus, an examination of the totality of the circumstances surrounding this type of business association must be used to determine who is the ‘true lender,’ with the key factor being ‘who had the predominant economic interest’ in the transactions.); cf. Ga. Code Ann. § 16-17-2(b)(4) (“A purported agent shall be considered a de facto lender if the entire circumstances of the transaction show that the purported agent holds, acquires, or maintains a predominant economic interest in the revenues generated by the loan.”).

Although a borrower electronically signed the loan agreement on Western Sky’s website, that website was, in fact, hosted by CashCall’s servers in California. While Western Sky performed loan origination functions on the Reservation, the Court finds these contacts are insufficient to establish that the CRST had a substantial relationship to the parties or the transaction, especially given that CashCall funded and purchased all of the loans and was the true lender. Cf. Ubaldi v. SLM Corp., 2013 WL 4015776, at *6 (N.D. Cal. Aug. 5, 2013) (“If Plaintiffs’ de facto lender allegations are true, then Oklahoma does not have a substantial relationship to Sallie Mae or Plaintiffs or the loans.”).

The Court concludes that the CFPB has established that the Western Sky loans are void or uncollectible under the laws of most of the Subject States.7 See CFPB’s Combined Statement of Facts [Docket No. 190] (“CFPB’s CSF”) at ¶¶ 147 – 235. Indeed, CashCall has admitted that the interest rates that it charged on Western Sky loans exceeded 80%, which substantially exceeds the maximum usury limits in Arkansas, Colorado, Minnesota, New Hampshire, New York, and North Carolina. (Arkansas’s usury limit is 17%; Colorado’s usury limit is 12%; Minnesota’s usury limit is 8%; New Hampshire’s usury limit is 36%; New York’s usury limit is 16%; and North Carolina’s usury limit is 8%). A violation of these usury laws either renders the loan agreement void or relieves the borrower of the obligation to pay the usurious charges. In addition, all but one of the sixteen Subject States (Arkansas) require consumer lenders to obtain a license before making loans to consumers who reside there. Lending without a license in these states renders the loan contract void and/or relieves the borrower of the obligation to pay certain charges. CashCall admits that, with the exception of New Mexico and Colorado, it did not hold a license to make loans in the Subject States during at least some of the relevant time periods.

Based on the undisputed facts, the Court concludes that CashCall and Delbert Services engaged in a deceptive practice prohibited by the CFPA. By servicing and collecting on Western Sky loans, CashCall and Delbert Services created the “net impression” that the loans were enforceable and that borrowers were obligated to repay the loans in accordance with the terms of their loan agreements. As discussed supra, that impression was patently false — the loan agreements were void and/or the borrowers were not obligated to pay.

The Court concludes that the false impression created by CashCall’s and Delbert Services’ conduct was likely to mislead consumers acting reasonably under the circumstances

The Court concludes that Reddam is individually liable under the CFPA.

“An individual may be liable for corporate violations if (1) he participated directly in the deceptive acts or had the authority to control them and (2) he had knowledge of the misrepresentations, was recklessly indifferent to the truth or falsity of the misrepresentation, or was aware of a high probability of fraud along with an intentional avoidance of the truth.” Consumer Fin. Prot. Bureau v. Gordon, 819 F.3d 1179, 1193 (9th Cir. 2016) (quotations and citations omitted).

The Court concludes that Reddam both participated directly in and had the authority to control CashCall’s and Delbert Services’ deceptive acts. Reddam is the founder, sole owner, and president of CashCall, the president of CashCall’s wholly-owned subsidiary WS Funding, and the founder, owner, and CEO of Delbert Services. He had the complete authority to approve CashCall’s agreement with Western Sky and, in fact, approved CashCall’s purchase of the Western Sky loans. He signed both the Assignment Agreement and the Service Agreement on behalf of WS Funding and CashCall. In addition, as a key member of CashCall’s executive team, he had the authority to decide whether and when to transfer delinquent CashCall loans to Delbert Services.


So all that said, here is what I wrote to someone who was requesting my opinion: Don’t use this unless and until you (a) match up the facts and (b) confer with counsel:

Debtor initially reported that the property was secured because of (a) claims made by certain parties and (b) the lack of evidence to suggest or believe that the property was not secured. Based upon current information and a continuous flow of new information it is apparent that the originator who was named on the note and deed of trust in fact did not loan any money to petitioner. This is also true as to the party who would be advanced as the “table funded” lender. As the debtor understands the applicable law, if the originator did not actually complete the alleged loan contract by actually making a loan of money, the executed note and mortgage should never have been released, much less recorded. A note and mortgage should have been executed in favor of the “true lender” (see attached case) and NOT the originator, who merely served as a conduit or the conduit who provided the money to the closing table.

Based upon current information, debtor’s narrative of the case is as follows:

  1. an investment bank fabricated documents creating the illusion of a proprietary common law entity
  2. the investment bank used the form of a trust to fabricate the illusion of the common law entity
  3. the investment bank named itself as the party in control under the label “Master Servicer”
  4. the investment bank then created the illusion of mortgage backed securities issued by the proprietary entity named in the fabricated documents
  5. the investment bank then sold these securities under various false pretenses. Only one of those false pretenses appears relevant to the matter at hand — that the proceeds of sale of those “securities” would be used to fund the “Trust” who would then acquire existing mortgage loans. In fact, the “Trust” never became active, never had a bank account, and never had any assets, liabilities or business. The duties of the Trustee never arose because there was nothing in the Trust. Without a res, there is no trust nor any duties to enforce against or by the named “Trustee.”
  6. the investment bank then fabricated documents that appeared facially valid leading to the false conclusion that the Trust acquired loans, including the Petitioner’s loan. Without assets, this was impossible. None of the documents provided by these parties show any such purchase and sale transaction nor any circumstances in which money exchanged hands, making the Trust the owner of the loans. Hence the Trust certainly does not own the subject loan and has no right to enforce or service the loan without naming an alternative creditor who does have ownership of the debt (the note and mortgage being void for lack of completion of the loan contract) and who has entered into a servicing agreement apart from the Trust documents, which don’t apply because the Trust entity was ignored by the parties seeking now to use it.
  7. The money from investors was diverted from the Trusts who issued the “mortgage backed securities” to what is known as a “dynamic dark pool.” Such a pool is characterized by the inability to select both depositors and beneficiaries of withdrawal. It is dynamic because at all relevant times, money was being deposited and money was being withdrawn, all at the direction of the investment bank.
  8. What was originally perceived as a loan from the originator was in fact something else, although putting a label to it is difficult because of the complexity and convolutions used by the investment bank and all of its conduits and intermediaries. The dark pool was not an entity in any legals sense, although it was under the control of the investment bank.
  9. Hence the real chain of events for the money trail is that the investment bank diverted funds from its propriety trust and used part of the funds from investors to fund residential mortgage loans. The document trail is very different because the originator and the conduits behind what might be claimed a “table funded loan” were not in privity with either the investors or the investment bank. Hence it is clear that some liability arose in which the Petitioner owed somebody money at the time that the Petitioner received money or the benefits of money paid on behalf of the Petitioner. That liability might be framed in equity or at law. But in all events the mortgage or deed of trust was executed by the Petitioner by way of false representations about the identity of the lender and false representations regarding the compensation received by all parties, named or not,
  10. The current parties seek to enforce the deed of trust on the false premise that they have derived ownership of the debt, loan, note or mortgage (deed of trust). Their chain is wholly dependent upon whether the originator actually completed the loan contract by loaning the money to the Petitioner. That did not happen; thus the various illusions created by endorsements and assignments convey nothign because the note and mortgage (deed of trust) were in fact void. They were void because the debt was never owned by the originator. hence the signing of the note makes it impossible to merge the debt with the note — an essential part of making the note a legally enforceable negotiable instrument. The mortgage securing performance under the note is equally void since it secures performance of a void instrument. Hence the property is unsecured, even if there is a “John Doe” liability for unjust enrichment, if the creditor can be identified.
  11. The entire thrust of the claims of certain self-proclaimed creditors rests upon reliance on legal presumptions attached to facially valid documents. These same entities have been repeatedly sanctioned, fined and ordered to correct their foreclosure procedures which they have failed and refused to do — because the current process is designed to compound the original theft of investors’ money with the current theft of the debt itself and the subsequent theft of the house, free from claims of either the investors or the homeowner. The investment bank and the myriad of entities that are circulated as if they had powers or rights over the loan, is seeking in this case, as in all other cases in which it has been involved, to get a court judgment or any order that says they own the debt and have the right to enforce the evidence of the debt (note and mortgage).
  12. A Judgment or forced sale is the first legal document in their entire chain of fabricated documentation; but the entry of such a document in public records, creates the presumption, perhaps the conclusive presumption that all prior acts were valid. It is the first document that actually has a legal basis for being in existence. This explains the sharp decline in “workouts’ which have dominated the handling of distressed properties for centuries. Workouts don’t solve the problem for those who have been acting illegally. They must pursue a court order or judgment that appears to ratify all prior activities, legal or not.


The True Lender Issue May Be An Open Door Now



In an article published by Morgan, Lewis & Bockius LLP, it appears that the evasive true lender argument received new life in an ancillary proceeding before a Federal District Judge in California. By holding that a tribal bank originating loans for a non-bank lender was not a “true lender.” The effects on foreclosure litigation are obvious. Most loans were originated by parties acting not as banks but as sales organizations or mortgage brokers. The money came from an entity created to mask the fact that the funding for the loan came from a dark pool of investor money instead of either a bank lender or a non bank lender. Hence the “table-funded” lender was not a lender any more than the originator.

In this case the finding of the court means that usury laws apply which might be something to look at especially in adjustable rate mortgage loan papers executed in favor of a non-lender who was acting on behalf of a non-lender and certainly nobody in the alleged chain was acting in its capacity as a bank lender unless they actually made the loan. remedies for usury law violations range widely among the states. In some, the remedy is loss of the debt and three times the debt in statutory damages.

The most important part of this decision as I see it is that if a party has no risk or money in the loan, then it is not a lender.

The ultimate effect of this decision might well bring down the foreclosure marketplace. If the originator and the party behind the curtain were not bank lenders, then they might not be lenders at all. Hence transfers from parties who were neither bank lenders nor nonbank lenders might have stumbled into the ultimate argument that the loan contract was never consummated. to schedule CONSULT, leave message or make payments. Or call 202-838-6345

California Court Weighs in on “True Lender” Issue as CFPB Expands its UDAAP Enforcement Authority

Thursday, September 8, 2016

In a significant decision, on August 31, the US District Court for the Central District of California held that a tribal bank originating loans for a non-bank lender was not the “true lender”—making the loans subject to state usury limits.


In December 2013, the Consumer Financial Protection Bureau (CFPB) commenced litigation against CashCall (a payday lender in a partnership with a tribal bank) and other defendants, claiming that they had violated the federal law prohibition on unfair, deceptive, or abusive acts or practices (UDAAP) for financial services providers by servicing and collecting on loans that were wholly or partially void or uncollectible under state law.

The CFPB alleged that

  • CashCall (a non-bank payday lender) and not the tribal bank that partnered with CashCall was the “true lender” because only CashCall had money at risk;
  • there was no reasonable basis for the choice of tribal law as the governing law for the loan contract and, therefore, in the absence of an effective contractual choice-of-law provision, the law of the borrower’s state governed the contracts;
  • because the loan contracts charged interest rates in excess of the usury limits in the sixteen states identified by the CFPB, the contracts were wholly or partially void and/or uncollectible under applicable state law in those states;
  • therefore, by collecting on the loan contracts and attempting to collect on the same, CashCall’s actions were deceptive and violated the federal UDAAP statute.

The court granted the CFPB’s motion for partial summary judgment on all four elements of its liability theory.

This case is the latest in a number of cases brought against CashCall that have raised “true lender” questions and have caused uncertainty for marketplace lending and other non-bank lenders that use a bank partnership model for the origination of consumer loans. However, the court’s decision is particularly significant for a number of reasons, most notably the following:

  • The CFPB’s argument that a state law violation can be a predicate for a federal UDAAP violation represents a significant potential expansion of the agency’s authority. As the court noted, state law violations have been used, with some limitations, as predicates for finding deceptive practices violations of the Fair Debt Collection Practices Act’s prohibitions against misrepresenting the “legal status” (that is, the collectability) of a debt, which often depends on state law, but this appears to be the first significant application of that theory to the general Dodd-Frank Act UDAAP prohibition.
  • In deciding the “true lender” issue, the court essentially adopts the holding in CashCall, Inc. v. Morrisey, 2014 WL 2404300 (W.Va. May 30, 2014), a West Virginia state law case, holding that the proper test for determining the “true lender” is the “predominant economic interest” of the parties. Varying slightly from Morrisey, the court finds that the “key and most determinative factor” is whether the bank “placed its own money at risk at any time during the transactions, or whether the entire money burden and risk of the loan program was borne by CashCall.” Therefore, although the court uses the term predominant economic interest, the court’s holding could be read to establish that the bank does not have to have more economic interest in the transaction than the non-bank partner. Rather, the bank would be found to be a “true lender” if the bank has any of its own funds at risk for any period of time.
  • The court dismisses without comment the holdings in other federal cases that looked to the contractual relationships between the parties to determine the “true lender,” such as Sawyer v. Bill Me Later, Inc., 23 F. Supp. 3d 1359 (D. Utah 2014).
  • Typically, “true lender” issues are raised by private litigants or state regulatory authorities tasked with enforcing state law. In this case, the CFPB, a federal agency that has no apparent authority to enforce state law, has used state law as a predicate for a federal law violation.
  • According to the court, CashCall relied on the advice of counsel that the tribal bank partnership did not require CashCall to obtain state lending licenses or subject the loans to state laws. However, reliance on counsel did not absolve CashCall—or its CEO and owner—from liability for the UDAAP statute and other violations.

Key Takeaways

The combination of using state law as a predicate for a UDAAP violation and rejection of the advice of counsel defense makes this decision noteworthy. The legal theory implicit in the CFPB’s approach is that, in attempting to collect a debt, a creditor makes an implied representation that that debt is enforceable or, conversely, a material omission that the debt is unenforceable. In rejecting the advice of counsel defense, the CFPB successfully took the position that the objective falsity of this implied representation or omission is “deceptive” in violation of the UDAAP statute regardless of the creditor’s subjective belief that the debt was collectible. Under that combination of theories, a creditor’s failure to “disclose” any violation of state law that the CFPB concludes is “material”—even if the creditor reasonably believes that its practices comply with state law—may give rise to a federal “deception” charge.

One can expect the CFPB to use a similar “bootstrap” approach to relying on other state law violations as a predicate to its UDAAP enforcement authority in future litigation, and reliance on the advice of counsel regarding state law compliance will not afford a consumer financial services provider a safe harbor from accusations of wrongdoing by the CFPB. Given the CFPB’s active and aggressive approach to UDAAP enforcement, consumer financial services providers would be well-advised to evaluate their state law compliance programs and scrutinize very closely bank partnership models. We also believe that other federal agencies such as the Federal Trade Commission (FTC) and Federal Communications Commission (FCC), which have longstanding authority similar to the CFPB’s UDAAP authority, could view this decision as judicial encouragement to exercise their authority in this space as well.

The decision presumably will be appealed to the US Court of Appeals for the Ninth Circuit, where CashCall’s prospects for success are unknown at this time.

Copyright © 2016 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

NY Judges Slamming Debt Collectors

Eltman, Eltman & Cooper was one of 35 law firms sued last July by the state, which claimed that they had improperly obtained more than 100,000 judgments in consumer-debt cases. Editor’s notes: The dubious “enforcement” of mortgages, notes and “obligations (that have been paid many times over through credit enhancement) is both mirrored and amplified in the debt collection industry. Servicers are merely debt collectors since they are collecting for a third party. In an investigative report coming soon to these pages you will see that servicers are actually the “real trustee” for the investors, separate and apart from the Special Purpose Vehicle. But that is for later.

For now, before you slide into grief and shame over your financial condition, know this: the people hounding you for money are doing so in most cases illegally and Judges are reversing themselves across the country as they take a closer look at the the procedural tricks routinely employed by those who prey upon consumers with “debt” claims have that long since been extinguished, written off, repackaged into resecuritized asset backed securities, with even more credit swaps on top of the old ones.

In this article from the New York Times, the clarity of the scam is being revealed and unraveled. The ultimate conclusion of this mess will take years if not decades, to move us back to a state of equilibrium. In the meantime, the major piece of advice you will probably get from any consumer law advocate or attorney is this: don’t pay anyone unless you are sure you owe THEM the money. The question is not whether you owe money (i.e., the existence of the obligation), the question is the identity of the creditor and whether the obligation, without your knowledge was already paid in whole or in part by credit default swaps, other credit enhancement techniques, etc.


May 7, 2010

In New York, Some Judges Are Now Skeptical About Debt Collectors’ Claims


As New Yorkers have tumbled into credit card debt in large numbers during the great recession, bill collectors have inundated the courts to get what they say is due. In turn, the courts have issued hundreds of thousands of orders against residents. Some consumer groups argue that by doing so, the courts have become little more than an arm of the debt collection industry.

Now, a few judges in New York State are suggesting that they agree, at least in part, with the consumer groups. They have fumed at debt collectors and their lawyers, scolding them for interest as high as 30 percent a year and berating them for false statements and abusive practices.

Some of the rulings have even been sarcastic or incredulous. In December, a Staten Island judge said debt collectors seemed to think their lawsuits were taking place in a legal Land of Oz, where everyone was supposed to follow anticonsumer rules invented by some unseen debt-collection wizard.

Last month, a Manhattan appeals court threw out a credit card case, saying a debt collection company had sued the wrong person but pursued the case anyway.

“I think these judges are outraged at the status quo, and they’re trying to change it,” said Janet Ray Kalson, a Manhattan lawyer who is the chairwoman of a City Bar Association committee that has studied the deluge of credit card cases.

Debt-buyer businesses purchase debts — along with lists of names and amounts supposedly due — for pennies on the dollar from credit card companies and sometimes have no real evidence about whom they are suing or why. They then file tens of thousands of suits, often with little to back up their claims.

A Nassau County District Court judge said recently, for example, that one of New York City’s high-volume debt collection law firms, which has close ties to a debt-buying company, did not provide “a scintilla of evidence” that there was even a debt in a case against a Long Island woman.

The suit received an unusual amount of attention. The judge, Michael A. Ciaffa, said that it “regrettably, involves a veritable ‘perfect storm’ of mistakes, errors, misdeeds and improper litigation practices.” Judge Ciaffa said the law firm, Eltman, Eltman & Cooper, ignored court orders, made a “demonstrably false” assertion and harassed the woman for payment even after its suit was dismissed.

The case before Judge Ciaffa ended with an order that is far from typical in a credit card suit. The woman who had been sued, Patricia Bohnet, a bookkeeper and single mother, did not have to pay anything. But Eltman, Eltman & Cooper had to pay $14,800 in sanctions for violating ethical rules at least 18 times. Under the judge’s order, $4,800 is to go to Ms. Bohnet and the remainder to a state fund that works to reimburse clients for dishonest conduct by lawyers.

“They don’t care if you’re sick; they don’t care if you’re poor,” Ms. Bohnet said in an interview at her job in Woodmere. “Their only job is to collect money, and they’ll do it in any way possible.”

In response to questions, the law firm said in a written statement that Judge Ciaffa had not had all the facts but that the firm would not appeal. “As with any firm or business that handles this type of volume,” it added, “there exists a potential for errors or omissions in the normal course of business.”

Eltman, Eltman & Cooper was one of 35 law firms sued last July by the state, which claimed that they had improperly obtained more than 100,000 judgments in consumer-debt cases. Separate files in Federal District Court in Brooklyn show that without admitting fault, the Eltman law firm settled a class-action suit in 2006 that claimed it used “false, misleading and deceptive means” to collect debts.

Privately, some judges say they are embarrassed that in many New York courts, debt-collection lawyers have grown so comfortable that they give the impression they are in charge of the proceedings and do not need prove their claims with strong evidence.

In the recent pro-consumer rulings, skepticism of the debt collectors’ claims has been obvious. A Civil Court judge in Brooklyn, Noach Dear, has written decisions that come close to saying that the collection cases are sometimes based on falsehoods.

In a case in August, Judge Dear observed that there was nothing to substantiate a lawyer’s claim that she somehow remembered mailing a document to the credit card holder that was the foundation of the collection suit. The document, Judge Dear noted archly, had been mailed three and a half years earlier.

Behind the legalese of the credit card suits, some judges have suggested, there is often a disorganized jumble of documentation. A Mount Vernon City Court judge noted that one case was based on little more than “a self-serving computer printout.” A Manhattan judge said one company that bought debt claims from credit card companies had filed suit against a cardholder although it did not own that particular debt.

In the Staten Island case, the judge, Philip S. Straniere, said a credit card company was claiming interest of 28 percent on the balance due, which would be illegal as usury under New York law. The company argued that the credit card issued to a New Yorker that seemed to be from a national company had actually been issued by a one-branch bank in Utah, which had no usury law.

“Like the Land of Oz, run by a Wizard who no one has ever seen,” Judge Straniere wrote, “the Land of Credit Cards permits consumers to be bound by agreements they never sign, agreements they may never have received, subject to change without notice and the laws of a state other than those existing where they reside.”

The judge ruled that the supposed agreement allowing unlimited interest charges was not enforceable in New York.

Industry officials said that tales of abusive collection cases were misleading. “There are certainly colorful stories,” said Joann Needleman, an officer of the National Association of Retail Collection Attorneys. “People think that handful is the rule, not the exception, but it’s not.”

But Ms. Bohnet, the Long Island woman who was sued by a New York law firm, said just one case could be harrowing. When she received a call last year at the charity where she keeps the books for $39,000 a year, the voice on the other end told her the debt collectors had a five-year-old court judgment against her for a $4,861 debt. She had to pay, or they would start taking money out of her salary, she said she was told.

The address of the debt-collection firm and its lawyers at Eltman, Eltman & Cooper seemed to be the same, she noticed.

Ms. Bohnet did not know she had ever been sued. She started to cry, she said, worried that with a chunk of money taken every month, she might lose the modest apartment she needed to share custody of her teenage daughter.

“I was in all-out fear,” she said, adding, “After I got off the phone, I realized I didn’t even know what the debt was for.” She might have had an old credit card debt, but she had had some years of problems with alcohol and drugs and tangled financial problems. In recovery, she said, she had worked to clean up her financial affairs.

The next time the collectors called, she said, she told them that she was willing to pay if she owed any money but that she needed to see some proof that they had the right person. Then, without a lawyer, she went to the court, in Hempstead, to check into the order the debt collectors said they had against her.

After some digging, she found the case. The debt-buyer’s lawyers had filed a sworn statement that they said was proof she had been given notice of the suit. A process server for Eltman, Eltman & Cooper claimed she had been given a copy of the suit personally on July 30, 2004.

Judge Ciaffa doubted that. Ms. Bohnet, he wrote, “hadn’t lived at that address since 1998.”


Submitted by Charles Cox, apparently from public domain

Article by Christopher Story to be published by Economic Intelligence Review

conflict of interest inherent in the sponsor also serving as the servicer constitutes fraud and conversion. In the fourth place, in all ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations where the Special Purpose Vehicle [SPV] is a trust, the declaration of trust is void, as it exists for an illegal purpose.

The specific R.I.C.O. sections are: Section 1341 (mail fraud); Section 1343 (wire fraud); Section 1344 (financial institution fraud); Section 1957 (engaging in monetary transactions improperly derived from specified unlawful activity) [‘the money you make from the illegal exploitation of my money, is my money’]; and Section 1952 (racketeering).

Illusory promises are not valid consideration for a contract. Such promises may be found in the Subscription/Purchase Agreement, whereby an existing asset is being exchanged for a future asset that does not exist as of the date of the subscription/purchase agreement. To make matters worse, none of the agreements typically signed by the investor as part of his/her purchase of the Special Purpose Vehicle’s Asset-Backed Securities expressly incorporates the (typically illusory) promises embodied in the offering prospectus.


Securitisation is illegal under US legislation – primarily because it is fraudulent and causes specific violations of R.I.C.O., usury, Antitrust and bankruptcy laws. And it flies in the face of public policy in numerous ways, as is expounded in extensive detail in an analysis to be published in our journal Economic Intelligence Review 2009Q1 (7) with several pages of book, article and case references.

To begin with, securitisation violates US State usury legislation. Secondly, all ‘true-sale’, ‘disguised loan’ as well as ‘assignment’ securitisations are essentially tax evasion schemes, and the penalties for tax evasion in the United States are excessively severe.

Thirdly, in all ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations, the conflict of interest inherent in the sponsor also serving as the servicer constitutes fraud and conversion. In the fourth place, in all ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations where the Special Purpose Vehicle [SPV] is a trust, the declaration of trust is void, as it exists for an illegal purpose.

In the fifth place, off-balance sheet treatment of asset-backed securities (both for ‘true-sale’ and for assignment transactions) constitutes fraud.

Sixth, all ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations involve blatant fraudulent conveyances. In the seventh place, securitisation usurps United States bankruptcy laws and is accordingly illegal, as well as being also demonstrably contrary to public policy.

In ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations, there are fraudulent transactions which serve as ‘predicate acts’ under US Federal R.I.C.O. statutes.

The specific R.I.C.O. sections are: Section 1341 (mail fraud); Section 1343 (wire fraud); Section 1344 (financial institution fraud); Section 1957 (engaging in monetary transactions improperly derived from specified unlawful activity) [‘the money you make from the illegal exploitation of my money, is my money’]; and Section 1952 (racketeering).

Furthermore, securitisation constitutes violations of American antitrust statutes through market integration, syndicate collusion, price formation, vertical foreclosure, tying, price-fixing, predatory pricing, and the rigging of allocations.

Securitisation also involves void contracts, given the lack of consideration, illusory promises, the absence of any actual bargain, the absence of mutuality – and finally illegal subject matter and the contravention of public policy.

Securitisation is riddled with Fraudulent Transfer, Fraud in the Inducement, Fraud in Fact by Deceit, Theft by Deception (Fraudulent Concealment) and Fraudulent Conveyance: see the US securities regulations routinely breached in such activity, listed at the foot of this report and of most of these reports for THE PAST THREE YEARS, and other laws also routinely flouted in this context.

Yet notwithstanding such crystal-clear indications that securitisation is 100% ILLEGAL under US Law, as well as under Common Law generally (so that these findings are largely applicable in all Common Law countries), US authorities from the highest level downwards, financial institutions, intermediaries, Intelligence Power operatives and others are gearing up for what they doubtless hope will be intensified racketeering and trading activity with (corrupt) foreign counterparties.

This behaviour is being fine-tuned ‘as we speak’, despite the reality that the securitisation activity being planned and implemented violates innumerable US statutes in the manner we summarise above, and notwithstanding that such activity is contrary to public policy.

Indeed, it’s as though the Rule of Law did not exist. From the highest level of the US Treasury, the White House, the US State Department and the Central Intelligence Agency and its subsidiaries such as the lethal Office of Naval Intelligence (ONI), the mindset, intention and perverse primary objective has all along been to resume Fraudulent Finance based on securitisation, as quickly and as seamlessly as possible. No wonder the five criminal Presidents DEMANDED immunity from prosecution from the World Bank: did they arrange for key Justices (starting with the American Justice) at the World Court to receive pecuniary reward for granting them their demand?

From whichever angle securitisation is considered, it is ILLEGAL. For example, the contracts are themselves VOID. This is because the process of securitisation involves several contracts that are either signed simultaneously, or within a short timeframe – many of which are rendered void inter alia because there is no consideration in contracts used in effecting the securitisations.

Many such contracts involve unilateral executory undertakings containing illusory promises. A unilateral executory promise is not a consideration. Such promises typically include a promise made by the Special Purpose Vehicle to pay out periodic interest, whether contingent or non-contingent on whether the collateral pays cash interest.

Collateral-substitution agreements contain a promise whereby the sponsor agrees to substitute impaired collateral. An assignment agreement of future (not yet existing) collateral may well be deemed a unilateral executory promise by the sponsor.

Illusory promises are not valid consideration for a contract. Such promises may be found in the Subscription/Purchase Agreement, whereby an existing asset is being exchanged for a future asset that does not exist as of the date of the subscription/purchase agreement. To make matters worse, none of the agreements typically signed by the investor as part of his/her purchase of the Special Purpose Vehicle’s Asset-Backed Securities expressly incorporates the (typically illusory) promises embodied in the offering prospectus.

OR: The Special Purpose Vehicle’s promise to pay interest and/or dividends on Asset-Backed Securities ‘Interest-Onlys’, Preferreds and ‘Pincipal-Onlys’ are essentially illusory promises because the underlying collateral may not produce any cash flows at all: so there won’t be any interest/dividend payments.

Moreover the lack of mutuality characterising such contracts renders them null and void, by definition. In any such contract, each party must have firm control of the subject matter of the contract and the underlying assets (consideration), and there MUST be a direct contractual relationship between the parties concerned.

But this is not the case, especially as the Special Purpose Vehicle’s corporate documents (trust indentures or bylaws or articles of incorporation) may typically limit the right of each Asset-Back Security investor; while there is typically no mutuality at all between the Special Purpose Vehicle and the sponsor/originator, because both entities are essentially the same, and are controlled by the sponsor before and after the securitisation takes place.

In addition to their multiple violations of American State usury laws, all ‘true-sale’, ‘disguised loan’ and ‘assignment securitisations’ are essentially tax evasion arrangements. In the United States, the applicable tax evasion statute is the US Internal Revenue Code Section 7201 7 which reads: “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution”.

Under this statute and related case law, prosecutors must prove three elements beyond any reasonable doubt:

(1): The actus reus (the guilty conduct) – which consists of an affirmative act (not merely an omission or failure to act) that constitutes evasion or an attempt to evade either: (a) the assessment of a tax or (b) the payment of a tax.

(2): The mens rea or “mental” element of willfulness – the specific intent to violate an actually known legal duty. In the case of ‘true sale’ transactions, the tax evasion occurs because:

(a): The sponsor determines the price at which the collateral is transferred to the SPV, and hence, can arbitrarily lower/increase the price to avoid capital gains taxes – it being assumed here that the sponsor is a profit-maximising entity and will always act to minimise its tax liability and to avoid any tax assessment;

(b): The sponsor typically retains a ‘residual’ interest in the SPV in the form of IOs, POs and “junior piece”, which are typically taxed differently and on a different tax-basis compared with the original collateral: hence, the sponsor can lower the price of the collateral upon transfer to the SPV, and convert what would have been capital gains, into a non-taxable basis in the SPV “residual”;

(c): There is typically the requisite “intent” by the sponsor – evidenced by the arrangement of the transaction and the transfer of assets to the Special Purpose Vehicle;

(d): Before securitisation, collateral is typically reported in the sponsors’ financial statements at book value (that is, lower-of-cost-or-market: under both the US and the international accounting standards, loans and accounts receivable are typically not re-valued to market-value unless there has been some major impairment in value) which does not reflect true Market Values, and results in effective tax evasion on transfer of the collateral to the SPV, as any unrealised gain is not taxed;

(e): The actus reus is manifested by the execution of the securitisation transaction and transfer of assets to the SPV;

(f): The mens rea or specific intent is manifested by the elaborate arrangements implicit in securitisation transactions, the method of determination of the price of the collateral to be transferred to the SPV, the aims of securitisation, and the sponsor’s transfer of assets to the SPV;

(g): The unpaid tax liability consists of foregone tax on the capital gains from the collateral (the transaction is structured to avoid recognition of capital gains), and tax on any income from the collateral which is ‘converted’ into basis or other non-taxable forms;

(h): Income (from the collateral) that would have been taxable in the sponsor’s own financial statements, is converted into non-taxable basis in the form of the SPV’s Interest-Only (IO) and Principal-Only (PO) securities: part of the Interest-Spread (the difference between the SPV’s income and what it pays as interest and operating costs) is paid out to PO-holders, and this transforms interest into return-of-capital or just capital repayment, with no tax consequences. [Leaving aside the Ponzi scam dimension here – Ed.].

In cases of ‘disguised loan’ or ‘assignment’ securitisation transactions, tax evasion occurs:
(a): Because the sponsor determines the price at which the collateral is transferred to the SPV, and hence can lower/increase the price of the collateral to avoid capital gains taxes;

(b): Because the sponsor typically retains a ‘residual’ interest in the SPV which is normally taxed differently and on a different tax-basis compared to the original collateral: hence, the sponsor can lower the price upon transfer to the SPV, and convert what would have been capital gains, into non-taxable basis for tax purposes;

(c): Because the transfer of collateral to the SPV and the creation of Interest-Only and Principal-Only securities converts what would have been taxable capital gains into non-taxable basis;

(d): Because gain in the value of the collateral is not recognised for tax purposes, because there has not been any ‘sale’;

(e): Where the ABS is partly amortising, any capital gains are converted into interest payments;

(f): Because actus reus is manifested by the execution of the securitisation transaction and transfer of assets to the SPV;

(g): Because the mens rea or specific intent is manifested by the elaborate arrangements implicit in securitisation transactions, the objectives of securitisation and the sponsor’s transfer of assets to the Special Purpose Vehicle;

(h): Because the unpaid tax liability consists of tax on the capital gains from the transfer of the collateral (the transaction is structured to avoid recognition of a sale, whereas the transfer to the Special Purpose Vehicle is effectively a sale), and tax on any income from the collateral which is ‘converted’ into basis or other non-taxable forms, by securitisation.

Any transfer or conveyance of the assets of a debtor that is deemed to be made for the purposes of hindering, delaying or defrauding actual or potential creditors, may be determined by Courts to be a Fraudulent Conveyance under Section 548 of the US Bankruptcy Code or under a relevant theory of Constructive Fraud.

Although each US State has its own laws regarding the appropriate elements of proof of Constructive Fraud, Section 548(a)(2) of the US Bankruptcy Code permits an inference of Constructive Fraud if the following factors exist:

(1): The debtor received less than reasonably equivalent value for the property transferred; and:

(2): The debtor was insolvent or became insolvent as a result of the transfer, or else retained unreasonably small capital after the transfer, or made the transfer with the intent or belief that it would incur debts beyond its ability to pay.

The following theories of Fraudulent Conveyance within the context of securitisation may apply:

• Where the sponsor/originator receives insufficient value for assets transferred.

• Where there is an ‘intent to hinder, delay or defraud’ creditors (representing an implicit pre-petition waiver of one’s right to file for bankruptcy), with regard to the originator’s transfer of assets to the SPV, or the originator’s transfer of assets to the SPV has clearly not been undertaken on an arms’-length basis.

• Where securitisation increases the originator’s bankruptcy risk; and:

• In all instances where securitisation usurps the United States’ bankruptcy laws and is therefore illegal on such a basis alone.

Turning now to the reality that securitisation constitutes a violation of US Federal R.I.C.O. Statutes [see Legal Notes below], we can state without equivocation that the entire securitisation process constitutes violations of Federal R.I.C.O. statutes, because:

(1): There is the requisite criminal or civil ‘enterprise’ – consisting of the sponsor/issuer, the trustees and the intermediary bank. These three parties work closely together to effect the securitisation transaction.

(2): There are ‘predicate acts’ of:

(a): Mail fraud – using the mails for sending out materials among themselves and to investors.

(b): Wire fraud – using wires to engage in fraud by communicating with investors.

( c): Conversion – where there isn’t proper title to collateral.

(d): Deceit: misrepresentation of issues and facts pertaining to the securitisation transaction.

(e): Securities fraud: disclosure issues.

(f): It entails loss of profit opportunity.

(g): It involves the making of false statements and or misleading representations about the value of the collateral.

(h): It entails stripping the originator/issuer of the ability to pay debt claims or judgment claims in bankruptcy court – a state of affairs that may apply where the sponsor is financially distressed and the cash proceeds of the transaction are significantly less than the value of the collateral.

There is also typically the requisite ‘intent’ by members of the enterprise – evident in knowledge (actual and inferable), acts, omissions, purpose (actual and inferable) and results. Intent can be reasonably inferred from:

(a): The existence of a sponsor that seeks to raise capital – and cannot raise capital on better terms by other means;

(b): The participation of an investment bank that has very strong incentives to consummate the transaction on any agreeable (but not necessarily reasonable) terms.

Securitisation further constitutes violations of US Antitrust laws, because the American Asset-Backed Securities and Mortgage-Backed Securities markets are dominated by relatively few large entities such as FNMA (Fannie Mae), Freddie Mac, the top five investment banks (all of which have conduit programs), and the top five credit card issuers (MBNA, AMEX, Citigroup, etc.), etc.. As a consequence, the top five ABS/MBS issuers control more than 50% of the US ABS/MBS market. This constitutes illegal market concentration under US Antitrust legislation.

White Paper Declares Securitization Illegal

Title: SECURITIZATION IS ILLEGAL. see Securitization is Illegal
AUTHOR: MICHAEL NWOGUGU, Certified Public Accountant (Maryland, USA); B.Arch. (City College Of New York). MBA (Columbia University). Attended Suffolk Law School (Boston, USA). Address: P. O. Box 170002, Brooklyn, NY 11217, USA. Phone/Fax: 1-718-638- 6270.


Editor’s Note: I find this compelling. On the other hand there seems to be no political appetite, even in the judiciary to accept it as a whole. So it is up to each and every litigant to make their mark on this scheme so that in the end, the full truth is known.

You Are Not the Bad Guy



First of all if you look up the collections firm, mortgage servicer, or other party you will find dozens of entries on most firms about behavior that easily crosses the line from legal to illegal. Second of all they might have the wrong person (see article below). Third of all they probably have the wrong information even if they have the right information. So don’t be so scared of them.
Fourth — and this probably ought to be first — in a culture created by endless ads and product placement, where our consciousness has been switched from savings and prudence to credit and spending, where 30% interest is not usury, where $35 fees apply to $2 overdrafts, I challenge the core notion that the debt is or ever was valid. In plain language I know what the law says, but I also know what is right and wrong.
It is YOU who are the victim and it is THEM who are the predators and tricksters. I know the media, politicians and pundits say otherwise. They are wrong. So the point of this blog is to get you to give up the myth that this was somehow mostly your fault and see yourself as one of tens of millions of victims who seek justice. The laws say you have rights  — like usury where most states have a legal limit of interest which if violated invalidates the debt and entitles the debtor to treble damages. Yes there are exceptions but not these creditors and collectors do not qualify under the exceptions. They only win in collection or foreclosure if you don’t fight it out with them.

In most cases (actually nearly all cases) the creditor does not have the resources to do anything other than maintain a phone bank with people who have a script in front of them containing key words and phrases designed to scare the crap out of you. The credit card companies, the mortgage pretender lenders and servicers lack resources to sue everyone at once.

As you have seen on these pages there are a number of offensive and defensive strategies that can put the “collector” in hot water with fines and payment of damages to you for using improper tactics, withholding information (like the fact that your mortgage was paid several times over but they still want YOU to pay it again). Use the Debt validation Letter, the Qualified  Written request, complaints to FTC, FED, OTC etc. Send letters to consumer protection divisions of your state attorney general. report them to the economic crimes division of local police, sheriff and U.S. Attorney’s office. GO ON THE OFFENSIVE.

THE WALK AWAY STRATEGY: There are many reports of lawyers and other advisers suggesting that you simply walk away from the mountain of debt, move to another residence (the rent is bound to be far less expensive than the old carrying charges on the inflated value of the old house), and start over. They recommend that you maintain your phone number by switching services and that you pull the plug. So the collector only gets voice mail and confirmation that this is still your phone number. They recommend that you get a new unlisted number even under another person’s name if that is possible. And then start the march toward saving money, getting prepaid credit and debit cards and re-establishing a high credit score. It’s a lot less expensive than bankruptcy. After the statute of limitations has run they have no right to go after you even if it was a valid debt. This is the advice given by others. Livinglies has no comment.
November 29, 2009
About New York

Hello, Collections? The Worm Has Turned

The phone rang. A woman from a law firm representing a collection agency wanted to know if Mark Hoyte was Mark Hoyte, and he said he was. They were calling to collect $919 on a Sears-Citi card.

Mr. Hoyte said he never had that credit card.

Then the woman wanted to know if his Social Security number ended in 92, and Mr. Hoyte said no, it ended in 33.

“She says to me, ‘Your date of birth is in 1972,’ ” Mr. Hoyte, 46, recalled in an interview.

Clearly, they had the wrong Mark Hoyte. But that did not stop the lawyers at Pressler & Pressler from suing him. They swore out a complaint and sent a summons to Mr. Hoyte, ordering him to be in court last Monday.

Then things took a rare turn.

Every day of the year, 1,000 cases on average are added to the civil court dockets in New York City over credit card debt — a high-volume, low-accuracy moment of reckoning. The suits are usually brought by collection companies that purchase the debt for pennies on the dollar from card issuers and then work with a cadre of law firms that specialize in collection work.

Conducting a digital dragnet, they troll through commercial databases searching for debtors. Because of the vast sloppiness and fraud involved, Attorney General Andrew M. Cuomo has shut down two of the collection firms and is suing 35 law firms tied to the business.

A person who blows off a civil court summons — even if wrongly identified — faces a default judgment and frozen bank accounts. But to date, there have been few penalties against collectors for dragging the wrong people into court.

Until Mr. Hoyte turned up last week in Brooklyn.

After trying to settle the case in the hallway — the 11th floor of 141 Livingston Street is an open bazaar of haggling — the collections lawyer realized he had the wrong man. He got Mr. Hoyte to sign an agreement that would end the case against him, but not against the Mark Hoyte who actually owed the $919.

In front of the judge, the lawyer, T. Andy Wang, announced that the parties had reached a stipulation dismissing this Mr. Hoyte from the suit.

Not so fast, said the judge, Noach Dear.

“Why didn’t you check these things out before you take out a summons and a complaint?” Judge Dear asked. “Why don’t you check out who you’re going after?”

Mr. Wang said that Pressler & Pressler used an online database called AnyWho to hunt for debtors.

“So you just shoot in the dark against names; if there’s 16 Mark Hoytes, you go after without exactly knowing who, what, when and where?” Judge Dear asked.

Mr. Wang replied, “That’s why the plaintiff is making an application to discontinue.”

The judge turned to Mr. Hoyte, who works as a building superintendent, and asked him how much a day of lost pay would cost. Mr. Hoyte said $115.

“Do you think that’s fair?” Judge Dear asked Mr. Wang. “That he should lose a day’s pay?”

“My personal opinion,” Mr. Wang said, “would not be relevant to the application being sought.”

The judge said he was prepared to dismiss the case and wanted Mr. Hoyte compensated for lost wages.

“Your honor,” Mr. Wang said, “I’m personally not willing to compensate him.”

No, the judge said; he meant that the law firm, Pressler & Pressler — one of the biggest in the collection industry — should pay the $115. He would hold a sanctions hearing, a formal process of penalizing the law firm for suing the wrong man.

Under questioning by the judge, Mr. Hoyte recounted being called about the debt, providing his Social Security number and date of birth, and being summoned to court anyhow.

The collections lawyer then began to interrogate Mr. Hoyte.

“You claim you told Pressler & Pressler it wasn’t you,” Mr. Wang said to Mr. Hoyte. “Did you send them proof, as in a copy of your Social Security number with only the last four digits visible?”

“No,” Mr. Hoyte said. “They didn’t ask for it.”

“But you didn’t send any written proof of the claim that it was not you?” Mr. Wang said.

“I told them on the phone it’s not me,” Mr. Hoyte said.

Mr. Wang appeared outraged.

“So without any written proof that it’s not you, you would expect someone just, you know, to go on say-so?” he demanded. “Is that correct?”

Alice had reached Wonderland: The lawyer who had sued the wrong man was blaming the wrong man for getting sued.

Judge Dear cut off the questioning. He told Mr. Wang and Mr. Hoyte to come back to court in January.

“If, somehow, counsel, you decide that you’re going to compensate him for his time off,” Judge Dear said, “I will reconsider sanctions.”


Foreclosure Defense and Offense: USURY

It is a central point of the discussion on securitization that usury lies at the heart of every claim. Unfortunately many states have eliminated usury laws but still maintain maximum interest laws, which can be used to state that the loan violates the state law on the maximum interest that can be charged.

While the limits vary widely from 5% to 45%, the basic calculation is the same and produces the same results, to wit:
the real APR was not disclosed,
the interest charged was greater than state law permitted,
the intentionally inflated appraisal lifted the APR far above any disclosed or permissible limits on interest when amortized over the known and likely life of the loan and
no exemptions apply for “financial institutions” or other “licensed” (e.g. pawnbroker lending organizations because the real source of the loan in a table-funded loan was not only lacking a bank charter or lending license, they were most probably not registered to do business in the state.
The pattern of cheating the state out of the revenues for registration and evading the taxes and revenues to the state by not recording the alleged “assignments” of the loans despite state law to the contrary, demonstrates that the fraudulent scheme of tricking borrowers into signing papers they would not have signed if they were aware of the true facts so that their identities could be stolen and used to sell unregulated and fraudulent securities, but that the state was also a victim of this fraud.

As you will see below, there are approximately 29 states (**) in which usury can be alleged and another 5 (*) states where consumer protections exist by statute that can be alleged and argued in connection with mortgages and deeds of trust that ended up costing the homeowner his home and all his net worth, a fact that was well-known to the “experts” and “fiduciaries” that engineered the loan closing. Thus if it was obvious to everyone other than the borrower that at the first reset there was no ability to pay, THAT is the known and expected life of the loan and the costs, including the inflated appraisal are thus amortized over 6-24 months rather than 30 years. In most cases this will result in a cost of the loan far in excess of anything permitted by law.

The argument that a national charter or other protection will shield the loan transaction from this attack is completely specious. The protected entity acted not as a lender but merely rented its charter or license for the purpose of providing unregulated, unauthorized and illegal cover for an entity that lacked any authority to be in the  home loan business.

Many state’s laws provide that you cannot lend money at an interest rate in excess of a certain statutory maximum. This is a “usury limit.” Unless Otherwise Stated, The Rates Are Simple, Not Compound Interest. Further We Are Stating The **Present** Limits, the ones applicable at the time that this research was completed. Many states have had lower limits in the past. Further, in most states a late charge or other fee exacted from someone who owes another money is also counted as interest.

“But my car loan is higher than that”; “But I’m paying way more than that on my credit cards.” That’s right! Banks have separate rules. In fact, due to high inflation, in 1980, the federal government passed a special law which allowed national banks (the ones that have the word “national” or the term “N.A.” in their name, and savings banks that are
federally chartered) to ignore state usury limits and pegged the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers (like car financing companies) have their own rules.

The usury limit which is stated as the general usury limit is the rate that can be charged by one person or corporation to another, in other words, if you lend your next door neighbor $ 100.00, the rate stated is the limit. To charge more you must get a banking, pawnbroking, or whatever license. This also means that special kinds of loans, like
those from pawnbrokers or small loan companies are not stated.

In some states we also have a “legal rate.” In such states, as a general rule, if you have a contractual obligation that provides simply for interest without a specific term, or “interest at the highest legal rate” then the “legal rate” what applies.

In other instances we have stated a “judgment rate.” That’s the rate that final judgments bear. In states without a usury limit, there still may be a federally imposed limit because at certain astronomical rates of interest “loan sharking” will be inferred by the federal government.

Usury Is A Complicated Area Of Law. Transactions that a person would not consider to be affected by usury often are, for example, repurchase agreements, or sales with an option to repurchase are often found to be loans. A word of caution. Before trying to lend someone money or “invest” with a guaranteed return, see an attorney to make sure that you don’t run afoul of the usury laws. In state’s that specify one limit for consumers and one limit for non-consumers, you cannot avoid the usury limit by creating a sham business deal. In a supplement that is now being prepared and will be available soon, we will review the penalties for usury in each state and point out special circumstances in each state.

**ALABAMA, the legal rate of interest is 6%; the general usury limit is 8%. The judgment rate is 12%.
**ALASKA, the legal rate of interest is 10.5%; the general usury limit is more than 5% above the Federal Reserve interest rate on the day the loan was made.
*ARIZONA, the legal rate of interest is 10%.
**ARKANSAS, the legal rate of interest is 6%; for non-consumers the usury limit is 5% above the Federal Reserve’s interest rate; for consumers the general usury limit is 17%. Judgments bear interest at the rate of 10% per annum, or the lawful agreed upon rate, whichever is greater.
**CALIFORNIA, the legal rate of interest is 10% for consumers; the general usury limit for non-consumers is more than 5% greater than the Federal Reserve Bank of San Francisco’s rate.
**COLORADO, the legal rate of interest is 8%; the general usury limit is 45%. The maximum rates to consumers is 12% per annum.
**CONNECTICUT, the legal rate of interest is 8%; the general usury rate is 12%. In civil suits where interest is allowed, it is allowed at 10%.
DELAWARE, the legal rate of interest is 5% over the Federal Reserve rate.
**DISTRICT OF COLUMBIA, the legal rate of interest is 6%; the general usury limit is in excess of 24%.
**FLORIDA, the legal rate of interest is 12%; the general usury limit is 18%. On loans above $ 500,000 the maximum rate is 25%.
**GEORGIA, the legal rate of interest is 7%; On loans below $ 3,000 the usury limit is 16%. On loans above $ 3,000, the limit appears to be 5% per month. As to loans below $ 250,000 the interest rate must be specified in simple interest and in writing.
**HAWAII, the legal rate of interest is 10%. The usury limit for consumer transactions is 12%.
IDAHO, the legal rate of interest is 12%. Judgments bear interest at the rate of 5% above the U.S. Treasury Securities rate.
**ILLINOIS, the legal rate of interest is 5%. The general usury limit is 9%. The judgment rate is 9%.
INDIANA, the legal rate of interest is 10%. Presently there is no usury limit; however, legislation is pending to establish limits. The judgment rate is also 10%.
*IOWA, the legal rate of interest is 10%. In general consumer transactions are governed at a maximum rate of 12%.
KANSAS, the legal rate of interest is 10%; the general usury limit is 15%. Judgments bear interest at 4% above the federal discount rate. On consumer transactions, the maximum rate of interest for the first $ 1,000 is 18%, above $ 1,000, 14.45%.
KENTUCKY, the legal rate of interest is 8%; the general usury limit is more than 4% greater than the Federal Reserve rate or 19%, whichever is less. On loans above $ 15,000 there is no limit. Judgments bear interest at the rate of 12% compounded yearly, or at such rate as is set by the Court.
**LOUISIANA, the legal rate of interest is one point over the average prime rate, not to exceed 14% nor be less than 7%. Usury limit for individuals is 12%, there is no limit for corporations. (As warned, you cannot evade the limit by forming a corporation when the loan is actually to an individual.)
MAINE, the legal rate of interest is 6%. Judgments below $ 30,000 bear 15%, otherwise they bear interest at the 52 week average discount rate for T-Bills, plus 4%.
**MARYLAND, the legal rate of interest is 6%; the general usury limit is 24%. There are many nuances and exceptions to this law. Judgments bear interest at the rate of 10%.
**MASSACHUSETTS, the legal rate of interest is 6%; the general usury rate is 20%. Judgments bear interest at either 12% or 18% depending on whether the court finds that a defense was frivolous.
**MICHIGAN, the legal rate of interest is 5%; the general usury limit is 7%. Judgments bear interest at the rate of 1% above the five year T-note rate.
**MINNESOTA, the legal rate of interest is 6%. The judgment rate is the “secondary market yield” for one year T-Bills. Usury limit is 8%.
**MISSISSIPPI, the legal rate of interest is 9%; the general usury limit is more than 10%, or more than 5% above the federal reserve rate. There is no usury limit on commercial loans above $ 5,000. The judgment rate is 9% or a rate legally agreed upon in the underlying obligation.
*MISSOURI, the legal and judgment rate of interest is 9%. Corporations do not have a usury defense. (Remember that a corporation set up for the purpose of loaning money to an individual will violate the usury laws.)
**MONTANA, the legal rate of interest is 10%; the general usury limit is above 6% greater than New York City banks’ prime rate. Judgments bear interest at the rate of 10% per annum.
**NEBRASKA, the legal rate of interest is 6%; the general usury limit is 16%. Accounts bear interest at the rate of 12%. Judgments bear interest at the rate of 1% above a bond yield equivalent to T-bill auction price.
NEVADA, the legal rate of interest is 12%; there is no usury limit.
NEW HAMPSHIRE, the legal rate of interest is 10%; there is no general usury rate.
**NEW JERSEY, the legal rate of interest is 6%; the general usury limit is 30% for individuals, 50% for corporations. There are a number of exceptions to this law.
NEW MEXICO, the legal rate of interest is 15%. Judgment rate is fixed by the Court.
**NEW YORK, the legal rate of interest is 9%; the general usury limit is 16%.
**NORTH CAROLINA, the legal interest rate and the general usury limit is 8%. However, there is a provision for a variable rate, which is 16% or the T-Bill rate for non-competitive T-Bills. Above $ 25,000 there is no express limit. However, the law providing for 8% is still on the books- be careful and see a lawyer!
**NORTH DAKOTA, the legal rate of interest is 6%; the general usury limit is 5 1/2% above the six-month treasury bill interest rate. The judgment rate is the contract rate or 12%, whichever is less. A late payment charge of 1 3/4% per month may be charged to commercial accounts that are overdue provided that the charge is revealed prior to the account being opened and that the terms were less than thirty days, that is, that the account terms were net 30 or less.
**OKLAHOMA, the legal rate of interest is 6%. Consumer loans may not exceed 10% unless the person is licensed to make consumer loans. Maximum rate on non-consumer loans is 45%. The judgment rate is the T-Bill rate plus 4%.
OREGON, the legal rate is 9%, the judgment rate is 9% or the contract rate, if lawful, whichever is higher. The general usury rate for loans below $ 50,000 is 12% or 5% above the discount rate for commercial paper.
**PENNSYLVANIA, the legal rate of interest is 6%, and this is the general usury limit for loans below $ 50,000, except for: loans with a lien on non-residential real estate; loans to corporations; loans that have no collateral above $ 35,000. Judgments bear interest at the legal rate. It is criminal usury to charge more than 25%.
PUERTO RICO, the legal rate of interest is 6%; all other rates are set by the Finance Board of Office of Commissioner of Financial Institutions. Judgments bear interest at the same rate as the underlying debt.
**RHODE ISLAND, the legal rate of interest and judgment rate is 12%. The general usury limit is 21% or the interest rate charged for T- Bills plus 9%.
*SOUTH CAROLINA, the legal rate of interest is 8.75%, and judgments bear interest at the rate of 14%. Subject to federal criminal laws against loan sharking there is no general usury limit for non- consumer transactions. The South Carolina Consumer Protection code provides regulations for maximum rates of interest for consumer transactions. Please consult with counsel for the latest rates.
SOUTH DAKOTA, the legal rate of interest is 15%, judgments bear interest at the rate of 12%. There is no other usury limit. There are certain limitations on consumer loans below $ 5,000.00.
**TENNESSEE, the legal rate and judgment rate of interest is 10%. The general usury limit is 24%, or four points above the average prime loan rate, WHICHEVER IS LESS.
*TEXAS, the legal rate of interest is 6%. Interest does not begin until 30 days after an account was due. The judgment rate of interest is 18% or the rate in the contract, whichever is less. There are a number of specific ceilings for different types of loans, please see counsel for information.
UTAH, the legal rate of interest is 10%. Judgments bear interest at the rate of 12%, or a lawfully agreed upon rate. There are floating rates prescribed for consumer transactions. Please see counsel for information.
**VERMONT, the legal rate of interest and judgment rate of interest is 12%. On retail installment contracts the maximum rate is 18% on the first $ 500, 15% above $ 500. The general usury limit is 12%.
*VIRGINIA, the legal rate of interest is 8%. Judgments bear interest at the rate of 8%, or the lawful contract rate. Corporations and business loans do not have a usury limit, and loans over $ 5,000 for “business” or “investment” purposes are also exempt from usury laws. Consumer loans are regulated and have multiple rates.
WASHINGTON, the legal rate is 12%. The general usury limit is 12%, or four points above the average T-Bill rate for the past 26 weeks, whichever is greater. (The maximum rate is announced by the State Treasurer.) Judgments bear interest at the rate of 12% or the lawful contract rate, whichever is higher.
**WEST VIRGINIA, the legal rate of interest is 6%. The maximum “contractual” rate is 8%; Commissioner of Banking issues rates for real estate loans, and, may establish maximum general usury limit based on market rates.
WISCONSIN, the legal rate of interest is 5%. There are a myriad of rates for different type of loans. There is no general usury limit for corporations. Note that a loan to an individual, even if a corporation is formed, will violate the law. The judgment rate of interest is 12%, except for mortgage foreclosures, where the rate will be the lawful contract rate.
WYOMING, the legal rate and judgment rate of interest is 10%. If a contract provides for a lesser rate, the judgment rate is the lesser of 10% and the contract rate.

Foreclosure Offense: Notice to Trustee and Alleging Usury

For you Californians or residents of other states who think your transaction is exempted from usury, take another look: (1) the real lender was not a bank and (2) the real transaction was securities transaction in which the borrower was duped into executing documents that consituted the start of the securitization process, so it wasn’t your typical purchase money first mortgage transaction either.

FROM FAQ Page: recent Post

> Open question to all. I have not yet received a notice of default but haven’t made a payment to IndyMac or to the HELOC company Wells Fargo since March. I am preparing to file lawsuits against both and a lis pendens. Should I call my fire insurance carrier now and tell them to change the beneficiary from IndyMac to me?


ANSWER: Your insurance carrier will probably notify the “lender” that you have changed the beneficiary, which is a breach of the mortgage obligation. That will give THEM ammunition against you. You could check on that if you know the insurance agent well enough and he has the knowledge to answer the question.

  1. I would suggest that you send a notice to the Trustee similar to the one on the blog that basically says that Indymac sold off the loan, has been replaced by the Trustee of the pooled assets, and that you have recently discovered that there were several undisclosed elements of the original loan transaction, including the real party in interest that made the loan to you, and fees paid for various undisclosed “services” all in violation of the Truth in Lending Act.
  2. Since you have just learned of this, you are NOW exercising your 3-day right of rescission and you wish to rescind the transaction (“I HEREBY RESCIND”), which would also terminate the Trustee’s authority.
  3. Ask him to report to you who the real holder in due course of your note is and that based upon 10k and 8k filings from Indymac prior to its failure and takeover by the FDIC, it would appear that there are multiple investors who own shares in your mortgage and note, all of whom have a clear claim as holders in due course. Thus any direction or instruction he receives from the “lender” is not from a party with an interest in the mortgage or note and is void or meaningless.
  4. Demand that he forward a copy of the letter you send, certified, return receipt requested, to any parties undisclosed in the closing papers, and of course to forward a copy of the letter to his own errors and omissions carrier and to the carrier for the title insurance, since there was a cloud on title created AT CLOSING by the knowledge of the parties that the loan was “sold forward” or already committed to a third parties who were undisclosed real parties in interest and who collectively constitute the real lender.
  5. Hence the party to whom you would address a notice of rescission to was hidden from you and still is. Thus the 3 day rescission period continues to this day.
  6. Also state that based upon the SEC filings, and your consultation with experts in mortgage backed securities, Indymac’s successors entered into agreements wherein your loan payments could be allocated to payments due on notes from OTHER borrowers in whole or in part — as consequence of the cross guarantee agreements between tranches in the SPV and between SPV entities. You demand to know whether this has in fact occurred.
  7. Further, you are informed that in addition to cross guarantee agreements there was overcollateralization of your loan as part of the the overall scheme of your issuance of the note and insurance purchased with the proceeds of sale of the loan to you and investors in which reserve pools and guarantees of payment were created through payments to third parties, none of which was disclosed to you.
    • And lastly, and perhaps most importantly, if you think that your loan was based upon a false appraisal (i.e., the appraisal value was shown by subsequent events to be over market), that this was an undisclosed cost of the loan obtained, in addition to damages suffered by the fraud committed on you, and that neither the Good Faith Estimate nor any other effort was made to disclose that this was the case.
    • This inflated appraisal when added to the the other costs of the loan, created a usurious transaction in which the real lender was in fact a private, undisclosed, unregistered, unchartered, unregulated entity, that had failed to pay taxes and fees to the State of California, in addition to failing to report its activities within the state.
    • This real lender entered into an illegal agreement in which the nominal lender” in fact agreed to “lend its license” to the real lender and was paid a fee of approximately 2.5% as a fee to do it, in addition to points and all other costs and fees of closing the “loan”, and interest paid from inception of the “loan.”
    • Since the transaction constituted usury, you hereby declare the obligation on the note null and void and demand treble damages for the original face value of the note.

    I would suggest that the same type of letter, with some modifications, be sent to Indymac, FDIC, the mortgage broker, the title agent, the appraiser, and the real estate agents at the closing of what you thought was a loan transaction but in fact turned out to be a fraudulent scheme to trick you into issuing a note that turned out to be a negotiable security that was already the subject of a plan and agreement to sell unregistered, unregulated securities to third parties who were the true source of the loan.

    If you file suit or even if you file a petition for emergency temporary injunction I would suggest that you consider filing a lis pendens. You might be met with a demand for bond, but your argument would be that no bond is required since there is no delinquency as yet, no real party in interest present and the Trustee has no equitable or legal interest in the property. The proper party to ask for a bond would be someone who could allege they will be hurt by the filing of the lis pendens.

Foreclosure Offense and Defense: Lis Pendens, Usury and California Exemption for “Banks”

LIS PENDENS — see usury, Temporary Restraining Order, Lawsuit, Burden of Proof

(1) Latin for “a suit pending.” The term may refer to any pending lawsuit. (2) A written notice that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is usually filed in the county land records office. Recording a lis pendens against a piece of property alerts a potential purchaser or lender that the property’s title is in question, which makes the property less attractive to a buyer or lender. After the notice is filed, anyone who nevertheless purchases the land or property described in the notice takes subject to the ultimate decision of the lawsuit.

IN THE CONTEXT OF FORECLOSURE OFFENSE AND DEFENSE, the significance of this filing is profound and potentially complex.

  • The filing of the Notice of Sale by the Trustee in non-judicial states is the equivalent of a lis pendens in is effect.
  • All judicial states (states where the filing of a foreclosure lawsuit is required before the property can be scheduled for sale) require a lis pendens to be filed by the lender along with the suit.
  • However, in ALL cases, non-judicial or judicial, where the defensive and offensive strategies promoted by this blog are involved, it probably would be a good idea for the borrower to file a lis pendens along with any suit or emergency petition for temporary restraining order (TRO).
  • It is possible that the lis pendens, especially where a TRO is sought, will be met with a demand for bond. However, the bond requirement should be nominal since the property is already in existence and presumably will be maintained.
  • No lis pendens can be filed unless there is a “suit pending” — but once there is a pleading from the borrower seeking affirmative relief from a court of competent jurisdiction, the filing of a lis pendens cannot be stopped.
  • The foreclosing party must step forward and request that the lis pendens be removed. They will do that because any bid at the foreclosure sale will be subject to your claims in the suit you filed against the “lender” at al.
  • This is another opportunity to “win at the beginning” since the “lender” is now required to justify the its authority to have given notice of delinquency, notice of acceleration, notice of default and notice of sale. In order to do that they must file a petition or motion with the court which will be gingerly and creatively written if they understand the stakes or taken from some form if they do not understand the issues.
  • They will plead (make allegations) that can now be denied. You have effectively converted the non-judicial sale to a judicial proceeding and forced the burden of proof onto the alleged foreclosing party. Take nothing for granted, and assume nothing.
  • The attorneys for the foreclosing party probably have very little information — less than you have — and if you hit hard enough right at the beginning, you might, like thousands of other cases across the United States, find yourself walking out with an order that cancels the sale, dismisses the claims of the “lender” and perhaps the Judge’s order will even be “with prejudice, which would be the equivalent of a quiet title action, which you might pursue immediately after receiving a favorable ruling with or without prejudice.




NOTE: Most of what is said here assumes that securitization was involved. In situations where the “lender” retained the loan, only some of these strategies apply.

Foreclosure Offense: Write A Letter Even if You are Not (Yet) in Trouble

It is my opinion that the victims of the enormous fraud includes even those who are not yet delinquent in their mortgages or even those who will never be delinquent. In any event, the following applies to those in trouble, not yet in trouble or who want to make trouble.

  • The players in the fraud knowingly entered into a scheme that would result in a generalized increase in “fair market value” for targeted geographical areas. This increase was artificially inflated to support a program creating excitement and sizzle amongst prospective home buyers and prospective investors in asset backed securities. It was only apparent if a very sophisticated economist appraised the fundamentals in view of the larger geographical areas and over a larger period of history that the spike emerges as artificial.
  • The loss to the more than 15 million people directly affected can be measured by the difference between the appraised value at time of the loan closing(s) and the actual value which is now apparent for anyone to see. Generally speaking the difference is around 25%-40% in the targeted geographical areas.
  • Add this loss as a cost of the loan and you get a startling result: not only is the good faith estimate and other disclosure documents wrong on the “APR”, the actual APR moves into usury territory, entitling the victim (in many states) to extinguish the note in its entirety, remove the security instrument (mortgage), collect treble damages and attorneys fees and costs. The parties involved might even be liable for criminal prosecution.

Based upon the figures we think are reliable there are at least 2 million more foreclosures that willl be filed, in addition to the 1.3 million that are in progress right now. Then we have another 12 million homes that are either upside down (more loan than equity) or very close to it. If you include the cost of a realtor and other expenses in selling the figure might be closer to 15 million homes.

There are of course many reasons for this but the principal reason is fraud: all the players in the securitization chain, a sub-part of which is the sale of real estate, knew for sure that the security (asset backed security) sold to investors was overrated and over-priced and knew that the security (residence) sold to home-buyers was overrated and over-priced. Neither the loan documents, the “prospectus” offered investors, nor any rating or appraisal or lending practice followed normal underwriting standards.

Thus the “fair market value” was artificially inflated on both ends of the spectrum — to investors and homebuyers. This created an orgy of feeding on fees, profits, etc. So using this theory, we are recommending that you write a letter right now to whomever you direct your payments to, to the originating loan company, the mortgage broker, and the bank the handled the transactions for the title/escrow agent, instructing them to forward the letter to their errors and omissions carrier.

The letter, in my opinion, should state that you are aware that some documents exist regarding the loan(s) which have not yet been disclosed to you and you would like to see them. These documents are dated before, during and immediately following the closing and relate to the funding source, transfer of certain rights or obligations under the note and mortgage you executed, and payments of fees to the mortgage originator, the mortgage broker and appraiser that were not disclosed at the time of closing.

This letter should also state that it has become apparent that the appraised value was vastly over-stated, that the “lender” stated on the loan was not the the actual ultimate funding source, and that neither the lender nor the mortgage broker were acting in accordance with their fiduciary duty to represent and protect you from predatory practices. Instead, it appears that they themselves not only did not protect you but actually participated in such practices and deceived you as to the value of the property, which dropped in the real world within a few days, weeks or months after the closing.

You should ask for the documents used that were “off balance sheet” for the named lender, the amounts paid to the “lender” and the mortgage broker and any other third parties, and the names of the auditors and attorneys for the lender, the mortgage broker, the title agent, and the appraiser.

You should also state that you need these documents because it appears as though you are paying parties who have no interest in the mortgage or note, and who do not have a relationship with anyone who does have such an interest. This places you in the untenable position of making payments and facing potential liability to a third party, to whom the note and mortgage may have been rightfully assigned, even though not re corded in the property records.

Lastly, you should state that you reserve the right to demand attorney fees and auditors fees if the facts are as you have recited them as well as all rights under all applicable rules, regulations and laws of the City, County, State or Federal Government.

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