Impact of Serial Asset Sales on Investors and Borrowers

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

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

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

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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ally-Rescap Dispute Shows the Rest of the Story: Myth vs. Fact


“The true transaction is the one where investors gave money to borrowers and the borrowers agreed to pay it back either under the terms of the note, the terms of the bond or some combination of the two. That loan is NOT secured but was intended to be secured by both the actual lender (investors) and the actual borrower (the homeowners). ” — Neil F Garfield, Esq.,

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Editor’s Analysis: It is still too much to fathom for most Judges, lawyers and even homeowners and investors. The scale of theft in the mortgage crisis is not accepted by government either, so it is being replicated by the banks in student loans and commercial loans to businesses where the spigot is wide open with crazy terms.

The Judges ask “where is your evidence” and the answer as set forth in Wigmore and other scholars on evidence is that where the information is exclusively within the care, custody and control of the party against whom the allegation is made, the burden shifts to that party to prove that the allegation is untrue.

But Judges don’t want to do that probably because they still think the debt is real and legitimate between the parties in front of him or her.

The diversion of funds and documents has been working very well for the Wall Street banks for years now and they have essentially stolen 5-6 million homes using sleight of hand financial maneuvers. But some Judges, like the one I was in front of yesterday in Tallahassee are getting on board at least in terms of acquainting themselves with the process of securitization. Most of them are still arriving at the wrong conclusion because the alternative seems preposterous.

But if you examine the disputes between the big boys, the truth is easy to discern. Here we have (see article below) Rescap and Ally fighting over what others regard as preposterous. But it is difficult to imagine a scenario in which the Rescap claims and other creditors of Ally Financial would not be true since they want to do the deal.

The U.S. Government owns 74% of Ally and is offering to put up $750 Million to cover liabilities relating to mortgages. Why would the bank have liabilities? Because the loans don’t exist or are grossly overvalued and Ally and others shared in tier 2 yield spread premiums that were fraudulently taken from investor money to buy other investments for the banks including insurance payable to the banks and credit default swaps payable to the banks even though the banks were not putting up one nickle and were using the same system of fabrication and forgery to fool counterparties on guarantees of the loan pools which, it turns out, didn’t exist.

Dozens of writers including myself have looked at the settlements with law enforcement and regulatory agencies screaming that the settlements are rounding errors compared with the full scope of the fraud used to promote and cover-up the Wall Street Bank Ponzi scheme. We are ignored. But now the real creditors and the people who really lost money — the investors — are starting to peak under the hood of the brand new car they bought and are finding the shell of a 1965 VW bug with no engine or steering wheel.

They don’t like what they see and they want to know (a) where did all that money go if it didn’t go into mortgages and (b) why isn’t the government or Ally stepping up, facing the music and agreeing to cover the liability and losses that are already in the pipeline and likely to get much much larger as the next five years unfolds.

Unfortunately for Ally and the U.S. Government, the creditors are not stupid and unsophisticated. They understand what happened and are completely unwilling to cover losses that the banks caused by stealing money. For this one company, Ally Financial, whose size is barely comparable to the giants on Wall Street who engineered this catastrophe, Rescap and the other creditors say that the $750 million offer is “a drop in the bucket” compared to the actual liabilities and losses of Ally.

(Small wonder that the shadow banking system has over $700 trillion in nominal value cash equivalents that are not worth much more than $15 trillion. Every dollar reported on those instruments in the shadow banking system is rife with potential liabilities several times the reported value of the instrument.)

So finally we have a bankruptcy court examiner auditing the transaction and accounts and rendering a report in May, 2013. The report is likely to be stunning and will have far reaching effects as the asset side of the balance sheet of Ally drops to a small fraction of what is currently reported. It won’t take more than a few seconds for the high speed traders to crash the stocks of the Wall Street Banks because the accounting for non-existing and overvalued assets on their balance sheets is just as bad or worse than Ally.

And all of that adds up to a reasoning process that takes time, explanation and sometimes crayons in court to get across tot he Judge. The DESCRIBED debt never existed because the “lender” was actually a naked nominee just like all the other naked nominees in the whole mortgage meltdown. When the time comes that the pretender lenders are required to produce cancelled checks and wire transfer receipts and instructions it will be obvious that the paper in the securitization chains is worthless or worse carrying liabilities for fraud and statutory violations. It will be equally obvious that the subservicers, master servicers, trustees of empty pools, and others created an illusion that worked, receiving trillions of dollars in insurance type contracts on transactions that never occurred.

The true transaction is the one where investors gave money to borrowers and the the borrowers agreed to pay it back either under the terms of the note, the terms of the bond or some combination of the two. That loan is NOT secured but was intended to be secured by both the actual lender (investors) and the actual borrower (the homeowners). 

On the other hand neither the lender nor the borrower ever intended to do a deal that was guaranteed to fail — and that would have required true appraisals and true prices that were dead even with the actual value of the property — i.e. if the true value of the property was used, there would have no no crash, the loans would have been smaller and the ability to repay the loans would have been correspondingly enhanced.

In a giant piece of irony, realtors are complaining that appraisers are holding up deals (the way they should have during he mortgage meltdown period) with appraisals that don’t add up to the contract price. In the old days that was it — either the buyer came up with more cash, the seller reduced the price or the bank relented after being given additional collateral. Usually it was some combination of those factors.

By ANDREW R. JOHNSON, Wall Street Journal

Negotiations are breaking down between creditors of bankrupt mortgage lender Residential Capital LLC and its parent, Ally Financial Inc., making it likely the government-owned auto-finance company will face litigation as it seeks to sever ties, people familiar with the matter said.

The creditors, including Wilmington Trust Corp. and other members of a committee representing ResCap’s unsecured creditors, are pushing Ally to provide more money to settle potential liabilities it could face as ResCap’s parent.

Ally, which is 74%-owned by the U.S. government, is working to cap its exposure to the subprime lender’s mortgage business so it can move forward on efforts to repay its $17.2 billion crisis-era bailout and focus on its core auto-lending and online-banking businesses.

At issue is a settlement Ally reached last year with ResCap in conjunction with the mortgage subsidiary’s bankruptcy filing. Under the deal, Ally has proposed paying $750 million to ResCap’s estate in return for a release from potential liability claims from outsiders.

But creditors have blasted the deal, saying the $750 million represents a drop in the bucket compared with what they say are Ally’s true liabilities. They say the parent company stripped ResCap of its most valuable asset, an ownership stake in Ally Bank, as part of a transaction completed in 2009. They insist Ally should retroactively pay more for the deal, among other claims.

A bankruptcy court examiner is investigating that transaction as well as others surrounding ResCap’s May Chapter 11 bankruptcy filing. The examiner’s report is expected to be completed in May.

“There is no support among the constituencies for the proposed amount of the Ally contribution because the amount is far too small in comparison to the value of the claims that have been and may be asserted against Ally,” Wilmington Trust, a unit of M&T Bank Corp., MTB -0.44% said in a letter to ResCap’s board this month. Wilmington said the negotiation process for the settlement was “rife with conflicts and information gaps.”

See full article at ResCap Creditors Press Ally for Larger Pact

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