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BofA Ordered to Pay $1.27 Billion Over Mortgage Fraud

Posted by Ari, Thursday, July 31st, 2014 @ 8:58am

  • BofA Ordered to Pay $1.27 Billion Over Mortgage Fraud

    John Caher, New York Law Journal

    July 31, 2014  

    Southern District Judge Jed Rakoff has ordered the Bank of America to pay $1.27 billion in penalties in connection with a wide-ranging mortgage fraud perpetrated by its Countrywide financial unit, and slapped a $1 million personal judgment on a former Countywide executive.

    Rakoff's decision, released Wednesday, followed a trial last fall in which jurors found that Countrywide and Rebecca Mairone, the only individual charged in the case, defrauded the government-sponsored Freddie Mac and Fannie Mae programs by peddling at break-neck speed what they knew were substandard loans during the recession of 2007 and 2008.

    The case was initially rooted in a Securities and Exchange Commission action against three top Countrywide executives who were accused of falsely assuring investors that the company was a prime mortgage lender when in fact it was deeply involved in high risk loans. That case was settled and no criminal charges were lodged.

    The matter before Rakoff, United States of America v. Countrywide Home Loans, 12-cv-1422, was initiated after a whistleblower, Edward O'Donnell, came forward in 2012 with a qui tam action alleging that Countrywide was involved in a so-called "High Speed Swim Lane" (also known as "HSSL" and "Hustle") scam in 2007 and 2008.

    The Southern District U.S. Attorney's Office took over the matter and persuaded a jury that Countrywide and Mairone "had engaged in an intentional scheme to misrepresent the quality of the mortgage loans that it processed through the HSSL program and sold to Fannie Mae and Freddie Mac," according to Rakoff's decision.

    A jury found Countrywide and its successor in interest, the Bank of America, civilly liable under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), a vehicle through which courts can impose significant financial penalties for criminal acts that impact federally insured banking institutions. Under FIRREA, the government sought penalties of $2.1 billion against the company and $1.2 million against Mairone.

    Rakoff said while the HSSL process lasted for only nine months, it was "from start to finish the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole."

    Much of his 19-page decision dealt with the calculation of penalties, a process for which the statute "provides no guidance" except that the penalty cannot not exceed the amount of the fraudulent gain or loss, the court said.

    Rakoff said the record suggests that there were 17,611 HSSL-generated loans, and that Freddie Mac and Fannie Mae paid Countrywide $2.96 billion for the instruments.

    "[T]he civil penalty provisions of the FIRREA are designed to serve punitive and deterrent purposes and should be construed in accordance with those purposes," Rakoff wrote. "This strongly cuts in favor of the government's position that both gain and loss should be viewed simply in terms of how much money the defendants fraudulently induced the victims to pay them."

    Rakoff said in a footnote that "it bears mentioning that, by virtue of this fraud, the bank defendants managed to unload a vast portfolio of risky assets on unwitting buyers and were thereby able to reduce the risk on their own balance sheet at a crucial moment in time."

    However, Rakoff said "while Fannie Mae and Freddie Mac would never have purchased any loans … if they had know that Countrywide had intentionally lied to them about the loans' quality," the government's own expert concluded that about 57 percent of the loans were not materially defective. Consequently, the imposed corporate penalty of $1.27 billion reflects about 43 percent of the total amount Freddie Mac and Fannie Mae paid for the loans.

    With regard to Mairone, Rakoff found her trial testimony "implausible," and drew a negative inference from her lack of candor.

    "There was convincing evidence that Ms. Mairone—the relatively new employee who had to prove herself—most aggressively pushed forward the HSSL fraud and most scathingly denounced those who raised concerns," Rakoff said, adding that when O'Donnell raised concerns, she gave him the "back of her hand."

    Still, he said that while Mairone is "certainly not a candidate for welfare" and is likely to remain in lucrative positions, the $1.2 million penalty sought by the government would "strain her resources to the limit."

    Rakoff ordered Mairone to pay a total of $1 million in a series of quarterly payments representing at least 20 percent of her gross income until the penalty is paid off.

    A team of prosecutors from the Southern District represented the government. Attorneys from Goodwin Procter in Washington, Boston and Manhattan represented Countrywide.

    Bank of America was represented by attorneys from Williams & Connolly in Washington. Representing O'Donnell was David Gerard Wasinger of the Wasinger Law Group in St. Louis, Mo.

    Bank of America said yesterday that it was considering its options.

    "This figure simply bears no relation to a limited Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Lawrence Grayson, a spokesman for bank, said in an interview with Bloomberg.

    Southern District U.S. Attorney Preet Bharara noted in a statement said the bank first had claimed that the government had no case and then, after the jury verdict, "claimed that it should pay no penalty at all, arguing that the victims were not harmed and that the bank did not profit from this massive fraud."

    "Judge Rakoff's opinion squarely and emphatically rejects the bank's claims which, besides ignoring the victims' out-of-pocket losses, also ignored that the fraudulent conduct required penalties to be paid for punitive and deterrence purposes as well," Bharara said.

    Read more:

LA Sues Wells Fargo, Citigroup Over Foreclosures

Posted by Ari, Friday, December 6th, 2013 @ 5:14pm

  • By ROBERT JABLON 12/05/13 11:48 PM ET ES

    LOS ANGELES (AP) — The Los Angeles city attorney sued Wells Fargo and Citigroup on Thursday, alleging the companies engaged in mortgage discrimination that led to a wave of foreclosures in minority communities during the housing crash.

    The twin lawsuits, filed in federal court, are the latest fallout from the 2008 collapse of the subprime mortgage industry, which sparked a string of actions against various lenders by federal agencies and city governments.

    The city attorney's suits allege a "continuing pattern of discriminatory mortgage lending practices" in Los Angeles that violate the federal Fair Housing Act. They claim Wells Fargo & Co. and Citigroup Inc. at first refused to grant mortgages in minority neighborhoods — a practice known as redlining — and later targeted black and Hispanic neighborhoods for predatory loans, known as reverse redlining.

    Wells Fargo and Citigroup both said the suits are meritless.

    "We are disappointed that the LA attorney does not recognize our deep commitment to fair lending," a Citigroup statement said.

    The lawsuits contend that "vulnerable, underserved borrowers" denied by years of redlining jumped at the chance to obtain subprime home loans they couldn't afford, then were hit by a swarm of foreclosures when the housing bubble burst and they were denied refinancing.

    "Since 2008, banks have foreclosed on approximately 1.7 million homes in California, and Wells Fargo is responsible for nearly one in five of these foreclosures," the lawsuit against Wells Fargo says.

    A loan in a predominantly minority neighborhood of Los Angeles is nearly five more times more likely to result in foreclosure that one in a predominantly white neighborhood, the suit claims.

    "These foreclosures often occur when a minority borrower who previously received a predatory loan sought to refinance the loan, only to discover that Wells Fargo refused to extend credit at all, or on equal terms as when refinancing similar loans issued to white borrowers," it says.

    Citigroup said it "considers each applicant by the same objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis," the bank said. "Using these objective criteria allows us to lend on terms that are consistent with the risk profile of each borrower and gives millions of qualifying consumers the opportunity to own a home."
    The foreclosures caused property values to tumble, costing the city tax revenue, and leaving it holding the bag for the cost of cleaning up and policing vacant properties, the lawsuit claims.

    "Wells Fargo has been a part of Southern California for over a century and we are proud of our record as a fair and responsible lender," that bank said in a statement, adding that the allegations "do not in any way reflect our values as a company."

    Both lawsuits seek unspecified reparations and damages. However, they cite a report by the Alliance of Californians for Community Empowerment and the California Reinvestment Coalition that estimated the mortgage crisis resulted in more than 200,000 foreclosures from 2008 to 2012, with $481 million in lost property tax revenue to the city, and $1.2 billion in Los Angeles for "increased costs of safety inspections, police and fire calls, trash removal and property maintenance."

    The Los Angeles city attorney's office has previously gone after other mortgage lenders in state court, blaming them for urban blight sparked by the housing market collapse.

    Ongoing lawsuits filed against Deutsche Bank AG in 2011 and US Bancorp last year contend that the lenders destroyed neighborhoods by wrongly kicking people out of homes and leaving hundreds of properties to become trash-strewn crime magnets.

    Bank officials said that they are not responsible for the decline.

    The banks have been hit by other mortgage-related lawsuits in recent years. Last month, Wells Fargo disclosed that it will pay $335 million to resolve claims that it misled Fannie Mae and Freddie Mac about risky mortgage securities before the housing market collapsed.

    In 2011, Wells Fargo agreed to pay $85 million to settle civil charges that it falsified loan documents and pushed borrowers toward subprime mortgages with higher interest rates during the housing boom. It was the largest penalty ever imposed by the Federal Reserve in a consumer-enforcement case.

    Last year, Wells Fargo and Citigroup were among banks that reached a $25 billion settlement with attorneys general in 49 states over alleged widespread mortgage abuses. The banks did not admit or deny guilt in that settlement, which did not protect them from other litigation.

    New York's state attorney general announced in October that he was suing Wells Fargo to force compliance with terms of the settlement.

Bank of America liable for Countrywide mortgage fraud

Posted by Ari, Wednesday, October 23rd, 2013 @ 11:21pm

  • Bank of America liable for Countrywide mortgage fraud

    The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011. REUTERS/Fred Prouser

    By Nate Raymond

    NEW YORK | Wed Oct 23, 2013 6:57pm EDT

    (Reuters) - Bank of America Corp was found liable for fraud on Wednesday over defective mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few trials stemming from the financial crisis.

    After a four-week trial, a federal jury in New York found the bank liable on one civil fraud charge. Countrywide originated shoddy home loans in a process called "Hustle" and sold them to government mortgage giants Fannie Mae and Freddie Mac, the government said.

    The four men and six women on the jury also found former Countrywide executive Rebecca Mairone liable on the one fraud charge she faced.

    The U.S. Justice Department has said it would seek up to $848.2 million, the gross loss it said Fannie and Freddie suffered on the loans. But it will be up to U.S. District Judge Jed Rakoff to decide on the penalty. Arguments on how the judge will assess penalties are set for December 5.

    Any penalty would add to the more than $40 billion Bank of America has spent on disputes stemming from the 2008 financial crisis.

    "The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Bank of America spokesman Lawrence Grayson said. "We will evaluate our options for appeal."

    Marc Mukasey, a lawyer for Mairone, called his client a "woman of integrity, ethics and honesty," adding they would fight on. "She never engaged in fraud, because there was no fraud," he said.

    Wednesday's verdict was a major victory for the Justice Department, which has been criticized for failing to hold banks and executives accountable for their roles in the events leading up to the financial crisis.

    The government continues to investigate banks for conduct related to the financial crisis. The verdict comes as the government is negotiating a $13 billion settlement with JPMorgan Chase & Co to resolve a number of probes and claims arising from its mortgage business, including the sale of mortgage bonds.


    The lawsuit stemmed from a whistleblower case originally brought by Edward O'Donnell, a former Countrywide executive who stands to earn up to $1.6 million for his role.

    The case centered on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that government lawyers said Countrywide started in 2007.

    The Justice Department contended that fraud and other defects were rampant in HSSL loans because Countrywide eliminated loan-quality checkpoints and paid employees based on loan volume and speed.

    The Justice Department said the process was overseen by Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending division. Mairone is now a managing director at JPMorgan.

    About 43 percent of the loans sold to the mortgage giants were materially defective, the government said.

    Bank of America bought Countrywide in July 2008. Two months later, the government took over Fannie and Freddie.

    Bank of America and Mairone denied wrongdoing. Lawyers for the bank sought to show the jury that Countrywide had tried to ensure it was issuing quality loans and that no fraud occurred.

    The lawsuit was the first financial crisis-related case against a bank by the Justice Department to go to trial under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

    The law, passed in the wake of the 1980s savings-and-loan scandals, covers fraud affecting federally insured financial institutions.

    The Justice Department, and particularly lawyers in the office of U.S. Attorney Preet Bharara in the Southern District of New York, have sought to dust off the rarely used law and bring cases against banks accused of fraud.

    Among its attractions, FIRREA provides a statute of limitations of 10 years and allows the government to bring civil cases for alleged criminal wrongdoing.

    Virginia Gibson, a lawyer at the law firm Hogan Lovells, said the Bank of America verdict was a "big deal because it shows the scope of a tool the government has not used frequently since its inception."

    Gibson and other lawyers say any appeal by Bank of America would likely focus on a ruling made by the judge before the trial that endorsed a government position that it can bring a FIRREA case against a bank when the bank itself was the financial institution affected by the fraud.

    The case was one of three lawsuits in New York where judges had endorsed that interpretation. Banks have generally argued that the interpretation is contrary to the intent of Congress, which they said is more focused on others committing fraud on banks.

    Bank of America's case was the first to go to trial, a rarity given that banks more typically choose to settle government claims instead of face a jury. But Bank of America had said that it "can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn."

    In a statement, Bharara said Bank of America "chose to defend Countrywide's conduct with all its might and money, claiming there was no case here."

    "This office will never hesitate to go to trial to expose fraudulent corporate conduct and to hold companies accountable, particularly when it has caused such harm to the public," Bharara said.

    In late afternoon trading, Bank of America shares were down 27 cents at $14.25 on the New York Stock Exchange.

    The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

    (Reporting by Nate Raymond; Additional reporting by Jonathan Stempel; Editing by Leslie Gevirtz)

Attorney Mark Stopa Shows Guts Confronting Appellate Court Bias

Posted by Ari, Friday, October 4th, 2013 @ 9:52am


    Attorney Mark Stopa Shows Guts Confronting Appellate Court Bias

    by Neil Garfield

    I have just received a copy of a daring and tempestuous motion for rehearing en banc filed by the winner of the appeal. The homeowner won because of precedent, law and common sense; but the court didn't like their own decision and certified an absurd question to the Florida Supreme Court. The question was whether the Plaintiff in a foreclosure case needs to have standing at the commencement of the action. Whether it is jurisdictional or not (I think it is clearly jurisdictional) Stopa is both right on the law and right on his challenge to the Court on the grounds of BIAS.

    The concurring opinion of the court actually says that the court is ruling for the homeowner because it must --- but asserts that it is leading to a result that fails to expedite cases where the outcome of the inevitable foreclosure is never in doubt. In other words, the appellate court has officially taken the position that we know before we look at a foreclosure case that the bank should win and the homeowner should lose. The entire court should be recused for bias that they have put in writing. What homeowner can bring an action or defend an action where the outcome desired by the courts in that district have already decided that homeowners are deadbeats and their defenses are quite literally a waste of time? Under the rules, the Court should not hear the the motion for rehearing en banc, should vacate that part of the decision that sets up the rube certified question, and the justices who participated must be recused from hearing further appeals on foreclosure cases.

    Lest their be any mistake, and without any attempt to step on the toes of Stopa's courageous brief on an appeal he already won, I wish to piggy back on his brief and expand certain points. The problem here might be the subject of a federal due process action against the state. Judges who have already decided foreclosure or mortgage litigation cases before they even see them are not fit to hear them. It IS that simple.

    The question here was stated as the issue of standing at the commencement of the lawsuit. Does the bank need to have a claim before it files it? The question is so absurd that it is difficult to address without a joke. But this is not funny. The courts have rapidly evolved into a position that expedited decisions are better than fair decisions. There is NOTHING in the law that supports that position and thousands of cases that say the opposite is true under our system of law. Any judge who leans the other way should be recused or taken off the bench entirely.

    In lay terms, the Appellate Court's certified question would allow anyone who thinks they might have a claim in the future to file the lawsuit now. And the Court believes this will relieve the clogged court calendars. If this matter is taken seriously and the Supreme Court accepts the certified question for serious review it will merely by acceptance be making a statement that makes it possible for all kinds of claims that anticipate an injury.

    It is bad enough that judges appear to be ignoring the requirement that there must be an allegation that a loan was made by the originating party and that the Plaintiff actually bought the loan. This was an obvious requirement that was consistently required in pleading until the courts were clogged with mortgage litigation, at which point the court system tilted far past due process and said that if the borrower stopped paying there were no conditions under which the borrower could win the case.

    It is bad enough that Judges appear to be ignoring the requirement that the allegation that the Plaintiff will suffer financial damage unless relief is granted. This was an obvious requirement that was consistently required in pleading until the mortgage meltdown.

    Why is this important? Because the facts will show that lenders consistently violated basic and advanced protections that have been federal and State law for decades. These violations more often than not produced an unenforceable loan --- as pointed out in law suits by federal and state regulators, and as pointed out by the lawsuits of investors who were real lenders who are screwed each time the court enters foreclosure judgment in favor of the bank instead of the investor lenders.

    It is not the fault of borrowers that this mess was created. It is the fault of Wall Street Bankers who were working a scheme to defraud investors by diverting the real transaction and making it appear that the banks were principals in the loan transaction when in fact they were never real parties in interest. Nobody would seriously argue that this eliminates the debt. But why are we enforcing that debt with completely defective mortgage instruments in a process that confirms the fraud and ratifies it to the damage of investors who put up the money in the first place? The courts have made a choice that is unavailable in our system of law.

    This is also judicial laziness. If these justices want to weigh in on the mortgage mess, then they should have the facts and not the stories put forward by Wall Street that have been proven to be pure fiction, fabrication, lies and perjury. That the Court ignores what is plainly documented in hundreds of thousands of defective mortgage transactions and the behavior of banks that resulted in "strangers to the transaction" being awarded title to property --- that presents sufficient grounds to challenge any court in the system on grounds of bias and due process. If ever we had a mass hysteria for prejudging cases, this is it.


Posted by Ari, Tuesday, October 1st, 2013 @ 4:17pm



    Over the last two and a half years, Wells Fargo, like most of the major mortgage servicers, claimed that it had a “rigorous system” to insure that mortgage documents were accurate and complete. The reason this mattered was that there was significant evidence to the contrary. Foreclosure defense attorneys found repeatedly that, for securitized mortgages, the servicer or foreclosure mill attorney would present documents to the court that failed to show the borrower’s note (a promissory note) had been transferred properly to the trust. This mattered not only on a borrower level, but indicated that originators of the mortgage securitizations hadn’t bothered transferring the notes properly to the trusts that were to hold them. This raised the ugly specter of what was called “securitization fail,” that investors had been sold securities that they had been told were mortgage backed when they might in practice not be.

    The robosiging scandal was merely the tip of the iceberg of mortgage and foreclosure problems that resulted from the failure to adhere to the requirements of well-settled state real estate law. The banks maintained that there was nothing wrong with mortgage ownership or with the records. All they had were occasional errors and some unfortunate corners-cutting with affidavits. If they merely re-executed all those robosigned documents, all would be well.

    Wells Fargo’s own actions say the reverse. It has been doctoring documents in house for over fifteen months for borrowers who are targeted for foreclosure. It was having this sort of work done outside the bank for an unknown period of time prior to that.

    A contractor who worked at a Wells Fargo facility in Minnesota reports that the bank engaged in systematic, large scale alteration of mortgage notes and fabrication of related documents in preparation for foreclosure. The procedures the bank used are questionable for a large portion of the mortgages.

    A team of roughly 100 temps divided across two shifts would review borrower notes (the IOU) to see whether they met a set of requirements the bank set up. Any that did not pass (and notes in securitized trusts were almost always failed) went to another unit in the same facility. They would later come back to the review team to check if the fixes and fabrications had been done correctly.

    Not only is having Wells Fargo tamper with documents in this way dubious in many cases (more detail on that shortly), but amusingly, the bank does not even appear to be terribly competent at this sort of falsification. The bank changed procedures frequently, and did not go back to redo its prior work. In addition, it regularly took loans that appear to have been endorsed properly and changed them as well. Finally, even if the procedures had been proper, the temps were required to meet such aggressive production timetables and were so laxly supervised that it seems unlikely that their work was done well.

    This account confirms what foreclosure defense attorneys have reported for some time: that servicers have been engaging in document fabrication for some time. It’s not uncommon for a servicer or foreclosure mill to present “tah dah” documents that miraculously remedy the problems that homeowner attorneys have raised, sometimes resulting in clear proof of fabrication, like two different notes (borrower IOUs) having been presented to the court, each supposedly an original.

    But what is striking about this practice is both the brazenness and the scale. Our source was told that Wells Fargo added a second shift to its mortgage doctoring operation in November 2011; he* did not know when it had been established. Bank employees claimed that these operations had formerly been done by outside firms and the cost of doing it in-house was much lower than the cost of doing it externally. Apparently having plausible deniability was too expensive.

    We sought comment from Wells Fargo on these allegations and they declined to respond.

    Description of Mortgage Doctoring Operations

    The document fixing took place at 1000 Blue Gentian Road in Eagan, Minnesota, which the whistleblower described as an enormous facility, and ironically, one at which one of the 9/11 hijackers received flight training.

    The whistleblower worked with a team of 50-60 temps, one of the two shifts involved in checking documents before and after the “corrections” were made. The temps came via agencies, were required to have a college degree and pass a security clearance, and were paid roughly $13.00 to $14.50 an hour for eight hours (seven hours of work + breaks). The whistleblower said very few people (under 20%) had prior experience with mortgage documentation. Since Wells has a long-standing practice of promoting temps into permanent positions, the workers had a strong incentive to perform well. Our source worked for the bank for nine months.

    His unit would review mortgage documents of borrowers who were described as “in foreclosure” which he understood in practice meant they were delinquent but the foreclosure has not not been initiated. When our source arrived (spring 2011), they were in the process of doubling the work capacity of this effort. Wells Fargo beefed up in the wake of the state attorney general/Federal mortgage settlement of early 2012, evidently seeing it as a green light for more aggressive and systematic document fixing.

    This team had two tasks. The first was to review documents that were delivered periodically (often daily) to make sure they were in order. The part we’ll focus on is that they would check the notes to see if the endorsements matched up against what the bank wanted them to look like. (Regular readers of this blog will recall that mortgage notes are endorsed to convey ownership, and in foreclosures, attorneys often challenge the foreclosure if the borrower note does not show a complete and unbroken chain of endorsements to the party initiating the foreclosure). The whistleblower estimated that 99.5% of the notes that he reviewed that had been securitized failed the bank’s tests, and roughly 10% to 15% of the bank owned mortgages were tagged as “fails”.

    Mortgage notes that failed this review were sent to a neighboring section. Weeks later, they would come back to the same section with the corrections made, either in the form of new endorsements made to the note, or the addition of an allonge. An allonge is a separate piece of paper, attached (“affixed”) to a negotiable instrument so that more signatures can be added. They were virtually unheard of prior to the robosigining scandal, since in the normal course of business, there would be no reason to use an allonge (the margins and back of a note can be used for signatures). The people in his unit were then to check that this doctoring had been done correctly.

    The work environment had a peculiar combination of regimentation and chaos. The temps were given instructions that kept changing and were inconsistent over time (and remember, this worker joined after the state/Federal mortgage settlement was final):

    This was a document processing facility where we would go through the files that were already in the foreclosure pipeline, as decided by somebody else, so we would kind of source and classify each file according to, you know, various criteria. First of all, just make sure they’ve got all the parts, like the note and the mortgage and the title policy, and if they’ve got all those and they matched, then see if they’ve got the right information on them, the priority being on the, you know, the final endorsement on the note…

    One of the points I was going to make was, when we originally started, the protocol was very distinct for one as opposed to the other. And then rapidly states were passing laws, is what we were told, to change it, so that the number of OD {original document] states being fewer and fewer. Then after the second and third decree there was no distinction anymore. And it seemed like we were supposed to have original documents for everything at that point. So actually a lot of my impression is that there were several things that were a little strange that changed as some of these decrees went through. So like, that’s the second one I was going to mention, is when we were first trained, the way that you treated a standard loan file and a securitized loan file were very, very different, and there was a fairly strict protocol. You had to have a continuous chain of endorsement, had to have a final endorsement to Wells Fargo or one of its affiliates, for a note to pass. But, if it was securitized, you went to this LPS database called CPI, and there would be a list of, you know, however many people had once claimed to own this file, this note. And all of a sudden the continuous chain of endorsement rule went away and you didn’t necessarily use the last one, you would just pick one out of the list that matches your last endorsement and that was good enough.

    You can see how irregular this procedure was. Notice how the bank went from having the view that fewer and fewer states required a review and correction of original documents, then reversing itself and deciding all did.

    Similalry, if the temps were instructed to match a note to any listed party they could find on a Lender Processing Services database (which relies on manually input data and is thus not reliable), and it was not the final party, that means they are constructing a chain of title that is at odds with the bank’s own touted system of records. If the bank were serious about even getting its fixes right, for securitized loans, it would go to the pooling & servicing agreement and see what it stipulated as the chain of title and work from there. [Update: our source clarified upon seeing the post that once the were given only actual mortgage notes to work with, they were instructed to look for a complete chain of endorsements. That's an improvement over the previous process, but not necessarily sufficient. This is now playing on the lack of patience of judges in understanding how elaborately lawyered-up securitizations were supposed to work. A complete-looking chain might not be the proper or complete conveyance chain as set forth in the relevant PSA. This is basically looking to see if the documents look internally plausible enough to pass muster with most judges, rather than doing it correctly].

    It is important to point out that it perfectly OK for the bank to transfer notes it owns (loans owned by Wells Fargo entities, including banks it acquired) any time it wants to prior to foreclosure. Where this gets dodgy is on the securitized loans. These loans were supposed to have been transferred to the securitization trust, through a series of intermediary parties, with a complete and unbroken chain of endorsements on each borrower note. These transfers were to have been completed by a specified cut-off date, with a limited period of time after that for any document clean-up. The trustees on these deals provided multiple certifications to the effect that they had the notes in good order (which would mean the trust properly owned them, that is, all the transfers had been completed as reflected, among other things, in the note being endorsed correctly).

    The fact that Wells Fargo is dorking with documents on a mass basis at this late state is an indication of how little of the work that the mortgage industrial complex has kept insisting was done correctly was done at all.

    And this was a high-volume operation. Back to our source:

    There was a big board that would have inventory in and out for each shift on each day, but that is a little fuzzy. My recollection is that we could move anywhere between 5,000 and 11,000 files a day. A really slow day would be 3,000 for our shift and people might have to go home early. That happened a couple days a week for several weeks the last few months I was there. We generally measured the shift inventory in bins. We would have just a few bins on a slow day, but on a typical busy day there would be 25 to 35 bins full of files to go through.

    I’m getting fuzzy on what our hourly targets were. For electronic files I believe we were supposed to do at least 35 or more an hour. I also remember the number 55. I can’t remember if that was a target or not. With paper files I believe we were supposed to do at least 25 an hour, although after two or three months there wasn’t so much discussion of volume and the focus was mostly on accuracy. There were many who did more than this.

    These targets don’t seem to square with the daily final tallies I remember people putting in which ranged from 45-130 per person per shift. There were people who would double the target and people who were fairly below it.

    Let’s take the midpoint of his 45-130 files a shift range, which is 87.5. They worked 7 hour per shift. That’s under 5 minutes a file. That is to check not only that all the basic documents were there, but also to go into the CPI database, and possibly also into a backup spread sheet if the desired information was not in CPI, and look for a match.

    The objective was to have the final endorsement be “to blank” or what is more typically described as “in blank”. The whsileblower gave this example of how a note was supposed to look once it was corrected:

    I was checking to see if whoever had written out the new endorsements really had copied what was in CPI word for word, letter for letter. After checking the first couple with increased scrutiny, it became clear that they had copied them absolutely verbatim, only in a new endorsement to blank.

    Before it would be:

    Pay to the Order of

    Bear Stearns Trust, Pass through certificate holders 2003, VII.

    Without Recourse
    U.S. Bank

    Joe Blow,
    Vice President, U.S. Bank

    According to our training, that would be an incomplete and therefore invalid endorsement as the

    chain did not end with the final noteholder endorsing it to blank.

    In order to remedy that, they would add an additional endorsement:

    Pay to the Order of

    Without Recourse
    Bear Stearns Trust, Pass through certificate holders 2003, VII.

    Billy Cobham
    Vice President, Wells Fargo
    By power of attorney

    In this way, the note endorsed to the trust and stopping (an incomplete chain as I was taught at Wells) would be modified into a complete chain, The trust would endorse it to blank and that endorsement would be added by Wells power of attorney, I assumed, but was never directly informed, by way of its authority as servicer for the trust.

    Now what is peculiar about this is that our source reports that the notes were almost always endorsed to the trust (description includes Trust Series Name, Trust Number, Year). This is not only a permissible endorsement, some legal experts think it is the only sort of final endorsement that is proper.** So Wells also appears to be expending a great deal of effort doctoring documents that may be perfectly kosher (assuming the chain of title up to the trust is unbroken, something our source was not instructed to examine).

    None of the higher ups questioned the revisions to procedures:

    Generally, however, the whole process was a matter of ever changing orders and flowcharts to follow. There was next to nothing in the way of explanation even if you asked. It is my impression that the work directors didn’t have the slightest idea about the bigger picture, what was going on or that there might be a problem.

    And for a substantial period of time, the priority appeared to be production, not accuracy***:

    They would periodically restructure the flow chart to improve productivity. There were also a group of seven or eight auditors who were hired as “team members” out of the temp pool and effectively served as managers and who even did training near the end. They were the best informed regarding the process and the most hands on. They would also be involved in fixing oversights in the process flow charts. Their primary job was auditing assigned samples of each employee’s production per week and compiling statistics on them for the managers to see. These weekly stats were released in an email every week with all employees on the shift ranked by name in terms of productivity (files per working hour), and later in terms of accuracy.

    Our source stresses that the procedures became more “reasonable” over time, in terms of having more coherent internal logic and being less production-driven, but it still raises the question of the apparent failure to correct earlier documents (which were presumably used in foreclosures) and whether even the later “improved” processes were adequate or even permissible.

    Troubling Legal and Practical Issues

    It is not clear whether Wells Fargo could make these changes legally to private label (non-Freddie and Fannie) securitized mortgages. While our source believes that Wells may have gotten a power of attorney from the trustee to make these changes, the PSA does not appear to convey this authority to the trustee.**** And why would it? Making sure the notes were endorsed properly was something the trustee repeatedly certified it had done years ago.

    A party cannot convey authority to another party that it does not possess. So these document changes may be a complete legal fail.

    But even if they could be construed to be permissible, the process is clearly hugely flawed. The temps were inexperienced, and not well supervised, and under pressure to produce at unrealistic levels. They relied on a database of questionable accuracy. Procedures were changed so often and so radically that some clearly had to be wrong. And our source reports some of his colleagues waved through documents he would have failed.

    So we have document doctoring on top of widespread fraud. Welcome to property rights and records in America. If you are a borrower, you have to be punctilious in living up to your contractual commitments, or you can expect to have your lender use your lapse to maximum advantage. But if you are a bank, the government and courts will cast a blind eye to virtually any error. Anyone with any sense will avoid being in debt, which will ultimately be to the detriment of commerce. But it will take the authorities a long time to recognize that their efforts to save the system rather than reform it will only weaken it further.

    * We refer to all whistleblowers as male irrespective of gender.

    ** The overwhelming majority of mortgage securitizations elected New York for its governing law, precisely because its trust law is settled. But it is also very rigid. For a transfer to a New York trust to be valid, the assets need to be transferred to the trust, not just the trustee. However, this issue has rarely been raised in foreclosures, since it would add an large cost to hire New York trust experts to provide supporting testimony. Since pretty much all PSAs allowed for endorsement in blank, that is accepted in courts; the fight is usually over whether the chain of endorsements is complete and whether the final party is the one who is in court trying to foreclose. In fact, our source indicated: “They were almost alwaysn endorsed to a trust and then the endorsement chain would just stop there. ” So bizarrely, Wells Fargo was doctoring documents that were correct!

    *** The bank apparently started emphasizing accuracy more later in 2012, but with no redo of the earlier work, this appears to (at best) be an effort to shut the gate after the horse is in the next county. And as indicated, their ideas of “accuracy” appear subject to question.

    **** We contacted a securitization expert on this matter, who (not surprisingly) could not recall and did not find language in a PSA that authorized this sort of post-trust-closing endorsement. Via e-mail:

    So far, this is all I could find about the trustee signing title over to the master servicer (from section 3.14 of the PSA):

    Upon the occurrence of a Cash Liquidation or REO Disposition, following the deposit in the Custodial Account of all Insurance Proceeds, Liquidation Proceeds and other payments and recoveries referred to in the definition of “Cash Liquidation” or “REO Disposition,” as applicable, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or the Custodian, as the case may be, shall release to the Master Servicer the related Custodial File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in the Master Servicer or its designee, as the case may be, the related Mortgage Loan, and thereafter such Mortgage Loan shall

    not be part of the Trust Fund.

    But notice this section relates to a “Cash Liquidation or REO Disposition” and not in preparation for commencing a foreclosure action.

    One might try arguing from Section 3.01:

    The Trustee shall furnish the Master Servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer to service and administer the Mortgage Loans. The Trustee shall not be liable for any action taken by the Master Servicer or any Subservicer pursuant to such powers of attorney or other documents.

    But again, we have a problem of legitimate authority. If the note has not been conveyed to the trust properly, altering original mortgage documents arguably does not fall in the scope of servicing and administering the mortgages. Indeed, if the notes were not conveyed to the trust by the cutoff date, they are not the property of the trust and trustee lacks authority to take action. This is precisely the scenario that no one in the mortgage industry wanted examined closely, and why they’ve gone to such lengths to pretty up document trials to indicate otherwise.

    Read more at 


Posted by Ari, Friday, September 20th, 2013 @ 4:35pm


    September 20, 2013

    In a stunning ruling from the Ninth Judicial Circuit Court of Common Pleas of Charleston, South Carolina, a Judge has issued a detailed, 4-page written opinion dismissing a foreclosure action filed by Deutsche Bank National Trust Company as the claimed trustee of an IndyMac securitization, holding that DB failed to show that it was the owner and holder of the original Note and Mortgage at the time the Complaint was filed. FDN South Carolina network counsel Bill Sloan, Esq. represents the homeowner and prepared and argued the homeowner’s Motion to Dismiss.

    Counsel for DB made the familiar argument that it had possession of the original Note endorsed in blank, that the Note was a negotiable instrument under the UCC, that the Mortgage follows the Note, and that thus DB had established its right to foreclose. The Court disagreed, citing precedent from the United States Supreme Court’s decision in Carpenter v. Longan, 83 U.S. 271, 16 Wall. 271, 21 L.Ed. 313 (1872) which the Court found “clearly supports the notion that the Plaintiff must own the Note and the Mortgage to foreclose on the property (emphasis in the opinion).” The Court determined that “Plaintiff failed to show that it owned the Mortgage at the time the Complaint was filed”, and also noted that the Mortgage shows MERS to be the mortgagee but that “MERS is never mentioned in the Note.”

    The Court stated: “It is clear that to have standing in this foreclosure case, Plaintiff must not only be the holder and owner of the original Note, but also the Mortgage as well. Plaintiff’s Complaint in this case fails to meet this criteria. Plaintiff lacks standing to initiate and prosecute the foreclosure, and dismissal pursuant to Rule 17(a) and Rule 12(b)(6) SCRCP is appropriate.”

    This ruling is based on foreclosure law from the United States Supreme Court, which trumps any contrary state law which does not require the foreclosing Plaintiff to own both the Note and the Mortgage at the time that the foreclosure Complaint is filed. This ruling demonstrates the essential fallacy in the “UCC, I have the Note, mortgage follows the Note” theory espoused by every attorney for the banks and servicers. What remains to be seen is whether the judiciary handling foreclosure cases will follow the law of the U.S. Supreme Court or not.

    A copy of the Order is available upon e-mail request.

    Jeff Barnes, Esq.,

VICTORY for Homeowners: Received Title and 7 Figure Monetary Damages for Wrongful Foreclosure

Posted by Ari, Friday, September 13th, 2013 @ 10:44am


    VICTORY for Homeowners: Received Title and 7 Figure Monetary Damages for Wrongful Foreclosure


    by Neil Garfield

    As a California appellate court decision several years ago noted, “For homeowners struggling to avoid foreclosure, this dual tracking might go by another name: the double-cross.” - See more at:

    As a California appellate court decision several years ago noted, “For homeowners struggling to avoid foreclosure, this dual tracking might go by another name: the double-cross.” - See more at:

    "As a California appellate court decision several years ago noted, 'For Homeowners struggling to avoid foreclosure, this dual tracking might go by another name: the double-cross.'" Daniel Blackburn,, 9/11/13.

    Internet Store Notice: As requested by customer service, this is to explain the use of the COMBO, Consultation and Expert Declaration. The only reason they are separate is that too many people only wanted or could only afford one or the other — all three should be purchased. The Combo is a road map for the attorney to set up his file and start drafting the appropriate pleadings. It reveals defects in the title chain and inferentially in the money chain and provides the facts relative to making specific allegations concerning securitization issues. The consultation looks at your specific case and gives the benefit of litigation support consultation and advice that I can give to lawyers but I cannot give to pro se litigants. The expert declaration is my explanation to the Court of the findings of the forensic analysis. It is rare that I am actually called as a witness apparently because the cases are settled before a hearing at which evidence is taken.

    If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services. Get advice from attorneys licensed in the jurisdiction in which your property is located. We do provide litigation support — but only for licensed attorneys.

    Neil Garfield, the author of this article, and Danielle Kelley, Esq. are partners in the law firm of Garfield, Gwaltney, Kelley and White (GGKW) based in Tallahassee with offices opening in Broward County and Dade County.

    See LivingLies Store: Reports and Analysis


    Neil F Garfield, Esq., 9/13/13

    Victory in California, as we have predicted for years. Maria L. Hutkin and Jude J Basile were the attorneys for the homeowners and obviously did a fine job of exposing the truth. Their tenacity and perseverance paid off big time for their clients and themselves. They showed it is not over until the truth comes out. So for all of you who are saying you can't find a lawyer who "gets it" here are two lawyers that got it and won. And for all those who were screwed by the banks, it isn't over. Now it is your turn to get the rights and damages you deserve.

    Maria L. Hutkin and Jude J. Basile

    Maria L. Hutkin and Jude J. Basile

    The homeowners won flat out at a trial --- something that should have happened in most of the 6.6 million Foreclosures conducted thus far. U.S. Bank showed its ugly head again as the alleged Trustee of a trust that was most probably nonexistent, unfunded and without any assets at all much less the homeowners alleged loan. Still the settlement shows how far Wall Street will go to pay damages rather than admit their liability to investors, insurers, counterparties in credit default swaps, and the Federal Reserve.

    When you think of the hundreds of millions of wrongful foreclosures that were the subject of tens of billions of dollars in "settlements" that preserved homeowners rights to pursue further damages and do the math, it is obvious why even the total of all the "settlements" and fines were a tiny fraction of the total liability owed to pension funds and other investors, insurers, CDS parties, the Federal Government and of course the borrowers who never received a single loan from the banks in the first place. If 5 million foreclosures were wrongful, as is widely suspected at a minimum, using this case and some others I know about the damages could well exceed $5 Trillion. Simple math. Maybe that will wake up the good trial lawyers who think there is no case!

    Maria L. Hutkin and Jude J. Basile

    A fitting announcement on the 5th anniversary of the Lehman Brothers collapse. the economy is still struggling as more than 15 million American PEOPLE were displaced, lost equity and forced into bankruptcy by imperfect mortgages that were a sham, and thus imperfect foreclosures that were also a sham. Another 15 million PEOPLE will be displaced if these wrongful, illegal and morally corrupt sham foreclosures are allowed to continue.

    This case, like the recent case won by Danielle Kelley (partner of GGKW) was based upon dual tracking. In Kelley's case the homeowners had completed the process of getting an approved modification, which meant that underwriting, review, confirmation of data, and approval from the investor had been obtained. In Kelley's case the homeowner had made the trial payments in full and paid the taxes, insurance, utilities and maintenance of the property.

    The Bank argued they were under no obligation to fulfill the final step --- permanent modification. Kelley argued that a new contract was formed --- offer, acceptance and the consideration of payment that the Bank received, kept and credited to the homeowner's account. But the bank as Servicer was still accruing the payments due on the unmodified mortgage, which is why I have been harping on the topic of discovery on the money trail at origination, processing, and third party payments. 

    The accounting records of the subservicer and the Master Servicer should lead you to all actual transactions in which money exchanged hands, although getting to insurance payments and proceeds of credit default swaps might require discovery from the investment banker. So in Kelley's case, the Judge essentially said that if an agreement was reached and the homeowner met the requirements of a trial period, the deal was done and entered a final order in favor of the homeowner eliminating the the foreclosure with prejudice.

    In this One West case the court went a little further. The homeowners were lured into negotiations, expenses and augments under the promise of modification and then summarily without notice to the homeowner sold the property at a Trustee sale under the provisions of the deed of trust. The Judge agreed with counsel for the homeowners that this was dual tracking at its worst, and that the bank did not have the option of proceeding with the sale. 

    The homeowners were forced to vacate the property and make other housing arrangements and these particular homeowners were enraged and had the resources to do what most homeowners are too fearful to do --- go to the mat (go to trial.)

    One West made several offers of settlement once the Judge made it clear that the homeowners had stated a cause of action for wrongful foreclosure. Bravely the attorneys and the homeowners rejected settlement and insisted on a complete airing of their grievances so that everyone would know what happened to them. After multiple offers, with trial drawing near, OneWest finally agreed to give clear title back to the homeowners and pay $1 million+ in damages on what was a six figure loan. 

    We now have cases in both judicial and non-judicial jurisdictions in which the homeowner was awarded the house without encumbrance of a mortgage and even receiving monetary damages in which the attorneys achieved substantial rewards on 7 figure settlements  that probably would be much higher if they ever went to trial --- particularly in front of a jury. This is only one of the paths to successful foreclosure defense. I hope attorneys and homeowners take note. Your anger can be channeled into a constructive path if the lawyers know how to understand these loans, and how to litigate them.

    "There's hope. I feel their pain." --- Danielle Kelley, Esq. , partner in Garfield, Gwaltney, Kelley and White. ing. #elO the homeowners had completed the process of getting an approved modification, which meant that underwriting, review, confirmation of data, and approval from the investor had been obtained. In Kelley's case the homeowner had made the trial payments in full and paid the taxes, insurance, utilities and maintenance of the property.
    The Bank argued they were under no obligation to fulfill the final step --- permanent modification.
    Kelley argued that a new contract was formed --- offer, acceptance and the consideration of payment that the Bank received, kept and credited to the homeowner's account. But the bank as Servicer was still accruing the payments due on the unmodified mortgage, which is why I have been harping on the topic of discovery on the money trail at origination, processing, and third party payments. 

    The accounting records of the subservicer and the Master Servicer should lead you to all actual transactions in which money exchanged hands, although getting to insurance payments and proceeds of credit default swaps might require discovery from the investment banker. So in Kelley's case, the Judge essentially said that if an agreement was reached and the homeowner met the requirements of a trial period, the deal was done and entered a final order in favor of the homeowner eliminating the the foreclosure with prejudice.

    In this One West case the court went a little further. The homeowners were lured into negotiations, expenses and augments under the promise of modification and then summarily without notice to the homeowner sold the property at a Trustee sale under the provisions of the deed of trust. The Judge agreed with counsel for the homeowners that this was dual tracking at its worst, and that the bank did not have the option of proceeding with the sale. 


    The homeowners were forced to vacate the property and make other housing arrangements and these particular homeowners were enraged and had the resources to do what most homeowners are too fearful to do --- go to the mat (go to trial.)

    One West made several offers of settlement once the Judge made it clear that the homeowners had stated a cause of action for wrongful foreclosure. Bravely the attorneys and the homeowners rejected settlement and insisted on a complete airing of their grievances so that everyone would know what happened to them. After multiple offers, with trial drawing near, OneWest finally agreed to give clear title back to the homeowners and pay $1 million+ in damages on what was a six figure loan. 

    We now have cases in both judicial and non-judicial jurisdictions in which the homeowner was awarded the house without encumbrance of a mortgage and even receiving monetary damages in which the attorneys achieved substantial rewards on 7 figure settlements  that probably would be much higher if they ever went to trial --- particularly in front of a jury. This is only one of the paths to successful foreclosure defense. I hope attorneys and homeowners take note. Your anger can be channeled into a constructive path if the lawyers know how to understand these loans, and how to litigate them.

    "There's hope. I feel their pain." --- Danielle Kelley, Esq. , partner in Garfield, Gwaltney, Kelley and White.

    Neil Garfield | September 13, 2013 at 10:23 am | Tags: CALIFORNIA, Danielle Kelley, GGKW, Greg and Irene Rigali, Jude J. Basile, Judge Charles S. Crandall, Lehman Brothers, Maria L. Hutkin, OneWest, Rik Tozzi, Steve Mnuchin, U.S. Bank, wrongful foreclosure | Categories: AMGAR, CDO, CORRUPTION, Eviction, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, Investor, Mortgage, securities fraud, Servicer | URL:


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Posted by Ari, Monday, August 19th, 2013 @ 1:10pm



    by Neil Garfield

    "We are still in the death grip of the banks as they attempt to portray themselves as the bulwarks of society even as they continue to rob us of homes, lives, jobs and vitally needed capital which is being channeled into natural resources so that when we commence the gargantuan task of repairing our infrastructure we can no longer afford it and must borrow the money from the thieves who created the gaping hole in our economy threatening the soul of our democracy." Neil Garfield,

    We all know that dozens of people rose to power in Europe and Asia in the 1930's and 1940's who turned the world on its head and were responsible for the extermination of tens of millions of people. World War II still haunts us as it projected us into an arms race in which we were the first and only country to kill all the people who lived in two cities in Japan. The losses on both sides of the war were horrendous.

    Some of us remember the revelations in 1982 that the United States actively recruited unrepentant Nazi officers and scientists for intelligence and technological advantages in the coming showdown with what was known as the Soviet Union. Amongst the things done for the worst war criminals was safe passage (no prosecution for war crimes) and even new identities created by the United States Department of Justice. Policy was created that diverted richly deserved consequences into rich rewards for knowledge. With WWII in the rear view mirror policy-makers decided to look ahead and prepare for new challenges.

    Some of us remember the savings and loans scandals where banks nearly destroyed everything in the U.S. marketplace in the 1970's and 1980's. Law enforcement went into high gear, investigated, and pieced together the methods and complex transactions meant to hide the guilt of the main perpetrators in and out of government and the business world. More than 800 people went to jail. Of course, none of the banks had achieved the size that now exists in our financial marketplace.

    Increasing the mass of individual financial institutions produced a corresponding capacity for destruction that eclipsed anything imagined by anyone outside of Wall Street. The exponentially increasing threat was ignored as the knowledge of Einstein’s famous equation faded into obscurity. The possibilities for mass destruction of our societies was increasing exponentially as the mass of giant financial service companies grew and the accountability dropped off when they were allowed to incorporate and even sell their shares publicly, replacing a system, hundreds of years old in which partners were ultimately liable for losses they created.

    The next generation of world dominators would be able to bring the world to its knees without firing a shot or gassing anyone. Institutions grew as malignancies on steroids and created the illusion of contributing half our gross domestic product while real work, real production and real inventions were constrained to function in a marketplace that had been reduced by 1/3 of its capacity --- leaving the banks in control of  $7 trillion per year in what was counted as gross domestic product. Our primary output by far was trading paper based upon dubious and fictitious underlying transactions; if those transactions had existed, the share of GDP attributed to financial services would have remained at a constant 16%. Instead it grew to half of GDP.  The "paradox" of financial services becoming increasingly powerful and generating more revenues than any other sector while the rest of the economy was stagnating was noted by many, but nothing was done. The truth of this "paradox" is that it was a lie --- a grand illusion created by the greatest salesmen on Wall Street.

    So even minimum wage lost 1/3 of its value adjusted for inflation while salaries, profits and bonuses were conferred upon people deemed as financial geniuses as a natural consequence of believing the myths promulgated by Wall Street with its control over all forms of information, including information from the government.

    But calling out Wall Street would mean admitting that the United States had made a wrong turn with horrendous results. No longer the supreme leader in education, medical care, crime, safety, happiness and most of all prospects for social and economic mobility, the United States had become supreme only through its military strength and the appearance of strength in the world of high finance, its currency being the world’s reserve despite the reality of the ailing economy and widening inequality of wealth and opportunity --- the attributes of a banana republic.

    All of us remember the great crash of 2008-2009. It was as close as could be imagined to a world wide nuclear attack, resulting in the apparent collapse of economies, tens of millions of people being reduced to poverty, tossed out of their homes, sleeping in cars, divorces, murder, riots, suicide and the loss of millions of jobs on a rising scale (over 700,000 per month when Obama took office) that did not stop rising until 2010 and which has yet to be corrected to figures that economists say would mean that our economy is functioning at proper levels. Month after month more than 700,000 people lost their jobs instead of a net gain of 300,000 jobs. It was a reversal of 1 million jobs per month that could clean out the country and every myth about us in less than a year.

    The cause lay with misbehavior of the banks --- again. This time the destruction was so wide and so deep that all conditions necessary for the collapse of our society and our government were present. Policy makers, law enforcement and regulators decided that it was better to maintain the illusion of business as usual in a last ditch effort to maintain the fabric of our society even if it meant that guilty people would go free and even be rewarded. It was a decision that was probably correct at the time given the available information, but it was a policy based upon an inaccurate description of the disaster written and produced by the banks themselves. Once the true information was discovered the government made another wrong turn --- staying the course when the threat of collapse was over. In a sense it was worse than giving Nazi war criminals asylum because at the time they were protected by the Department of Justice their crimes were complete and there existed little opportunity for them to repeat those crimes. It could be fairly stated that they posed no existing threat to safety of the country. Not so for the banks.

    Now as all the theft, deceit and arrogance are revealed, the original premise of the DOJ in granting the immunity from prosecution was based upon fraudulent information from the very people to whom they were granting safe passage. We have lost 5 million homes in foreclosure from their past crimes, but we remain in the midst of the commission of crimes --- another 5 million illegal, wrongful foreclosures is continuing to wind its way through the courts.

    Not one person has been prosecuted, not one statement has been made acknowledging the crimes, the continuing deceit in sworn filings with regulators, and the continuing drain on the economy and our ability to finance and capitalize on innovation to replace the lost productivity in real goods and services.

    We are still in the death grip of the banks as they attempt to portray themselves as the bulwarks of society even as they continue to rob us of homes, lives, jobs and vitally needed capital which is being channeled into natural resources so that when we commence the gargantuan task of repairing our infrastructure we can no longer afford it and must borrow the money from the thieves who created the gaping hole in our economy threatening the soul of our democracy. If the crimes were in the rear view mirror one could argue that the policy makers could make decisions to protect our future. But the crimes are not just in the rear view mirror. More crimes lie ahead with the theft of an equal number of millions of homes based on false and wrongful foreclosures deriving their legitimacy from an illusion of debt --- an illusion so artfully created that most people still believe the debts exist. Without a very sophisticated knowledge of exotic finance it seems inconceivable that a homeowner could receive the benefits of a loan and at the same time or shortly thereafter have the debt extinguished by third parties who were paid richly for doing so.

    Job creation would be unleashed if we had the courage to stop the continuing fraud. It is time for the government to step forward and call them out, stop the virtual genocide and let the chips fall where they might when the paper giants collapse. It’s complicated, but that is your job. Few people lack the understanding that the bankers behind this mess belong in jail. This includes regulators, law enforcement and even judges. but the "secret" tacit message is not to mess with the status quo until we are sure it won't topple our whole society and economy.

    The time is now. If we leave the bankers alone they are highly likely to cause another crash in both financial instruments and economically by hoarding natural resources until the prices are intolerably high and we all end up pleading for payment terms on basic raw materials for the rebuilding of infrastructure. If we leave them alone another 20 million people will be displaced as more than 5 million foreclosures get processed in the next 3-4 years. If we leave them alone, we are allowing a clear and present danger to the future of our society and the prospects for safety and world peace. Don't blame Wall Street --- they are just doing what they were sent to do --- make money. You don't hold the soldier responsible for firing a bullet when he was ordered to do so. But you do blame the policy makers that him or her there. And you stop them when the policy is threatening another crash.

    Stop them now, jail the ones who can be prosecuted, and take apart the large banks. IMF economists and central bankers around the world are looking on in horror at the new order of things hoping that when the United States has exhausted all other options, they will finally do the right thing. (see Winston Churchill quote to that effect).

    But forget not that the ultimate power of government is in the hands of the people at large and that the regulators and law enforcement and judges are working for us, on our nickle. Action like Occupy Wall Street is required and you can see the growing nature of that movement in a sweep that is entirely missed by those who arrogantly pull the levers of power now. OWS despite criticism is proving the point --- it isn't new leaders that will get us out of this --- it is the withdrawal of consent of the governed one by one without political affiliation or worshiping sound sound biting, hate mongering politicians.

    People have asked me why I have not until now endorsed the OWS movement. The reason was that I wanted to give them time to see if they could actually accomplish the counter-intuitive result of exercising power without direct involvement in a corrupt political process. They have proven the point and they are likely to be a major force undermining the demagogues and greedy bankers and businesses who care more about their bottom line than their society that gives them the opportunity to earn that bottom line.

    New Fraud Evidence Shows Trillions Of Dollars In Mortgages Have No Owner

The Secret Lawsuit Has Finally Been Revealed- Your Mortgage Documents Are Fake (And Your Foreclosure Is a Fraud!)

Posted by Ari, Friday, August 16th, 2013 @ 4:49pm

  • August 12, 2013

    by Matt Weidner


    The enormity of the crimes that have been committed against defendants in foreclosure cases is easy for much of society to ignore.  Those who are defendants in foreclosure cases are, after all, those who deserve to suffer the consequences of failed generations of economic policy.  Those who are defendants in foreclosure cases are, after all, the people that deserve scorn and disgust and contempt because they chose to live in a country that gave away their jobs, their industry, their future.

    But far worse than the crimes and the consequences for the millions of Americans that are victims of the largest organized crime spree in the history of mankind is the fact that in order to accomplish this crime spree the criminals and their counterparts destroyed our nation’s civil legal system.

    Make no mistake, the “foreclosure crisis” as it has played out, and as it continues to play out all across this country is a complex and interconnected series of state sponsored crimes.  The crimes began when the loans were made, continued when the loans were sold to investors, continued when mortgage payments were loaded onto the international PONZI scheme that is mortgage securitization, then really ramped up when the criminals continued their crime sprees in state and federal courts all across this country.

    The crime spree called foreclosure that continues to play out in homes and neighborhoods all across this country could not have occurred if our courts did not agree to become partners in the crime spree.

    Our nation’s court system is in fact desecrated, destroyed, a crumbled heap of what it once was.  We were a nation of laws.  America was a nation that was governed, ultimately, by judges and a legal system that served a larger societal and historical purpose.  At one point in time, judges and our nation’s court system recognized that the function of the court system was to protect The People and The Nation from the out of control evil and corporate interests that brought us all robo signing and foreclosure fraud and LIBOR rigging and HSBC money laundering and everything that is our national banking system.

    To this day, banks foreclose on borrowers using fraudulent mortgage assignments, a legacy of failing to prosecute this conduct and instead letting banks pay a fine to settle it. This disappoints Szymoniak, who told Salon the owner of these loans is now essentially “whoever lies the most convincingly and whoever gets the benefit of doubt from the judge.

    Allegations from today’s lawsuit:

    The defendants concealed that the notes and the assignments were never delivered to the MBS trusts and disseminated false and misleading statements to the investors, including the U.S. government and the States of California, Delaware, Florida, Hawaii, Illinois, Indiana, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Virginia, District of Columbia, the City of Chicago and the City of New York.

    Relator conducted her own investigations in furtherance of a False Claims Act qui tam action and found that the Defendants pursued and continue to pursue foreclosure actions using false and fabricated documents, particularly mortgage assignments. The Defendants used robo-signers who signed thousands of documents each week with no review nor any knowledge of their contents and created forged mortgage assignments using fraudulent titles in order to proceed with foreclosures. The Defendants used these fraudulent mortgage assignments to conceal that over 1400 MBS trusts, each with mortgages valued at over $1 billion, are missing critical documents, namely, the mortgage assignments that were required to have been delivered to the trusts at the inception of the trust. Without lawfully executed mortgage assignments, the value of the mortgages and notes held by the trusts is impaired because effective assignments are necessary for the trust to foreclose on its assets in the event of mortgage defaults and because the trusts do not hold good title to the loans and mortgages that investors have been told secure the notes.

    The fraud carried out by the Defendants in this case includes, inter alia: Mortgage assignments with forged signatures of the individuals signing on behalf of the grantors, and forged signatures of the witnesses and the notaries;

    • Mortgage assignments with signatures of individuals signing as corporate officers for banks and mortgage companies that never employed them;
    • Mortgage assignments prepared and signed by individuals as corporate officers of mortgage companies that had been dissolved by bankruptcy years prior to the assignment;
    • Mortgage assignments prepared with purported effective dates unrelated to the date of any actual or attempted transfer (and in the case of trusts, years after the closing date of the trusts);
    • Mortgage assignments prepared on behalf of grantors who had never themselves acquired ownership of the mortgages and notes by a valid transfer, including numerous such assignments where the grantor was identified as “Bogus Assignee for Intervening Assignments;” and
    • Mortgage assignments notarized by notaries who never witnessed the signatures that they notarized.

    The MBS Trusts and their trustees, depositors and servicing companies further misrepresented to the public the assets of the Trusts and issued false statements in their prospectuses and certifications of compliance.

Your mortgage documents are fake!

Posted by Ari, Monday, August 12th, 2013 @ 2:36pm

  • Your mortgage documents are fake!

    Prepare to be outraged. Newly obtained filings from this Florida woman's lawsuit uncover horrifying scheme (Update)

    Your mortgage documents are fake!

    Lynn Szymoniak (Credit: CBS News/60 MInutes)


    By David Dayen


    If you know about foreclosure fraud, the mass fabrication of mortgage documents in state courts by banks attempting to foreclose on homeowners, you may have one nagging question: Why did banks have to resort to this illegal scheme? Was it just cheaper to mock up the documents than to provide the real ones? Did banks figure they simply had enough power over regulators, politicians and the courts to get away with it? (They were probably right about that one.)

    A newly unsealed lawsuit, which banks settled in 2012 for $95 million, actually offers a different reason, providing a key answer to one of the persistent riddles of the financial crisis and its aftermath. The lawsuit states that banks resorted to fake documents because they could not legally establish true ownership of the loans when trying to foreclose.

    This reality, which banks did not contest but instead settled out of court, means that tens of millions of mortgages in America still lack a legitimate chain of ownership, with implications far into the future. And if Congress, supported by the Obama Administration, goes back to the same housing finance system, with the same corrupt private entities who broke the nation’s private property system back in business packaging mortgages, then shame on all of us.

    The 2011 lawsuit was filed in U.S. District Court in both North and South Carolina, by a white-collar fraud specialist named Lynn Szymoniak, on behalf of the federal government, seventeen states and three cities. Twenty-eight banks, mortgage servicers and document processing companies are named in the lawsuit, including mega-banks like JPMorgan Chase, Wells Fargo, Citi and Bank of America.

    Szymoniak, who fell into foreclosure herself in 2009, researched her own mortgage documents and found massive fraud (for example, one document claimed that Deutsche Bank, listed as the owner of her mortgage, acquired ownership in October 2008, four months after they first filed for foreclosure). She eventually examined tens of thousands of documents, enough to piece together the entire scheme.

    A mortgage has two parts: the promissory note (the IOU from the borrower to the lender) and the mortgage, which creates the lien on the home in case of default. During the housing bubble, banks bought loans from originators, and then (in a process known as securitization) enacted a series of transactions that would eventually pool thousands of mortgages into bonds, sold all over the world to public pension funds, state and municipal governments and other investors. A trustee would pool the loans and sell the securities to investors, and the investors would get an annual percentage yield on their money.

    In order for the securitization to work, banks purchasing the mortgages had to physically convey the promissory note and the mortgage into the trust. The note had to be endorsed (the way an individual would endorse a check), and handed over to a document custodian for the trust, with a “mortgage assignment” confirming the transfer of ownership. And this had to be done before a 90-day cutoff date, with no grace period beyond that.

    Georgetown Law Professor Adam Levitin spelled this out in testimony before Congress in 2010: “If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever.”

    The lawsuit alleges that these notes, as well as the mortgage assignments, were “never delivered to the mortgage-backed securities trusts,” and that the trustees lied to the SEC and investors about this. As a result, the trusts could not establish ownership of the loan when they went to foreclose, forcing the production of a stream of false documents, signed by “robo-signers,” employees using a bevy of corporate titles for companies that never employed them, to sign documents about which they had little or no knowledge.

    Many documents were forged (the suit provides evidence of the signature of one robo-signer, Linda Green, written eight different ways), some were signed by “officers” of companies that went bankrupt years earlier, and dozens of assignments listed as the owner of the loan “Bogus Assignee for Intervening Assignments,” clearly a template that was never changed. One defendant in the case, Lender Processing Services, created masses of false documents on behalf of the banks, often using fake corporate officer titles and forged signatures. This was all done to establish standing to foreclose in courts, which the banks otherwise could not.

    Szymoniak stated in her lawsuit that, “Defendants used fraudulent mortgage assignments to conceal that over 1400 MBS trusts, each with mortgages valued at over $1 billion, are missing critical documents,” meaning that at least $1.4 trillion in mortgage-backed securities are, in fact, non-mortgage-backed securities. Because of the strict laws governing of these kinds of securitizations, there’s no way to make the assignments after the fact. Activists have a name for this: “securitization FAIL.”

    One smoking gun piece of evidence in the lawsuit concerns a mortgage assignment dated February 9, 2009, after the foreclosure of the mortgage in question was completed. According to the suit, “A typewritten note on the right hand side of the document states:  ‘This Assignment of Mortgage was inadvertently not recorded prior to the Final Judgment of Foreclosure… but is now being recorded to clear title.’”

    This admission confirms that the mortgage assignment was not made before the closing date of the trust, invalidating ownership. The suit further argued that “the act of fabricating the assignments is evidence that the MBS Trust did not own the notes and/or the mortgage liens for some assets claimed to be in the pool.”

    The federal government, states and cities joined the lawsuit under 25 counts of the federal False Claims Act and state-based versions of the law. All of them bought mortgage-backed securities from banks that never conveyed the mortgages or notes to the trusts. The plaintiffs argued that, considering that trustees and servicers had to spend lots of money forging and fabricating documents to establish ownership, they were materially harmed by the subsequent impaired value of the securities. Also, these investors (which includes the Treasury Department and the Federal Reserve) paid for the transfer of mortgages to the trusts, yet they were never actually transferred.

    Finally, the lawsuit argues that the federal government was harmed by “payments made on mortgage guarantees to Defendants lacking valid notes and assignments of mortgages who were not entitled to demand or receive said payments.”

    Despite Szymoniak seeking a trial by jury, the government intervened in the case, and settled part of it at the beginning of 2012, extracting $95 million from the five biggest banks in the suit (Wells Fargo, Bank of America, JPMorgan Chase, Citi and GMAC/Ally Bank). Szymoniak herself was awarded $18 million. But the underlying evidence was never revealed until the case was unsealed last Thursday.

    Now that it’s unsealed, Szymoniak, as the named plaintiff, can go forward and prove the case. Along with her legal team (which includes the law firm of Grant & Eisenhoffer, which has recovered more money under the False Claims Act than any firm in the country), Szymoniak can pursue discovery and go to trial against the rest of the named defendants, including HSBC, the Bank of New York Mellon, Deutsche Bank and US Bank.

    The expenses of the case, previously borne by the government, now are borne by Szymoniak and her team, but the percentages of recovery funds are also higher. “I’m really glad I was part of collecting this money for the government, and I’m looking forward to going through discovery and collecting the rest of it,” Szymoniak told Salon.

    It’s good that the case remains active, because the $95 million settlement was a pittance compared to the enormity of the crime. By the end of 2009, private mortgage-backed securities trusts held one-third of all residential mortgages in the U.S. That means that tens of millions of home mortgages worth trillions of dollars have no legitimate underlying owner that can establish the right to foreclose. This hasn’t stopped banks from foreclosing anyway with false documents, and they are often successful, a testament to the breakdown of law in the judicial system. But to this day, the resulting chaos in disentangling ownership harms homeowners trying to sell these properties, as well as those trying to purchase them. And it renders some properties impossible to sell.

    To this day, banks foreclose on borrowers using fraudulent mortgage assignments, a legacy of failing to prosecute this conduct and instead letting banks pay a fine to settle it. This disappoints Szymoniak, who told Salon the owner of these loans is now essentially “whoever lies the most convincingly and whoever gets the benefit of doubt from the judge.” Szymoniak used her share of the settlement to start the Housing Justice Foundation, a non-profit that attempts to raise awareness of the continuing corruption of the nation’s courts and land title system.

    Most of official Washington, including President Obama, wants to wind down mortgage giants Fannie Mae and Freddie Mac, and return to a system where private lenders create securitization trusts, packaging pools of loans and selling them to investors. Government would provide a limited guarantee to investors against catastrophic losses, but the private banks would make the securities, to generate more capital for home loans and expand homeownership.

    That’s despite the evidence we now have that, the last time banks tried this, they ignored the law, failed to convey the mortgages and notes to the trusts, and ripped off investors trying to cover their tracks, to say nothing of how they violated the due process rights of homeowners and stole their homes with fake documents.

    The very same banks that created this criminal enterprise and legal quagmire would be in control again. Why should we view this in any way as a sound public policy, instead of a ticking time bomb that could once again throw the private property system, a bulwark of capitalism and indeed civilization itself, into utter disarray? As Lynn Szymoniak puts it, “The President’s calling for private equity to return. Why would we return to this?”

    Update: This story previously suggested that banks settled this lawsuit with the federal government for $1 billion. That number is actually the total for a number of whistleblower lawsuits that were folded into a larger National Mortgage Settlement. This specific lawsuit settled for $95 million. The post above has been changed to reflect this fact.

    David Dayen is a contributing writer for Salon. Follow him on Twitter at @ddayen.

Criminal and Civil Actions Against Chase and BofA Creep Forward

Posted by Ari, Thursday, August 8th, 2013 @ 1:13pm


    Criminal and Civil Actions Against Chase and BofA Creep Forward

    by Neil Garfield

    The Department of Justice and the Securities and Exchange Commission are proceeding from the wrong presumption. They are starting with public policy and politics instead of enforcement of the law to maintain the fabric of our society. It results in the rule of man rather than the rule of law. And it is tearing us apart even if government refuses to talk about and mainstream medium refuses to report on it despite the constant drum beat of new lawsuits and new settlements of bank wrongdoing.

    Hardly a day goes by without some settlement being announced with respect to the sale of fraudulent securities to investors. Now we have announcements that Bank of America and Chase are being investigated and sued for civil and criminal behavior with respect to the sale of mortgage bonds to investors.

    They have framed their complaints in such a way that it is presumed that proper procedure was followed in the origination and assignment of loans while at the same time they are alleging that proper procedure was not followed in the origination and assignment of loans. The difference is only whether they are saying the victims are the investors or they are ignoring the fact that the victims include the homeowners. It is like a scene from Gulliver's Travels where the incredibly ridiculous is taken as true. Investors should be restored but homeowners may be cheated and bear most of the burden of the bank's misbehavior because it is convenient to do so.

    Once again we have agency determination of wrongdoing and still we have a judicial system that is more concerned with validating the illegal mortgages and validating illegal foreclosure judgments and validating illegal foreclosure auctions and validating deeds issued from illegal foreclosure auctions and validating evictions of homeowners who legally should be declared the owner of the home free and clear of any encumbrance and frankly free and clear of any debt which by now has been paid multiple times by third parties who have no interest in pursuing the homeowners for payment.

    This is going to be decided on a case-by-case basis in the judicial system and only successful where the attorney for the homeowner is extremely aggressive on discovery. Otherwise, the public policy and mainstream media will control the narrative on each case such that despite fatally defective fabricated documents with false signatures were used in the origination and assignment of the mortgage loan.

    Attorneys have to be creative in explaining how the fraudulent sale of securities to investors is tied to the fraudulent sale of a loan product to homeowners. But you can start with the single transaction doctrine in which it can be stated with considerable certainty that had the investors known what was going on in the origination and transfer of loans they never would have advanced a penny. And the borrowers would never have signed the documents if they knew that an inflated appraisal was used in making the loan unreasonable and very expensive once the true value of the property was reflected in the marketplace. Borrowers would also have never signed documents if they knew that the  undisclosed intermediaries were making a mystery profit that amounted to far more than the amount of the alleged principal due on the mortgage. They would not have signed the documents if they knew that their identities were being stolen and traded.

    In other words, if federal law had been followed requiring the disclosure of all compensation and all parties to the loan transaction, none of the transactions would have occurred. The federal law is the federal truth in lending act and the federal real estate settlement and procedures act. Qualified written requests and debt validation letters are treated as jokes in the industry and irrelevant in court.

    The banks are rolling in money while the rest of the economy struggles. How is that possible? Answer: they are taking the money owed to investors and which would erase the debt and they are keeping it thus maintaining the illusion that the loan to the homeowner has not been paid.

Perils of Pooling: OneWest

Posted by Ari, Wednesday, July 31st, 2013 @ 12:37pm


    Perils of Pooling: OneWest

    by Neil Garfield

    Apparently my article yesterday hit a nerve. NO I wasn't saying that the only problems were with BofA and Chase. OneWest is another example. Keep in mind that the sole source of information to regulators and the courts are the ONLY people who understand mergers and acquisitions. So it is a little like one of those TV shows where the only way they can get an arrest and conviction is for the perpetrator or suspect to confess. In this case, they "confess" all kinds of things to gain credibility and then lead the agencies and judicial system down a rabbit hole which is now a well trodden path. So many people have gone down that hole that most people that is the way to get to the truth. It isn't. It is part of a carefully constructed series of complex conflicting lies designed carefully by some very smart lawyers who understand not just the law but the way the law works. The latter is how they are getting away with it.

    Back to OneWest, which we have detailed in the past.

    The FDIC has posted the agreement at

    OneWest was created almost literally overnight (actually over a weekend) by some highly placed players from Wall Street. There is an 80% loss sharing arrangement with the FDIC and yes, there appears to be some grey area about ownership of the loans because of that loss sharing agreement. But the evidence of a transaction in which the loans were actually purchased by a brand new entity that was essentially unfunded is completely absent. And that is because OneWest and Deutsch take the position that the loans were securitized despite IndyMac's assurances to the contrary. The only loans in which OneWest appears to be a player are those in which the loan was subject to (false) claims of securitization. No money went to the trustee, no money went to the trust, no assets went into the pool because the REMIC asset pool lacked the funding to purchase any assets.

    Add to that a few facts. Deutsch is usually the "trustee"of the REMIC asset pool, but Reynaldo Reyes says he has nothing to do. He has no trust accounts and makes no decisions and performs no actions. Sound familiar. I have him on tape and his deposition has already been taken and publicized on the internet by others. Reyes says the whole arrangement is "counter-intuitive" (a very creative way of saying it is a lie). It is up to the servicer (OneWest) to decide what loans are subject to modification, mediation or even reinstatement. It is up to the servicer as to when to foreclose. And the servicer here is OneWest while the Master Servicer appears to be the investment banking arm of Deutsch, although I do not have that confirmed.

    The way Reyes speaks about it the whole thing ALMOST makes sense. That is, until you start thinking about it. If Deutsch Bank has an extensive trust subsidiary, which it does, then why is a VP of asset management in control of the trust operations of the REMIC asset pools. Answer: because there are no funded trusts and there are no asset pools with assets. Hence any statement by OneWest that it is the owner of the loan is untrue as is the allegation that Deutsch is the trustee because all trustee duties have been delegated to the servicer. That leaves the investor with an empty box for an asset pool and no trustee or manager or even an agent to to actually know what is going on or who is monitoring their money and investments.

    Note that like BOfA using Red Oak Merger Corp., there is the creation of a fictional entity that was not used by the name of, no kidding, "Holdco." This is to shield OneWest from certain liabilities as a lender. Legally it doesn't work that way but practically it generally does work that way because judges listen to bank lawyers to tell them what all this means. That is like asking a 1st degree murder defendant to explain to the jury the meaning of reasonable doubt.

    Now be careful here because there is a "loan sale" agreement referenced in the package posted by the FDIC. But it refers to an exhibit F. There is no exhibit F and like the ambiguous agreements with the FDIC in Countrywide and Washington mutual, there are words there, but they don't really say anything. Suffice it to say that despite some fabricated documents to the contrary, there is no evidence I have seen that any loan  receivable was transferred to or from a REMIC asset pool, Indy-mac, or Hold-co.

    These people were not stupid and they are not idiots. And their lawyers are pretty smart too. They know that with the presumption of a funded loan in existence, the banks could pretty much get away with saying anything they wanted about the ownership, the identity of the creditor and the ability to make a credit bid at the auction of a property that should never have been foreclosed in the first instance --- and certainly not by these people.

    But if you dig just a little deeper you will see that the banks are represented to the regulatory authorities that they own the bonds (not true because the bonds were created and issued to specific investors who bought them); thus they include the bonds as significant items on their balance sheet which allows them to be called mega banks or too big to fail when in fact they have a tiny fraction of the reserve requirements of the Federal Reserve which follows the Basel accords.

    Then when you turn your head and peak into courtrooms you find the same banks claiming ownership of the loan receivable, which was created when the funding occurred at the "closing" of the loan. They know they are taking inconsistent positions but most judges lack the sophistication to pinpoint the inconsistency. And that is how 5 million people lost their homes.

    On the one hand the banks are claiming there was no fraud in the issuance of mortgage backed bonds by a REMIC asset pool formed as a trust. In fact, they say the loans were transferred into the REMIC asset pool. Which means that ownership of the mortgage bonds is ownership of the loans --- at least that is what the paperwork shows that was used to sell pension funds on buying these worthless bogus bonds. Then they turn around and come to court as the "holder" and get a foreclosure sale in which the bank submits the credit bid and buys the property without spending one dime. What they have done is, in lay terms, offered the debt to pay for the property. But the debt, according to the same people is owned by the investors or the REMIC trust, not the banks.

    Then they turn to the insurers and counterparties on credit default swaps, and the Federal reserve that is buying these bonds and they say that the banks own the bonds, have an insurable interest, and should receive the proceeds of payments instead of the investors who actually put up the money. And then they say in court that the account receivable is unpaid, there is a default, and therefore the home should be foreclosed. What they have done is create a chaotic complex of lies and turn it into an illusion that changes colors and density depending upon whom the banks are talking with.

    There is no default on the account receivable if the account was paid, regardless of who paid it --- as long as it was really paid to either the owner of the loan receivable or the authorized agent of the owner (i.e., the investor/lender). And so it is paid. And if paid, there can be no action on the note because the loan receivable has been satisfied. There can be no action on the mortgage because it was never a perfected lien and because the loan receivable was extinguished by PAYMENT. You can't use the mortgage to enforce the note which is evidence for enforcement of a debt when the debt no longer exists.

    Judges are confused. The borrower must owe money to someone so why not simply enter judgment and let the creditors sort it out amongst themselves. The answer is because that is not the rule of law and if a creditor has a claim against the borrower it should be brought by that creditor not some stranger to the transaction whose actions are stripping the real creditor of lien rights and collection rights over the debt. What the courts are doing, by analogy, is saying that you must have killed someone when you fired that gun so we will dispense with evidence and a jury and proceed to sentencing. We will let the people in the crowd decide who is the victim who can bring a wrongful death action against you even if we don't even know when the gun was fired and who pulled the trigger. In the meanwhile you are sentenced to death or life in prison under our rocket docket for murders of unknown persons.

Perils of Pooling

Posted by Ari, Tuesday, July 30th, 2013 @ 3:20pm


    Perils of Pooling

    by Neil Garfield

    We hold these truths to be self evident: that Chase never acquired any loans from Washington Mutual and that Bank of America never required any loans from Countrywide.  A review of the merger documents approved by the FDIC reveals that neither Chase nor Bank of America wanted to assume any liabilities in connection with the lending operations of Washington Mutual or Countrywide, respectively. The loans were expressly left out of the agreement which is available for everyone to see on the FDIC website in the reading room.

    With the exception of a few instances in which the court pointed out that Chase only acquired servicing rights and that Bank of America may not have acquired any rights, judges have been rubber-stamping foreclosures initiated by Bank of America (or entities controlled by Bank of America like Recontrust) under the assumption that Bank of America must be the owner of the Countrywide mortgages. The same is true  for judges who have been rubber-stamping foreclosures initiated by Chase under the assumption that Chase must be the owner of the Washington Mutual mortgages. After all, if they don't own the mortgages then who does? The answer is that in nearly all cases either BofA nor Countrywide and neither Chase nor WAMU owned the loans and their financial statements prove it.

    Not only have the judges been rubber-stamping the foreclosures and participating in a scheme that is correcting our title records nationwide, the entry of judgment against the borrower and for Bank of America or for Chase completes the theft of the investors money that was used for exorbitant fees, profits and bonuses and then finally for the funding of the origination or acquisition of loans. The fact that the REMIC trust was ignored in both form and content has also been the subject of the defective rulings from the bench.  Not only have the courts ruled against the borrowers and for the banks, they have even ruled against the presentation of evidence that would have shown that the investors were being stripped of their expected lien rights and then stripped again on their expected return of principal and interest, and then barred by collateral estoppel from ever bringing it up.

    Since most of the foreclosures have emanated from Bank of America and Chase it is a fair assumption that most of the foreclosure sales were void because no valid bid was received in exchange for the deed. The property is still owned by the original homeowner In any case where a credit bid was submitted by Bank of America or Chase on any loan in which either Countrywide Mortgage or Washington Mutual was involved. I might add that the Federal Reserve in New York is completely aware of these facts and is steadfastly refusing to reveal the truth to the public or even to the homeowners whose homes were illegally and wrongfully foreclosed by Bank of America and Chase for a loan where both Bank of America and Chase and their chain of affiliates had been paid multiple times on a loan receivable account owned by the source of the funds, to wit: the investors who thought they were buying mortgage bonds from a funded legally organized REMIC trust.

    CAVEAT:  The courts are mainly concerned with finality. In many states there may be a statute of limitations to challenge a void deed from an auction sale. Check with an attorney who is licensed in the jurisdiction in which your property is located before you take any action or make any decision.

    It seems crazy to think that someone could apply for a loan and get the benefits of funding without ever being required to pay it back to the lender.  But that is exactly what is happening as a result of defective court decisions.  The lender consists of a group of investors including pension funds that are now underfunded as a result of the civil and possibly criminal theft of funds by Bank of America and Chase or the investment firms acquired by them.

    Homeowners are being forced to pay Bank of America and Chase rather than the investors who actually advanced the funds. Bank of America and Chase actively interfere and Stonewall whenever a borrower or an investor seeks to peek under the hood to see what is in the box. There is nothing in the box. The deal was always between the investors and homeowners. The bank's lied. They pretended that they were the lenders when in fact there were only the intermediaries. The result was that all the payments received from borrowers, government, the federal reserve, insurers, guarantors, co-obligors, and counterparties on credit  default swaps went to the accounts of Bank of America and Chase rather than to the investors.

     By holding back the money, Bank of America and Chase, just like other banks created the illusion of a default and since they had created the illusion of ownership of the default they took the money instead of handing it over to the investors. You read the lawsuits that have been filed by  investors against the investment banks that sold them worthless mortgage bonds issued by an empty asset pool you will see that they allege affirmatively that the notes and mortgages are unenforceable.

    That makes it unanimous! Both the lender and the borrower agree that the documentation is defective and unenforceable. Both the lender and the borrower agree that the lender should get paid.  And both the lender and the borrower agree that the lender is entitled to be paid only once for the money advanced by the lender.  And both the lender and the borrower agree that the banks are holding trillions of dollars in money that should have been used to pay off the account receivable owned by the investors.

    With the lender paid off or where the account receivable has been reduced by payments to the banks who were acting as agents of the investors but breaching their duties to the investors, the amount payable by the homeowner as a borrower would be correspondingly reduced or eliminated. In fact, under the requirements of the federal truth in lending act, the overpayment is due to the borrower for failure to disclose the true facts of the transaction. In fact, under federal law, treble damages, legal interest, attorneys fees and costs probably also apply.

Occupy Leader Bratton Held on $250,000 Bail

Posted by Ari, Sunday, June 23rd, 2013 @ 2:09pm


    Occupy Leader Bratton Held on $250,000 Bail

    by Neil Garfield

    In my judgment, based upon the scant facts and documents supplied to me this far, there is no doubt that Bratton DID own the property and probably still does if the law is applied properly.

    I know of cases where probable cause was found for Murder and the bail was set less than that. The calls and emails keep coming in and I can't say that I have a total picture of what was really going on here. But, based upon what I have the current story is this:

    Bratton is one of the leaders in the Occupy movement. It may be true that the Occupy movement has been put on a watch list or even the terrorist list which might account for the high bail. I have not been able to confirm that. But it seems that some inference of that sort was used in getting bail set at a quarter of a million dollars. If so, the government is confusing (intentionally or otherwise) the Occupy movement which is a political movement within the system allowed and encouraged by the U.S. Government --- with the sovereign citizen movement for which I have taken a lot of heat.

    The sovereign citizen concept is a contradiction in terms. If you are a citizen you are subject to the laws of the jurisdiction in which you are a citizen. If you are "sovereign" then you are announcing that you are outside the bounds of the rules, regulations and laws of government. It would seem to me that the use of the word "sovereign" might be tantamount to renouncing your citizenship and making you an alien, subject to the immigration and naturalization agencies of the Federal government, which is a Federal question, not a state question.

    From what I understand, Bratton acted as a pro se fighter against an illegal taking of her property by U.S. Bank, who will probably disclaim knowledge of the event when the heat turns up on this news item. My experience is that where claims of securitization are involved and U.S. Bank is a key player, virtually everything is false, fabricated and illegal --- including the notices of default, notices of sale, the "auction," the "credit bid" and the deed issued upon "foreclosure" of the property based upon the alleged sale. Judges find this hard to believe but the facts are coming out as the tsunami of whistle-blowers has just started.

    My opinion is that the deed issued on foreclosure is VOID (not voidable) if there was no consideration. Check with a lawyer in your jurisdiction before you act on that. If the party submitting the "credit bid" has no proof that they paid for the origination and/or acquisition of the loan, then all their actions constitute the same value as a "wild deed" which is customarily ignored by title examiners and title agents. If in fact the situation goes to as far as establishing that no transaction occurred in which a purchase or funding of the loan occurred then fraud, utterance of a false instrument and the rest of the charges pending against Bratton now !?! It is the latter situation that in my opinion is the dominant permeating fact pattern throughout the financial industry in which they put CLAIMS of securitization ahead of proof that it ever occurred --- as a cover up for a racketeering scheme using a PONZI structure (new investments used to pay off old investors).

    Based upon the facts and documents I have heard and seen Bratton went through the usual foreclosure fight where the Judge failed to apply the law properly and require proof of ownership the loan, mistakenly applying a presumption that is rebuttable, just as the Maryland Supreme Court did last week in a decision that will come back and haunt them. So needless to say she lost and the sale went forward with US bank submitting a credit bod on behalf of an asset pool that does not appear to exist in reality because it was never funded, and therefore was incapable of paying for the the funding of the origination of the loan nor the acquisition of the loan.

    The usual fabricated papers were submitted and the usual untrue proffers by counsel apparently were present as well. So, like I have said on this blog, acting WITHIN THE SYSTEM, she went to the police showing them that she was alleging fraud, fabrication, forgery, and uttering an false instrument and recording it. The police refused to investigate saying it was a CIVIL MATTER.

    So again, acting within the system, she went and filed a corrective deed in order to give legal notice to the world that the title was still in dispute. Meanwhile U.S. Bank allegedly sold the property to a third party who pay or may not have been a straw-man. The straw-man is attempting to get possession. Bratton is fighting it because the only basis for possession is not that she didn't pay her rent, but because title changed from her to this third party.

    Despite their refusal to investigate her claims as falling within the category of a civil matter, the police then arrested Bratton for filing in the public records a corrective deed. POOF! What was a civil matter suddenly turned into a serious criminal matter, alleging, apparently nearly word for word, the allegations Bratton made against U.S. Bank, which if true would mean that any deed FROM U.S. Bank would also be a wild deed conveying no interest in the property whatsoever.

    The kicker is the bail that has been set: $250,000. While I am familiar with this tactic being used around the country to scare off the leaders in the fight, this is the first time I have ever seen bail set at level that effectively puts Bratton behind bars without any hope of release based solely on what appears to be a completely unfounded accusation of criminal intent.

    There are some rumors that the reason bail was set so high was because there were inferences that Bratton was affiliated with a terrorist group --- something I find hard to believe based upon the information I have received thus far. There is no evidence brought to my attention that could possibly be interpreted as coming within the scope of a definition of "terrorist." If her accusations against U.S. Bank are true, the term terrorist would more aptly apply to U.S. Bank than anything Bratton did.

    My view is that the failure of the police to investigate her claims on the basis of their determination that this was a matter to be resolved in the civil courts completely undermines even the semblance of probable cause. If the police could say that they DID investigate the claims of Bratton and found them to be without merit, THEN the technical violation MIGHT apply assuming the document she filed was completely without merit --- i.e., that the content of the document was completely false.

    My view is that without that investigation the best one could say about the police action in this case is that they were premature. The worst is that they were doing the bidding of the banks who have achieved a level of influence on law enforcement that is unprecedented in protecting themselves from prosecution for mass crimes against humanity AND bringing mortgage fraud and other criminal charges against those whom they are throwing under the bus or otherwise want to silence.

    The police were wrong when they first told Bratton that this was a civil matter. The theft of millions of homes based upon false, fabricated, fraudulent documents corroborated by perjury and intentional misrepresentation to the court, is a big deal. It ripped open the fabric of our society and diminished respect for all three branches of government. Now that the police department has thrown its hat into the ring with this bogus criminal charge, it is time to force them politically to investigate the bank crimes (regardless of what assurances were given from the Bush and Obama administrations to the contrary).

    Here is the Press RELEASE from the Bratton Camp:

    PRESS RELEASE_Bratton Hearing 24June13

    Neil Garfield | June 23, 2013 at 10:05 am | Tags: Bratton, Criminal Charges, occupy, Recording Deed, U.S. Bank | Categories: CDO, CORRUPTION, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | URL:


       See all comments

4th DCA Florida: Trustee of Asset Pool Must Join or Ratify

Posted by Ari, Wednesday, June 12th, 2013 @ 3:45pm


    4th DCA Florida: Trustee of Asset Pool Must Join or Ratify

    by Neil Garfield


    "servicer may be considered a party in interest to commence legal action as long as the trustee joins or ratifies its action."

    ElstonLeetsdale LLC v CWCapital Asset Management LLC-1

    This ought to be interesting. If Deutsch, or U.S. Bank, or Bank of New York, or any of the other "Trustees" join or ratify the action then they are asserting, under oath (if the lawyer for the homeowner knows what he or she is doing) that (1) the Asset pool is exists, (2) that the subject loan is in the asset pool (i.e., consideration paid by the Trust and assignment before cut-off date) and (3) that the trust was properly organized and (4) that the Trustee is authorized by [fill in blank here, if the lawyer of the homeowner knows what he or she is doing] to accept the assignment, join in the lawsuit and ratifies the representations and claims made on behalf of the REMIC trust and (5) signed by  a trust officer for the bank who says it is the trustee for the asset pool.

    You might want to ask while you are on the subject, exactly why the Trustee wants to bind the beneficiaries of the trust to ownership of a worthless loan. This is a question raised by Judge Shack in New York 5 years ago. Nobody was listening. Now maybe some people are starting to see the wisdom of Shack's question. If securitization was on the level, then the funding, assignment, assumption and payment would have all occurred as set forth under New York Law, the Internal Revenue Code, the provisions of the Pooling and servicing Agreement, which means underwriting according to industry standards and procuring insurance and credit default swap protection FOR THE INVESTORS, NOT THE BANKS WHO HAD NO MONEY IN THE DEAL.

    So while you are on the subject, you might want to ask the trustee why they have made no claim against the insurance, credit default swaps and other payments received from co-obligors that were not disclosed to the borrower. In fact, you might want to ask whether the trustee views this as an account receivable, bond receivable or note receivable? If he or she doesn't know, ask who would know --- after all a trustee is like a receiver with special skills and experience in keeping the books for each trust and assuring customers there would be no commingling of funds. If the trustee doesn't think the trust is owed any money other than the payments from the borrower, ask him or her, why not?

    Once the trustee acknowledges that there were payments which should have been allocated to the bond receivable account or account receivable for the investors, then ask the big question, to wit: do your books and records show the same flow of money in and out of the trust as the figures used by the subservicer in declaring the default, and bringing the foreclosure action. Once you get by "I don't know" the answer is going to be "NO" if you drill deep enough and keep asking the questions who knows, what do they know, how do they know it and is the party claiming to be the trustee really a trustee?

    I ask you this: with each of these fine banking institutions maintaining separate corporations or divisions that provide trust services for even a few hundred thousand dollars, why wasn't the same trust department used to provide trust services to the REMIC trust? Why is it managed by Reynaldo Reyes, VP, Asset management at Deutsch Bank? What fees were received by the trustee? What services did it perform?

    Suddenly a new dawn is upon us. The banks knowing full well they were going to claim and get free houses started early and effectively in persuading the media, government and the public, including the borrowers themselves that to defend the foreclosure was immoral because the borrower was seeking a free house. The banks were smart enough to get out in front of that one, but it is coming back around to bite them. The homeowners are not seeking free homes, they are seeking reasonable deals based upon true facts instead of false representations, withholding of disclosures required by law and lies from the intermediaries who pretend to be the lenders or to act for the lenders when they do not.

    Is there a free house? Yes, every time another Judge rubber stamps another foreclosure and allows a non-creditor to submit a "credit bid" (non-cash) and take title to a home they advanced no money to finance or purchase any loan.

REMIC Armageddon on the Horizon?

Posted by Ari, Sunday, June 9th, 2013 @ 12:24pm


    David Reiss | June 6, 2013

    Brad Borden and I have warned that an unanticipated tax consequence of the sloppy mortgage origination practices that characterized the boom is that MBS pools may fail to qualify as REMICs.  This would have massively negative tax consequences for MBS investors and should trigger lawsuits against the professionals who structured these transactions. Courts deciding upstream and downstream cases have not focused on this issue because it is typically not relevant to the dispute between the parties.

    Seems that is changing. Bankruptcy Judge Isgur (S.D. Tex.) issued an opinion in In re: Saldivar, Case No. 11-1-0689 (June 5, 2013)) which found, for the purposes of a motion to dismiss, that “under New York law, assignment of the Saldivars’ Note after the start up day [of the REMIC] is void ab initio.  As such, none of the Saldivars’ claims” challenging the validity of the assignment of their mortgage to the REMIC trust  “will be dismissed for lack of standing.” (8)

    If this case holds up on appeal, it will have a massive impact on many purported REMICs which had sloppy practices for transferring mortgages to the trusts. That is a big “if,” as the case relies upon Erobobo for its take on the relevant NY law. Erobobo, a NY trial court opinion, itself reached a controversial result and is hardly the last word on NY trust law. The Court also acknowledges that additional evidence may be proffered relating to a subsequent ratification of the conveyance of the mortgage, but for the purposes of a motion to dismiss, the homeowners have met their burden.

    For those few REMIC geeks out there, it is worth quoting from the opinion at length (everyone else can stop reading now):

    The Notice of Default indicates that the original creditor is Deutsche Bank, as Trustee for Long Beach Mortgage Loan Trust 2004-6. The Trust is a New York common law trust created through a Pooling and Servicing Agreement (the “PSA”). Under the PSA, loans were purportedly pooled into a trust and converted into mortgage-backed securities. The PSA provides a closing date for the Trust of October 25, 2004. As set forth below, this was the  date on which all assets were required to be deposited into the Trust. The PSA provides that New York law governs the acquisition of mortgage assets for the Trust.

    The Trust was formed as a REMIC trust. Under the REMIC provisions of the Internal Revenue Code (“IRC”) the closing date of the Trust is also the startup day for the Trust. The closing date/startup day is significant because all assets of the Trust were to be transferred to the Trust on or before the closing date to ensure that the Trust received its REMIC status. The IRC provides in pertinent part that:

    “Except as provided in section 860G(d)(2), ‘if any  amount is contributed to a REMIC after the startup day, there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is received equal to 100 percent of the amount of such contribution.”

    26 U.S.C. § 860G(d)(1).

    A trust’s ability to transact is restricted to the  actions authorized by its trust documents. The Saldivars allege that here, the Trust documents permit only one specific method of transfer to the Trust, set forth in § 2.01 of the PSA. Section 2.01 requires the Depositor to provide the Trustee with the original Mortgage Note, endorsed in blank or endorsed with the following: “Pay to the order of Deutsche Bank, as Trustee under the applicable agreement, without recourse.” All prior and intervening endorsements must show a complete chain of endorsement from the originator to the Trustee.

    Under New York Estates Powers and Trusts Law § 7-2.1(c), property must be registered in the name of the trustee for a particular trust in order for transfer to the trustee to be effective. Trust property cannot be held with incomplete endorsements and assignments that do not indicate that the property is held in trust  by a trustee for a specific beneficiary trust.

    The Saldivars allege that the Note was not transferred to the Trust until 2011, resulting in an invalid assignment of the Note to the Trust. The Saldivars allege that this defect means that Deutsche Bank and Chase are not valid Note Holders.

    (2-4, footnotes and citations omitted) The Court agreed, at least while “accepting all well-pleaded facts as true.” (5)

    (HT April Charney)

Ruling Muddies Waters in MBS Trustee Class Actions

Posted by Ari, Wednesday, June 5th, 2013 @ 8:50am

  • Ruling Muddies Waters in MBS Trustee Class Actions

    By David Bario

    The Litigation Daily June 4, 2013

    Over the past year we've been watching a handful of financial crisis class actions in which investors sued banks that served as mortgage-backed securities trustees, rather than targeting the banks that issued or underwrote the securities. In addition to bringing breach of contract claims, plaintiffs lawyers at Scott + Scott dusted off a 1939 law called the Trust Indenture Act that makes trustees liable for failing their duties to investors. That litigation campaign has so far survived motions to dismiss in cases against Bank of New York MellonBank of America, and U.S. Bancorp's U.S. Bank National Association unit

    On Monday the plaintiffs finally hit a snag. Lawyers for U.S. Bank at Morgan, Lewis & Bockius persuaded U.S. District Judge John Koeltl in Manhattan to dismiss a big chunk of a case that Scott + Scott brought on behalf of investors in mortgage-backed securities issued by Bear Stearns. The decision endangers hundreds of millions of dollars in claims in the case before Koeltl, and if it holds up on appeal it could do the same to parallel claims in other trustee suits.

    A Scott + Scott team led by Beth Kaswan and David Scott brought the case in 2011 on behalf of investors in 14 MBS trusts. Their complaint claims that U.S. Bank violated the Trust Indenture Act by failing to police the mortgages underlying the securities for inadequacies or defaults and by not forcing Bear Stearns to repurchase loans that went sour. The plaintiffs also claimed breach of contract based on U.S. Bank's alleged failure to live up to pooling and servicing agreements and indenture agreements that together cover all 14 trusts. (The PSA-governed trusts issued certificates; those covered by indenture agreements issued notes.)

    Morgan Lewis's Michael Kraut and John Vassos moved to dismiss the case last June on a host of grounds. They argued that the investors, who only purchased securities in two of the trusts, lacked standing to bring class claims over most of the securities. And they targeted the plaintiffs' core theory of liability under the TIA, arguing that they failed to state a claim and that most of the trusts aren't covered by the statute. 

    Koeltl sided with the plaintiffs on the standing issue, citing the U.S. Court of Appeals for the Second Circuit's September 2012 ruling in NECA-IBEW Health & Welfare Fund v. Goldman Sachs. He also refused to throw out the investors' claims for breach of contract, finding that they'd sufficiently made their case that U.S. Bank skirted its obligations under the governing agreements for the securities.

    But the judge was swayed by Morgan Lewis's argument that the Trust Indenture Act only applies to five of the 14 trusts in the case: those that issued certificates rather than notes. Koeltl agreed with U.S. Bank that an exemption to the TIA covers securities that are governed by a pooling and servicing agreement rather than an indenture, placing nine of the trusts beyond the statute's reach. 

    "The certificates are exempt from the TIA pursuant to section 304(a)(2) because they are certificates of participation in two or more securities with substantially different rights and privileges," Koeltl wrote. "This conclusion is consistent with the plain text of the TIA, the SEC's interpretation of the TIA, and the legislative history of the TIA."

    At first glance Koeltl's ruling seems to be at odds with two previous decisions in MBS trustee cases, since U.S. District Judges William Pauley III and Katherine Forrest in Manhattan have both ruled (here andhere) that the TIA applies to MBS certificates. But as Koeltl noted in Monday's ruling, the defendants in the case before Pauley relied on a different exemption to the TIA in their motion to dismiss. (To be fair, Bank of New York Mellon's lawyers at Mayer Brown did cite the second exemption in a motion for reconsideration, but Judge Pauley ruled they were too late.) Forrest, meanwhile, concluded that neither of the two TIA exemptions applied to MBS certificates in trusts overseen by Bank of America and U.S. Bank. 

    On May 7 the Second Circuit agreed to hear an interlocutory appeal of Pauley's ruling in the BNY Mellon case, so the issue of MBS trustee liability under the TIA is already before the appeals court. Now that Koeltl has handed a different trustee a partial victory, we won't be surprised if the U.S. Bank case winds up there as well.

    David Scott of Scott + Scott acknowledged Tuesday that the plaintiffs suffered a blow on the TIA exemption question, but he emphasized the bright side. "The ruling creates some open issues, but the bottom line is that the case is going forward on the breach of contract claims, and we have 14 trusts covered on class-wide standing," Scott told us. "It shows the courts understand that these trustees have real obligations and they have to be held to them."

    Morgan Lewis's Kraut declined to comment. A spokesman for U.S. Bank had this statement: "We are pleased that the court held that the TIA does not apply to PSA certificates and narrowed the plaintiffs' key claims."


Posted by Ari, Friday, May 10th, 2013 @ 2:21pm




    LOS ANGELES — Attorney General Kamala D. Harris today filed an enforcement action against JPMorgan Chase & Co. (Chase) alleging that the bank engaged in fraudulent and unlawful debt-collection practices against tens of thousands of Californians.

    The suit alleges that Chase engaged in widespread, illegal robo-signing, among other unlawful practices, to commit debt-collection abuses against approximately 100,000 California credit card borrowers over at least a three-year period.

    “Chase abused the judicial process and engaged in serious misconduct against California credit cardborrowers,” Attorney General Harris said. “This enforcement action seeks to hold Chase accountable for systematically using illegal tactics to flood California’s courts with specious lawsuits against consumers. My office will demand a permanent halt to these practices and redress for borrowers who have been harmed.”

    From January 2008 through April 2011, Chase filed thousands of debt collection lawsuits every month in the State of California. On one day alone, Chase filed 469 such lawsuits in California. The Attorney General’s complaint against Chase alleges that, to maintain this pace, Chase employed unlawful practices as shortcuts to obtain judgments against California consumers with speed and ease that could not have been possible if Chase had adhered to the minimum substantive and procedural protections required by law.

    “At nearly every stage of the collection process, Defendants cut corners in the name of speed, cost savings, and their own convenience, providing only the thinnest veneer of legitimacy to their lawsuits,” the complaint states.

    Chase used California’s judicial system as a mill to obtain default judgments, the suit alleges, using illegal tactics to flood the state’s court system in order to secure default judgments and garnish wages from Californians.

    The alleged misconduct includes:

    • Robo-signing: Chase illegally robo-signed various litigation filings, including sworn documents, declarations, and verified complaints, without reviewing the relevant files or bank records or even reading the documents before signing.
    • “Sewer Service”: Chase failed to properly serve notice of debt collection lawsuits against consumers while claiming they had been served as required by law. This practice, known as “sewer service,” deprives the consumer of any notice of the lawsuit.
    • Filing Irregularities: Chase haphazardly assembled its official legal filings. For example, Chase failed to redact consumers’ personal information in attachments to filings, potentially exposing them to identity theft and in violation of California law. In addition, when asking courts to enter default judgments against consumers, Chase consistently swore under penalty of perjury that the consumers were not on active military duty. In fact, Chase never checked.  This deprived servicemembers of important legal protections to which they are entitled while on active duty.

    The suit was filed in Los Angeles Superior Court and a copy of the complaint is attached to the online version of this release at

    Consumers who believe they have been victims of this misconduct may submit a complaint online at


Federal judge questions constitutionality of Colorado foreclosure law

Posted by Ari, Tuesday, May 7th, 2013 @ 1:00pm

  • Federal judge questions constitutionality of Colorado foreclosure law

    POSTED:   05/06/2013 06:19:38 PM MDT
    UPDATED:   05/07/2013 10:20:54 AM MDT

    By David Migoya
    The Denver Post

    Lisa Brumfiel

    Lisa Brumfiel at her home in Aurora after her hearing in federal court to stop the foreclosure proceeding. (THE DENVER POST | Joe Amon)

    A federal judge on Monday made the rare move to stop the foreclosure auction of an Aurora woman's house in a case that squarely takes on the constitutionality of Colorado's foreclosure laws.

    U.S. District Judge William Martinez issued a preliminary injunction against the sale of Lisa Kay Brumfiel's four-bedroom home, scheduled for Wednesday in Arapahoe County, until the judge can decide whether parts of state law are unfair to homeowners facing the loss of their house.

    At issue is a provision in state law that allows lawyers to assert that their client, typically a bank, has the right to foreclose on a property even though they might not have the original mortgage paperwork to prove it.

    What makes the case compelling isn't just that a federal judge was persuaded to step into an issue involving state law — extremely difficult to do — but the plaintiff in the case is a part-time saleswoman who has taken on the battle without a lawyer.

    Brumfiel, 43, says she didn't know a thing about the law. Despite fumbles in decorum and formal court procedure, she has taken on U.S. Bank and Larry Castle, one of Colorado's most powerful foreclosure lawyers.

    Despite several setbacks and outright losses, she has made it farther than many lawyers.

    "There's an issue of fundamental rights, and I won't back down," Brumfiel said after Martinez's decision.

    Though Martinez's ruling gives Brumfiel until May 15 to argue why Colorado's law violates the equal-protection clause of the 14th Amendment to the U.S. Constitution, he gave early glimpses to his thinking.

    "Colorado is the only state in the country that allows an unsworn statement by an attorney for a foreclosing party — without any penalty — to say, 'Trust me, judge, these guys are the qualified holder for this deed of trust,' " Martinez said. "Is there another state that has lowered the bar for a foreclosure any lower?"

    A qualified holder is typically the owner of a mortgage, such as a bank or other lender.

    Brumfiel bought her tri-level home in 2006 for $169,350. It was an interest-only loan with an adjustable rate.

    "I thought I could make it work," Brumfiel said.

    She soon fell behind in her payments when personal issues forced her to leave her sales job in 2011. She has not paid since.

    When U.S. Bank filed to foreclose later that year, Brumfiel balked because her mortgage was originally with First Franklin Mortgage.

    How U.S. Bank came to hold the note was in question, and Brumfiel wanted proof. Banks often sell mortgages to one another and, rather than record those transfers at the county recorder of deeds — an expensive process — they self-track them via the Mortgage Electronic Registry System.

    Though many states allow MERS to be the assignee of a mortgage and foreclose when homeowners default, Colorado doesn't. MERS often assigns ownership of the note to the foreclosing bank.

    But there's no proof in public records of those transfers in ownership, because they're never recorded.

    County public trustees auction foreclosed houses, but that can't happen until a district-court judge authorizes it. That occurs at a Rule 120 hearing, named for the court procedure that governs it.

    Before signing, a judge is to answer two questions: Is the homeowner in default, and are they in the active military?

    The judge's decision is final, cannot be appealed and allows for no discovery. Homeowners misunderstand the rule to the extent that Rule 120 hearings are rarely held. And any challenge to the decision must be taken up as a separate lawsuit, which critics say is unfair since homeowners facing foreclosure are unlikely to have the money for a lawyer.

    In 1989, the Colorado Supreme Court ruled that judges must also consider at a Rule 120 hearing whether a bank has the right to foreclose, known legally as having standing.

    As banks sold mortgages more and more, and MERS was to track who owned which, coming up with original paperwork to prove standing became difficult.

    Then, when the mortgage crisis hit along with the economic meltdown, the flood of foreclosures made it virtually impossible to keep up.

    With the backing of the state's public trustees, who are to oversee the foreclosure process impartially, Castle and other foreclosure lawyers in 2006 drafted legislation, HB 1387, that made a critical change to foreclosure rules.

    Lawyers could now sign a document, called a statement of qualified holder, that was their guarantee — without the need to provide proof — that their bank client had the right to foreclose.

    Critics say it takes away a homeowner's rights to due process guaranteed in the Constitution. But none has succeeded in making a challenge until Brumfiel.

    "It's great the federal court is invoking fundamental constitutional principles to reviewing a foreclosure process that obviously needs to be fixed," said attorney Stephen Brunette, who has tried to change the law since.

    Two legislative efforts at changing the law have failed, both by Rep. Beth McCann, D-Denver. And a voter initiative last year stalled for lack of funds to raise the signatures needed to make the ballot.

    Court challenges have also failed, including at the federal level where judges are reluctant to tread on state business.

    Monday's decision, however, sets the stage for a showdown over the constitutionality of the qualified-holder statement.

    Castle's attorney, Phil Vagliaca, warned Martinez of treading on state business.

    "What this federal court is trying to wrestle with goes way beyond just a foreclosure," Vagliaca said. "It is whether the federal court should inject itself in extreme state-court circumstances. Not without offending hundreds of years of federalism and state sovereignty."

    Said Brumfiel: "This isn't about me anymore. It's not even about whether you owe the money or not. It's about someone taking something and not having to prove they can."

    David Migoya: 303-954-1506,

    Read more:Federal judge questions constitutionality of Colorado foreclosure law - The Denver Post
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New York AG: Wells Fargo, BofA Violated National Foreclosure Settlement

Posted by Ari, Monday, May 6th, 2013 @ 5:17pm


    Shahien NasiripourShahien Nasiripour

    New York AG: Wells Fargo, BofA Violated National Foreclosure Settlement

    Posted: 05/06/2013 11:27 am EDT  |  Updated: 05/06/2013 4:15 pm EDT

    New York Ag Wells Fargo

    New York Attorney General Eric Schneiderman said Monday he may sue Wells Fargo and Bank of America for allegedly violating the terms of last year’s multi-state mortgage settlement, despite questions over his authority to do so.

    New York Attorney General Eric Schneiderman said Monday he may sue Wells Fargo and Bank of America for allegedly violating the terms of last year’s multi-state mortgage settlement, despite questions over his authority to do so.
    The agreement, reached by the Department of Justice, Department of Housing and Urban Development and 49 state attorneys general, called for the five largest mortgage companies to significantly revamp their procedures for dealing with distressed borrowers. It called on them to provide billions of dollars in aid to those borrowers and change the way they pursue home repossessions, in exchange for prosecutors dropping legal claims that the companies systematically violated borrowers’ rights when using faulty, so-called “robosigned” documents in foreclosure proceedings.

    Consumer advocates have heralded the establishment of standards for how the companies would treat borrowers who fell behind on their payments as the settlement’s signature achievement. The new mortgage servicing provisions were supposed to “address the issues that led to the creation of the settlement,” according to Joseph Smith, the settlement’s official monitor.

    The five banks -- JPMorgan Chase, Wells Fargo, Bank of America, Citigroup and Ally Financial -- collectively service more than half of all outstanding U.S. home loans. Since Oct. 2, 2012, they have had to comply with 304 mortgage servicing requirements, including offering struggling borrowers the opportunity to avoid foreclosure and approving or denying loan modifications within 30 days of receiving a complete application.

    Schneiderman said Monday his office has uncovered 339 alleged violations of the settlement's terms, 210 concerning Wells Fargo and 129 concerning Bank of America. He said he intends to sue the banks for “repeatedly violating” the settlement if the monitoring committee of representatives from various federal and state agencies declines to take action.

    But it’s unclear whether Schneiderman could successfully bring such a lawsuit. The agreement does not specify whether he can independently pursue legal action against the banks without first allowing the Office of Mortgage Settlement Oversight, run by Smith, to determine whether they are complying, a process that could take months.

    Smith's office will make public by June 30 its first required report on the banks’ compliance with the mortgage servicing standards. The deal dictates that the companies shall have an opportunity to correct potential violations once they are identified. If the same violations continue, the monitoring committee could launch lawsuits and levy penalties totaling as much as $5 million for each violation.

    Regardless, Schneiderman said the agreement allows him to enforce the settlement unilaterally. He said he warned his fellow regulators of his intent to sue on Friday, though some officials in the offices of other state attorneys general said they only learned of his plans in a Monday morning email from his office.

    “Wells Fargo and Bank of America have flagrantly violated those obligations, putting hundreds of homeowners across New York at greater risk of foreclosure," Schneiderman said. "I intend to use every tool available to my office to hold these companies accountable."

    Schneiderman said his lawsuit threat "obviously has implications" for the other three banks involved in the settlement. Housing organizations in New York said they had lodged similar complaints against the banks with Schneiderman's office.

    "I continue to believe there are areas in which the banks must improve their treatment of their customers," Smith said in response. "I intend to use the full breadth of my power under the settlement to hold the banks accountable."

    Both Wells Fargo and Bank of America responded to the announcement as well.

    "It is unfortunate that the New York Attorney General has chosen this route rather than engage in a constructive dialogue through the established dispute resolution process," a spokesperson for Wells Fargo said. "We fully support the rules established under the Settlement."

    Bank of America said it will "work quickly" to address the 129 "customer servicing problems" that Schneiderman identified. The bank added that it has provided more than 10,000 New York homeowners with more than $1 billion in aid.

    The settlement for the first time legally requires the five banks to meet a variety of timelines. In addition to the 30-day window to tell borrowers whether their applications have been approved, they must notify borrowers within three business days that they have received loan modification applications and within five days if the application is missing key details or documents.

    Over the last few years, consumer advocates and government officials have repeatedly complained of banks losing borrowers’ documents and forcing them to wait months for basic decisions to be made on their applications for loan modifications.

    In a February report, Smith said that he had received more than 600 complaints detailing shortcomings in the banks’ dealings with borrowers. The majority of them concerned issues such as failures to decide on loan modification requests within 30 days.

    Smith said that of “particular concern” were reports that borrowers were having to submit documents multiple times to their mortgage servicers, sometimes with no response or followed by requests for the same documents yet again.

    "The striking thing about the timeline violation is that they’re so pervasive. It’s the exception rather than the rule when modifications requests are addressed without delay," said Joseph Sant, staff attorney with the Staten Island Legal Services Homeowner Defense Project.

    Last month, The Huffington Post reported that Schneiderman has complained to key Democratic lawmakers on Capitol Hill that the Obama administration has not aggressively investigated the kind of dodgy mortgage deals that helped trigger the financial crisis. Schneiderman critics allege that he, too, has compiled a lackluster enforcement record against Wall Street.

    His threat to sue Wells Fargo and Bank of America comes a few days after he withdrew his objection to a separate proposed $8.5 billion settlement between Bank of America and a group of mortgage investors over soured loans. In 2011, Schneiderman asked a state judge to reject the pact on the grounds that a party to the settlement had committed fraud and had failed to act in the best interests of the investors.

    Eleazar Melendez contributed reporting.


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