Two Different Worlds — Note and Mortgage

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by Neil Garfield

see http://www.uniformlaws.org/Shared/Committees_Materials/PEBUCC/PEB_Report_111411.pdf

*This article is not a substitute for getting advice from an attorney licensed to practice in the jurisdiction in which your property is or was located.

Back in 2008 I had some correspondence and telephone conversations with an attorney in Chicago, Robert Wutscher when I was writing about the reality of the way in which banks were doing  what they called “securitization of mortgages.” Of course then they were denying that there were any trusts, denying that any transfers occurred and were suing in the name of the originator or MERS or anyone but the party who actually had their money used in loan transactions.  It wasn’t done the right way because the obvious intent was to play a shell game in which the banks would emerge as the apparent principal party in interest under the illusion created by certain presumptions attendant to being the “holder” of a note. For each question I asked him he replied that Aurora in that case was the “holder.” No matter what the question was, he replied “we’re the holder.” I still have the letter he sent which also ignored the rescission from the homeowner whose case I was inquiring about for this blog.

He was right that the banks would be able to bend the law on rescission at the level of the trial courts because Judges just didn’t like TILA rescission. I knew that in the end he would lose on that proposition eventually and he did when Justice Scalia, in a terse opinion, simply told us that Judges and Justices were wrong in all those trial court decisions and even appellate court decisions that applied common law theories to modify the language of the Federal Law (TILA) on rescission. And now bank lawyers are facing the potential consequences of receiving notices of TILA rescission where the bank simply ignored them instead of preserving the rights of the “lender” by filing a declaratory action within 20 days of the rescission. By operation of law, the note and mortgage were nullified, ab initio. Which means that any further activity based upon the note and mortgage was void. And THAT means that the foreclosures were void.

Is discussing the issue of the “holder” with lawyers and even doing a tour of seminars I found that the confusion that was apparent for lay people was also apparent in lawyers. They looked at the transaction and the rights to enforce as one single instrument that everyone called “the mortgage.” They looked at me like I had three heads when I said, no, there are three parts to every one of these illusory transactions and the banks fail outright on two of them.

The three parts are the debt, the note and the mortgage. The debt arises when the borrower receives money. The presumption is that it is a loan and that the borrower owes the money back. it isn’t a gift. There should be no “free house” discussion here because we are talking about money, not what was done with the money. Only a purchase money mortgage loan involves the house and TILA recognizes that. Some of the rules are different for those loans. But most of the loans were not purchase money mortgages in that they were either refinancing, or combined loans of 1st mortgage plus HELOC. In fact it appears that ultimately nearly all the outstanding loans fall into the category of refinancing or the combined loan and HELOC (Home Equity Line of Credit that exactly matches the total loan requirements of the transaction (including the purchase of the home).

The debt arises by operation of law in favor of the party who loaned the money. The banks diverged from the obvious and well-established practice of the lender being the same party as the party named on the note as payee and on the mortgage as mortgagee (or beneficiary under a Deed of Trust). The banks did this through a process known as “Table Funded Loans” in which the real lender is concealed from the borrower. And they did this through agreements frequently called “Assignment and Assumption” Agreements, which by contract called for both parties (the originator and the aggregator to violate the laws governing disclosure (TILA and frequently state law) which means by definition that the contract called for an illegal act that is by definition a contract in contravention of public policy.

A loan contract is created by operation of law in which the borrower is obligated to pay back the loan to the source of the funds with or without a written instrument. If the loan contract (comprised of offer, acceptance and consideration) does not exist, then there is nothing to enforce at law although it is possible to still force the borrower to repay the money to the actual source of funds through a suit in equity — mainly unjust enrichment. The banks, through their lawyers, argue that the Federal disclosure requirements should be ignored. I think it is pretty clear that Justice Scalia and a unanimous United States Supreme Court think that argument stinks. It is the bank’s argument that should be ignored, not the law.

Congress passed TILA specifically to protect consumers of financial products (loans) from the overly burdensome and overly complex nature of loan documents. This argument about what is important and what isn’t has already been addressed in Congress and signed into law against the banks’ position that it doesn’t matter whether they really follow the law and disclose all the parties involved in the transaction, the true identity of the lender, the compensation of all the parties that made money as a result of the origination of the loan transaction. Regulation Z states that a pattern of behavior (more than 5) in which loans are table funded (disclosure of real lender withheld from borrower) is PREDATORY PER SE.

If it is predatory per se then there are remedies available to the borrower which potentially include treble damages, attorneys fees etc. Equally important if not more so is that a transaction, whether illusory or real, that is predatory per se, is therefore against public policy and the party seeking to enforce an otherwise enforceable document cannot do so because of the doctrine of unclean hands. In fact, if the transaction is predatory per se, it is dirty hands per se. And this is where Judges get stuck and so do many lawyers. The outcome of that unavoidable analysis is, they say, a free house. And their remedy is to give the party with unclean hands a free house (because they paid nothing for the origination or acquisition of the loan). I think the Supreme Court will not look kindly upon this “legislating from the bench.” And I think the Court has already signaled its intent to hold everyone to the strict construction of TILA and Regulation Z.

Full article here

 

JPMorgan whistleblower: Justice still hasn’t been done

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Feb 12, 2015
From Mortgage Professional America 

The whistleblower who brought JPMorgan Chase to its knees and cost the bank a $13 billion settlement doesn’t think the bank has suffered enough.

Alayne Fleischman, who worked as a securities lawyer at JPMorgan between 2006 and 2008, turned over information on the bank’s dealings in shoddy mortgage-backed bonds during the run-up to the financial crisis. Attorney General Eric Holder was noted at the time saying the bank’s conduct, “helped sow the seeds of the mortgage meltdown.”

chaseWECHASE

Rolling Stone revealed her identity as a whistleblower last November.

In a recent interview with Financial News, Fleischman said justice hasn’t been served yet to JPMorgan and other major financial systems that caused the recession. “I’m still hopeful that, with enough public pressure, criminal cases will be brought against the individuals responsible, not just at JPMorgan but also at the other banks that sold fraudulent securities,” she told the media outlet.

dimon congress

She added banks are using their “lawyers, lobbyists and PR groups to protect individuals who should clearly be charged and tried in a court of law.”

“As long as these individuals are shielded from accountability for the damage that they’ve done, then their victims — in many cases the retirement funds of ordinary, hard-working Americans — will be left without justice,” she added.

In late 2013, JPMorgan signed a $13 billion settlement with the government to put to rest claims that it sold shoddy mortgages to investors during the run-up to the financial crisis.

Debt collectors harass Americans even after they have lost their homes to banks

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Reuters – Michelle Conlin

NEW YORK, (Reuters) – Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets.

Dept. of common sense

By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago.

Using a legal tool known as a “deficiency judgment,” lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity. Some of the biggest banks still feel that way.

But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes.

Just because they don’t have the money to pay the entire mortgage, doesn’t mean they don’t have enough for a deficiency judgment,” said Florida foreclosure defense attorney Michael Wayslik.

Advocates for the banks say that the former homeowners ought to pay what they owe. Consumer advocates counter that deficiency judgments blast those who have just recovered from financial collapse back into debt – and that the banks bear culpability because they made the unsustainable loans in the first place.

“SLAPPED TO THE FLOOR”

Borrowers are usually astonished to find out they still owe thousands of dollars on homes they haven’t thought about for years. In 2008, bank teller Danell Huthsing broke up with her boyfriend and moved out of the concrete bungalow they shared in Jacksonville, Florida. Her name was on the mortgage even after she moved out, and when her boyfriend defaulted on the loan, her name was on the foreclosure papers, too.

She moved to St. Louis, Missouri, where she managed to amass $20,000 of savings and restore her previously stellar credit score in her job as a service worker at an Amtrak station.

But on July 5, a process server showed up on her doorstep with a lawsuit demanding $91,000 for the portion of her mortgage that was still unpaid after the home was foreclosed and sold. If she loses, the debt collector that filed the suit can freeze her bank account, garnish up to 25 percent of her wages, and seize her paid-off 2005 Honda Accord.

For seven years you think you’re good to go, that you’ve put this behind you,” said Huthsing, who cleared her savings out of the bank and stowed the money in a safe to protect it from getting seized. “Then wham, you get slapped to the floor again.”

Bankruptcy is one way out for consumers in this rub. But it has serious drawbacks: it can trash a consumer’s credit report for up to ten years, making it difficult to get credit cards, car loans or home financing. Oftentimes, borrowers will instead go on a repayment plan or simply settle the suits – without questioning the filings or hiring a lawyer – in exchange for paying a lower amount.

Though court officials and attorneys in foreclosure-ravaged regions like Florida, Ohio and Illinois all say the cases are surging, no one keeps official tabs on the number nationally. “Statistically, this is a real difficult task to get a handle on,” said Geoff Walsh, an attorney with the National Consumer Law Center.

Link to full story here

Do Banks Lose Money or Make Money on Foreclosures?

Originally posted on Real Estate Justice For ALL!:

Reality NOT on TV – Banks Make Money on Foreclosures

by Mario Kenny
http://mariokenny.wordpress.com

DETROIT, MI – Wouldn’t it be fun to take the CEO’s of Chase, Bank
of America, Citibank and Wells Fargo, hold them somewhere with just the
bare living essentials and force them to negotiate loan modifications
and short sales with their own customer service departments to earn
their freedom? Imagine their frustration as they have to wait on hold forever,
speak with poorly trained, clueless staff who can’t find the documents
they’ve faxed or emailed for the umpteenth time and have to keep
starting over.

It’d make a great movie! We could call it, “Groundhog Accountability Day for Bank Executives”.

“Sigh”. Unfortunately, that’s a fantasy and reality is what we have to deal with. Why are the big banks so difficult to deal with? Why don’t they seem
to understand that they lose more money when they…

View original 484 more words

Virginia drops JPMorgan from mortgage securities fraud lawsuit

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Sept. 22, 2014
Full link here

Virginia Attorney General Mark R. Herring (D) on Monday dropped JPMorgan Chase from a mortgage securities lawsuit against the country’s biggest banks, after learning that his predecessor Ken Cuccinelli (R) had already struck a “confidential” settlement with the bank.

JP Morgan

The decision comes a week after Herring announced a $1.15 billion lawsuit against 13 of the country’s biggest banks for misleading a state retirement fund about the quality of bonds made up of residential mortgages.

JPMorgan and its Washington Mutual subsidiary were named in the suit, along with Citigroup and Bank of America, for packaging faulty home loans into securities sold to the Virginia Retirement System (VRS).

jpMorgan-pic2-224x300

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*What the story does not tell you is that in order to obtain 90 x 1 leverage the same securities were sold many Many times over to retirement funds, pensions AND securities investors. See here for more info: https://tawebster.wordpress.com/2010/11/22/what-is-jp-morgan-chase/ for more info.

*A better explanation of the reason for the lawsuit.
http://stellionata.com/in-the-news/8935-virginia-sues-13-banks-for-1-15b-alleging-rmbs-fraud-national-mortgage-news

*Why it is important to understand documentation and possible deficiencies.
http://livinglies.wordpress.com/2014/10/15/breakdown-of-the-robo-signing-scandal-settlement-another-elephant-in-the-living-room/

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