He Who Has the Gold Makes the Rules: Thousands of Foreclosure and Eviction Cases Lacking in Jurisdiction and/or Merit

by Neil Garfield

…homeowners would do well to consider the possibility that they don’t deserve to be dunned in collection or foreclosure because they are only the victims of a perverse scheme that gives them money to sign papers and then punishes them for having done so

I take the position that if the investment banks want to make millions for each $100,000 in presumed debt, and they don’t want any risk of loss or any other responsibility for the transaction, and they want the homeowner to absorb the risks of all of that, then the homeowner should be compensated for assuming those unusual risks that are outside the custom and practice of real lending.

In fact — and this is the part the investment banks hate — I take the position that the homeowners were in fact compensated and that if the investment banks want any of that money repaid they should apply to a court to reform that homeowner transction such that some other figure is used for that compensation. Good Luck!

My conclusion is that they (the investment banks) set the amount paid to homeowners. Now they are now legally stuck with level of payment that they set apart from any potential underwriting standard for a conventional loan.  There was no consideration for the note and mortgage issued by the homeowner because the money that was paid to the homeowner was compensation for serviced rendered. Yet they are successful in around 98% of all cases where foreclosure was initiatied.

The plan was wildly successful and generated millions of dollars in revenue and pure profit for each homeowner transaction. It is ONLY when you see the amount paid to or on behalf of the homeowner as compensation that the deal even comes close to being fair. The reverse (i.e., being requried to give back compensation for absorbing undisclosed and material risks of loss) is unconscionable, inequitable and is not supported by centuries of legal precedent.

The challenge for nearly all homeowners really originates in the antiquated forms, rules, and procedures governing the initiation of foreclosure proceedings. The proof of the pudding is in the result. When homeowners win — and they often do win if they litigate in a timely and effective manner — it is at the end of the case even though their “win” is attributed to lack of standing or inability to produce sufficient evidence to establish a prima facie case.


This means only one thing: that the cases are not properly vetted for jurisdictional qualification before they go into litigation. As a result, homeowners are forced into a Hobson’s choice: either they literally give their house away or face years of litigation and perhaps tens of thousands of dollars in litigations fees and costs. For most, it is no choice at all because they lack the resources to defend their property from claims without any merit.


Attempts to remedy this situation have only been half-hearted and virtually ineffective. Declarations, certifications, and affidavits are routinely filed by people who know nothing about the case and who may not even have signed the document. They are titled with something that connotes “Official Document Signor” which does not mean that they were authorized by anyone who had the legal authority to grant authority to sign such a document. 


This process needs to be substantially strengthened to prevent, for example, the routine allegation that Wells Fargo is the owner of the underlying obligation, followed by an admission that it is only a servicer late in the litigation. In every case in every U.S. jurisdiction, the party initiating legal proceedings must own a valid claim based upon actual damages suffered as a result of a breach of duty by the person or entity that the claim is aimed against. Wells Fargo regularly says it is the claimant knowing it is not and has obtained countless judgments when homeowners fail to contest (96% of the time).


The absence of consequences for such behavior is encouraging the banks to continue with those strategies and basically use their only concrete strategy to gain more money in a pornographic economic game — weaponization of the litigation process even though they have no legally recognizable claims.


Frankly, the best consequence for such actions would be the general acceptance that the documents upon which the foreclosure mill relies do not have that quality of reliability and trustworthiness that entitles the lawyers to invoke a legal presumption that everything said on those documents is accurate, true and correct. This would automatically require the investment banks to produce actual evidence instead of presumed evidence. It would also eliminate nearly all foreclosures and most evictions.


Securitization is not a bad thing. It has proven to be a very good thing for Western economies for hundreds of years. But hiding the debt from prying eyes and not selling the underlying obligation is no securitization. It is trickery.


And homeowners would do well to consider the possibility that they don’t deserve to be dunned in collection or foreclosure because they are only the victims of a perverse scheme that gives them money to sign papers and then punishes them for having done so, while the investment banks rake in millions for every $100,000 of so-called loans that have no lender, no risk of loss, and no compliance with lending statutes requiring the lender to be responsible for the appraisal, and responsible for assessing the viability of the loan.


Of course, if they did that, then they would downgrade the quality of viability in virtually every case because the appraisal is above the contract price and far above the median value based on median income — the only reliable indicator of real estate value over the long term. (Case Schiller Index)


Of course, the investment banks and their investors don’t need to worry about compliance with lending and servicing statutes. They are not required to do so because of the acceptance by law enforcement and regulatory authorities that they are not lenders. If they are not lenders, then how do they get to indirectly authorize administration, collection or enforcement of a supposed debt (loan account receivable) that is not maintained on the books of any company? 


So I take the position that I accept their position — they are not lenders. And if they are not lenders they have no right to collect or foreclose. And based upon direct experience in the courtroom, the litigators who accept that position tend to win about 2/3 of the time. The other third can be attributed to a steadfast system of beliefs and perceptions founded in principles that stopped operating 30 years ago. 


I take the position that if the investment banks want to make millions for each $100,000 in presumed debt, and they don’t want any risk of loss or any other responsibility for the transaction, and they want the homeowner to absorb the risks of all of that, then the homeowner should be compensated for assuming those unusual risks that are outside the custom and practice of real lending.


The money the homeowner received was compensation, not a loan. To hold homeowners responsible for unknown risks attendant to a transaction with parties who had no lending intent is pure nonsense.


This decision from the New Jersey Federal District Court is a good example of how cases should be vetted on the front end and not require the courts or homeowners to invest in extended litigation only to find, at the back end, that there was no case.


See USCOURTS-njd-1_13-cv-02040-0

Notice how this one district court judge correctly and wisely looks at the pleading and says”Wait! Who is suing here?” When the complaint or other document refers to the claimant as the REMIC Trustee, that is not true and fails to identify the actual claimant. In fact, it covers up the identity of the claimant when the complaint fails to say where the trust was organized and where it odes business. When the allegation of the complaint identifies only the party named as REMIC Trustee it is covering over any questions about the legitimacy of the trust.


With the incredibly deep pockets of the investment banks, the only real possibility of relief for homeowners lies in collective action. As with all such organizing efforts, it is time-consuming and requires lots of money to bring the right people who would be otherwise employed doing other things. Without having consulted with them I am strongly suggesting that homeowners contribute $100-$1,000 to the only 501(c)(4) organization that has embarked on a mission to change the forms, rules, and procedures starting in Florida: American Property Owners Network.

Understanding the “Warehouse Lending” Trick

by Neil Garfield

Warehouse lending is a legitimate method of financing. I borrow money from you in order to lend money to Jane Smith. In effect, it is arbitrage of interest rates since the interest rate on my loan is less than what I charged to Jane. I am Jane’s lender and I establish on loan account receivable on my books with a reserve for bad debt. I credit payments from Jane and I debit disbursement to that account. If Jane fails to make a payment to me, I lose money. This is NOT a description of what is happening with originators regardless of whether their source of funds is a “warehouse lending” agreement or is more aptly entitled a “purchase and assumption” agreement.

Nearly all warehouse loan agreements in the current era are merely Purchase and Assumption Agreements which is very different. At the beginning of the securitization era, they called it a Purchase and Assumption Agreement — just like they initially (2001-2006) denied the existence of trusts and falsely stated that either MERS of the designated company pretending to be a servicer could initiate foreclosure. That was all shot down. And if you want to see the reason that was shot down and shut down, see the article by Tom Ice in the Florida Bar Journal where he nails the issue on all fours.

SEE https://www.floridabar.org/the-florida-bar-journal/negotiating-the-american-dream-a-critical-look-at-the-role-of-negotiability-in-the-foreclosure-crisis/

So then they concocted the use of filing foreclosures in the name of REMIC trusts until the REMIC trustees forbade everyone from doing that. But when you look closely they don’t say they are filing for the trust because they always assert or allege that the Plaintiff or beneficiary is a bank, not a trust. By doing that they need not make normal essential allegations in order to survive litigation, to wit: that the trust is a trust under the laws of some specific jurisdiction and the trust is the owner of at least the note and mortgage (which should be an allegation that the trust owns the underlying obligation). This sleight of hand enables the foreclosure mill to move forward on a nonexistent claim with a nonexistent client.

It was only after a new agreement giving the REMIC trustees more money in monthly or quarterly payments that Deutsch and US Bank et al agreed to let them bring actions for foreclosure in the name of the REMIC Trustee — along with heavy indemnification and hold harmless protection for filing fraudulent actions. BONY is paid through “Corridor Administration Agreements” in which there is no corridor and there is no administration by BONY. The reason is simple: a judge will look more closely at allegations and exhibits for a trust that he or she would look at the allegations or exhibits submitted on behalf of a large bank. It’s called “window dressing.”

If we can get those hold harmless and indemnification agreements they will certainly expressly state that the named Trustee has absolutely no responsibility, power or control over any administration, collection or enforcement of any contract. While I have access to the corridor agreements I have not found the indemnification agreements that are probably locked in an offline server or vault.

But in virtually all cases any agreement in which residential transactions are involved that says it is a warehouse lending agreement does NOT bear the characteristics of a warehouse lending agreement. It is, as it has always been, an Assignment and Assumption Agreement. That agreement exists between virtually all originators and an aggregator for the investment bank that is selling securities.

The Purchase and Assumption Agreement is simple — the originator agrees to originate solely for the benefit of the aggregator who does not disclose its principal (investment bank). The duties of the originator are restricted to sales — not underwriting and no lending. The originator agrees to be named as a lender, as Payee on the note but in the agreement, it releases all claims to administer, collect or enforce any payment, claim, note or mortgage (deed of trust). As a practical matter, the mortgage broker is usually the person who actually stamps or writes an endorsement of the note contemporaneously with the closing. The “assignment of mortgage” is fabricated by other entities and forged.

The originator does not create a loan account receivable on its books nor any reserve for bad debt because it is not a balance sheet transaction. It is an income statement transaction in which it receives a fee for services, which is not disguised in the original Purchase and Assumption Agreement. Now it is disguised in “warehouse lending” agreements that are in substance only Purchase and Assumption Agreements.

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