Why knowledge of accounting is important to understand how the apparent debt vanishes in the context of securitization.
by Neil Garfield
The big change occurred when the Wall Street securities firms forced securitization practices over the line. Whereas the purpose of securitization had always been to reduce risk, the investment banks meant to eliminate it. The only way you can eliminate the financial loss from a failed asset is if you don’t own it. That is basic accounting, basic law and common sense.
If you don’t own an asset there is no basis in the law that allows you to claim a loss if the asset is somehow damaged (assuming it even exists). If you have no loss then you have no claim and the court ahs no power to grant you any “relief”.
Why knowledge of accounting is important to understand how the apparent debt vanishes in the context of securitization.
Before 1995, all homeowner transactions were subject to the same accounting rules. Accounting consists of making data entries and issuing accurate reports about those data entries. All laws, regulations, and rules about data entries and reports are based upon compliance with Generally Accepted Accounting Principles and practices (GAAP). And all of GAAP is based on double-entry bookkeeping.
Double entry, a fundamental concept underlying present-day bookkeeping and accounting, states that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the accounting equation: Assets = Liabilities + Equity. With a double-entry system, credits are offset by debits in a general ledger or T-account.
In legal practices and doctrines, such accounting entries and reports are considered evidence that transactions occurred. And if the entries were made by an employee of the company who personally received shipment or payment, that employee would make data entry of that receipt.
The data is then processed through an accounting department that matches that entry with a different data entry showing how or why that shipment or money was received. In the simple example, if someone receives a payment it will be posted as a data entry of cash received. Accounting would post it as an increase (credit) to the cash account and a decrease (debit) of a prior account established with a product that was sold and converted into an account receivable.
Each data entry has a corresponding entry in some other account. If you paid for something, you would show a debit to cash and a credit to inventory for the product received. The outside auditor (or a court) takes all that as evidence of an event in the real world — unless, on examination, it turns out that the product was never received or that the cash was not used for the purchase of the product, such as in embezzlement.
So in a residential loan transaction, the lender keeps an accounting ledger in which all data entries are compiled. When the lender gives a borrower money, the lender debits a cash account and then credits another asset account to take the place of the cash it used to fund the loan. That other account is generically described as a loan account receivable. In general banking practice, a depository loan account is created in the name of the borrower, and the money proceeds from the loan are deposited into the name of the borrower. The borrower, if he or she was a business, would keep an accounting ledger that showed an increase (credit) to the cash account and an increase in accounts payable under the subcategory of loans payable.
So when the lender comes to court asking for foreclosure, it satisfies the prima facie elements of the claim for foreclosure by saying we loaned money to the defendant, we have the records, the defendant paid us until he didn’t, and we are suffering financial loss or injury arising from the defendant’s failure to pay. That would et them past the pleading stage.
Then at trial, the lender would produce its records custodian who would testify that he/she keeps the records for the lender. At the request of the Attorney for the lender, the custodian would provide the foundation testimony to establish that he has personal knowledge of how the books and records are kept, who receives payments, how they record them, and how the data entries are then recorded into the account ledgers of the lender. If the borrower contested whether payments were accurately entered, the lender would be obligated to produce a witness who actually received or supervised the receipt of payments from the borrower.
And so it was — for centuries.
Starting in 1995, the securitization system based upon “derivatives” (which began in 1983). So securities brokerage firms set about buying loan portfolios, initially, which evolved into borrowing to buy loan portfolios of real loans from real lenders. The first such activities were performed in accordance with the theory and intent of securitization of residential debt. Investors bought pro-rata interests in the portfolios which were managed by master servicers who subcontracted the work to subservicers. it was all perfectly legal but the securities brokerage firms were limited in sales to the dollar value of the loans. That in turn limited the commissions and fees to a percentage of the loan portfolios being traded.
Around the year 2000, everything changed. The securities brokerage firms started executing a plan that would give them multiples of the amounts traded as “loans” instead of percentage commissions. As an analogy, imagine a car salesman suddenly finding a way to get $500,000 for every car he/she sold for $40,000. If his/her commission was 5% the earings would increase from $2,000 to $500,000. And even if his scheme was somewhat illegal or extra-legal he would have enough money to pay off everyone around him to shut up, giving them more money than they had ever seen in their lives.
The rules of accounting and the rules of law are the same. If you don’t own an asset you have no financial loss associated with the loss of the asset. And that is because there is no account that gets debited or credited with any payment or disbursement related to the asset. According to GAAP and the law, if there are payments and disbursements, they are not related to an asset if it is not owned by the party who made or received payment. Without that, the courts are without any authority to hear any dispute relating to the asset. If the party making a claim does not own the asset, it cannot claim a financial injury. And without a present financial injury, there is no claim.
Now You Can Unlock the Power of Justice and the Rule of Law with FRAUD STOPPERS
Are you tired of being a victim of financial fraud, seeking the justice and legal remedy you deserve? Look no further – FRAUD STOPPERS is here to empower you with the comprehensive tools and support necessary for success. With a wide range of services tailored to your needs, we are your ultimate ally in the fight against fraud.
FRAUD STOPPERS Arsenal of Solutions includes but is not limited to:
- Audits & Investigations: Our team of skilled professionals will meticulously analyze your case, leaving no stone unturned in uncovering the truth. We employ cutting-edge techniques and resources to expose the fraud and gather irrefutable evidence. We are the only organization (to our knowledge) that can provide you with a Full Level 4 Bloomberg Securitization Audit and all the loan level data and trust information for all Government Sponsored Loans (GSE’s) and loan placed in private trust (shipped off shores) that do not report to the Securities and Exchange Commission (SEC).
- Expert Witness Affidavits & Testimony: Our network of esteemed experts will provide compelling affidavits and testify on your behalf, lending credibility and authority to your case. Their specialized knowledge and experience will strengthen your position in the legal battle.
- Turnkey Litigation Packages: We understand that navigating the complex legal landscape can be overwhelming. That's why we offer comprehensive litigation packages, equipped with all the necessary documents and strategies to mount a strong defense against fraudsters.
- Professional Paralegal Support: Our dedicated paralegals are committed to assisting you every step of the way. They will guide you through the process, offer invaluable insights, and provide crucial administrative support to ensure your case is well-prepared.
- Nationwide Attorney Networks: We have established a vast network of highly skilled attorneys across the country who specialize in fraud cases. Rest assured, you will be connected with a trusted legal expert who is passionate about seeking justice on your behalf.
- Legal Education and Training: At FRAUD STOPPERS, we believe that knowledge is power. That's why we provide comprehensive legal education and training resources, empowering you to understand your rights, navigate the legal system, and make informed decisions throughout your case.
- Debt Settlement Negotiations: Our experienced negotiators will engage with creditors on your behalf, striving to reach favorable debt settlement agreements. We will advocate for your interests, aiming to alleviate the financial burden caused by fraud.
- Private Lending: If you require financial assistance to support your legal battle, our private lending options can provide the necessary funding. Our trusted lending partners offer competitive rates and flexible terms, ensuring you have the resources to fight for justice.
And much more! Save Time, Money, and Increase Your Odds of Success with FRAUD STOPPERS' Proven Products and Programs
If you're serious about getting the legal remedy you deserve, FRAUD STOPPERS has everything you need to succeed while saving time, money, and increasing your odds of success. Our comprehensive range of proven products and programs is designed to streamline the process, maximize efficiency, and deliver results.
Time is of the essence when it comes to combating fraud, and we understand the importance of expediting your case. With our expertise and resources, we can minimize delays and ensure efficient progress. By leveraging our extensive experience in fraud investigations and legal strategies, you can navigate the complexities of the legal system with confidence, saving valuable time in the process.
We also recognize the financial burden that fraud can impose, and we are committed to providing cost-effective solutions. Our competitive rates for services, private lending options, and expert negotiation skills can help you save money while maximizing the value you receive. Rest assured that we strive to optimize your resources, enabling you to fight fraud without breaking the bank.
Partnering with FRAUD STOPPERS significantly increases your odds of success. Our proven track record and extensive network of experienced professionals ensure that you have the best possible resources at your disposal. From expert witness testimonies to strategic litigation packages and effective debt settlement negotiations, our carefully curated products and programs have a track record of achieving favorable outcomes. With FRAUD STOPPERS by your side, you can maximize your chances of holding fraudsters accountable and obtaining the justice you deserve.
By choosing FRAUD STOPPERS, you can save time, save money, and increase your odds of success. Our proven products and programs, combined with our commitment to your cause, empower you to reclaim your future. Take the first step towards justice by completing the form below.
Remember, with FRAUD STOPPERS, you have a trusted partner dedicated to saving you time, money, and increasing your chances of success. Let us fight by your side and help you put an end to fraud once and for all.
Our commitment to your success knows no bounds. We are constantly expanding our services and partnerships to provide you with the most effective tools in the fight against fraud.
Ready to get started?
Simply complete the form below to begin your journey towards justice. Once submitted, check your email inbox or email spam folder for detailed instructions on how to move your file forward.
Remember, you don't have to face fraud alone – FRAUD STOPPERS is here to champion your cause and bring you the justice you deserve.
Join us in the battle against fraud today!
After submission, check your email inbox or spam folder for detailed instructions on how to move your file forward to get the legal remedy you seek and deserve.
LIST OF FORECLOSURE LAWS BY STATE
Get In Touch
Phone / Fax
Phone & Fax: 800-459-1215
Send A Message
THIS SITE IS NOT INTENDED TO BE MISCONSTRUED AS LEGAL ADVICE. FRAUD STOPPERS is a Private Members Association PMA. FRAUD STOPPERS PMA is NOT a law firm, non-profit organization, or government agency. FRAUD STOPPERS PMA does not operate in the public sector. Although this website is visible to the public FRAUD STOPPERS PMA does not intend for any information contained in this website to be considered as legal advise.
The information about Foreclosure law and other legal information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; FRAUD STOPPERS and its members do not recommend or endorse the contents of the third-party sites.
Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter. No reader, user, or browser of this site should act or refrain from acting on the basis of information on this site without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client relationship between the reader, user, or browser and website authors, contributors, contributing law firms, or committee members and their respective employers. This site provides “information” about the law and is only designed to help users safely cope with their own legal needs. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances.
The views expressed at, or through, this site are those of the individual authors writing in their individual capacities only – not those of their respective employers, FRAUD STOPPERS, or committee/task force as a whole. All liability with respect to actions taken or not taken based on the contents of this site are hereby expressly disclaimed. The content on this posting is provided “as is;” no representations are made that the content is error-free.
For instant access to an affordable local competent attorney click here