STOP MY FORECLOSURE HOME

Debtor Without Lawyer Defeats Motion for Relief from Stay, Based on Lack of Standing

Debtor Without Lawyer Defeats Motion for Relief from Stay, Based on Lack of Standing

Posted on June 26, 2009 by livinglies

Debtor Without Lawyer Defeats Motion for Relief from Stay, Based on Lack of Standing
By Craig Andresen, Minnesota Bankruptcy Attorney on Mar 29, 2009 in Featured, Foreclosure Defense, Mortgage Issues In Bankruptcy, Mortgage Servicer Abuses

A Washington bankruptcy court recently agreed with a pro se debtor that mortgage servicing agents do not possess legal standing to bring relief from stay motions in chapter 13 cases.

In re Jacobson, 2009 WL 567188 (Bky.W.D.Wash. March 6, 2009), involved a chapter 13 bankruptcy debtor whose mortgage servicing agent filed a motion seeking an order from the bankruptcy court that it could foreclose on the debtor’s home mortgage, based upon lack of payments.  The debtor had a lawyer in the chapter 13 case, but the lawyer made no appearance.  Consequently, the debtor responded to the motion on his own behalf, and argued his case in open court with no lawyer.

The bankruptcy court was concerned that an out-of-state law firm had filed the motion on behalf of the mortgage servicer, but that a lawyer having no formal association with that firm appeared in court to argue the mortgage servicer’s motion.  Henceforth, the court stated, it would hear no arguments from such lawyers, unless a formal notice of association were timely filed.

The motion of “UBS AG, as servicing agent for ACT Properties, LLC (”Movant”),” was accompanied by an unauthenticated copy of an adjustable rate note in favor of Castle Point Mortgage, Inc.; and by a “barely legible” copy of a mortgage in favor of Castle Point Mortgage as “lender”; the beneficiary was identified as Mortgage Electronic Registration Systems, Inc. (MERS); and an apparently unrecorded “Assignment of Mortgage” to ACT Properties.  The motion was also supported by a declaration (made in Irvine, California) by a “bankruptcy specialist” that Wells Fargo Document Custody had possession of the note, mortgage, and assignment, in its Minnesota offices.

The court observed that the bankruptcy specialist had incorrectly noted the date the mortgage was signed, missing the actual date by several weeks.  It appeared doubtful the bankruptcy specialist had reliable knowledge of the mortgage or note.

In denying UBS AG’s motion, the bankruptcy court stated that only a “real party in interest” could file a motion in a federal court proceeding.  This was true even if the mortgage servicing agent had the power, granted to it by the owner of the mortgage, to file a bankruptcy court motion.  The court held that relief from stay had to be granted to the owner of the mortgage, and therefore the motion had to be filed by the owner of the mortgage.  It was not acceptable for the servicing agent to file the motion for relief from stay.

Because there was no evidence before the bankruptcy court that UBS AG was the owner of the mortgage note, or that UBS AG had any authority to foreclose the mortgage, UBS AG lacked standing; it was not the real party in interest.  The court ruled that UBS AG was not entitled to an order allowing it to foreclose the mortgage.

---

Possibly related posts: (automatically generated)

• Update Alert: Relief from Stay
• updated form: Motions for Relief from Stay

Filed under: CDO, CORRUPTION, Eviction, GTC | Honor, MODIFICATION, Mortgage, Servicer, foreclosure, securities fraud | Tagged: fraud, bankruptcy, foreclosure defense, Lender Liability, borrower, disclosure, trustee, securitization, foreclosure offense

FDCPA — Fair Debt Collection Practices Act

FDCPA — Fair Debt Collection Practices Act

Posted on June 29, 2009 by livinglies

Don’t get misled by titles. The wording of the statute clearly uses “verification” not validation. Verification generally means some sworn document or affidavit. This means when you contest the debt under FDCPA (in addition to sending a QWR) the party who is supposedly collecting or enforcing the debt has a duty to “obtain verification”. And that means they can’t verify it themselves unless they are the actual lender. And the statutes says pretty clearly that they must give the lenders name and contact information — past and present. STRATEGY: IF THEY SUPPLY SUCH A DOCUMENT, PICK UP THE PHONE AND SPEAK WITH THE PERSON WHO SIGNED IT.I CAN PRACTICALLY GUARANTEE THEY WILL DISCLAIM EVERYTHING THAT WAS IN IT AND POSSIBLY EVEN THAT THEY SIGNED IT.

15 U.S.C. 1692 ———–

FDCPA

Salient provisions affecting foreclosures:

§ 1692. Congressional findings and declaration of purpose

Abusive practices

There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.
(b) Inadequacy of laws
Existing laws and procedures for redressing these injuries are inadequate to protect consumers.

(4) The term “creditor” means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
(5) The term “debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.
The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.

§ 1692g. Validation of debts

(a) Notice of debt; contents
Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing—
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
(b) Disputed debts
If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector. Collection activities and communications that do not otherwise violate this subchapter may continue during the 30-day period referred to in subsection (a) unless the consumer has notified the debt collector in writing that the debt, or any portion of the debt, is disputed or that the consumer requests the name and address of the original creditor. Any collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt or request the name and address of the original creditor.
(c) Admission of liability
The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.
(d) Legal pleadings
A communication in the form of a formal pleading in a civil action shall not be treated as an initial communication for purposes of subsection (a).
§ 1692j. Furnishing certain deceptive forms

(a) It is unlawful to design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor of such consumer is participating in the collection of or in an attempt to collect a debt such consumer allegedly owes such creditor, when in fact such person is not so participating.
Any person who violates this section shall be liable to the same extent and in the same manner as a debt collector is liable under section 1692k of this title for failure to comply with a provision of this subchapter.

§ 1692k. Civil liability

(a) Amount of damages
Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of—
(1) any actual damage sustained by such person as a result of such failure;
(2)
(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or
(B) in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector; and
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.
(b) Factors considered by court
In determining the amount of liability in any action under subsection (a) of this section, the court shall consider, among other relevant factors—
(1) in any individual action under subsection (a)(2)(A) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or
(2) in any class action under subsection (a)(2)(B) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector’s noncompliance was intentional.
(c) Intent
A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
(d) Jurisdiction
An action to enforce any liability created by this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs.
(e) Advisory opinions of Commission
No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Commission, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

§ 1692n. Relation to State laws

This subchapter does not annul, alter, or affect, or exempt any person subject to the provisions of this subchapter from complying with the laws of any State with respect to debt collection practices, except to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency. For purposes of this section, a State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection provided by this subchapter.

§ 1692o. Exemption for State regulation

The Commission shall by regulation exempt from the requirements of this subchapter any class of debt collection practices within any State if the Commission determines that under the law of that State that class of debt collection practices is subject to requirements substantially similar to those imposed by this subchapter, and that there is adequate provision for enforcement.

Filed under: CDO, CORRUPTION, Eviction, GTC | Honor, Investor, MODIFICATION, Mortgage, STATUTES, Servicer, foreclosure, securities fraud | Tagged: bankruptcy, borrower, credit, disclosure, FDCPA, foreclosure defense, foreclosure offense, fraud, Lender Liability, Mortgage, securitization, TILA audit, trustee

OHIO SLAM DUNK by Judge Morgenstern-Clarren: US BANK TRUSTEE and OCWEN Crash and Burn

OHIO SLAM DUNK by Judge Morgenstern-Clarren: US BANK TRUSTEE and OCWEN Crash and Burn

Posted on June 29, 2009 by livinglies

Pretender Lenders — read and weep. Game Over. Over the next 6-12 months the entire foreclosure mess is going to be turned on its head as it becomes apparent to even the most skeptical that the mortgage mess is just that —  a mess. From the time the deed was recorded to the time the assignments, powers of attorneys, notarizations and other documents were fabricated and executed there is an 18 minute Nixonian gap in the record that cannot be cured. Just because you produce documents, however real they appear, does not mean you can shift the burden of proof onto the borrower.

If you say you have a claim, you must prove it. If you say you are the lender, you must prove it.

Bottom Line: Every acquisition of residential real property that was allegedly subject to a securitized mortgage is subject to nullification whether it was by non-judicial foreclosure, judicial foreclosure, short-sale, modification or just a regular sale. Every foreclosure, short-sale or modification is subject to the same fatal flaw. Pension funds are not going to file foreclosure suits even though they are the ones who allegedly own the loans.

Legislators take notice: Just because bankers give you money doesn’t mean they can change 1000 years of common law, statutory law and constitutional law. It just won’t fly. And if you are a legislator looking to get elected or re-elected, your failure to act on what is now an obvious need to clear title and restore the wealth of your citizens who were cheated and defrauded, will be punished by the votes of your constituents.

In_Re_Wells_Bankruptcy_OH_ND_Decision_22_Jun_2009

memo_20090212_Motions for Relief From Stay Update – Endorsement of Note by Alleged Attorney-in-Fact_pmc-2

memo_20080709_Additional Guidance on Motions for Relief From Stay_pmc-1

memo_20080212_Tips for How a Motion for Relief From Stay Can Proceed Smoothly Through the Court _pmc-1

memo_19980824_Motions for Relief From Stay_pmc-1

Filed under: CDO, CORRUPTION, Eviction, GTC | Honor, MODIFICATION, Mortgage, Servicer, bubble, foreclosure, securities fraud | Tagged: bankruptcy, borrower, credit, disclosure, foreclosure defense, foreclosure offense, fraud, Lender Liability, lenders, lost note, mortgage meltdown, predatory lending, rescission, securitization, trustee

« FDCPA — Fair Debt Collection Practices Act

Give me a little help here: Trusts, REMICs, and the Authority of the Trustee or Trustee’s Attorney to Represent

Give me a little help here: Trusts, REMICs, and the Authority of the Trustee or Trustee’s Attorney to Represent

Posted on June 25, 2009 by livinglies

When U.S. Bank comes in as Trustee for the the holders of series xyz etc., the use of the words Trustee and series certificates give it an air of legitimacy. But this is probably just another bluff. Reading the indenture on the bond (mortgage backed security) and the prospectus, you will see that the “Trust” may or may not be the the Special Purpose Vehicle that issued the bonds.

And of course I remind you that the “borrower” (whom I call an “issuer” for reason explained in other posts) signed a note with one set of terms and the source of funding, the investor received a bond with another set of terms (and parties) who in turn received some sort of transmittal delivery or conveyance of a pool of “assets” from a pool trustee or other third party who obtained the “assets” under an entirely different set of terms (and parties) including a buy back provision which would appear to negate the entire concept of any unconditional “assignment” (a primary condition for negotiability being the absence of conditions and the certainty that the instrument sets forth all obligations without any “off-record” activity creating a condition on payment).

In short, we have a series of independent contracts that are part of a common scheme to issue unregulated securities under false pretenses making the “borrower” and the “investor” both victims and making the “borrower” an unknowing issuer of an instrument that was intended to be used as a negotiable instrument and sold as as a security.

One of the more interesting questions raised by another reader is this issue of trusts. care to comment on the following? I’ll make it an article and post it. Send it to me at ngarfield@msn.com. Want to be a guest on the podcast show? Submit an article that gets posted.

1. What is a trust? How is it defined? How is it established for legal existence? Does it need to be registered or recorded anywhere?
2. Can a trust legally exist if it is unfunded? (If there is nothing in the trust to administer, is there a trust?)
3. What are the powers of the Trustee of an unfunded trust? Can a Trustee claim apparent or actual authority to represent the holders of bonds (mortgage backed securities) issued by a Special Purpose Vehicle — as an agent? as a trustee? Again what are the “Trustee’s” (agent?) powers?
4. Who can be a Trustee.
5. Can a financial services entity otherwise qualified to do business in the state claim to be an institutional trustee?
6. Can a financial services entity that does not qualify to do business in the state, not chartered or licensed do business as a bank? a lender? a securities issuer? a trustee? a trust company?
7. If the mortgage backed securities (bonds) are sold to investors what asset or res can be arguably in the trust?
8. If the mortgage backed securities (bonds) contain an indenture that purports to convey a pro rata share of the mortgages and notes in a pool to the owner of the certificate of mortgage backed security (bond) what asset or res can be arguably in the trust?
9. If the Special Purpose Vehicle has filed with the IRS as a REMIC conduit (see below) then how it own anything since by definition it is a conduit and must act as a conduit or else it loses tax exempt status and subjects itself to income and capital gains taxes?

FROM WIKOPEDIA:

Real Estate Mortgage Investment Conduits, or “REMICs,” are a type of special purpose vehicle used for the pooling of mortgage loans and issuance of mortgage-backed securities. They are defined under the United States Internal Revenue Code (Tax Reform Act of 1986), and are the typical vehicle of choice for the securitization of residential mortgages in the US.

REMIC usage

REMICs are investment vehicles that hold commercial and residential mortgages in trust and issue securities representing an undivided interest in these mortgages. A REMIC assembles mortgages into pools and issues pass-through certificates, multiclass bonds similar to a collateralized mortgage obligation (CMO), or other securities to investors in the secondary mortgage market. Mortgage-backed securities issued through a REMIC can be debt financings of the issuer or a sale of assets. Legal form is irrelevant to REMICs: trusts, corporations, and partnerships may all elect to have REMIC status, and even pools of assets that are not legal entities may qualify as REMICs.^[2]

The Tax Reform Act eliminated the double taxation of income earned at the corporate level by an issuer and dividends paid to securities holders, thereby allowing a REMIC to structure a mortgage-backed securities offering as a sale of assets, effectively removing the loans from the originating lender’s balance sheet, rather than a debt financing in which the loans remain as balance sheet assets. A REMIC itself is exempt from federal taxes, although income earned by investors is fully taxable. As REMICs are typically exempt from tax at the entity level, they may invest only in qualified mortgages and permitted investments, including single family or multifamily mortgages, commercial mortgages, second mortgages, mortgage participations, and federal agency pass-through securities. Nonmortgage assets, such as credit card receivables, leases, and auto loans are ineligible investments. The Tax Reform Act made it easier for savings institutions and real estate investment trusts to hold mortgage securities as qualified portfolio investments. A savings institution, for instance, can include REMIC-issued mortgage-backed securities as qualifying assets in meeting federal requirements for treatment as a savings and loan for tax purposes.

To qualify as a REMIC, an entity or pool of assets must make a REMIC election, follow certain rules as to composition of assets (by holding qualified mortgages and permitted investments), adopt reasonable methods to prevent disqualified organizations from holding its residual interests, and structure investors’ interests as any number of classes of regular interests and one –- and only one -– class of residual interests.^[3] The Internal Revenue Code does not appear to require REMICs to have a class of regular interests.^[4]

Qualified mortgages

Qualified mortgages encompass several types of obligations and interests. Qualified mortgages are defined as “(1) any obligation (including any participation or certificate of beneficial ownership therein) which is principally secured by an interest in real property, and is either transferred to the REMIC on the startup day in exchange for regular or residual interests, or purchased within three months after the startup day pursuant to a fixed-price contract in effect on the startup day, (2) any regular interest in another REMIC which is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC, (3) any qualified replacement mortgage, or (4) certain FASIT regular interests.”^[5] In (1), “obligation” is ambiguous; a broad reading would include contract claims but a narrower reading would involve only what would qualify as “debt obligations” under the Code.^[6] The IRC defines “principally secured” as either having “substantially all of the proceeds of the obligation . . . used to acquire or to improve or protect an interest in real property that, at the origination date, is the only security for the obligation” or having a fair market value of the interest that secures the obligation be at least 80% of the adjusted issue price (usually the amount that is loaned to the mortgagor)^[7] or be at least that amount when contributed to the REMIC.^[8]

Permitted investments

Permitted investments include cash flow investments, qualified reserve assets, and foreclosure property.

Cash flow investments are temporary investments in passive assets that earn interest (as opposed to accruing dividends, for example) of the payments on qualified mortgages that occur between the time that the REMIC receives the payments and the REMIC’s distribution of that money to its holders.^[9] Qualifying payments include mortgage payments of principal or interest, payments on credit enhancement contracts, profits from disposing of mortgages, funds from foreclosure properties, payments for warranty breaches on mortgages, and prepayment penalties.^[10]

Qualified reserve assets are forms of intangible property other than residual interests in REMICs that are held as investments as part of a qualified reserve fund, which “is any reasonably required reserve to provide for full payment of” a REMIC’s costs or payments to interest holders due to default, unexpectedly low returns, or deficits in interest from prepayments.^[11] REMICs usually opt for safe, short term investments with low yields, so it is typically desirable to minimize the reserve fund while maintaining “the desired credit quality for the REMIC interests.”^[12]

Foreclosure property is real property that REMICs obtain upon defaults. After obtaining foreclosure properties, REMICs have until the end of the third year to dispose of them, although the IRS sometimes grants extensions.^[13] Foreclosure property loses its status if a lease creates certain kinds of rent income, if construction activities that did not begin before the REMIC acquired the property are undertaken, or if the REMIC uses the property in a trade or business without the use of an independent contractor and over 90 days after acquiring it.^[14]

Regular interests

It is useful to think of regular interests as resembling debt; they tend to have lower risk with a corresponding lower yield. Regular interests are taxed as debt.^[15] A regular interest must be designated as such, be issued on the startup day, contain fixed terms, provide for interest payments and how they are payable, and unconditionally entitle the holder of the interest to receive a specific amount of the principal.^[16] Profits are taxed to holders.

Residual interests

Residual interests tend to involve ownership and resemble equity more than debt. However, residual interests may be neither debt nor equity. “For example, if a REMIC is a segregated pool of assets within a legal entity, the residual interest could consist of (1) the rights of ownership of the REMIC’s assets, subject to the claims of regular interest holders, or (2) if the regular interests take the form of debt secured under an indenture, a contractual right to receive distributions released from the lien of the indenture.”^[17] The risk is greater, as residual interest holders are the last to be paid, but the potential gains are greater. Residual interests must be designated as such, be issued on the startup day, and not be a regular interest (which it can effortlessly avoid by not being designated as a regular interest). If the REMIC makes a distribution to residual interest holders, it must be pro rata; the pro rata requirement simplifies matters because it usually prevents a residual class from being treated as multiple classes, which could disqualify the REMIC.^[18]

Forms

A REMIC can issue mortgage securities in a wide variety of forms: securities collateralized by Government National Mortgage Association (Ginnie Mae) pass-through certificates, whole loans, single class participation certificates and multiclass mortgage-backed securities; multiple class pass-through securities and multiclass mortgage-backed securities; multiple class pass-through securities with fast-pay or slow-pay features; securities with a subordinated debt tranche that assumes most of the default risk, allowing the issuer to get a better credit rating; and Collateralized Mortgage Obligations with monthly pass-through of bond interest, eliminating reinvestment risk by giving investors call protection against early repayment.

The advantages of REMICs

REMICs abolish many of the inefficiencies of collateralized mortgage obligations (CMOs) and offer issuers more options and greater flexibility..^[19] REMICs have no minimum equity requirements, so REMICs can sell all of their assets rather than retain some to meet collateralization requirements. Since regular interests automatically qualify as debt, REMICs also avoid the awkward reinvestment risk that CMO issuers bear to indicate debt. REMICs also may make monthly distributions to investors where CMOs make quarterly payments. REMIC residual interests enjoy more liquidity than owner’s trusts, which restrict equity interest and personal liability transfers. REMICs offer more flexibility than CMOs, as issuers can choose any legal entity and type of securities. The REMIC’s multiple-class capabilities also permit issuers to offer different servicing priorities along with varying maturity dates, lowering default risks and reducing the need for credit enhancement.^[20] REMICs are also fairly user-friendly, as the REMIC election is not difficult, and the extensive guidance in the Code and in the regulations offers “a high degree of certainty with respect to tax treatment that may not be available for other types of MBSs.”^[21]

The limitations of REMICs

Though REMICs provide relief from entity-level taxation, their allowable activities are quite limited “to holding a fixed pool of mortgages and distributing payments currently to investors.”^[22] A REMIC has some freedom to substitute qualified mortgages, declare bankruptcy, deal with foreclosures and defaults, dispose of and substitute defunct mortgages, prevent defaults on regular interests, prepay regular interests when the costs exceed the value of maintaining those interests,^[23] and undergo a qualified liquidation,^[24] in which the REMIC has 90 days to sell its assets and distribute cash to its holders.^[25] All other transactions are considered to be prohibited activities and are subject to a penalty tax of 100%,^[26] as are all nonqualifying contributions.

To avoid the 100% contributions tax, contributions to REMICs must be made on the startup day. However, cash contributions avoid this tax if they are given three months after the startup day, involve a clean-up call or qualified liquidation, are made as a guarantee, or are contributed by a residual interest holder to a qualified reserve fund.^[27] Additionally, states may tax REMICs under state tax laws.^[28] “Many states have adopted whole or partial tax exemptions for entities that qualify as REMICs under federal law.”^[29]

REMICs are subject to federal income taxes at the highest corporate rate for foreclosure income and must file returns through Form 1066.^[30] The foreclosure income that is taxable is the same as that for a real estate investment trust (REIT)^[31] and may include rents contingent on making a profit, rents paid by a related party, rents from property to which the REMIC offers atypical services, and income from foreclosed property when the REMIC serves as dealer.^[32]

The REMIC rules in some ways exacerbate problems of phantom income for residual interest holders, which occurs when taxable gain must be realized without a corresponding economic gain with which to pay the tax.^[33] Phantom income arises by virtue of the way that the tax rules are written. There are penalties for transferring income to non-taxpayers, so REMIC interest holders must pay taxes on gains that they do not yet have.

One Response

dny, on June 25th, 2009 at 9:07 am Said:

It had never occurred to me that the “buy back provisions” would negate the qualifying status as a “true sale!!” A “buy back provision” absoluetly suggests “recourse” which there should NOT be. Brilliant!!!

I’ve posted this elsewhere on LivingLies:

Regarding the S&P document below: This seems to be further evidence that the securitizations are supposed to be TRUE SALES with an ASSUMPTION OF RISK. It is a link to a document on ALTA’s Internet site from S&P on assignee-investor liability for predatory lending violations, showing state-by-state information. Could be useful for folks. Can see why investors want to stay hidden. Can somebody comment on this?

http://www.alta.org/govt/issues/04/sp_1019.pdf

It also seems to indicate that, even as early as 2004, the securitizers were well aware that predatory lending liability would end up at their doorsteps. And what was the response to these warnings from the mortgage industry and its servicers?: deflect predatory lending claims made in QWR’s (”We’re just the servicers.”) and make sure the identities of the investors are well hidden (Servicers, in response to information about the holder-in-due-course information requested in QWR’s: “That information is confidential and/or a trade secret.” And most of all, MAKE SURE THE BORROWERS NEVER GET THEIR DAY IN COURT.

Thanks.

Due Process, Discovery and Burden of Proof

Due Process, Discovery and Burden of Proof

Posted on June 15, 2009 by livinglies

Non-judicial process was never intended and could never be constitutionally applied as a mere trick to avoid due process. If these parties wish to initiate foreclosure they must, whether it is a judicial process or a judicial process, possess the attributes of the basic jurisdictional elements of standing and they must possess the attributes of being authorized to proceed by the true parties in interest i.e., the necessary and indispensable parties. The fact that a state allows non-judicial process does not grant carte blanche to any wily person or entity to try its hand at foreclosure and see if they get away with it.

If they are allowed to continue to raise defenses and make allegations without establishing the basic jurisdictional elements of legal standing and without establishing and disclosing the real parties in interest, then the entire case and all foreclosures are a mere charade, inviting any unscrupulous character to attempt to create color of title over the loan and the  foreclose on it.

“How do I prove that?” There are several answers. You know your loan has been securitized but the Judge doesn’t. And even if it has been securitized, how do you show that defeats the foreclosure? In this post I will answer these questions, which appear to be the most asked.

First, do NOT fall through the trap door of taking on the burden of proof. This is trickier in non-judicial states than judicial states but it is still possible to shift the burden of proof onto the pretender lenders if you do the right things and of course, if the Judge agrees with you. Remember these strategies presented here are valid in my judgment — but tactical, strategic and legal considerations by local licensed counsel trump anything I say here.  And for those of you considering class actions, which appear to be popping up all over the country, leave the door open to “fraud on the market.” By its very nature it is ipso facto a class action and eliminates many hurdles.

In all cases, I strongly recommend a forensic review with all four legs of the stool, lest you tip over and fall on your ass. The TILA audit is not only not enough, it is incomplete without considering inflated appraisals, UCC, SEC and chain of title. Without ALL elements present you can’t allege the right things that will enable you to argue that the right to rescind never started running because they withheld the identity of the real lender. Without the securitization information, you can’t allege that the opposing party is a pretender lender. Without the chain of title information you can’t allege that your rescission is effective and that off-record unreported fees and profits were earned. Without the inflated appraisal, you can’t allege that the APR on the good faith estimate is not only wrong, it is fraudulent diverting the borrower’s attention from what is clearly a usurious loan.

And the forensic review process should INCLUDE the debt validation letter (DVL), the  Qualified Written Request (QWR) and probably a notice of rescission under the three-day rule even if the closing was years ago. The good news is that with the QWR there is no restriction on the number of questions you can ask, there is a statutory duty to answer it and you can get a TRO just based upon the fact that RESPA has been invoked.

I strongly advise that you retain a firm with a subscription to ABSnet that renders a separate and independent report on the loans of the specific class representatives so that you can produce, in court, copies of public records documents in the public domain that are subject to judicial notice to create the presumption that these defendants can’t possibly own the note. By doing this, when asked about these specific loans rather than the way things work generally, you can say that these loans definitely did operate in the usual way, that you have copies of the public records to show, and that if the facts are any different it is only because the defendants did not properly report their activities to the SEC or have otherwise failed to answer basic questions of the borrowers like “who is my lender?”

Don’t leave an issue floating which is central to the entire securitization defense and offense: that it isn’t so much whether they will suffer a loss for each foreclosure, but rather that they stand to lose nothing and gain everything. One of the following is true:

1. They don’t own the note and they have no authority to enforce the note or mortgage because they are not named on it and they have not been given express authority by the holders of the the note and mortgage along with indemnification for all costs, expenses, and claims.
2. They don’t own the note and they have authority to enforce the note or mortgage because they have been given express authority by the holders of the the note and mortgage along with indemnification for all costs, expenses, and claims.

Either way they don’t own the note. By definition that is what securitization means. The reason for the procedure invoking limited discovery is to force these parties to either put up or shut up. Non-judicial process was never intended and could never be constitutionally applied as a mere trick to avoid due process. If these parties wish to initiate foreclosure they must, whether it is a judicial process or a judicial process, possess the attributes of the basic jurisdictional elements of standing and they must possess the attributes of being authorized to proceed by the true parties in interest i.e., the necessary and indispensable parties. The fact that a state allows non-judicial process does not grant carte blanche to any wily person or entity to try its hand at foreclosure and see if they get away with it.

Whether you started in non-judicial or judicial forum, you are in court now. The pretender lenders wish to defend the against the borrowers’ claims. They have no standing to defend except as nominal parties unless they can show they have legal standing and that the necessary and indispensable parties are present, disclosed and accounted for in this action. Defendants seek to divert the court’s attention from the most basic elements of due process and fairness when they allege the “loss” they will suffer as “lenders.” They are not lenders. That is the point of the lawsuit. If they are allowed to continue to raise defenses and make allegations without establishing the basic jurisdictional elements of legal standing and without establishing and disclosing the real parties in interest, then the entire case and all foreclosures are a mere charade, inviting any unscrupulous character to attempt to create color of title over the loan and the  foreclose on it.

Each day these defendants (pretender lenders) are allowed to proceed under cover of plausible deniability is another day in which the title of Plaintiffs/Borrowers will be further clouded by further off-record activity that will become on-record when they choose to do so, all in transactions conducted under cloak of secrecy and deception. The situation is bad enough without allowing these defendants (pretender lenders) to make this court complicit in their fraudulent claims, resulting in clouded and unmarketable title.

Media picks up on evil business practices of servicers: Watch These Videos

Media picks up on evil business practices of servicers: Watch These Videos

Posted on June 6, 2009 by livinglies

HOMEOWNER FIGHTS AND WINS WITH ACORN: watch?v=U4tP1fB5AgU&feature=fvw

HOMEOWNER FIGHTS AND WINS ON PRODUCE THE NOTE: video?id=6839407

BLACKMAIL: NO LATE PAYMENTS? NO PROBLEM. GET OUT!: watch?v=yj6YZPeaRcU&feature=related

PRODUCE THE NOTE: WHEN THE BANK LOST OR DESTROYED THE EVIDENCE: watch?v=YUZdANb6UaY&feature=related

“EVERYONE SHOULD PUT THE ‘LENDER’ TO TASK”: watch?v=LqAWCgKuvZ0&feature=related

Servicers do everything they can to keep loans in default, make money on foreclosures too: watch?v=hq_AKvRdWgg

FED BAILOUT BUYING DEFAULTED LOANS? Why servicers try to force homeowners into foreclosures: watch?v=vxyRFSYe7ws&NR=1

I WANT SOME TARP — THEY’RE GIVING MONEY AWAY FOR FREE: watch?v=yGfQk9XXm24&NR=1

CHILLING PARODY: watch?v=bNmcf4Y3lGM&NR=1

Former EMC Employee Publicly Discloses the Ugly Truth About the Mortgage Servicing Industry: See comments to this blog
By Denise Richardson on July 11, 2008 10:09 AM | Permalink | Comments (0) | TrackBacks (0)

The Consumer Warning Network released a stunning video that has a former EMC employee reciting an inside story that paints a picture of why so many people can’t get their loan out of default and why some people lost homes even though they had the money to pay off their note. Investigative studies, insiders and victims -have claimed that mortgage servicing companies can make MORE money off of homeowners when they keep your loan in default.

“the media has failed to tell the full story” says Danny Schechter, producer and director of In Debt We Trust and the ‘News Dissector” from mediachannel.org. See: Bringing the Wall Street Crisis to Main Street!

Professor Katherine Porter described many of the same disturbing findings in her recent study: “Misbehavoir and Mistakes…”

To watch her on CNN see: Are you facing an Unfair Foreclosure?

Professor Porter was also a guest on our weekly radio show SpotLight.

During that interview we discussed her findings that additionally indicated the mortgage servicing industry has zero regulations. In fact, the system currently in place for servicing companies is set up in such a way that it actually gives servicing companies an incentive not to communicate with the borrower and then make more money by collecting late fees and penalties -much like this insider’s story.

EMC

Filed under: CDO, CORRUPTION, Eviction, GTC | Honor, MODIFICATION, Mortgage, Servicer, bubble, foreclosure, foreign relations, politics, securities fraud | Tagged: bailout, borrower, credit crisis, disclosure, Federal reserve, foreclosure defense, foreclosure offense, fraud, Lender Liability, lost note, mortgage meltdown, predatory lending, rescission, securitization, trustee

Lost resorts: The Credit Suisse loan debacle

Lost resorts: The Credit Suisse loan debacle

Eight luxury resorts backed by the bank are either in foreclosure, bankruptcy or liquidation.

By William D. Cohan, contributor

Last Updated: May 29, 2009: 11:39 AM ET

NEW YORK (Fortune) -- Credit Suisse, the large Swiss financial services firm run by the American investment banker Brady Dougan, has sidestepped the worst of the financial crisis. But between 2004 and 2006, the bank was not above making more than $3 billion of senior secured "predatory" (according to one judge) loans to high-end real estate developers operating mostly in the western United States.

Within the last year, at least eight of the real-estate developments that received the Credit Suisse (CS) loans are either operating under bankruptcy court protection, have been liquidated or have been foreclosed upon. In one case, the $7.5 million fee paid to Credit Suisse on a $375 million loan was decided with a coin toss between a Credit Suisse banker and a real estate developer.

The portfolio of loans was the brainchild of David Miller, a Managing Director at Credit Suisse, who was co-head of the U.S. capital markets business within the syndicated loan group. When Credit Suisse made the loans, it got paid millions in fees and then syndicated them all off to investors, who will be fortunate to get back pennies on the dollar during the various bankruptcy proceedings. (Credit Suisse currently has a minimal exposure to the original loans.)

Miller was well aware of the golden goose he had on his hands. In an August 2005 email to a colleague, Miller wrote, "[T]hese are aggressive deals and it is in all of our best interests, that the investors are protected, because if one of them should blow up, you will see these investors pull out of this land development mkt [market] and our gravy train will stop."

A windfall for investors

In making what were known at Credit Suisse as "syndicated term loans," Miller and his team targeted posh resorts and offered their developers the chance to cash out a big chunk of their investments immediately -- often in the form of a dividend. What's more: In general the developers could use the loans virtually any way they wanted and were not bound to use them for the existing projects that secured the new loans. So the developers enriched themselves while saddling the projects with a crushing debt load that -- it quickly became apparent -- the projects could not support. As a result, the resorts were starved of the capital they needed to keep operating properly. The developers walked away with a windfall; the resorts collapsed.

Of course, Credit Suisse was not alone in making these aggressive loans at the top of the market. Other firms, such as Lehman Brothers, Barclays, JPMorganChase (JPM, Fortune 500) and Wachovia made these kinds of master-planned community deals. In sum, industry players estimate some $100 billion of such loans were made.

Posh resorts were the targets

David Miller and his team had successfully marketed the loans to, among other developments, the Tamarack Resort, in Idaho ($250 million); Lake Las Vegas, a 3,592-acre golf community in Nevada ($540 million); Promontory, a 7,200 acre, 10-square-mile, second-home resort outside of Park City, Utah ($275 million); the Turtle Bay Resort, in Hawaii ($400 million); and to four Ginn resorts in Port St. Lucie, Florida, Naples, Florida, Boone, North Carolina and the Bahamas ($675 million.)

One of the more egregious of these loans was made to the infamous Yellowstone Club, the bankrupt private golf and ski resort north of Yellowstone National Park in Montana. The exclusive Yellowstone Club, where the likes of Bill Gates, investment banker Bob Greenhill and former Citigroup (C, Fortune 500) CFO Todd Thomson have multi-million dollar homes, was the brainchild of timber baron Tim Blixseth and his now former wife, Edra. The Blixseths began developing the Yellowstone Club in 1999. (See: Paradise lost).

In December 2004, according to court documents, after years of being the major source of financing of around $155 million for the complex project of creating a private ski area, a golf course, various lodges and homes, Blixseth started receiving emails and calls from Credit Suisse. Miller's team had been trying to contact Blixseth to tell him about Credit Suisse's new loan for developers, such as Blixseth, that he described as akin to a "home equity loan" that broke "new ground...by doing real estate loans in the corporate bank loan market." After speaking to a director in Miller's group, Blixseth invited the Credit Suisse bankers out to the Yellowstone Club to have a look around the impressive resort.

Sealing the deal with a coin toss

Court documents also detail how Blixseth originally wanted a $150 million loan from Credit Suisse but after a few months of negotiation, the size of the loan ballooned to $375 million. Blixseth signed the deal on September 20, 2005. The loan documents allowed Blixseth to take out up to $209 million of the proceeds "for purposes unrelated to the Yellowstone Development," another up to $142 million could be used by "unrestricted subsidiaries" for purposes "unrelated" to Yellowstone, and another $24.2 million or so went to pay off the existing Yellowstone Club debt to a local bank.

To do the deal, Credit Suisse wanted a fee of 3%, or $11.25 million. Blixseth wanted to pay only 2%, or $7.5 million. To resolve the stalemate, Blixseth and Miller decided to flip a coin; Blixseth won.

In the end, Credit Suisse wired $342.1 million to the Yellowstone Club. That same day, Blixseth whisked out $209 million out of the Club's accounts in the form of a loan to another entity controlled solely by him. The windfall was then "disbursed to various personal accounts and payoffs benefiting Tim and Edra Blixseth personally," according to court documents. Blixseth used the money for various purposes including buying trophy resort properties around the world at peak prices to create a time-share development called Yellowstone Club World. He also got himself a Gulfstream jet.

In May 2006, Blixseth created a $209 million unsecured demand note payable to the Yellowstone Club, backdated to September 30, 2005, essentially writing a personal IOU to the Yellowstone Club for the money. Last November, the Yellowstone Club filed for Chapter 11 bankruptcy protection.

The fox in charge of the hen house

On May 12, 2009 Judge Ralph Kirscher, presiding over the Yellowstone Club bankruptcy case, decided to punish Credit Suisse by equitably subordinating its $375 million loan -- moving the bank from the senior secured position in the capital structure where it would get repaid in full before anyone else in the pecking order to the very back of the bus behind all the unsecured creditors.

The Judge's ruling -- in which he called the loan "predatory" -- condemned Credit Suisse noting that numerous entities that received Credit Suisse's syndicated loan product have failed financially, including Tamarack Resort, Promontory, Lake Las Vegas, Turtle Bay and Ginn. He said the loans were "doomed to failure" as soon as they were made while enriching the developers and the bankers along the way. "This program essentially puts the fox in charge of the hen house and was clearly self-serving for Credit Suisse," the Judge wrote. After the Judge's ruling, Credit Suisse said it was "disappointed in the ruling and disagrees with the court's findings."

In a brief filed as part of the trial in the Yellowstone Club bankruptcy, Credit Suisse defended its $375 million loan as "unassailable" and stated that no one could have foreseen "that the greatest economic collapse since the Great Depression would occur, rendering the Debtors unable to pay their debts as they became due." The bank explained further that it bought a $17 million piece of the original loan "long after" it was made and claimed that this would be "strange conduct, indeed" for a firm that "knew the debtors were going to fail." Credit Suisse said the Yellowstone Club stayed current on the loan for three years until it "succumbed to the collapse of the markets and mismanagement."

Sam Byrne gets control of Yellowstone

On May 18, CrossHarbor Capital, a Boston-based hedge fund, submitted a winning $115 million bid to buy the Yellowstone Club out of bankruptcy court, consisting of the issuance of $80 million of new debt to the old creditors and paying $35 million in cash. Sam Byrne, the principal at CrossHarbor and a longtime member of the Yellowstone Club and a developer there, also agreed to invest another $75 million -- and likely closer to $200 million -- of "working capital" into the Club. (A year or so ago, Byrne had made a $456 million bid for the Yellowstone Club -- then lowered it to around $405 million -- that was not accepted.) So in the end, he got control for $341 million less than he initially offered.

"I am happy that the bankruptcy process will soon be behind the Yellowstone Club with the company emerging as a properly capitalized enterprise for its membership," Byrne said in an interview. "Everyone is looking forward to the Club becoming the quiet, extraordinary place that we had all been promised it would be."

For his part, Blixseth, who still owns land at the Club, said he "could have organized a bid" for it "but in the final assessment felt that it is very hard to put Humpty-Dumpty back together again, and decided not to try. I had my role in being the inventor and implementer for 10 years, and it was time for someone who likely looks at the club as just a tool for making money to take it to its final completion." Judge Kirscher will soon rule whether Blixseth must repay to the Yellowstone Club's creditors the $200 million plus he took out of the Club from the original Credit Suisse loan.

And Credit Suisse gets a French chateau

Credit Suisse submitted the only other bid for the Club but withdrew it in exchange for a release from further liability for making the loan in the first place and for a transfer of the ownership to it of Chateau de Farcheville, outside of Paris. The chateau is a sprawling and breathtaking 13th-century, 15-bedroom pile (surrounded by fully reconditioned moat) that Blixseth paid some $28 million for (with the Credit Suisse loan) and now is said to be worth closer to $20 million, assuming a buyer can be found. Duncan King, a Credit Suisse spokesman in New York, had no comment on the outcome of the matter although he confirmed Credit Suisse is no longer making these types of loans.

As for David Miller, he remains at Credit Suisse and was recently promoted to co-head of the firm's U.S. Loan Syndication business. King declined to make Miller available to be questioned about the loan to the Yellowstone Club, the judge's decision in the case or whether the "gravy train" had ended.

William Cohan is the author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, published in March by Doubleday Books, a division of Random House, Inc. 

First Published: May 29, 2009: 10:29 AM ET

Former GMAC Bank under attack

Former GMAC Bank under attack

Ally, the renamed lending arm of GMAC, has benefited from the federal bailout of GMAC. Now a bank lobbying group wants to make Ally pay for 'risky' behavior.

By Colin Barr, senior writer

June 3, 2009: 4:12 AM ET

NEW YORK (Fortune) -- Though its name connotes friendliness, Ally Bank -- the lending unit of troubled financial services giant GMAC -- has found at least one powerful foe in Washington.

The American Bankers Association, the chief lobbyist for U.S. banks, has asked regulators to crack down on Ally's use of above-market interest rates to attract deposits.

Though savers clearly like those rates, the ABA contends Ally's deposit-gathering practices are "risky" and "completely inappropriate." It points to the bank's size, the depleted state of the federal insurance deposit fund and the massive federal investment in recent months at GMAC.

"This aggressive deposit strategy is particularly egregious when it is used by a troubled bank in which the government holds a controlling interest," said ABA president and CEO Edward Yingling in a May 27 letter to Federal Deposit Insurance Corp. chief Sheila Bair. "Such a bank is significantly shielded from investor and market influences that might otherwise act as a brake on risky financial strategies."

GMAC -- the primary lender to customers of bankrupt U.S. carmakers General Motors (GMGMQ) and Chrysler -- has received more than $20 billion in federal aid, counting capital injections under Treasury's Troubled Asset Relief Program and borrowing capacity under a federal debt guarantee program.

Wayne Abernathy, a spokesman for the ABA, said the group wrote the FDIC to make sure that "regulators are ready to enforce discipline" in a case where the government's big stake insulates management from the risk of investor flight.

0:00 /1:58FDIC wants cushion

But Ally Bank's management -- led by former Bank of America financial chief Al de Molina -- rejects the ABA's argument, saying market discipline is exactly what the banks don't like.

"While I find it highly inappropriate that the American Bankers Association would attempt to restrain competition in the banking industry, I am not surprised," de Molina wrote Monday in a scathing response to the ABA. He said Ally is "committed to offering our customers value through products, services and competitive rates."

Ally was known as GMAC Bank until it renamed itself May 15, promising to limit fees in a bid to "make money with customers, not off customers."

Ally's Web site advertises an annual percentage yield of 2.8% on a one-year certificate of deposit -- the top rate in a recent nationwide survey by Bankrate.com. Those rates have drawn in a flood of deposits that Ally can use to support GMAC's auto and home lending businesses.

GMAC said last month that Ally Bank added $2.4 billion of deposits in the first quarter, giving it $22.5 billion in total deposits -- including $15.1 billion in CDs.

Despite its funding success, Ally Bank is in less than pristine shape. The bank lost $133 million in the quarter ended March 31, as its provision for loan losses surged more than sixfold to $280 million.

At the same time, its parent's two main businesses -- lending for cars and houses -- have been in free fall. GMAC's first-quarter car loan volume plunged 74% from a year ago to $3.4 billion, while mortgage loans slid 24% to $13.2 billion in spite of a recent refinancing boom. A spokeswoman said car lending has been "ramping up" in the second quarter, which ends this month.

The ABA's comments come at a time of some anxiety over the state of the banking industry, which swung to a loss last year for the first time since 1990, and the FDIC deposit insurance fund. The FDIC said last week it expects to spend $70 billion over five years cleaning up after bank failures.

Regardless of what anyone might think about Ally's practices, regulators have limited recourse in dealing with banks in good standing that are deemed well-capitalized -- as Ally is.

FDIC spokesman Andrew Gray said the agency doesn't comment on open and operating institutions as a matter of course. He noted that the agency acted last week to restrict the amount of interest banks that are deemed less than well capitalized can pay to their customers.

The ABA, pointing to GMAC's financial troubles, says it believes those rules should be applied to Ally Bank.

GMAC only applied to become a bank holding company late last year in order to be eligible for federal bailout programs. Regulators announced last month that GMAC was required to raise $11.5 billion in new capital as part of the stress tests conducted on the nation's largest 19 banks.

But Ally's de Molina contended that what the banks really object to is competition. He notes that Ally Bank's Tier 1 capitalization leverage ratio -- a measure regulators favor -- is nearly triple the well-capitalized minimum.

"You might want to assist your members in figuring out how they are going to compete in the new market place," he wrote in his letter, "rather than ask regulators to direct Ally Bank to pay its depositors less competitive rates."  

Testimony Before Sub Committee lays the story out short and sweet — TAX EVASION, LIABILITY SHELL GAME

Testimony Before Sub Committee lays the story out short and sweet — TAX EVASION, LIABILITY SHELL GAME

Posted on June 1, 2009 by livinglies

It’s happening…. the word is spreading. Read this carefully. It has lots of good quotes for you to use. But the narrative on who owns the loan is wrong — the investor purchases a bond and a share of the loans. The  SPV “Trust” owns nothing.  It is a REMIC conduit which means there are no tax events under the Internal Revenue Code because it is under the statute a completely transparent nearly non-existent entity. MERS Tax Evasion Scheme- Testimony before Senate Banking Committee 2007

As thinly capitalized originators make more and more loans, claims against the lender accumulate, while the lender’s assets do not.  The lending entities are used like a disposable filter: absorbing and deflecting origination claims and defenses until those claims and defenses render the business structure unusable.

As Professor Eggert has explained, this “churning” of capital “allows even an institution without a great amount of fixed capital to make a huge amount of loans, lending in a year much more money than it has.”

Other things being equal, the larger the loan, the higher the commissions, closing costs, and sale proceeds that a broker or originator earns. These simple facts create strong short term incentive for brokers and originators to cut corners in the underwriting process—creating a dangerous and sometimes fraudulent disparity between company policies and company practices. It also creates an incentive for brokers and originators to encourage consumers to borrow more money than they can afford. Moreover, brokers and originators in the current system have an incentive to put tremendous pressure on appraisers to appraise home values higher and higher in order to facilitate ill-advised loans.

Policy makers must come to terms with the notion that contemporary predatory mortgage lending is an economic artifice with two classes of casualties: consumers and investors.  For this reason, proposals which create unlimited assignee liability may go too far by forcing relatively innocent investors to bear the brunt of large punitive damage awards.

Predatory lending strategists can use their advantage in managing litigation costs to hide from judicial scrutiny within large structured finance deals.  Higher dispute resolution costs associated with securitization significantly corrode the substantive consumer protection rights cast by our existing law. The result has been that consumers have little or no competent legal advice on how to deal with unfair, unethical, and illegal treatment in the mortgage subprime lending industry. With no watchdogs on the beat, even well-meaning companies have gradually began to grow more, and more comfortable with questionable behavior simply to remain competitive.

In traditional two and three-party mortgage markets, consumers and their counsel had a clearer
idea of whom they were borrowing from and who might seek to foreclose upon them if they failed to repay.  Service of process, interrogatories, depositions, and negotiations could be expected to involve only one company which was responsible for all, or nearly all, the relationship functions associated with the loan.  In comparison, selling a loan into a contemporary structured finance conduit can force consumers to communicate with and litigate against many more business entities.  Even simple litigation tasks, such as service of process and requests for production of documents, are much more complicated in structured finance.

The parties obtain two principal benefits from attempting to use MERS as a “mortgagee of record in nominee capacity.”  First, under state secured credit laws, when a mortgage is assigned, the assignee must record the assignment with the county recording office, or risk losing priority vis-à-vis other creditors, buyers, or lienors.  Most counties charge a fee to record the assignment, and use these fees to cover the cost of maintaining the real property records.  Some counties also use recording fees to fund their court systems, legal aid organizations, or schools.  In this respect, MERS’ role in acting as a mortgagee of record in nominee capacity is simply a tax evasion tool.  By paying MERS a fee, the parties to a securitization lower their operating costs.  The second advantage MERS offers its customers comes later when homeowners fall behind on their monthly payments.  In addition to its document custodial role, and its tax evasive role, MERS also frequently attempts to bring home foreclosure proceedings in its own name.

While no one wishes to return to the two-party mortgage market where consumers had little access to home loans, the current system of lawless illusory underwriting is not satisfactory either.

The full weight of judicial sanctions against predatory commercial behavior should be born by the businesses and individuals that abet, conspire, or co-venture that behavior.