U.S. Foreclosure Fraud in a Nutshell: How Average Joe's Home Was... Stolen |
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(Republished by MSFraud.org with permission)
How Average Joe's Home Was... Stolen
By: LewRockwell
Newt Gingrich recently
admitted to accepting $1.8
million from Freddie
Mac ($25,0000
to $30,000 a month during one span of time) for advising this
proto-fascist entity. Gingrich claims that he supports Fannie and
Freddie because he believes the federal government "should have
programs to help low income people acquire the ability to buy
homes." But Fannie and Freddie dont do this and never have. When
government "helps" someone by subsidizing the purchase of
something (through easy credit or lower-than-market rates), it makes
that something more expensive. Helping someone buy something that is
overpriced because of your help is not help. Fannie/Freddie subsidies
not only hurt the low income people they intend to help, they hurt
everyone by subsidizing, and therefore distorting, the entire housing
market. Fannie/Freddies charity has now taken a dark turn. Like their
Depression-era New Deal predecessor the Regional Agricultural Credit
Corp., Fannie/Freddie are now repossessing homes at an increasing and
alarming rate. Mr. Gingrich either
does not understand economics government subsidies make things more
expensive, not less expensive, and therefore hurt their intended
beneficiaries or he is a vain, selfish, and cynical man with no
interest in actually helping his neighbor. You decide. THE OCTOBER 2008
BAILOUT PAID OFF THE HOLDERS OF MORTGAGE BACKED SECURITIES AND DERIVATIVE
INSUREDS The
facts indicate that the Federal Reserve "printed" at least 16
trillion dollars as part of the 2008 bailouts. The bigger questions,
however, who got it, why and what did the Fed get in return? The Fed
doesnt just print money. It prints money to buy stuff. Most often
this is U.S. Treasuries. That changed in October of 2008. In and after
October 2008 the Fed printed new money to buy mortgage-backed securities
(MBS) that were defaulting at a rapid rate. Want proof? Here is a link
to the Federal Reserve
balance sheet which
shows that the Fed is holding over a trillion dollars in mortgage backed
securities that it began acquiring in 2008. Why is the Federal
Reserve holding all these MBS? Because when "the market"
collapsed in September of 2008, what really collapsed is the
Fannie/Freddie/Wall Street mortgage "daisy chain"
securitization scheme. As increasing numbers of MBS went into default,
the purchasers of derivatives (naked insurance contracts betting on MBS
default) began filing claims against the insurance writers (e.g. AIG)
demanding payment. This started in February 2007 when HSBC Bank
announced billions in MBS losses, gained momentum in June of 2007 when
Bear Stearns announced $3.8 billion in MBS exposure in just one Bear
Stearns fund, and further momentum with the actual collapse of Bear
Stearns in July and August of 2007. By September of 2008, the Bear
Stearns collapse proved to be the canary in the coal mine as the claims
on off-balance sheet derivatives became the cascading cross defaults
that Alan Greenspan warned could collapse the entire Western financial
system. Part of what happened
in October 2008 is that the Federal Reserve paid AIG's and others
derivative obligations to the insureds (pension funds, hedge funds,
major banks, foreign banks) who held the naked insurance contracts
guaranteeing Average Joe's payments. To understand this, imagine that a
cataclysmic event occurred in the U.S. that destroyed nearly every car
in the U.S. and further that Allstate insured all of these cars. That is
what happened to AIG. When the housing market collapsed and borrowers
began defaulting on their securitized loans, AIGs derivative
obligations exceeded its ability (or willingness) to pay. So the Fed
stepped in as the insurer of last resort and bailed out AIG (and
probably others). When an insurer pays on a personal property claim, it
has "subrogation" rights. This means when it pays it has the
right to demand possession of the personal property it insured or seek
recovery from those responsible for the loss. In Allstates case this
is wrecked cars. In the case of AIG and the Fed, it is MBS. That is what the
trillions of MBS on the Feds balance sheet represent: wrecked cars
that Fannie and Freddie are now liquidating for scrap value. Thank you Mr.
Gingrich. Great advice.
BUT FANNIE/FREDDIE WASNT MY LENDER AND WASNT MY MORTGAGEE, SO HOW CAN THEY TAKE MY
HOUSE? To understand how it
came to be that the Fed has paid Average Joes original actual lender
(the MBS purchaser) and now Fannie and Freddie are trying to take
Joes home, you first have to understand some mortgage law and
securitization basics. The Difference Between
Notes and Mortgages When you close on the
purchase of your home, you sign two important documents. You sign a
promissory note that represents your legal obligation to pay. You sign
ONE promissory note. You sign ONE promissory note because it is a
negotiable instrument, payable "to the Order of" the
"lender" identified in the promissory note. If you signed two
promissory notes on a $300,000 loan from Countrywide, you could end up
paying Countrywide (or one of its successors) $600,000. At closing you also
sign a Mortgage (or a Deed of Trust in Deed of Trust States). You may
sign more than one Mortgage. You may sign more than one Mortgage because
it does not
represent a legal obligation to pay anything. You
could sign 50 Mortgages relating to your $300,000 Countrywide loan and
it would not change your obligation. A Mortgage is a security
instrument. It is security and security only. Without a promissory note,
a mortgage is nothing. Nothing. You "give"
or "grant" a mortgage to your original lender as security for
the promise to pay as represented by the promissory note. In real estate
law parlance, you "give/grant" the "mortgage" to the
"holder" of your "promissory note." If you question my
bona fides in commenting on the important distinction between notes and
mortgages, I know what I am talking about. I tried and won perhaps the
first securitized mortgage lawsuit ever in the country in First
National Bank of Elk River v. Independent Mortgage Services,
1996 WL 229236 (Minn. Ct. App. No. DX-95-1919). In FNBER v. IMS a
mortgage assignee (IMS) claimed the ownership of two mortgages relating
to loans (promissory notes) held by my client, the First National Bank
of Elk River (FNBER). After
a three-day trial where IMS was capably represented by a former partner
of the international law firm Dorsey & Whitney, my client prevailed
and the Court voided the recorded mortgage assignments to IMS. My client
prevailed not because of my great skill but because it had actual,
physical custody of the original promissory notes (payable to the order
of my client) and had been "servicing" (receiving payments on)
the loans for years notwithstanding the recorded assignment of mortgage.
The facts at trial showed that IMS rejected the loans because they did
not conform to their securitization parameters. In short, IMS, as the
"record owner" of the mortgages without any provable
connection to the underlying notes, had nothing. FNBER, on the other
hand, had promissory notes payable to the order of FNBER but did not
have "record title" to the mortgages. FNBER was the winner
because its possession of and entitlement to enforce the notes made it
the "legal owner" of the mortgages. The lesson: if you
have record title to a mortgage but cannot show that you have possession
of and/or entitlement to enforce the promissory notes that the mortgage
secures, you lose. This is true for 62
million securitized loans. Securitization The
Car That Doesnt Go In Reverse There is nothing per
se illegitimate about securitization. The law has for a long time
recognized the rights of a note-holder to sell off pro-rata interests in
the note. So long as the note-holder remains the note-holder he has the
right to exercise rights in a mortgage (take the house) when there is a
default on the note. Securitization does not run afoul of traditional
real estate and foreclosure law when the mortgage holder can prove his
connection to the note-holder. But modern
securitization doesnt work this way.
The
"securitization" of a "mortgage loan" today involves
multiple parties but the most
important parties and documents necessary
for evaluating whether a bank has a right
to foreclose on a mortgage
are: (1) the Borrower
(Average Joe); (2) the Original
Lender (Mike's Baitshop and Mortgages or Bailey Savings & Loan
whoever is across the closing table from Joe); (3) the Original
Mortgagee (could be Mike's B&M, but could be anyone, including
Fannie's Creature From the Black Lagoon, the mortgagee
"nominee" MERS); (4) the
"Servicer" of the loan as identified in the PSA (usually a
Bank or anyone with "servicer" in its name, the entity to whom
Joe makes his payments); (5) the mortgage loan
"pooling and servicing agreement" (PSA) and the PSA Trust
created by the PSA; (6) the "PSA
Trust" is the "special purpose entity" created by the
PSA. The PSA Trust is the heart of the PSA. It holds all securitized
notes and mortgages and also sells MBS securities to investors; and (7) the
"Trustee" of the PSA Trust is the entity responsible for
safekeeping of Joe's promissory note and mortgage and the issuer of MBS. The PSA Servicer is
essentially the Chief Operating Officer and driver of the PSA. Without
the Servicer, the securitization car does not go. The Servicer is the
entity to which Joe pays his "mortgage" (really his note, but
you get it) every month. When Joe's loan gets "sold" multiple
times, the loan is not actually being sold, the servicing rights are.
The Servicer has no right, title or interest in either the promissory
note or the mortgage. Any right that the Servicer has to receive money
is derived from the PSA. The PSA, not Joe's Note or Joe's Mortgage,
gives the Servicer the right to take droplets of cash out of Joe's
monthly payments before distributing the remainder to MBS purchasers. The PSA Trustee and
the sanctity of the PSA Trust are vitally important to the validity of
the PSA. The PSA promoters (the usual suspects, Goldman Sachs, Lehman
Bros., Merrill, Deutsche Bank, Barclays, etc.) persuaded MBS purchasers to
part with trillions of dollars based on the idea that they would ensure
that Joe's Note would be properly endorsed by every person or entity
that touched it after Joe signed it, that they would place Joe's Note
and Joe's Mortgage in the vault-like PSA Trust and the note and mortgage
would remain in the PSA Trust with a green-eyeshade, PSA Trustee
diligently safekeeping them for 30 years. Further, the PSA promoters
hired law firms to persuade the MBS purchasers that the PSA Trust, which
is more than100 percent funded (that is, oversold) by the MBS
purchasers, was the real owner of Joe's Note and Joe's Mortgage and that
the PSA Trust, using other peoples money, had purchased or soon would
purchase thousands of similar notes and mortgages in a "true
sale" in accordance with FASB 140. The PSA does not
distribute pool proceeds that can be tracked pro rata to identifiable
loans. In this respect, in the wrong hands (e.g. Countrywides Angelo
Mozilo) PSAs have the potential to operate like a modern "daisy
chain" fraud whereby the PSA oversells the loans in the PSA Trust,
thus defrauding the MBS investors. The PSA organizers also do not inform
Joe at the other end of the chain that they have sold his $300,000 loan
for $600,000 and that the payout to the MBS purchasers (and other
derivative side-bettors) when Joe defaults is potentially multiples of
$300,000. The PSA organizers can
cover the PSAs obligations to MBS purchasers through derivatives.
Derivatives are like homeowners fire insurance that anyone can buy.
If everyone in the world can bet that Joes home is going to burn down
and has no interest in preventing it, odds are that Joes home will
burn down. This is part of the reason Warren Buffet called derivatives a
"financial weapon of mass destruction." They are an
off-balance sheet fiat money multiplier (the Fed stopped reporting the
explosive expansion of M3 in 2006 most likely because of derivatives and
mortgage loan securitization fraud), and create incentive for fraud. On
the other end of the chain, Joe has no idea that the "Lender"
across the table from him has no skin in the game and is more than
likely receiving a commission for dragging Joe to the table. A serious problem with
modern securitization is that it destroys "privity." Privity
of contract is the traditional notion that there are two parties to a
contract and that only a party to the contract can enforce or
renegotiate that contract. Put simply, if A and B have a contract, C
cannot enforce Bs rights against A (unless A expressly agrees or C
otherwise shows a lawful agency relationship with B). The frustration
for Joe is that he cannot find the other party to his transaction. When
Joe talks to his "bank" (really his Servicer) and tries to
renegotiate his loan, his bank tells him that a mysterious
"investor" will not approve. He cant do this because they
dont exist, have been paid or dont have the authority to negotiate
Joes loan. Joes ultimate
"investor" is the Fed, as evidenced by the trillion of MBSs on
its balance sheet. Although Fannie/Freddie purportedly now
"own" 80 percent of all U.S. "mortgage loans,"
Fannie/Freddie are really just the Feds repo agents. Joe has no
privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed
know this. So they are using the Bailout Banks to front-run the process
the Bailout Bank (who also have no cognizable connection to the note
and therefore no privity relationship with Joe) conducts a fraudulent
foreclosure by creating a "record title" right to foreclose
and, when the fraudulent process is over, hands the bag of stolen loot
(Joes home) to Fannie and Freddie.
Record Title and Legal
Title
Virtually all 62
million securitized notes define the "Note-holder" as
"anyone who takes this Note by transfer and who
is entitled to receive payment under this Note"
Very few of the holders of securitized mortgages can establish that they
both hold (have physical possession of) the note AND are entitled to
receive payments on the notes. For whatever reason, if a Bailout Bank
has possession of an original note, it is usually endorsed payable to
the order of some other (often bankrupt) entity. If you are a Bailout
Bank and you have physical possession of an original securitized note,
proving that you are "entitled to receive payment" on the note
is nearly impossible. First, you have to explain how you obtained the
note when it should be in the hands of a PSA Trustee and it is not
endorsed by the PSA Trustee. Second, even if you can show how you
obtained the note, explaining why you are entitled to receive payments
when you paid nothing for it and when the Fed may have satisfied your
original creditors is a very difficult proposition. Third, because a
mortgage is security for payments due to the note-holder and only the
note-holder, if you cannot establish legal right to
receive payments on the note but have a recorded mortgage all you have
is "record" title to the mortgage. You have the
"power" to foreclose (because courts trust recorded documents)
but not necessarily the legal "right" to foreclose. Think
FNBER v. IMS. The
"robosigner" controversy, reported by 60 Minutes months ago,
is a symptom of the banks problem with "legal title" versus
"record title." The 60 Minutes reports shows that Bailout
Banks are hiring 16 year old, independent contractors from Backwater,
Georgia to pose as vice presidents and sign mortgage assignments which
they "record" with local county recorders. This is effective
in establishing the Bailout Banks "record title" to the
"mortgage." Unlike real bank vice presidents subject to
Sarbanes-Oxley, Backwater 16-year olds have no reason to ask:
"Where is the note?"; "Is my bank the note-holder?";
or "Is my Bank entitled to receive payments on the note?" The Federal Office of
the Comptroller of the Currency and the Office of Thrift Supervision
agree with this analysis. In April of 2011 the OCC and OTS reprimanded
the Bailout Banks for fraudulently foreclosing on millions of Average
Joes: without always
ensuring that the either the promissory note or the mortgage document
were properly endorsed or assigned and, if necessary, in the possession
of the appropriate party at the appropriate time The OCC and OTS
further found that the Bailout Banks "failed to sufficiently
oversee outside counsel and other third-party providers handling
foreclosure-related services." Finally, Bailout Banks
consented to the OCC and OTS spanking by admitting that they have
engaged in "unsafe and unsound banking practices." In these "Order
and Consent Decrees," the OCC and the OTS reprimanded all of the
usual suspects: Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife, MERSCorp, PNC Bank, US Bank, Wells Fargo, Aurora Bank, Everbank, OneWest
Bank, IMB HoldCo LLC, and Sovereign Bank. Although the OCC and
OTS Orders are essentially wrist slaps for what is a massive fraud,
these orders at least expose some truth. In response to the OCC Order,
the Fannie/Freddie-created Mortgage Electronic Registration Systems
(MERS), changed
its rules (see
Rule 8) to demand that foreclosing lawyers identify the "note-owner"
prior to initiating foreclosure proceedings. NEWTS
FANNIE/FREDDIE ENDGAME: PLANTATION USA Those of us fighting
the banks began to see a disturbing trend starting about a year ago.
Fannie and Freddie began showing up claiming title and seeking to evict
homeowners from their homes.
The process works like
this, using Bank of America as an example. Average Joe had a securitized
loan with Countrywide. Countrywide, which might as well have been run by
the Gambino family with expertise in "daisy chain" fraud,
never followed the PSA, did not care for the original notes and almost
never deposited the original notes in the PSA Trust. Countrywide goes
belly up. Bank of America (BOA) takes over Countrywide in perhaps the
worst deal in the history of corporate America, acquiring more
liabilities than assets. Bank of America realizes that it has acquired a
big bag of dung (no notes = no mortgages = big problem) and so sets up
an entity called "BAC Home Loans LLP" whose general partner is
another BOA entity. The purpose of these
BOA entities is to execute the liquidation the Countrywide portfolio as
quickly as possible and, at the same time, isolate the liability to two
small BOA subsidiaries. BOA uses BAC Home Loans LLP to conduct the
foreclosure on Joes home. BAC Home Loans LLP feeds local foreclosure
lawyers phony, robosigned documents that establish an "of
record" transfer of the Countrywide mortgage to BAC Home Loans LLP.
BAC Home Loans LLP, "purchases" Joes home at a Sheriffs
sale by bidding Joes debt owed to Countrywide. BAC Home Loans LLP
does not have and cannot prove any connection to Joes note so BAC
Home Loans LLP quickly deeds Joes property to Fannie and Freddie. When it is time to
kick Joe out of his home, Fannie Mae shows up in the eviction action.
When compelled to show its cards, Fannie will claim title to Joes
house via a "quit claim deed" or an assignment of the
Sheriffs Certificate of sale. Adding insult to injury, while Joe may
have spent years trying to get BOA to "modify" his loan, and
may have begged BOA for the right to pay BOA $1000 a month if only BOA
will stop the foreclosure, Fannie now claims that BOA deeded Joes
property to Fannie for nothing. That right, nothing. All county
recorders require that a real estate purchaser claim how much they paid
for the property to determine the tax value. Fannie claims on these
recorded documents that it paid nothing for Joes home and, further,
falsely claims that it is exempt because it is a US government agency.
It isnt. It is a government-sponsored entity that is currently in
conservatorship and run by the US government. Great advice Newt. CONCLUSION It
is apparent that the US government is so broke that it will do anything
to pay its bills, including stealing Average Joes home. Thats change that
both Barack Obama and Newt Gingrich can believe in. APPENDIX More and more courts
are agreeing that the banks "inside" the PSA do not have legal
standing (they have no skin in the game and so cannot show the necessary
"injury in fact"), are not "real parties in
interest" (they cannot show that they followed the terms of the PSA
or are otherwise "entitled to enforce" the note) and that
there are real questions of whether any securitized mortgage can ever be
properly perfected. The
banks' weakness is exposed most often in bankruptcy courts because it is
there that they have to show their cards and explain how they claim a
legal right, rather than the "of record" right, to foreclose
the mortgage. More and more courts are recognizing that, without proof
of ownership of the underlying note, holding a mortgage means nothing. The most recent crack
in the Banks position is evidenced by the federal Eight Circuit Court
of Appeals decision in In Re Banks, No.
11-6025 (8thCir., Sept. 13, 2011). In Banks, a bank attempted to execute
a foreclosure within a bankruptcy case. The bank had a note payable to
the order of another entity; that is, the foreclosing bank was
"Bank C" but had a note payable to the order of "Bank
B" and endorsed in blank by Bank B. The bank, Bank C, alleged that,
because the note was endorsed in blank and "without recourse,"
that it had the right to foreclose. The Court held that this was
insufficient to show a sufficient chain of title to the note, reversed
the lower courts decision and remanded for findings regarding when
and how Bank C acquired the note. See also, In Re Aagard, No.
810-77338-reg (Bankr. E.D.N.Y., Feb. 10, 2011) (Judge Grossman slams
MERS as lacking standing, working as both principal and agent in same
transaction, and exposes MERS' alleged principal US Bank as unable to
produce or provide evidence that it is in fact the holder of the note); In Re Vargas, No.
08-17036SB (Bankr. C.D. Cal., Sept. 30, 2008) (Judge Bufford correctly
applied rules of evidence and held that MERS could not establish right
to possession of the 83-year old Mr. Vargas' home through the testimony
of a low-level employee who had no foundation to testify about the legal
title to the original note); In Re Walker, Bankr.
E.D. Cal. No. 10-21656-E-11 (May
20, 2010) (holding that neither MERS nor its alleged principal could
show that they were "real parties in interest" because neither
could provide any evidence of the whereabouts of, much less legal title
to, the original note); Landmark v.Kesler, 216
P.2d 158 (Kan. 2009) (in this case the Kansas Supreme Court provides the
most cogent state court analysis of the problem created by
securitization the "splitting" of the note and the
mortgage and the real party in interest and standing problems that the
holder of the mortgage has when it cannot also show that it has clean
and clear legal title to the note); U.S. Bank Nat'l Ass'n v. Ibanez,
941 NE 40 (Mass. 2011), (the Massachusetts Supreme Court denied two
banks' attempts to "quiet title" following foreclosure because
the banks' proffered evidence did not show ownership of the mortgages
or for that matter, the notes prior to the Sheriff's sale); and Jackson v. MERS, 770
N.W.2d 489 (Minn. 2009) (this federal-gun-to-the-head certified
question from federal court asking for state court blessing of its
already decided ruling to the Minnesota Supreme Court is most
notable for the courageous dissent of NFL Hall of Fame player and only
popularly elected Justice Alan Page who opined that MERS should pound
sand and obey state recording standards). Bill Butler [send him mail]
is a Minneapolis attorney and the owner of Butler
Liberty Law.
Source: http://www.marketoracle.co.uk/Article31789.html
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