Friday, August 26, 2011


Bombshell Admission of Failed Securitization Process in American Home Mortgage Servicing/LPS Lawsuit


EDITOR’S NOTE: It is comforting to know that at least some people are paying attention. From one of the largest servicers in the country comes an admission that securitization of mortgage loans was an illusion. The facts alleged by AHMSI  in its lawsuit against LPS are true in virtually all cases in which any bank or other entity has claimed an interest in a mortgage loan.
They are actually saying two things: first, they are saying that their practice was to create the documents supporting the foreclosure by an entity that was essentially picked at random and that these documents were created only as necessary in foreclosure litigation (otherwise they just proceeded with any old documents); second, they are saying that the people who signed those documents lacked any authority or appointment to represent any real party in interest and that the signature was forged on behalf of other people who also lacked any authority or appointment to represent any real party in interest.
In the four years that I have been analyzing and writing about this mortgage crisis it has been my consistent opinion that the original mortgage transaction was a single transaction between a borrower and the lender. The single transaction doctrine or the step transaction doctrine utilized in a myriad of other cases involving both real property law and commercial transactions create simplicity out of what appears to be a complex series of transactions. I have repeatedly said in my writings and in my presentations at seminars that those who participated in the securitization scam would prevail as long as they were able to direct the attention of a judge to only one part of the transaction, to wit: the part where the borrower receives the benefit of funding a loan. The burden is on borrowers to redirect the attention of the judge to include both sides of the transaction.
The lender’s side of the transaction is as simple as the borrower’s side. The lender funded or advanced money for the purpose of funding a mortgage loan. The pretender lenders don’t want any judge looking behind the veil. But the facts are clear. The lender in the transaction was a group of investors who never received any notice of the transaction with the borrower, much less the actual note and mortgage. The investor/lender received a mortgage bond that was supposedly backed by a perfected mortgage lien on the property owned by the borrower. Instead of naming the lender as the mortgagee, nominees were inserted into the documents executed by the borrower. The failure to disclose both the identity of the lender and the terms under which the lender advanced money (contained in the prospectus and the pooling and servicing agreement) results in an imperfect lien. (The test for a perfected lien is being able to determine the identity of the party from whom you would obtain a release).
At the time of the original transaction the party designated as the “lender” was powerless to execute a satisfaction of mortgage. By definition this means that the lien was never perfected. With few exceptions all of the entities that have been involved in the initiation of foreclosure proceedings have been nothing more than middlemen pretending to represent the investor/lender when in fact their intent was to divert money, proceeds, and property from the investor/lender into their own pockets. In order to do this the pretender lenders must actually foreclose on property and conduct what purports to be a foreclosure sale and continue billing fees against the revenue stream that is due to the investor/lender. When they get to zero balance because the property value is lower than the amount due to the servicer or other middleman, the property goes to the middleman instead of the investor/lender.
This is why there can be no widespread modifications, short sales, or any mediated settlement in which the immediate result is either reinstatement of the mortgage or cash proceeds–both of which would have to be reported and paid to the investor/lenders. Nobody on Wall Street wants the investors to get anything and the borrowers are viewed with complete disdain. Who cares about them?
If the original transaction is simply viewed for what it is–a transaction between the borrower and the investor/lender the solution to the mortgage mess becomes clear. The only actual function of the intermediaries in the securitization process is to act as conduits for clearing transactions. It is obvious that they have intentionally failed to act in accordance with the requirements of the pooling and servicing agreements and the prospectus that was given to the investor/lenders. If they were playing fair they would have disclosed the identity of the actual lender and the terms of payment to the actual investor/lender. That would include payments received from the borrower as well as numerous third parties based upon factors that were not necessarily related to payments by the borrower. The transaction in which the investor/lender advanced money was based upon liability and guarantees from multiple parties.
The facts here are actually quite simple. The wrong party was designated on the note and the mortgage. Vital terms of repayment or omitted from both the note and the other disclosure documents in violation of the requirements of the federal truth in lending act. The intermediaries were only interested in the money trail and they knew they would create whatever document trail was necessary to support what they had done with the money. This is like your bank failing to post a deposit transaction or making claims on a transaction between you and a third-party in which a payment by check was involved. The bank is merely a conduit and has no rights in the principal contract between you and that third-party. This is established law. Yet in the mortgage mess the banks have succeeded in convincing judges that their mere presence as intermediaries is sufficient to establish themselves as agents for everyone. This success has not been without substantial rewards. It is the intermediaries who are taking the houses and eventually the proceeds at a cost to and detriment of the investor/lenders and the borrowers.
The borrowers have no way of knowing the actual balance due on their obligation since the intermediaries refused to provide any accounting for the receipt of any funds from any party other than the borrower. This keeps the judges attention focused on the borrower and whether the borrower made payments–instead of requiring proof that a payment was due, and if due, to whom? By requiring borrowers to deal with intermediaries instead of the principals the banks have succeeded in creating an impenetrable barrier to modification or settlement of these defective mortgage loans.
 The bottom line is that the securitization of mortgages loans never actually happened. The defects in the origination process, the absence of transfer documents and delivery in accordance with the pooling and servicing agreements are incurable. It is simply not possible to require an investor/lender to accept the transfer a loan, obligation, receivable, note or mortgage that is already in default and that had never been perfected as a lien. This leaves the record clouded with a “mortgagee” or “payee” to whom no money owed. While it is possible for the investor/lenders to assert claims and perhaps establish equitable or judgment liens, they have not shown any desire to do so. The record is devoid of any attempts in the last 10 years of any such attempt.
Thus the lien is (a) unenforceable by anyone and (b) being enforced by parties who wouldn’t have the right to try, but for the willingness of the Courts to look at only the whether the borrower made payments instead of requiring proof as to whether a payment is due, the actual balance and to whom it is owed.


Bombshell Admission of Failed Securitization Process in American Home Mortgage Servicing/LPS Lawsuit

Wow, Jones Day just created a huge mess for its client and banks generally if anyone is alert enough to act on it.
The lawsuit in question is American Home Mortgage Servicing Inc. v Lender Processing Services. It hasn’t gotten all that much attention (unless you are on the LPS deathwatch beat) because to most, it looks like yet another beauty contest between Cinderella’s two ugly sisters.
AHMSI is a servicer (the successor to Option One, and it may also still have some Ameriquest servicing). AHMSI is mad at LPS because LPS was supposed to prepare certain types of documentation AHMSI used in foreclosures. AHMSI authorized the use of certain designated staffers signing with the authority of AHSI (what we call robosinging, since the people signing these documents didn’t have personal knowledge, which is required if any of the documents were affidavits). But it did not authorize the use of surrogate signers, which were (I kid you not) people hired to forge the signatures of robosigners.
The lawsuit rather matter of factly makes a stunning admission (note that PSA here means Professional Services Agreement, and it was the contract between AHSI and LPS, click to enlarge):
Did you get it? They said that these procedures were standard between the two companies, which was to “ memorialize the transfer of ownership lender to the securitization trust” right before initiating foreclosure. If you are a regular reader of this blog, you know that is impermissibly late. The note and mortgage had to get to the trust by a clearly specified date, usually 90 days after closing. As we’ve written numerous times, in the overwhelming majority of cases, the securitization entity was a New York trust, and New York trusts are like computer code, they can only operate exactly as stipulated. The exception was trusts by Chase and WaMu, which did allow for the originator to serve as custodian for the trust.
So AHMSI has just admitted that all of its foreclosures done with LPS were completed by the wrong party. In Alabama, wrongful foreclosures are subject to statutory damages of three times the value of the house, and recent cases have awarded much higher multiples of the property’s value. This little paragraph is a litigation goldmine for the right attorneys. I hope they have fun with it.
I’ve included the entire filing.

7 Responses

  1. In my situation the assignment of the mortgage (which occurred post BK discharge and right before foreclosure) was done in favor of a bank which has nothing to do with my loan. It is not the owner or investor trust per the MERS records. Why didn’t the servicer simply assign the mortgage to itself? I have reason to believe the assignee bank never even knew about the transaction or even that it is a plaintiff in this case. Anyone have thoughts or advice?

  2. @carie – where are you getting that position? i’ve seen you discuss it ad nauseum, but i admit i’ve never really following the reasoning

  3. More of the same BS:
    Neil said:
    “The bottom line is that the securitization of mortgages loans never actually happened. The defects in the origination process, the absence of transfer documents and delivery in accordance with the pooling and servicing agreements are incurable.”
    Neil—who are you protecting??? The securitization never happened, because the LOANS NEVER HAPPENED—
    THIS IS WHAT HAPPENED…and you know it:
    “…Subprime refinance was unsecured — a false and fraudulent mortgage — and nothing more than debt collection on a fraudulent transfer of collection rights to a false default debt. Everyone (in subprime refinance) was in (false) default before they even refinanced.
    The banks (as debt buyers) accomplished this by falsely placing borrower in current default (and never telling them) — and then the servicer purchases the collection rights from either Freddie or Fannie. Then the servicer “reinstates” the false default debt with a fraudulent refinance. And, if there is a subsequent refinance, that is just another transfer of collection rights. Servicer reports original F/F mortgage as “paid” — but it is “Paid-OUT” — by servicer purchase — and not “Paid-OFF” by the borrower as it should have been by the (fraudulent) subprime refinance. . Thus, borrower remains in default on F/F loan – despite a subprime refinance — and borrower can never refinance with an F/F again — They are doomed if they miss even one payment on the false collection rights — and will never recover because always held in default — on both the F/F loan and the collection rights. BUT BORROWERS should not be paying on fraud!!!! They have a right withhold payments on fraudulent debt.
    All fraudulent, all in violation of consumer protection laws — and, because the “creditor” of collection right never validates the “debt” — by disclosing the actual creditor to the false default debt — in violation of FDCPA and May 2009 TILA Amendment. Meaning borrowers should not be paying anything — because of fraud and violation of federal statutes.”

  4. @davies – indeed. no matter how evil you think the bank is, two wrongs don’t make a right as far as the courts are concerned. i’ve seem similar schemes result in a referral to the district atty from the judge

  5. Homeowners beware of filing any documents on the land title record that are bogus. It will eventually catch up with you and the law.
    Bank of America N. A. as successor in interest to Countrywide Bank N. A, and Bank of America Home Loan Services vs. Denise Honc, Dan Shabtai, Boyan Panajotov, Moonraven Medicine Bird, Does 1-100.

  6. Neil Garfield, you are an angel for pointing things out and pointing people in the right direction, Lawyers too. This is great news and I hope as you do too that lawyers get this and use this information to help homeowners who need this break! Thank you for being there.

  7. so many moving parts here, but how do you reconcile this with the premise that the security follows the note generally?

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