Posted on October 16, 2014 by Neil Garfield
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There are several important things about the decision from the first District Court of Appeal in Florida filed on October 14, 2014. Some of them have already been discussed in recent articles on this blog. But I think the most important thing that this case clearly illustrates is that while a lender can win a foreclosure case, a pretender lender cannot win and doesn’t belong in court. One layer down from that is the real key to justice for homeowners, to wit: the assumption that the homeowner received a loan from the originator is generally wrong. If it was right, each transfer, endorsement or assignment would be as a result of the transaction in which the loan documents were purchased for value in good faith and without knowledge of the borrower’s defenses. That would mean that the end of the chain claimed by the foreclosing party would be a holder in due course. And that would mean that all of the suits in foreclosure would consist of either the original lender, who actually made the loan, or a successor who actually paid to acquire it. There wouldn’t be any valid defenses other than payment.
The Deutsche case shows that there are essential flaws in the alleged securitization process. These flaws consist of violation of New York State law, the provisions of the pooling and servicing agreement, and the reasonable expectations of the investors who thought that their money was going into a REMIC trust. This also includes the intentional withholding and nondisclosure of other parties who are involved in the alleged origination of the loan and who were paid fees to act as though they were participants in a standard mortgage transaction. This act is what the Deutsche case highlights. Court found that pretending to be a lender is not the same as being a lender. The tone of the decision in the case a significant degree of displeasure with both the banks and their attorneys.
The actions and non-actions by Deutsche before and during the lawsuit clearly illustrate the fact that securitization was a myth. Adam Levitin calls it “securitization fail” which is a generous assessment of what was done with the investor money and how borrowers were lured into deals that were catastrophes waiting to happen — to the benefit of the underwriting banks that were creating trades using money that belonged to the investors, bonds that belong to the investors, and false notes and mortgages referring to a debt that never existed. This is the part that is most difficult for both borrowers and their attorneys. They know that money was at the closing table. What they don’t is whose money appeared at closing. It was of course the money of investors that was illegally diverted it from the trust that issued the mortgage-backed securities.
We will discuss the Deutsche case other things tonight along with questions and answers on our radio show.