Neil Garfield posted: "It is obvious that I feel it is important to understand securitization and more particularly, how it was faked in the mortgage meltdown and used to cover-up a Ponzi scheme. That is why I publish this blog and that is why I have written books and manuals a"
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by Neil Garfield
It is obvious that I feel it is important to understand securitization and more particularly, how it was faked in the mortgage meltdown and used to cover-up a Ponzi scheme. That is why I publish this blog and that is why I have written books and manuals and of course that is why I issue expert declarations. The issue, in court, is how do you educate the Judge in 5 minutes. The actual answer is that you don't but your knowledge gained from these pages and other sources should guide you to your goals and guide your voir dire and cross examination of the witnesses for the other side.
Theoretically, most of what I have been suggesting for tactics and strategy ought to be the burden of the party seeking affirmative relief. DENY and DISCOVER arose out of the realization that Judges were placing the burden on the borrower instead and hanging their legal hat on the fact that the borrower was raising affirmative defenses and therefore required to prove them.
Most borrowers, even through counsel, compounded the problem by admitting all required elements of a judicial foreclosure as they emerged from the starting gate making it even easier for the Judge to place the burden of persuasion on the borrower --- to prove facts that are exclusively within the possession, care, custody and control of the other side. And that is why discovery is so important.
Even borrowers who commence the litigation in both judicial and non-judicial states commence their complaints with the allegation that they had a financial transaction with the named lender on the note and mortgage --- when in fact the borrower has no evidence to support that allegation other than the appearance or illusion of a transaction supported by the fact that the money for the loan showed up at the same time as the "closing."
In general, a careful examination of any loan now subject to a claim of securitization will reveal a fun house series of smoke and mirrors. Factually, you need to subpoena the trust officer or manager in charge of REMIC trusts including the subject REMIC for the subject loan. They should bring proof of filing with the IRS and/or any state in which they are doing business as trustee for the REMIC and proof that the money from investors was deposited into an account bearing the name of the alleged Trustee for the benefit of the named trust that is claiming ownership of the loan. Your goal here is to establish that the money was not deposited into any account held or controlled by the trustee and that withdrawals for funding or purchasing loans came from somewhere else. But that only gets you half way home.
The next thing you have to do is subpoena the records of the entity to whom the Trustee will testify was the party to whom the trustee delegated the trustee's duties. Here again you are looking for an account in the name of the REMIC trust claiming ownership of the loan into which the investor funds were deposited and from which the funding for origination or purchase of the loan took place. You will most likely find again that no such account exists but that there is agreement that the party receiving the investor money was the investment banker and that the account was a commingled account in which the investment bank made decisions as to how much it would take for itself under the rubric of "proprietary trading." The balance of the money was used for fees, costs and other expenses and then finally the balance after deductions was used for funding origination or purchase of mortgages.
The trustee should be encouraged to admit that if the loan is not performing or if the loan purchase or assignment, the trustee is prohibited from accepting such loans inasmuch as it would have an immediate negative economic and tax consequence to the investor. The trustee should also be encouraged to admit that the parties to whom duties were delegated were acting within the scope and course of their agency, with the Trustee (or the investors) as the principals and ultimate beneficiaries.
A subpoena to the CDO manager should expose the transactions entered into by the investment bank or an affiliate with respect to the value of the bonds or loans in the alleged investment pool. But under proper questioning, if the money for the loan didn't come from the investment pool entity, then it came directly from the investors, not the REMIC trust. The point to be made is that the REMIC trust was ignored in all actual financial transactions in which money exchanged hands but principal-agent relationship still existed with the investors as principals and the investment bank et al as agents.
In all cases you wish to establish that no loan receivable account was established on the balance sheet of the REMIC trust claiming ownership of the loan, and probably that no such balance sheet or income statement exists. The investors were not given the note signed by the borrower. They were given a bond issued by the REMIC trust which was worthless because the proceeds of their investment never reached the REMIC trust.
Thus, oversimplifying a bit, you have established that the REMIC trust is not the payee, holder or owner of the debt because (1) it wasn't the source of funds and (2) the transactions did not comply with the PSA and Prospectus, requiring strict adherence to the REMIC provisions of the Internal Revenue Code.
All of this is done not as an exercise in training the Judge on securitization but under the rubric of tracing the money to the real creditor who had a real loss that would entitle them, if they are secured, to enter a credit bid at the time of auction of a foreclosed property. This would be the same party(ies) that could faithfully execute a satisfaction of mortgage and deliver the note back in its original form with "Paid in Full" Stamped across the front of it. This latter point leads to more complications when you realize that the subject loan was a refinancing of another loan that was also subject to claims of securitization, potentially leaving the homeowner with multiple unsatisfied mortgages, notes or debts.
Your inquiry should focus on the actual receipts and statements showing deposits and withdrawals and transfer of money rather than an assignment which merely tells a story about the transaction. Just as the mortgage is not the note and the note is not the debt, the assignment is no substitute for the actual exchange of money in the sale of the loan. You will find that no such exchange of money took place and then be faced with the question that if the note terms differed from the bond terms, if the payee on the note and mortgage were different than the actual source of funds, and there was no consideration passed (for value received), is there any legally existing transaction? The answer, I think, is NO.
This leaves the situation in murky waters: the transaction about which the origination and transfer documents tell "the story" never took place. So you have documentation without the underlying debt. The actual transaction was with the investors not merely of the REMIC claiming ownership (and by this time has been proven not to own the loan), but all investors whose money was in the source account from which money was taken to fund the origination or purchase of the loan. This commingled account therefore creates under common law a general partnership of the investors that has nothing to do with the REMIC trust which has been ignored by all parties. Thus the partnership consists of all investors who had money in the commingled account. Those investors thought they were advancing money for the purchase of bonds issued by a worthless REMIC trust but found that the Trust had been ignored by their agents. Thus investors from multiple REMIC bond sales find themselves all in the same pot.
This accounts for the allegation from investors in suits against investment bankers that they have been subjected to illegal transactions with borrowers against whom they could enforce neither the note nor the mortgage --- because although they did indeed loan money to the borrowers, the documents signed by the borrowers say otherwise. [You should have a couple of those lawsuits under your arm when arguing these points with the Judge]. This leaves the true transaction trail without any documentation other than a wire transfer receipt and perhaps wire transfer instructions. And what was intended to be a secured transaction turns out to be an unsecured transaction even though both sides intended it to be a secured transaction --- but subject to different terms (the terms of the repayment on the mortgage bond issued by the empty REMIC trust and the terms of repayment on the promissory note signed by borrower).
The end of this is unclear except to say that settlements will become more frequent. But the negotiations start on a level playing field with the investors rather than the servicers. In most cases it is apparent that borrowers will consent to a new mortgage document directly with the investors thus securing the debt, after reducing it for payments received by the investors or their agents.
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Monday, March 11, 2013
Garfield whines about ineffective securitization arguments in foreclosure defense
On 3/11/2013 10:55 AM, Livinglies's Weblog wrote:
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