Archive for October 3rd, 2010
Class Action vs MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, GMAC, DEUTSCHE BANK, NATIONSTAR, AURORA, BAC, CITI, US BANK, LPS, et al (UPDATED)
A class action lawsuit of note has been filed in the State of Kentucky. While I commend the Plaintiffs and their attorneys for filing this suit, the fact is, State Attorneys General should be doing this. MERS does not, nor did it ever have any standing to foreclose on any property as they never had an interest, secured or otherwise. It is also very clear that all the banks that used MERS were well aware of this fact from the outset. After all, it was the big banks that created MERS in the first place as a tool to facilitate the bundling, selling and buying of mortgage-backed securities (MBS) – those lovely little toxic debt instruments that still lie ticking on bank balance sheets, pension funds, 401(k)s, and public trusts. So where are the State Attorneys General?
Some pertinent bits:
456. KRS 378.030 Action on fraudulent conveyance or encumbrance of real property — Proceedings.
Any party aggrieved by the fraudulent conveyance, transfer or mortgage of real property may file a petition in equity against the parties thereto or their representatives or heirs, alleging the facts showing his right of action, alleging the fraud or the facts constituting it and describing the property. When this petition is filed a lis pendens shall be created upon the property described, and the suit shall progress and be determined as other suits in equity and as though it had been brought on a return of nulla bona.
457. The parties are aggrieved by the transfer of mortgage of their real property. This action serves as a Petition in Equity against the Defendants. A lis pendens “suit pending” and notice to the world is now created upon the parties’ property and a lis pendens shall exist on each and every piece of Kentucky property owned by the members of this Class Action.
458. All parties taking part in or who conspired with those who participated in the acts or practices in question are jointly and severally liable to the Class Members.
459. Upon information and belief, the Defendants, did not and cannot legally obtain foreclosures and/or file an Assignment of the Notes or Mortgages of the representative Plaintiffs or the putative Class Members. Neither the Defendants or MERS had capacity or standing to file suit or foreclose on property. In conspiracy with each other, the Defendants, filed fraudulent mortgages, affidavits, and mortgage assignments, filed sham pleadings and committed and continue to commit fraud on the
recording clerks and the Courts.
461. MERS should be enjoined from this day forward from drafting, executing and filing Mortgages and Mortgage Assignments and should be further enjoined from filing Complaints in Foreclosure based in fraud and further be enjoined from prosecuting all pending cases.
Read the entire Complaint below:
Karl Denninger over at the Market-Ticker has this to say:
It’s about damned time.
This is worth a read, even though it’s VERY long. The bottom line is that all the Tickers I’ve written on this subject, from bad conveyances into REMICs, to the tax issues, to the fraudulent documents, to the fact that the MBS are “empty boxes”, up and down the line – it’s all in here.
Anyone who thinks this is a “nothingburger” after reading this has rocks in their head.
This is a rather lengthy filing, 124 pages worth. It asserts virtually everything that I’ve written about for the last three years related to REMICs and MBS (that the notes were not conveyed and now can’t be under the law), and alleges Racketeering.
I’ve read the whole thing, and want to present just a few short cites, but am embedding the entire document as well for those who “want it all”.
REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS and the Kentucky Revenue Cabinet, an MBS REMIC could not engage in any prohibited action. The “Trustee” can not own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan.
57. Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the “Trust” and legally collect money from investors, who bought into the REMIC, the “Trustee” or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the Notes, showing a complete paper chain of title.
58. Most importantly for this action, the “Trustee”/Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of a MBS in the year the MBS “closed.” Every mortgage in the MBS should have been publicly recorded in the Kentucky County where the property was located with a mortgage in the name similar to “2006 ABC REMIC Trust on behalf of the beneficiaries of the 2006 ABC REMIC Trust.” The mortgages in the referenced example would all have had to been publicly recorded in the year 2006.
59. As previously pointed out, the ¡°Trusts¡± were never set up or registered as Trusts. The Promissory Notes were never obtained and the mortgages never obtained or recorded.
60. The “Trust” engaged in a plethora of “prohibited activities” and sold the investors certificates and Bonds with phantom mortgage backed assets. There are now nationwide, numerous Class actions filed by the beneficiaries (the owners/investors) of the “Trusts” against the entities who sold the investments as REMICS based on a bogus prospectus.
61. In the above scenario, even if the attorney for the servicer who is foreclosing on behalf of the Trustee (who is in turn acting for the securitized trust) produces a copy of a note, or even an alleged original, the mortgage loan was not conveyed into the trust under the requirements of the prospectus for the trust or the REMIC requirements of the IRS.
62. As applied to the Class Members in this action, the end result would be that the required MBS asset, or any part thereof (mortgage note or security interest), would not have been legally transferred to the trust to allow the trust to ever even be considered a “holder” of a mortgage loan. Neither the “Trust” or the Servicer would ever be entitled to bring a foreclosure or declaratory action. The Trust will never have standing or be a real party in interest. They will never be the proper party to appear before the Court.
63. The transfer of mortgage loans into the trust after the “cut off date” (in the example 2006), destroys the trust’s REMIC tax exempt status, and these “Trusts” (and potentially the financial entities who created them) would owe millions of dollars to the IRS and the Kentucky Revenue Cabinet as the income would be taxed at of one hundred percent (100%).
Yep. And this is just the first key into the circle of Hell where these folks are headed.
See, without standing they can’t foreclose, but then we get back to “who can?” And what we find is that the originator was paid, and thus they can’t either. Worse, for those originators that are bankrupt, their “assets”, such as they are, can’t go anywhere without a bankruptcy trustee’s signature, and further, even if someone was to acquire that, which nobody has, THE REMICs CAN’T TAKE THE PAPER ANYWAY AS THEIR CLOSING DATE HAS EXPIRED.
So we have a bankrupt originator who was paid in full and can’t foreclose, and we have a note that can’t be transferred into the REMIC without destroying its tax preference (retroactively, incidentally), which instantaneously trashes the value of the MBS – probably by more than they could hope to recover if they were going to take the note anyway.
In all cases, the lack of acquisition of the Class Members’ mortgage loans violates the prospectus presented to the investors and the IRS REMIC requirements.
If an MBS Trust was audited by the IRS and was found to have violated any of the REMIC requirements, it would lose its REMIC status and all back taxes would be due and owing to the IRS as well as the state of Kentucky. As previously stated, one hundred percent (100%) of the income will be taxed.
As the Class Members are identified and the identity of the MBS REMICs revealed through this action, the individual “Trusts”/ MBS REMICs will be turned over to the IRS for auditing.
Yep. Welcome to the second circle of Hell. Incidentally, I think both the Federal and State governments have a revenue problem, right? This ought to help that situation materially.
While attempting to circumvent Kentucky recording Statutes, the MBS Trust created for itself a situation wherein it had no legally recognizable interest in the loans for the benefit of the investors. The investors were invested in nothing. The MBS possessed nothing on the date the REMIC closed and perpetrated a fraud on the investors and the American taxpayer through its fraudulent qualification as a REMIC with the SEC.
or is that
No legal plan was ever in place to deal with the fact that the original Prospectus to the shareholder/investors was a myth.
MBS/Trustees and their lawyers discovered in the foreclosure process that the Note and Mortgage Assignments would never be located because they never existed. They also discovered that states did not allow blank Assignments or Assignments with retroactive effective dates. To solve the problem of the missing and non-existent Assignments, the MBS/Trustees, their attorneys and their Servicing Agents, decided to fabricate Assignments from thin air and then quietly record the fabricated Assignments.
Oh, let’s see, a year ago I was writing about this….. the fact that there were an awful lot of assignments and endorsements “in blank” which is not legal in a large number of states with regard to trusts, and that in addition back-dating assignments can’t be done either.
It’s never the original issue that really gets you – it’s your attempt to cover it up!
The Assignments of the Mortgage were signed and notarized many years after the actual date of the loan and the date listed with the SEC and IRS as the “Closing” of the REMIC. In every one of these cases, the MBS Trust has been operating illegally as a tax exempt REMIC. The federal government is in turn, owed billions of dollars in income tax from these entities. The individual states of the union has causes of action on behalf of their citizens for the unpaid state tax.
Yep. And the really bad news is that as soon as these things happened the loss of tax exemption is not only immediate, it’s irrevocable.
As previously set out, often the MERS held the Mortgage as “nominee” for a lender who was out of business and/or liquidated in bankruptcy. There could be no party legally able to Assign the Mortgage on behalf of the dissolved lender. The only party who could authorize the Mortgage Assignment for a bankrupt lender would be the Bankruptcy Trustee. In these cases where a MERS mortgage has been assigned on behalf of a bankrupt entity, a criminal violation of the bankruptcy code had occurred.
Yep again. A bankrupt entity cannot take actions without the approval of the trustee. If someone is “assigning” things without that written approval you got big trouble – bankruptcy fraud is serious business.
Enjoy folks…… this little issue isn’t going away and there’s plenty more in this filing…. and if you’re a holder of MBS (a pension fund, perhaps, or a pensioner who thinks they’re going to get paid their pension?) contemplating that you very well may have an “empty box” that has no value, and no way to cure the problem, certainly ought to keep you up at night.
The negative impact of current policy is clear. The near-zero interest rate experiment is weighing on consumer and investor confidence, and the Fed signals its lack of confidence with each “extended period” proclamation. It is providing banks with low-interest financing that can be used to create modest returns through a carry-trade in U.S. Treasurys but is adding nothing to the velocity of money, which is what actually generates economic growth.
The Fed’s super-loose policy has driven down the security and spending power of savers, particularly those in retirement who played by the rules during their working years and now depend on the earnings from their savings for a decent quality of life. As a result, savers and investors are being forced to take more risk with their money as they hunt for higher yields.
Thank you Charles.
It’s long past the time when we should have been hearing these things from people in the investing business – and in industry.
Simply put, capital formation is destroyed by these sorts of games, and yet it is capital formation that actually drives business creation and thus employment.
BenDover has intentionally and willfully deployed policy intended to gangrape those on fixed incomes along with those who would otherwise create businesses and jobs. Our Congress not only sat still for this The Senate reconfirmed him after having more than a year of this nonsense be promulgated to the market and economy.
As Mr. Schwab points out, no bank in their right mind would offer 30 year fixed-rate loans into such an environment. Thus, this has also forced all mortgage lending through two bankrupt companies on the Government teat – Fannie and Freddie – where the risk of loss bears no relationship to price, as it does in the private sector.
And in the meantime, we are running deficits as a direct and proximate cause of this policy – deficits that the government could not continue to fund were it not for these distortions.
It is long past the time to stop, and if Bernanke will not stop, he must be removed.
The cure for the mortgage documents puts the loan out of eligibility for the trust. In order to cure, on a current basis, they have to argue that the loan goes retroactively back into the trust. This is the cure that the banks have been unwilling to do, because it is a big problem for the MBS. So instead they forge and fabricate documents.
See, there’s this little problem. A REMIC (Real Estate Mortgage Investment Conduit, or “MBS”) is a special thing under IRS rules. Normally a business would have to operate at a profit or loss, pay taxes, and then pay dividends. This results in double-taxation.
A REMIC has a special status under the IRS code which avoids this; the interest flows through to the investor without being separately taxed at the business-level of the REMIC itself.
But in exchange for this, there are constraints. One of them is that a REMIC cannot acquire “distressed” assets – that is, notes that have defaulted. It cannot, in other words, engage (intentionally, up front) in what would be considered “recovery operations” if you will.
The reason for this is that if it could, every “distressed asset” acquirer would set up such a structure and avoid monstrous amounts of tax. So, as to avoid this problem, a REMIC can acquire only loans that are current.
That’s a problem for two reasons:
The master pooling and servicing agreements for these trusts called for the notes to be endorsed over to the trust at the time of the MBS creation. This was NOT DONE, as I have repeatedly pointed out going back to 2007. I believe a big part of why it was not done is that IF it had been done the original paperwork would have been available to the trustee and ultimately the MBS owners, who would have immediately discovered that the representations and warranties as to the quality of the conveyed paper were being wantonly violated. Further, the pooling and servicing agreements specified a limited amount of time (usually 90 days maximum post-closing) for this to all be completed. THERE IS NO CURE BEYOND THAT 90 DAY PERIOD AVAILABLE.
In addition these defaulted notes can’t be conveyed into the REMIC now even if there was a cure available in the pooling and servicing agreement, because doing so causes revocation of the REMIC’s tax-privileged status retroactive to its creation. This would likely expose the trustees to not only monstrous lawsuits but possible criminal fraud charges.
So now we have the foreclosing parties (the servicers) “acquiring” the alleged notes via “lost note” affidavits and other “re-creation’ games. But that’s not valid – first, the P&S agreement specified that the trustee had to have that paperwork on file within 90 days of closing with wet-ink conveyances. He never did. Second, he can’t acquire it now due to the IRS rules. Third, there’s the issue of bankrupt issuers (e.g. “Joe’s Mortgage and Pawn”) of which there were thousands during the go-go years – in order to effectuate those transfers the bankruptcy trustee must approve it and there has to be someone from the original entity who can endorse it over – good luck with both.
But now 4closurefraud has blown the door off this with their posting of the actual price list for mass creation of missing documents. Create, as in “fabricate”, one would presume. And when we’re talking legal documents here that would appear to mean ”forgery” and “perjury”.
How big is this? Well, two of the “listed services” are major problems – and something called an “allonge” is, in my opinion, the big one.
An “allonge” is another piece of paper that is permanently attached (so as to be physically inseparable) to an original document which has space for endorsements. Think of it like a way to enlarge the “endorsement” space on the back of a check. For obvious anti-forgery reasons if you can insert one of these surreptitiously (or worse, replace an existing one!) you can fabricate signatures that never actually occurred, and for this reason the UCC has STRICT RULES on how and when these can be used. Specifically, you can’t attach one unless all original places for endorsement, including the margins and back sides of the page, have been consumed.
Again, the reason for this is to prevent black-letter fraud where endorsements that never were really there “magically appear” on a document, usually backdated, or where legitimate endorsements are removed and/or replaced.
As Yves alleges:
So wake up and smell the coffee. The story that banks have been trying to sell has been that document problems like improper affidavits are mere technicalities. We’ve said from the get go that they were the tip of the iceberg of widespread document forgeries and fraud. This price sheet provides concrete proof that the practices we pointed to not only existed, but are a routine way of doing business in servicer and trustee land. LPS is the major platform used by all the large servicers; it oversees the work of foreclosure mills in every state.
And this means document forgeries and fraud are not just a servicer problem or a borrower problem but a mortgage industry and ultimately a policy problem. These dishonest practices are so widespread that they raise serious questions about the residential mortgage backed securities market, the major trustees (such as JP Morgan, US Bank, Bank of New York) who repeatedly provided affirmations as required by the pooling and servicing agreement that all the tasks necessary for the trust to own the securitization assets had been completed, and the inattention of the various government bodies (in particular Fannie and Freddie) that are major clients of LPS.
NO contract excludes recovery for fraud. Ever. No one in their right mind would exclude such a cause of action. Ever.
I’ve been in business for more than 20 years, and I’ve never in my life seen a contractual situation where fraud does not allow whatever was “done” to be “un-done”, with the original parties on the hook – 100%.
So while mortgage companies may maintain that they have “little” exposure to defaults because they sold these loans off to the bond market without recourse, if in fact 60 percent of the ALT-A stated income products have incomes fraudulently inflated by 50% or more those mortgage companies can probably be forced to take back each and every one of those loans.
HALF of all stated-income loans?
This will BANKRUPT every single one of these companies if it happens.
Anyone care to bet whether or not the bondholders – many of whom are pension funds and other big institutions – will just sit silently and watch the defaults happen without looking into this – when they know that all they have to find is an overstated income and they can “PUT” the loan back on the issuer for its full unpaid face value, plus imputed interest?
There are people who say “mortgage fraud has been around forever.” Indeed. But what’s different here is that if these statistics are correct ninety percent of stated-income loans are fraudulent. This means that they are subject to being forcibly put back on the originator at any time!
The real stinker, of course, is that when “Joe’s Mortgage and Pawn” went down he had his warehouse line from someone like JP Morgan, Countrywide, Deutsche Bank or similar. That is, the big banks are the place where all this crap-pile of bad paper ultimately should and must wind up.
Now, three and a half years down the road, what we appear to have documentary proof of is that the originators knew it at the time, and like most people who start with one small offense, the real problem and what ultimately sinks them is what they do later on to try to cover it up.
We made a severe policy error in 2007 and 2008 in trying to protect these clowns from the just desserts they cooked in their own ovens. Now we have these same institutions trying to force the homeowner and MBS holder, including pension funds, to eat the consequences of these actions.
This is manifestly unjust and must stop – and toward that end, we are finally starting to see organizations representing MBS holders demand exactly that:
The salient paragraph:
“We hope that servicers who operated in a manner inconsistent with generally accepted industry practices, whether intentionally or unintentionally, will do the right thing and immediately enforce any violations of representations and warranties in PSAs. The unfortunate and little- known consequence of these operational breakdowns is the destruction of capital needed to sustain fixed income investors reliant upon cash flow from pensions and retirement accounts,” said Katopis.
Better late than never.
Democracy NOW! – DN! The banking industry’s handling of home foreclosures is coming under increasing scrutiny after revelations that employees at several lenders had approved thousands of foreclosure affidavits and other documents without proper vetting. The banking giant JP Morgan Chase has suspended some 56,000 foreclosures after admitting some may have been authorized without proper review. Last week, another major lender, Ally Financial, suspended evictions in twenty-three states. We speak to Andy Kroll of Mother Jones magazine and New York Supreme Court Justice Arthur Schack, who has made national headlines for rejecting dozens of foreclosure filings due to faulty paperwork from banks and lenders.