Foreclosure, the Elements of Fraud and Case Law

Adherence to statutory procedure is on difficult obstacle we face in a court of law if arguing a wrongful foreclosure. Once the trustee’s sale is completed, the trustor has no further rights of redemption.

A properly conducted non judicial foreclosure sale constitutes a final adjudication of the rights of the borrower and lender. Once the trustee’s sale is completed, the trustor has no further rights of redemption. (Moeller, supra, 25 Cal.App.4th at p. 831; see also Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1250; Knapp v. Doherty (2004) 123 Cal.App.4th 76, 86-87.)

The word “properly” is transcribed from courts comments and begs the question of what defines “proper”. I’ve shared with counsel the ambiguity of the California legislation governing modifications under California’s addendum to code [CA CC §2923.5] for a “meaningful” effort.

Neither meaningful nor proper offer an absolute in allowing the courts to ascertain a victim status foregoing any discussion about victim’s rights.

Perhaps “proper conduct” is “sufficiency” pursuant to a lenders measurable adherence to code or regulatory procedures. Bank officers are (were) taught early on that anything viewed internally as less than “strict” adherence to guidelines and procedures causes the asset to become tainted. Herein the asset quality is diminished or even causes the file to rest “disturbed” subject to being classified until determining a proper cure.

The cost to cure is pursued if determined to be something feasible and simple to fix. A lender reluctant to request of a borrower the need to cure a defect is further complicated by the fact the lender may not be able to sell the asset as it stands. Certainly, there is a vulnerable condition that arises from exposure when announcing the need to cure a defect with regards to the lender triggering a possible rescission or more severe penalties upon encountering a soured customer post closing.

California courts have been inclined to uphold a contractual understanding amongst parties whereby each shall be seen in the courts view as having refrained from doing anything to injure the right of the other. Good faith and the role of a fiduciary are something to contemplate in another analysis. However, for this discussion we note a condition or impairment affecting deliverability that can excite problems such as non deliverability. The loans originated under secondary guidelines are rejected by the secondary markets, subject to the understanding amongst those parties meaning the primary seller.

Therefore, a dilemma arises if one or more closed transactions are marked undeliverable “subject to” and is thereafter conditioned as “ineligible “under the secondary markets criterion for transfers and sale.

What is the cost to cure?

Let’s consider where the documents required for making the file marketable are missing a borrower’s signature. Here proper compliance suggests a) revealing the situation to the borrower and b) having the borrower return in house c) borrowers must sign or execute one or more documents.

When the lender opts to take the alternative to the high road electing to “Cut and paste” something to make it appear the borrower had signed the letter. Furthermore, does the understanding for a covenant of good faith and fair dealing predispose a lender to reveal itself for errors and omissions after the fact with a problematic subject matter affecting only deliverability? The understanding for a covenant of good faith and fair dealing do affect a borrower where a loan is deemed non-deliverable. Anything viewed from perspective of civil wrongdoing is injustice and even a simple fraud still constitutes a fraud.

For now though, a question arises as to the lenders willingness to apply an appropriate cure and where we later in our discovery determine a “forgery “. The Supreme Court has viewed the covenant of good faith and fair dealing as . . . exists merely to prevent one contracting party from unfairly frustrating the other parties’ right to receive the benefits of the agreement actually made. The covenant thus cannot be endowed with an existence independent of its contractual underpinnings. It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350 (Guz).)

Therefore a “quick fix “needed to sell a “closed loan” to an investor may be something harmless as a forgery for a missing initials on a note. Or, consider having to fabricate an “explanation letter “by borrower and as a condition of funding preparing a correspondence whereby a borrower’s signature is copied from another document. The result of the cut and paste stands in place of the borrower’s signature.

The courts are allowing the proverbial foot in the door turning the head to the inconsistencies and even evidence of forgery. Therein it seems to curiously condone a criminal behavior by lenders, albeit a misdemeanor at best.

Materiality is questionable in line with a “material misrepresentation” that has no view towards timings and post funding and deliverability issues. In any event it shall constitute a bad faith event that is precedent to the next payment the borrowers makes subsequent to act regardless of the fact its subsequent to the loans settlement or even a rescission period.

In California, courts have historically stayed the course referring to fair business dealings, covenant of good faith and fair dealing implied in every contract. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372; Andrews v. Mobile Aire Estates (2005) 125 Cal.App.4th 578, 589.)

The subject matter implies each party will refrain from doing anything to injure the right of the other to receive the benefits of the agreement. (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 240.)

Fraud is a misrepresentation and knowledge of its falsity with the intent to defraud. Intent in the courts view may be held as significant when defining the lawful intent brought to the table at signing and or in the anlaysis of consideration exchanged.

The courts have maintained Its the elements of fraud that are subject to a justifiable reliance and resulting damage. (Universal By-Products, Inc. v. City of Modesto (1974) 43 Cal.App.3d 145, 151.) In California, general and conclusory allegations do not suffice with an understanding that fraud must be pled specifically.

Look where the courts are definitive on the requirement for pleading facts. In discovery the lay person will often need the insight of counsel to show clearly where to determine the "how, when, where, whom, and the means" upon which the representations were tendered. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645; accord, Murphy v. BDO Seidman, LLP (2003) 113 Cal.App.4th 687, 692.)

Perhaps your argument should concern the demand for constructing arguments pled with specificity versus somthing even remotley deemed to be a more liberal pleading. Particularity is a requirement that provides the defendant notice of definite charges in an intelligent and cogent manner so to allow the courts to determine the facts upon a sufficient foundation, prima facie at least, for the charge. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216-217; accord, Gil v. Bank of America, N.A. (2006) 138 Cal.App.4th 1371, 1381.)

Counsel should contemplate the means and method to address the anything deemed inconsistent and foreign to the client through discovery.

From an insider’s perspective the file and its contents can hold a plethora of findings ranging in discovery deemed material through establishing evidence of fraud. In either extreme the findings should support the argument of bad faith dealings. It should cause the court to contemplate a heightened awareness for claims alleging deceptive and unfair practices


M.Soliman

expert.witness@live.com


Always consult an attorney to determine your rights. All comments and views are made with no reference to any one person or case. It is unlawful to aid and assit anyone in legal matters or to practice whereby only a licensed praticioner is permitted to practice law in the State of Califoria 

Now the lenders embrace the REPO

Ask the Expert: Foreclosure...
By M.Soliman

We continue to conduct foreclosureinfosearch (LOL) into how lenders legitimize their actions versus uncovering the fraud. What I have seen or attest to know, so shall I witness and that is what I publish.

• A chain of title after the fact show the foreclosing parties Deutsche Bank as the buyer and the foreclosed party as the seller on the date of the alleged auction.

• In trial a major lenders counsel questions a broker on the witness stand for 30 minutes before being asked to sit down by the presiding judge. The Homeowner as Plaintiff won.

• Upon testifying being asked by how the court can be certain the lender was not ripped off.

• A trustee’s sale where a county crier comes out and calls out the property address and asks for bids and while bids are made the person runs back into his office and locks the door.

• Seeing a borrowers transfer the lenders interest out of the lenders name and the court refusing to allow a lender to transfer title back to itself.

A loan sold by the lender, a member bank, is conditioned by repurchase, precedent to these offers. It’s a fact the practices and procedures in foreclosure are tainted and deceptive where one can determine the lenders actions are wrongful and act against the consumers and investors best interest.

The challenge I believe is reverse engineering and our findings point to an opaque or non transparent condition affecting beneficiary’s recovery as a failsafe that has emerged from late 1999. My views stem from efforts by the mortgage REIT’s over the years. It’s all about a curious set of maneuvering over time involving interesting interpretations on the repurchase requirements. Known also as a Repo it is whereupon the financial instrument makes one more trip back to the original transferee

In 1985 the subprime market was dominated by Sears, Textron and Ford. It was a time when the GSE minimum was $ 128,500 (believe it or not). I'm not a CPA or a Tax attorney but have worked side by side in writing these private placements. They do not work! Tax attorneys I have worked with are the basis for my claims and offer the best effort to attack a wrongful foreclosure. In banking and in securitization, from a lending perspective, you learn the following golden rule –“if you err or cause mistake (borrower loan) you risk being removed from the collateral”.

None the less, why are loans sold in to a registration are fast to identify MERS which removes the lender from the collateral?

While at Mortgage Guarantee, I served as a CFO and Director, and I recall the monthly grind of aggregating aged subprime receivables into larger pools for sale to investors. We transferred the assets and servicing to various capital markets participants still around today. From 1997 through 2002 I witnessed firsthand various minor and overlooked practices I deemed deceptive and non complaint procedures for conducting business in instances of a default. It was at a time MERS was being introduced and when things were done to ensure quality control solely for delivery purposes. Risk management only seeks to avoid the repurchase requirements subsequent t selling your pools. Q/C was for selling assets and for avoiding the REPO in those instances of delinquency and default.

Now the lenders embrace the REPO, have you noticed? In offering advice I often tell attorneys to isolate the failure to execute a REPO provision for loans alleged to be sold. I continue to challenge and cite a REPO in a true sale contract where it allows the lender and seller to come back and foreclose. In a Repo, “parties” alleged to have control of the assets precedent to foreclosure but verifiably only regain possession subsequent to the liquidation by trustee or sheriff’s sale.

So who brought the foreclosure?

In order to explain the FSP, the court must decipher certain published rules found under FAS 140. The rules set forth in FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities contain the criteria that restrict "sale accounting" on transferred financial assets.

After serving five years as a CFO and director for Mortgage Guarantee I left and began to move towards work as an analyst and consultant. My concerns were as follows:

Sale accounting" on transferred financial assets is especially problematic to lenders when there is a concurrent purchase agreement. Repurchase agreements” (repos) are subject to "loan accounting" instead of sale accounting. Sale accounting for this exercise is a prohibition against any foreclosure brought by the lender. When referring to a Repurchase agreements” (repos) and "loan accounting" we determine where lenders may foreclose but upon suffering the consequences of recognition.

The markets in my opinion were pushed beyond capacity and headed towards a flattening out and retraction. None the less, my focus was on trying to understand the likelihood for triggering “recognition. It is where an entity as a party to a transfer was relieved of all of its debts or liabilities owed for the money it uses to fund or purchase loans. If the loan production is unencumbered by any debt the assets can be contributed into a new business segment called a Special Purpose Entity or Trust Fund.

I know and witnessed firsthand the "blank assignments" “blank endorsements” and rationale for circumventing the Purchase and Sale requirements at a borrowers expense. According to one of the leading accounting authorities (someone I come to rely on for verifying GAAP accounting violations) on rules set forth under GAAP ad FASB “…the difference in accounting treatments is as follows:

Assets a removed off the balance sheet under a sale or in accounting. By comparison, under loan accounting, the asset stays on the balance sheet, so the credit offset to recognition of the proceeds is to debt. So most significantly, sale accounting is off-balance sheeting financing, and loan accounting is on-balance sheet financing.

Lenders are faced with the problem of making good on the cash flow they promised the purchaser of the loans, the investors. Investors look to the lender and not the loans themselves to be repaid. So the lenders recourse is actually a short fall for the cash flow they pay and do not receive from a delinquent borrower. In 1997 and 2007 I was employed by law firms as a sector business consultant who was intimate with the sub-prime markets and whole loan delivery apparatus. The cost of securitizing is advanced by Wall Street partners, who buddy up with banks under a structured finance arrangement. That cost to bring a registration to fruition is a lucrative income producing segment of the investment banking world.

A modification or forbearance plan is seen as appropriate assistance provided under state and federal promises of mandatory relief assistance. However, parties cannot modify, adjust, offer relief and or negotiate anything for a loan the lender has sold.”

Now ask yourself, the following when you make you defense or pursue and action against the lender?

• Who are you suing, or who is committing the unlawful acts?

• If the cost to securitize costs the amount of a first year’s cash flow, from what do the investors get paid?

• What does a bonefide sale have to do with your rights to a meaningful workout?

• Why do I subscribe to the theory “leave securitization” alone, and don’t go there in your defense?

• How are the offers for a workout subject to tortious interference with the actual facts and right to recourse?

Not sure? Tough situation to be in!

One concern I have is the timing issuing requiring the bank to stand behind is obligations not only to the investors who purchase collateralized stock but also for the cost of bringing the registration to market. What ensues in a downturn market is the lender riding out the statutory term for honoring its recourse provisions. This is evident with a lenders willingness to provide borrowers time upon which a forbearance agreement is replaced by pure avoidance.

The lender seems to just go way for a period of time while mortgage interest accrues further against borrowers waiting for a resolution. Prepayment speed in mortgage-backed securities is the estimated rate at which mortgage borrowers will pay off the mortgages that underlie an MBS. The equivalent of the coupon on a mortgage-backed security is a percentage of the interest and principal paid on the mortgages backing the security. A risk associated with mortgage-backed securities is that too many homeowners will pay off their mortgages with too much prepayment speed, depriving the holders of the MBS from future coupon payments.

Repurchasing costs are often times prohibitive upon a consumer defaulting. The REPO provides a lender the right to repurchase and at a cost that diminishes over time. Therefore time is often in the sellers favor and to a consumers disadvantage under the registrations Buy sell repurchase requirements. Your ability to contemplate a realistic and intelligent solution including deed in lieu is circumvented by a scheme to reduce the lenders liability to the purchaser of the subject loan.

In attempting to circumvent the best efforts of investors and/or regulators of financial institutions, accounting for a loan as debt is adverse compared to sale accounting which is required to survive consumer debtor litigation. Lenders therefore, even upon their demise, are willing to construct an 'arrangement' that can slip and slide under rule SFAS 140's solely for appearing to comply with sale accounting.

M.Soliman
Expert.witness@live.com

MERS, knows now that the days have been numbered

Reader: MERS, knows now that the days have been numbered and death keeps no calender.
MSoliman - MERS is an honest and significant componant in the role of a nominee in a securities for GAAP program that does not work. Its not MERS but the misapplied use of the nominee function as an assignor.
This is especially true in the foreclosure process whereby MERS has no defined role in a foreclosure.
Stop already!
MSoliman
expert.witness@live.com

FOR COMPANIES IN THE mortgage lending

 business, rising short-term interest rates are a troubling occurrence. Since lenders borrow money at short-term rates, the higher those rates are, the higher their cost of capital. 

Needless to say, stocks of real-estate-investment trusts that are primarily in the business of mortgage lending shuddered.

When the Federal Reserve made its surprise move last week to raise the discount rate by 25 basis points to 0.75%, it prompted many investors to wonder whether the Fed was signaling a new era of rising short-term interest rates. After all, this was the first short-term rate hike of any kind by the Fed in 14 months. (The Fed, however, did leave the more widely-watched fed funds rate unchanged.)

TBW Creditors Want to Sue Former CEO, Others

February 12, 2010

Creditors of Taylor Bean & Whitaker (TBW) are seeking permission from a bankruptcy judge for authority to sue former company insiders, including president Lee Farkas, who founded the company and made it into a top 10 ranked lender.

According to a report on Dow Jones, the committee representing Taylor Bean's unsecured creditors in the bankruptcy case wants to sue Farkas and other insiders for money the company loaned them that allegedly hasn't been paid back.

The creditors committee said in court filings this week that TBW's lawyers have "conflicts or other concerns that make it unable or unwilling" to pursue the suits, but the committee said the company is backing its efforts.

The committee is also planning to go after Bank of America for money the bank allegedly held back after selling securities backed by TBW mortgages. Pursuit of claims against the bank's insiders could well represent the unsecured creditors' best shot at seeing a significant recovery in the bankruptcy case.

Judge Jerry Funk of the Bankruptcy Court in Jacksonville, Fla., has scheduled a Feb. 19 hearing to consider the committee's request. TBW filed for bankruptcy protection last summer after trying to buy a controlling stake in its chief warehouse provider, Colonial Bank. Colonial failed shortly thereafter.

For more information on related topics, visit the following:

•ABS

•MBS

Ask the Expert: Whats with the Banks Holding Company

A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies. In the U.S., 80% or more of stock, in voting and value, must be owned before tax consolidation benefits such as tax-free dividends can be claimed.[1]

Sometimes a company intended to be a pure holding company identifies itself as such by adding "Holdings" or "(Holdings)" to its name, as in Sears Holdings.

What's Most Heartbreaking About a Foreclosure

The lender unfortunatly is not your friend and they are struggling for survival. My affirmative response to an offer to modify a loan is "go to hell." How can a lender who is not a lender but interested party holding some devalued stock certificate offer you anything at all let alone foreclose on your home.

Do modifications happen? Sure they do ....Suckers! Consider this:

1. The attorney General for California convinced every resident a modifcation company is a lepar.
2. No attorney can collect a fee and assist you in a modification
3. Modification personel for the lender are often contractors and phone sales people.
4. The U.S. President is baffled by the zero volume of modifcations getting done.
5. A modification requires you to make payments in advance and then they determine your credit worthiness is sufficient.

No they do not get done - at all!  SO . . . .what is the alternative to a modification. Mortgage loan abatement. Its also known as a Quiet Title action.

Quiet Title for example is a best bet if your properly armed and ready to go. It is a proceeding to establish an individual's right to ownership of real property against one or more adverse claimants.An action to quiet title is a lawsuit filed to establish ownership of real property (land and buildings affixed to land). The plaintiff in a quiet title action seeks a court order that prevents the respondent from making any subsequent claim to the property. Quiet title actions are necessary because real estate may change hands often, and it is not always easy to determine who has title to the property.A quiet title suit is also called a suit to remove a cloud.

What is a cloud on title? A cloud is any claim or potential claim to ownership of the property. They can differ in pleading from one to another whereby the cloud can be a claim of full ownership of the property. Another example is where the claim is for partial ownership, such as a lien in an amount that does not exceed the value of the property.

Stay tuned as there is more to follow on this subject.

MSoliman
expert.witness@live.com

FDIC Problem Bank List

Problem institutions are chosen based on financial and operational criteria. The banks are given a ranking from one to five, with one being the most sound and five being the least. In order to be considered a four or five (a problem bank) the institution must have financial, managerial or operational weaknesses that threaten its continuing financial viability. The number of banks on the list are used to evaluate the strength of the financial industry as a whole. The banking industry is then used as a lagging indicator for the overall economy.