The Meaning of MERS & Vermont Supreme Court; Yes US Bank you do have to prove standing.

Gonna be Kinda hard after MERS screwed it all up Huh? People have learned a lot about MERS, but in general we havent really focused on what it all means. In short, it means that the mortgage industry decided that it was above the law. MERS was set up thoughtlessly, without regard to its basic legality, and designed with only two objectives: lowering the mortgage industrys costs and maximizing its convenience. As a result, MERS has none of the advantages of the centuries-old system it was intend to replace, and largely has. MERS is not accurate, not transparent, and not accountable to the public. To let MERS continue simply allows it to continue wreaking havoc on property records and the legal morass its created to continue tangling foreclosure and bankruptcy cases nationwide. The Ultimate Answer: Legislate MERS Out of Existence At this point legislatures from the states to Congress need to confront the deep reality of what MERS truly is. MERS must be legislated out of existence, and the costs for its existence to dateincluding the costs of accurately updating our land records nationwidemust be borne by all the players that benefited from MERS. Despite the broad claims of the MERS website, the beneficiaries are generally two groups: mortgage securitizers (yes that includes all the big Wall Street players and TBTF banks) and mortgage servicers (who again include the TBTF banks.) In replacing MERS, legislatures should consider modernizing and standardizing land records. The mortgage industrys frustration with the pre-MERS era is legitimate. But what is not legitimate was the industrys unilateral decision to create a self-serving system that was indifferent to law and the publics interest. Think all that sounds over the top and extreme? Lets recap what we know about MERS. MERS is a company whose product is a massive electronic database called Mortgage Electronic Registration Systems. MERS Inc. has no employees, but some 20,000 Certifying officers. Certifying officers have included employees of mortgage servicers, law firms, and subcontractors. At least, people signing in MERSs name have included such people. Whether any of them is really an officer of MERS with any authority is very doubtful. Doubtful because theres solid evidence that Bill Hultman, who designated all these people as signing officers, lacked authority to do so. Signatures but Apparently No Authority to Sign In short, the appointments appear to be invalid two and sometimes three reasons. First theyre apparently forbidden by MERSs bylaws. Second, the resolution Hultman cites as giving him authority was adopted by an earlier incarnation of the company and doesnt appear to have been ratified by this one. Third, even if good, the resolution only allows MERS members employees to be officers. On what grounds did Hultman designate attorneys at foreclosure mills and signers at contractors? A few months ago a Texas court found the authority issue serious enough to allow discovery on the point to go forward. The authority issue is serious enough for MERS to take action. MERS kicked off 2011 by announcing a new authorization procedure was being adopted, that everyone would have to be reauthorized, but that in the meantime, people could keep signing as if nothing had changed. I wonder how thats been worked out. Did MERS mark documents signed under the new authority in any way, so people can tell? How is someone to know? Seems to me like MERS is just begging for some long, nasty discovery battles. And its just one sign of how ad hoc and careless the MERS project has been. (Note, in the nine months since I wrote the article at the solid evidence link Ive been persuaded by other attorneys that the doctrine of apparent authority may not solve the problem but its a discussion too in the weeds for here.) MERS Is Inaccurate

We know MERS was designed to track mortgage servicing rights and tracking ownership of the loan was incidental, only done if the investor volunteered the information. (see text at fn 16). We know MERS itself does not update the database or do quality control of any kind. All data entry is done by MERS member companies for their own loans. Limited empirical evidence suggests the database is not accurate. Lisa Epstein of ForeclosureHamlet.org shared some of her results of searching the MERS database with me, and the results are discouraging. While working on one project, she discovered bad MERS numbers listed in SEC filings for a number of loans, and that Wells Fargo originated loans werent showing up at all. Another discovery she made was that MERS had 10 loans listed as active after the properties had been foreclosed and sold or sold short. She found them simply by examining the 45 loans in one securitized trust that were located in her county; that is, she hadnt tried to select for inaccurate MERS data. Despite the fact that no one is managing this database as a cohesive whole and apparently quality control is, ahem, uneven, for roughly half of all mortgages, MERSs records are the only ones. The public has nothing else to turn to. For the life of a MERS loan the only record of who owns the loan and who services it is the MERS system. Thats the point, as MERS explains on its website. MERS Hides Self-Dealing; OR, The Papers Are Meaningless When the time comes to take MERSs name off a loan, the MERS officer assigning the mortgage out of the database works on behalf the loans claimed current owner, whether as an employee of the servicer or as an employee of a contractor of the servicer. That is, the party getting the mortgage via the assignment is the party saying the assignment is happening. Using MERSs name covers what seems otherwise obvious self-dealing. For example, the John Kennerty who signed so many assignments of mortgage to Wells Fargo was a Wells Fargo employee. Or consider yesterdays post about the New Century MERS assignments; only someone working behalf of the companies getting the deeds of trust could be signing them, since New Century doesnt exist. Perhaps self-dealing isnt accurate because at some point Im sure the receiving party paid good money for the mortgages. But thats looking at the assignments purely from a document execution perspective, not a legal one. (see link at page 16.) That is, the way MERS assignments are done only makes sense if the documents are meaningless and the only issue is how quickly and cheaply the documents can be generated. The documents themselves, however, are submitted to courts as if they have meaning. The documents claim Bank A, by signing the document, is transferring the mortgage (and sometimes the note) to Bank B, including the right to foreclose if the loan isnt paid. The document itself is the transfer. Its why the signature of the Bank A person is supposed to be notarized: To protect Bank As property from be stolen by someone signing an assignment without authority to do it. So if the document is supposed to mean what it says, it sure looks like self-dealing when its Bank Bs employee signing in Bank As name. Of course, MERS members might say, the document is essentially meaningless. Bank B bought the rights awhile back. The document isnt really transferring anything; its just a piece of paper we need to have to give to the judge or record in the land records. This attitude is inherent in the MERS system, because not only did MERS separate the note and the mortgage, but it separated the transfer of the mortgage from the assignment process. At least that was its intent. In that frame, where the mortgage assignment is meaningless, whats the harm in having the receiving bank sign for the assigning bank? And whats the point of notarizing the MERS signing officers

signature when nothings really being transferred? No wonder they started robosigning the documents. If the document is meaningless, why does it matter how you sign it? I wonder how judges will feel when they really start to understand what a sham these assignments are. Nobody Thought MERS Through I worked as a corporate lawyer at a big firm for three years, several years ago. The job of a corporate lawyer, in part, is to think things through. A related job is to help clients reduce their costs by ensuring that the clients plans comply with the law. By those measures, the lawyers who blessed MERS didnt do their jobs. According to the New York Timess Michael Powell and Gretchen Morgenson, no one checked to make sure MERSs system was legal in all 50 states. Thats amazing, because real estate law can vary state by state, even as to basic issues like who owns the land, the purchaser or the lender. Thoroughly analyzing a proposed system like MERS in light of the laws of each state is the kind of task law firms are supposed to be good at. This failure has already cost MERS members, as MERSs legality is being litigated on a state by state basis and though winning some, MERS is also losing some. (The link is to a law review article by Dean and Professor Christopher L. Peterson of the University of Utah Law School, the preeminent MERS scholar.) As a result, MERS has been forced to change its procedures. For instance, it has told members not to foreclose in the name of MERS. And along the way the institutions that have relied on MERS have spent a lot of money litigating, and lost a lot of money by not being able to foreclose in a timely fashion. Another indicator that MERS wasnt thought through are all the assignments being done on behalf of entities that dont exist, such as the New Century ones I mentioned yesterday. The MERS system apparently presumed all lenders would continue to be around so that servicer executed assignments in the lenders names would make sense. That was as blindly optimistic as the belief home prices would always rise. Another part of MERSs operation I can only hopemortgage backed securities investors can only hopewas thought through. That is, generally a securitizations pooling and servicing agreement says that for every MERS loan in the deal, no assignment of mortgage needs to be prepared and delivered to the trust. The contracts presumed MERS worked, and that the mortgages were being successfully transferred along with the notes into the trusts without a contemporaneous assignment. So my question is: under all 50 states laws, does that work? If not, what does that mean for the securities? The Ibanez case in Massachusetts demonstrated that one assignment practice that was standard in securitizationsassignments in blankdid not work under hundred-year old Massachusetts precedent. That fact and the failure to think MERS through make me nervous about the contract provision. The Banks Believed They Are Above the Law In a nutshell, heres all you need to know about MERS, taken from the Powell and Morgenson piece: The bankers who midwifed its birth hired Covington & Burling, a prominent Washington law firm, to research their proposal. Covington produced a memo that offered assurances that MERS could operate legally nationwide. No one, however, conducted a state-by-state study of real estate laws. They didnt do the deep homework, said an official involved in those discussions who spoke on condition of anonymity because he has clients involved with MERS. So as far as anyone can tell their real theory was: If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans. Unfortunately for the banking industry, the judiciary is not temperamentally inclined to rewrite laws for

businesses convenience. Consider what U.S. Bankruptcy Judge Robert E. Grossman, a former partner of a major corporate lawfirm himself, wrote when finding assignments of mortgage by MERS violated NY law: The Court recognizes that an adverse ruling regarding MERSs authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law. Its high time to legislate MERS out of existence. Update 7-22-11 Lynn Szymoniak sent me this MERS presentation which suggests another fundamental problem with many MERS Assignments. See page 3, brown box 2 at right and pages 23 and 24. Every MERS officer is supposed to be an employee and officer of the lender theyre signing on behalf of, and is only supposed to sign for loans registered to that lender. That is, a MERS officer signing for, say, Citi is supposed to be an employee and officer of Citi, and only sign for Citi loans. People generally understand an officer of a corporation to be someone who has a corner office, or at least, real status in the company. The word shows up in all the big titles, after: Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, etc. But weve learned the people signing documents are low level $10/hr employees, sometimes of the company and sometimes their contractors. These people sign as MERS officers for many institutions and believe theyve been given signing authority by those institutions (presumably by being made officers). These things can only be simultaneously true if we have another one of these meaningless paper situations. Theyre not officers in the commonly understood way. The only way these signers on behalf of multiple institutions can also be officers of each is if officer means nothing. These people also arent employees of the lenders in by any definition I know of. But surely the requirement by MERS that a certifying officer be an officer and employee of the company isnt an accident. I mean, MERS could have said agent; could have said employee or contractor etc. Presumably it matters because the assignments claim to transfer assets of the company. Again, once judges really understand how meaningless MERS documents arehow they are designed to look meaningful while in fact are meaninglessI dont think it will be pretty. I only hope law enforcement is paying attention too.

Vermont Supreme Court; Yes US Bank you do have to prove standing. Gonna be Kinda hard after MERS Huh? The banks foreclosure filings are starting to lose credibility. The Vermont Supreme Court just forced US Bank to start over if it wants to foreclose on Christine Kimball. Why? Well, in a very matter of fact, unanimous decision, the Court concluded that U.S. Banks proof of standing (proof that it had the right to foreclose) was so unreliable that the trial court legitimately rejected it. US Banks documents just didnt add up. Thats not surprising, since the documents are classic examples of robosigned documents and their meaninglessness.

When US Bank filed its foreclosure suit on January 12, 2009, it claimed it had standing because the Kimball mortgage and note had been assigned to it a week earlier by MERS as nominee for Accredited Home Lenders, the lender on the note. That MERS assignment was signed by none other than infamous robosigner Jeffrey Stefan, who for this document claimed the titles Duly Authorized Agent and Vice President of MERS. US Banks complaint included the assignment and a copy of the Kimball note with an undated assignment in blank from Accredited on an allonge. Six months later, Kimball received two letters contradicting US Banks claims. First, Kimballs mortgage servicer, Homecomings Financial sent a letter that saying that GMAC was taking over servicing her mortgage. Second, GMAC sent a letter not only confirming the change but noting that it was servicing the mortgage on behalf of Residential Funding Corporation,not US Bank. After Kimball pointed out the contradiction to the court, US Bank tried again. The bank produced a new version of the Kimball note, a copy specifically endorsed Accredited to Residential to US Bank and supported by an affidavit signed byJeffrey Stephan as Limited Signing Officer for GMAC. However, as the Supreme Court noted, at the time US Bank made no claim in the affidavit or otherwise as to when those endorsements were made. The trial court found the evidence that US Bank had the note prior to starting the foreclosure inadequate and dismissed the foreclosure. In November, 2009 US Bank asked the court to reconsider, admitting that its filings had created confusion by submitting an outdated copy of the note prior to its transfer to [US Bank] and a mortgage assignment that claimed to assign the note too. But, US Bank claimed, it now had the properly endorsed original, so, really, who cared? US Bank supported its motion with an affidavit from a Scott Zeitz, litigation analyst for GMAC claiming that the two endorsements had happened in September 2005, a few months after the loan had originally been made. Not only did this not make sense because of Residentials claim of ownership as late as June 2009, but US Bank failed to explain how Zeitz could have the personal knowledge of the facts necessary to swear out the affidavit, given that GMAC entered the picture four years after the events he was attesting to. US Banks claim that the original note had been endorsed to it since 2005 and thus when US Bank filed the foreclosure in January, 2009 may be an artifact of the securitization process. US Bank is almost always involved in foreclosures because it is the trustee for a mortgage securities trust, and the homeowners attorney, Grace Pazdan of Vermont Legal Aid confirmed the loan was securitized. Since the loan was made in June, 2005, September 2005 is probably when US Bank believes the loan was securitized. Many securitization contracts accepted loans endorsed in blank from the loan originator, in this case Accredited, and without a mortgage assignment, so long as the loan was a MERS loan, which this was. As a result, even if the securitization was performed correctly, an easy paper trail documenting what happened is missing, particularly since the blank Accredited endorsement is undated. Enter the robosigning of documents. That said, I imagine its possible that the Kimball loan was not securitized; again, if it was, why did GMAC claim Residential owned it four years later? I mean, who was GMAC going to give Kimballs payments to? Who was Homecomings Financial, the prior servicer, giving Kimballs payments to? What a mess. Back to the Kimball opinion: After everything else had failed, US Bank told the trial court, in essence, look, whatever mess we made of the papers before, weve got a properly endorsed note now. Can we please now add ourselves to the complaint as proper party? The trial judge rejected that request too. The Vermont Supreme Court, after laying bare all the problems with US Banks filings, notes the trial judge had every right to reject the request, and upheld the decision forcing US Bank to start over if it wants to foreclose. In response to US Banks complaint that starting over would be wasteful, the Court let US Bank have it: While we are sympathetic to the desire to avoid wasteful and duplicative litigation, the source of the unnecessary proceedings in this case was not an overly wooden application of the rules, but US Banks failure to abide by them. It is neither irrational nor wasteful to expect the foreclosing party be actually in possession of its claimed interest in the note and have the proper supporting documentation in hand when filing suit. Nor is it irrationally demanding to expect the foreclosing party to provide adequate, satisfying proofWhat should have been here a straightforward, if not summary, proceeding under the rules was rendered inefficient by US Banks failure to marshal its case before compelling the homeowner and the court to waste time and resources, twice, by responding to what could not be proven. And to underscore its frustration with US Bank, the Court ordered the trial court to consider awarding Vermont Legal Aid fees for all the time Pazdan spent dealing with US Banks papers.

Pazdan commented: Vermont Legal Aid is pleased with the Courts ruling. For years, we have argued that homeowners and their families should not, and legally cannot, be displaced from their homes without reliable evidence that the bank seeking to foreclose actually owns an interest in the home. This opinion affirms our belief that national financial institutions are not above the law, and must, like all other litigants, prove their case to get the relief they seek from the court.

Turns out we sold your house by mistake. Funny story

Youre not going to believe this, but remember last year when we denied you for a loan modification, sold your house and kicked you out in the street? Well, as it turns out we screwed up yep, it was all a big mistake a misunderstanding, really. Can you believe that? Its just the craziest thing. Whoopsie! Sorry about that. How did it happen? Well funny story youre really going to laugh I swear.
Not only that but regulators, including the Federal Reserve, the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC) also told the servicers they have 45 days to hire auditors to figure out exactly how many homeowners they shouldnt have made homeless in 2009 and 2010. Well, isnt that nice? What a lovely surprise. The joint report cited the usual suspects including Citibank, Bank of America, JPMorgan Chase and Wells Fargo, Ally Financial Inc., Aurora Bank, EverBank, HSBC, MetLife Bank, OneWest Bank, PNC, Sovereign Bank, SunTrust Banks, U.S. Bank, Lender Processing Services (LPS) and MERSCORP. The servicers have all agreed, based on the auditors reports, to remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies. No minimum or maximum amount was set by the agreement, so the skys the limit, I suppose? The Federal Reserves stated that it believed financial penalties were appropriate, and Id have to concur. I mean, if a bank threw me out of my home without good reason maybe caused my marriage to break up made my kids change schools, leave their friends possibly forced me into bankruptcy you know, destroyed the rest of my adult life, I cant think of anything but financial penalties that would possibly be appropriate. I mean flatware? No, too personal. A Cuisinart? No, people might already have one. Besides some of these folks are probably living in the park and without electricity nope, the Feds right for once, its financial penalties for sure. And dont forget to buy a card to slip the penalties into something tasteful maybe get one of those that plays music when you open it everyone likes those.

All three of the bank regulators promised to review the audits and the Fed also said that it plans to levy fines in the future as well. And isnt that a relief? Im sure glad this isnt a one time thing. I mean, I think there should be financial penalties every single time a bank throws someone out of their home that shouldnt have been throw out, dont you? I have to say that I like the Feds attitude on this issue. I mean, the central bankers didnt even pretend that banks might be able to stop throwing people out of their homes improperly, they just went ahead and said theyd continue with the financial penalties in the future when they do not

even if they do, but when they do. Well, at least theyve set expectations properly this time. The government regulatory agencies stopped short of listing specific instances of bad foreclosures, but they did note in their report that: deficiencies in foreclosure processing observed among these major servicers may have widespread consequences for the housing market and borrowers. Actually, Im not entirely sure how to take that sentence do they mean that in a good way or a bad way, do you suppose? Like, do they mean widespread as in a lot of people will get checks, or that therell be lots of improper foreclosures? Why do they have to be so cryptic use the English and say what you mean, would you please? Its been four years since the housing meltdown started pulling our economy down the drain and I started screaming about it. Since then, there have been more than five million homes lost to foreclosure, and roughly 2.4 million first mortgages were in foreclosure at the end of 2010, while another two million were at least 90 past due, so at serious risk of foreclosure. And as of July 2011, foreclosures are up 12.8% over last years number, according to LPS, and there are some 6,452,000 mortgages going unpaid in the United States as of June 2011. Not everyone was encouraged by the plan. Congressional Democrats refer to the order as being too lenient on the servicer, and so House Democrats introduced a bill on Wednesday that if passed would require servicers to adhere to a series of specific steps, and include an appeals process, before even starting a foreclosure, but that sounds like the sort of thing that the banking lobby and the Republicans (oh wait, that was redundant, wasnt it?), I meant to say the sort of thing that the banking lobby will strongly oppose. Rep. Elijah Cummings, D-MD, who is the top dog on the House Government and Oversight Committee said that he wanted to know what all of the abuses were that the government identified, who exactly committed them, and how this consent agreement will fix the behavior in the future. He said: Based on what I have read I am not encouraged at all. Well, no one said anything about fixing something in the future, did they Elijah? No, they most definitely did not. In fact, the Fed even made it clear that it would be happening in the future, so what more do you want than that in terms of transparency? Some people are never happy. Im encouraged, arent you encouraged Im actually overcome with encouragement.
John Taylor, who is the Chief Executive of the consumer housing watchdog group, National Community Reinvestment Coalition, said the governments action is a year too late. Apparently, hes okay with it taking three years to make amends when you throw someone out of their home improperly, but four years is too long. He also points out that this order does little to help those who are now wrestling with a foreclosure and those who have already been thrown out improperly. According to Taylor, instead of moving swiftly to foreclose and seize peoples homes, the banks should have been better at helping people modify their mortgage payments. Oh my God that is such a good idea why didnt we think of that? Ill have to remember to keep my eye on Taylor, he is one sharp cookie. He also said This should have happened a long time ago. There are so many people who, if they had received a meaningful modification, could have stayed in their homes.

Yeah, well you should have spoken up sooner then, shouldnt you? Look, this guys a bit of a whiner. I mean so, our government stood by and did nothing as potentially thousands of American citizens were thrown from their homes improperly, so what are you going to do make a federal case out of it? I mean, its not like the servicers beat the homeowners with sticks, right? And they dont seem to have raped any children. No burning crosses on front lawns. Id say we got off easy here. They might have done any of those things and more, heck, BofA stole someones dead husbands ashes last year and kept taking homes they didnt even hold mortgages on so, lets just be thankful for the little things, okay. So, my goodness get over it be happy so, you got thrown out of your home of twenty years for no reason your marriage broke up and you havent seen your kids in 18 months as a result you lost your job when your employer saw your credit score fall to 420 and then you tried to kill yourself youre okay now is it really that big a deal that youre living in an apartment where the kitchen smells like ass? See, thats why everyone hates the Democrats, its all that whining. Citigroup issued a statement saying it had self-identified needed changes in 2009. Okay, good to know. And dont feel pressured to rush into changing anything take your time on the whole implementation thing, we understand. The bank also said that it has helped more than 1.1 million homeowners avoid foreclosure, but who knows Hampsters always say stuff like that. Citi also said: We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements. Now, that sounds a little brown-nosey for my tastes, but okay then. And then our good friend Ally Financial, or GMAC if youre in the you-dont-want-to-know, said it had not found any instance where a homeowner was foreclosed upon without being in significant default. Thus proving conclusively that they have no sense at all of what the issue here is. In fact, after writing this article, Id say its an absolute lock that none of these people have the slightest idea what the issues are here. Nest-ce pas? Mandelman out. And just because I know that some of you are probably thinking that I made some of this up just to be funny HA! I didnt have to it was that funny all by itself. And that sad, and that scary. Heres the link to the story in the Cristian Science Monitor, and what could be less funny than that? Click it, youll see.

It all started last Friday morning when a Broward County sheriff went to a townhouse to serve its owner with an eviction notice. It ended when Pembroke Pines police shot the homeowner several times as he set his foreclosed townhome on fire. According to News4Jax.com, the 52 year-old Florida homeowner lost his home to foreclosure as a result of owing $10,000 in homeowners association dues. Police said that the homeowner soaked the inside of his residence in gasoline, set it ablaze and then walked out of the burning townhome immediately getting into a fight with multiple officers. He must have presented quite a threat because they shot him several times.

He ended up at Memorial Regional Hospital with injuries described by the fire and rescue people as serious and life threatening. No police or firefighters we injured, and the fire was put out before it could cause damage to the connecting townhomes this time and thank God for that. Ive said it before not more than a couple of hundred times and beginning almost three years ago but, as a country we are playing with fire on a national scale, and there is no question but that this event should be viewed as foreboding. No one besides the homeowner was hurt this time and thats the result of PURE LUCK. I sure hope were that lucky next time, because there will most assuredly be a next time, and a next beyond that, and a next beyond that. What this countrys mortgage servicers have been allowed to do to homeowners and continue to be allowed to do to homeowners is surely criminal, but beyond that is so entirely unconscionable as to shock, disgust and repel all who come to understand it. Routinely, homeowners struggling financially (and there are more and more every month in what remains the worst economic downturn this country has experienced in 70 years), are flagrantly, repeatedly and intentionally deceived, maligned and wholly abused. And for their trouble they are told nothing and therefore walk away from their homes having no idea why their lives have been so freely torn asunder, while clearly no one cared or cares about what theyve been forced to endure not even in the least. Its not an isolated incident, as the banking industry would have us believe, its commonplace the norm it happens to essentially everyone who gets involved with their mortgage servicer every single day. No one has even a reasonably unpleasant experience dealing with their servicer when trying to get their loan modified. The simple fact is that servicers only come in only three flavors: Terribly Annoying, Unbearably Annoying, and Make-You-Want-to-Burn-Your-House-to-the-Ground Annoying. To be sure, millions of homeowners have succeeded in getting their loans modified, but theres no joy in the process, regardless of the outcome. President Bush signed a bill at the end of July inn 2008, thus creating the Hope-4-Homeowners program, perhaps the most ill thought out and predictably least effective federal program in the history of the country. It made government cheese look like Medicare. Then we waited for Barack Obama to come to the rescue. In late February of 2009 our new president announced his flagship Making Home Affordable program, which ultimately gave birth to HAMP, and we all know how underwhelming that has been. Every single other program, federal or state, that has been allegedly made available to distressed homeowners as related to the foreclosure crisis has been a dazzling failure. And no one even debates that fact.

All this and DISDAIN too?

Sheila Bair, just retired from her position at the FDIC, in her interview with Joe Nocera of The New York Times, shared her honest thoughts on the travesty and heres what the article in the Times said, among other things: Bair, however, has always thought there were other reasons behind the general resistance to modifying mortgages. The government, she said, thought maybe I was overstating the problem and that it wasnt going to be that big a deal. As for those in the industry, she added: I think some of it was that they didnt think borrowers were worth helping. There was some disdain for borrowers.

Some disdain? Id say the evidence makes it abundantly clear that theres disdain for borrowers. I mean, there certainly isnt love and respect borrowers are a long way from being cherished by the banksters, Ill tell you that for sure. No, its damn obvious theres a great deal of disdain in the banker-borrower equation, there would have to be for servicers to treat borrowers the way they have. The bankers just didnt think it was worth helping borrowers thats fascinating though, dont you think? Could have helped, but youre just not worth helping. Worthless helping borrowers a worthless endeavor as far as the bankers are concerned. Hey banksters Wow thats almost well, its hmm umm Im not entirely sure what to well, how about maybe I should say I mean F#@K YOU! Its all very odd, because although loan modifications are not even mentioned on any of the major bank Websites, each one of the banks does have a special site dedicated to loan modifications and other foreclosure avoidance products and programs and I read them all and it sure sounds like they care and theyre here to help. For example, heres what it says on the front page of Bank of Americas Website dedicated to Home Loan Help: Lets work together Help is available for homeowners experiencing payment difficulties. Well do everything possible to come up with a solution to help you. No matter what your situation is, were here to help. And heres what it says on the Website of JPMorgan Chase: If you have concerns about your ability to pay your Chase mortgage, were ready to help. Over the past three years, weve helped prevent almost half a million foreclosures by helping homeowners with home loan modifications and by helping them understand and access governmentbased homeowners assistance programs. Our goal is to keep homeowners under financial stress in their homes.

Chase also offers this little gem sure to help a homeowner get his or her loan modification approved by Chase: This review process may take up to 30 days. During this time, its in your best interest to continue making your home loan payments. And how about Wells Fargo Banks site Count on us to work with you If youre facing financial challenges, well do everything we can to help you stay in your home. Keeping up with payments can be difficult, especially with circumstances like job loss, decreasing home values, or overextended credit. By reaching out to us when challenges first arise, you keep more options open. So, in case youre confused as to who to believe former FDIC Chair Sheila Bair speaking on the record with Joe Nocera of The New York Times or the bankster Websites, let me clear it up for you. Shes speaking out now that shes finally able to tell the truth about whats been going on in Washington D.C. related to the housing crisis and the administrations apparent ambivalence to the most important economic issue we face in this country.

The bankster Websites, on the other hand, merely offer further proof that the banks are liars. In the same article, Joe Nocera mentions that there are certainly arguments against modifying mortgages. And then he offers what some of those might be. A. Moral Hazard This is the one about how even those that can afford their mortgages will intentionally stop paying them so that they too can get a lower payment too just like those lucky people in financial distress.

This, my dear Watson is sheer idiocy in motion. For one thing, loan modifications are not like stated income loans. They require documentation of income and all sorts of other things, so it would be very difficult to cheat the system and obtain a modification if a person didnt need one. Besides, its hard enough for a person who desperately needs one to get one, so I really dont think we need worry about modifying too many loans at this point no matter what.

Also, people dont ruin their credit to reduce their mortgage payment, and thats what would be required were someone who can afford their payment want to get their loan modified. From everyone Ive talked to, you have to be at least 90 days late to get your loan modified, and on top of that, making a modified payment, as opposed to your full payment is reported to the credit bureaus as not making your full payment as agreed. Presto change-o, if you get your loan modified, youll be saying so long to your 700+ FICO score at the same time.

B. The Horrors of Re-Default Heres how this one goes Many people end up re-defaulting on a modified mortgage, and therefore Im not really sure. The only reason many would re-default on a modified mortgage is that the modifications are not done corrently. In some cases, like roughly 60% in 2008, loan modifications resulted in higher mortgage payments than before they were modified.

And wouldnt you know it, there was a survey out that said that in 2008, 60% of modifications redefaulted a little under a year later I believe it was ten months later.

I argued with someone at HUD once about this, saying that a loan modification is not when the payment goes up I said that was preposterous and no one should be including those increasing payment in their counts of modified moans. The guy I was talking to was insistent that even if the payment goes up it was still a loan modification.

What would you like us to call it when the modification results in a higher payment, he asked me, exasperated.

I thought for a moment, wanting to be thoughtful in my response to HUD How about a payment increase, I said.

The bottom-line is that if the modification is done properly theres no re-default threat that exists, the whole issue is merely another dodge in the continuing series of lies told by bankers who dont want to modify loans.

C. We NEED Foreclosures This intellectually deficient line of thinking says that we actually NEED foreclosures if the housing market is to recover, just like we need forest fires so that forests may grow, or something like that. Do I even have to answer this one I think not.

D. Its Impossible to Design a Program As Nocera has been told by Treasury, designing a mortgagemodification plan that works for a large number of people is excruciatingly difficult, maybe even impossible.

Isnt that funny, HAMP modified 600,000 loans so far, and Treasury claims that there have been several million loans modified outside of HAMP, last time I checked. So impossible? Several million doesnt sound impossible. Neither does 600,000. If you can modify 600,000, surely you can modify six million.

And if thats really an issue at Treasury, might I suggest you issue an RFP to private companies requesting bids to administer such a program and I assure you there will be a flood of private companies that will fix this modification-is-impossible nonsense in a damn hurry. Its all just one big steaming pile of freshness. The banks have been telling the same tall tales for almost three years. And as a country, with housing prices in a literal free fall for the last 60 consecutive month, our failure to stop foreclosures has already sealed our fate economically speaking for decades to come as over $10 trillion in wealth has already been lost by Americas middle class and its a simple fact that at best it will take decades before that lost wealth has been rebuilt. How long? Well, consider this I just turned 50 years old and it is extremely unlikely that the lost wealth resulting from this economic meltdown will be reconstituted in my lifetime. So, for me its a permanent change in how the remainder of my life will be lived. And its mostly because both the Obama Administration, and Bush Administration were too stupid to see what was happening and too taken with themselves to heed the warnings of dozens of economists and other experts who warned them that their course of action was misguided. Its because of their mishandling of the foreclosure crisis, that they let it go and pumped money into banks that remain insolvent and will ultimately fail anyway.

And would you like to know what were going to see happen in the next chapter in this bungled game of economic destruction dominoes? Next, well get to watch as thousands of homes are bulldozed to the ground. Thats right were not going to have any choice. All of this will have been for nothing as the homes that once provided shelter and housed memories are reduced to rubble. And then in time, someone else will come along and build another house there. So, now in Florida remember this article is about the man shot by police in Florida as he set his home on fire what a story, huh? He doused it in gasoline, set it ablaze, and came walking out to ready to fight multiple police officers with guns. Havent I seen this movie before wasnt it starring Denzel Washington? The fact is that the path were on can only end badly, and although I quite proud of how this nation has managed to hold it together until this point at least, as the man said, its all downhill from here. But today we can be happy that no one besides the homeowner was hurt that only one home was damaged that no one was killed that we were very, very lucky. How long are you figuring our luck is going to hold out, Mr. President? Because youre certainly doing nothing to alter our path, so were going to hit the iceberg thats dead ahead for sure. Is it like Sheila said about why you didnt react sooner to loan modifications do you think Im over-stating the risk? Is that it? Im not, sir. And since youve been wrong about well, everything having to do with the housing crisis, my advice would be to seek outside help preferably someone who has no friends in banking, like oh wow, do you even know anyone who fits that description? Last year I wrote an article, Were on the Brink of A New Age of Rage. And after last Fridays tragic shooting of a homeowner, the bar has just been raised. We should consider ourselves warned. Mandelman out.

The Definition of Dichotomy

There have been times in my life when certain words gained meaning all of a sudden. Like, I knew the word before and even its definition, but then I reached a point in my life where I really knew what a certain word meant. Ill give you an example and Ive said this before I never really understood anger, joy, fear or sadness until I had my daughter. I mean, I knew what the words meant before she was born, of course, but I then again I didnt really. Well, yesterday I had another one of those types of experiences no my wife and I didnt have another baby actually I think the experience had been building inside and around me and yesterday it all came colliding together and all over a sudden I understood the definition of the word, dichotomy. Its a big word dichotomy it means oh, I dont know, the word contrast comes to mind. Its sort of

the separation of irreconcilable things. A contradiction is perhaps the better way to define it. Ill tell you this though when you run into a true dichotomy youll know it, thats for darn sure. It sort of leaves you sitting there staring at the wall unsure of what to do next. The idea of screaming from the top of the tallest hill in town seems potentially gratifying at such a moment. Ill share my experience with you now, and see what you think about the whole well the dichotomy, I suppose. Here goes just as it happened to me. PART 1 We are now well into the fourth year of the foreclosure crisis, and there is no end in sight. Since mid2007 around eight million homes entered foreclosure, and over three million borrowers lost their homes in foreclosure. As of June 30, 2010, the Mortgage Bankers Association reported that 4.57% of 14 family residential mortgage loans (roughly 2.5 million loans) were currently in the foreclosure, process a rate more than quadruple historical averages. Additionally, 9.85% of mortgages (roughly 5 million loans) were at least a month delinquent. Who the heck said that? He sounds like me, dont you think? I feel like I might be quoting myself, which is weird. Actually, Im flattering myself because those are the words found in Georgetown Law Professor Adam Levitins written testimony in provided to House Financial Services Committee, Subcommittee on Housing and Community Opportunity on November 18, 2010. The topics being covered by his testimony: Robo-Singing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing To this sad state of affairs, there now come a variety of additional problems: faulty foreclosures due to irregularities ranging from procedural defects (including, but not limited to robo-signing) to outright counterfeiting of documents; predatory servicing practices that precipitate borrower defaults and then overcharge for foreclosure services that are ultimately paid for by investors; and questions about the validity of transfers in private-label mortgage securitizations. The chain of title problems are highly technical, but they pose a potential systemic risk to the US economy. If mortgages were not properly transferred in the securitization process, then mortgagebacked securities would in fact not be backed by any mortgages whatsoever. The chain of title concerns stem from transactions that make assumptions about the resolution of unsettled law. If those legal issues are resolved differently, then there would be a failure of the transfer of mortgages into securitization trusts, which would cloud title to nearly every property in the United States and would create contract rescission/put-back liabilities in the trillions of dollars, greatly exceeding the capital of the USs major financial institutions. These problems are very serious. At best they present problems of fraud on the court, clouded title to properties coming out of foreclosure, and delay in foreclosures that will increase the shadow housing inventory and drive down home prices. At worst, they represent a systemic risk that would bring the US financial system back to the dark days of the fall of 2008.

Okay, so you know what Professor Levitin is talking about there, right? Hes saying that we are in deep Kim chi, thats what hes saying. Hes saying that the loans were not properly transferred into the trusts that are now trying to foreclose on homes and apparently, they cant seem to come up with anything that says they own the loan but they want to foreclose anyway. Hes also saying that when the banksters figured out that they could come up the proper documents to conduct the foreclosure legally, they decided that the path to take the best way to solve the problem the optimal answer to this dilemma was to commit forgery and fraud. Yes, its true. The banksters, unable to establish that they complied with just about ANY of the laws governing the transfer of property, much less the requirements as set for in a Pooling and Servicing Agreement, came up with a plan. Lets forge them and see if we cant defraud the court. Yeah, great idea run with it. From there its almost like they were barely trying, as if we are so stupid that you can fool us just as you might a three year-old. Just pick a short name and have everybody sign it. Yeah, Linda Greens fine, I was thinking, Don Ho, but youre right, Linda Green is better. Yep, just sign it over and over, theyll never notice silly humans. Ive said it before and Ill say it again nobody chooses robo-signing hundreds of thousands of affidavits and various other documents off of a list of other viable alternative solutions to your problem. When you find yourself checking YES on robo-signing when youre a bank that chooses to open a fraud and forgery department well, something has left the building, lets say that. So, a lot of people have been talking about this for some time now, so whats new? Well, both The New York Times and the Huffington Post are reporting on state investigations into the practices surrounding the packaging of mortgage-backed securities and their brethren. And even though the banks response has been basically flowers in springtime, the New York and Delaware Attorneys General say theyre quite serious. Hes saying that this could be a game changer depending on how this is handled. We could explode or maybe implode. Im not entirely sure. But its bad. The kind of thing you wouldnt want to have to live through twice. So, clicking around yesterday, at Huff-Po it was Shahien Nasiripour with the story still cant pronounce it and for that I am deeply ashamed, but it is to be expected. He wrote about the New York Attorney General launching an investigation into mortgage securitization. Heady stuff, Im sure youd agree. New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures, two people familiar with the matter said. The investigation, which began quietly in recent weeks, is part of a larger inquiry that is scrutinizing whether mortgage companies and Wall Street firms took the necessary steps under New York state law when creating mortgage-backed securities, these people said, who requested anonymity because they werent authorized to speak publicly about the probe.

Court testimony and independent studies have raised questions over whether banks and other financial firms passed along the required documents to trusts, the independent entities that oversee securities for investors. In some cases where trusts moved to seize borrowers homes, judges have determined the trusts lacked legal standing due to faulty documentation. The inquiry could prove explosive: Wall Streets great mortgage securitization machine took millions of home loans and bundled them into securities for sale to investors. If the legal steps that guide securitization like taking mortgage documents from one party to another, a critical step under New York law were not undertaken, then the investors who bought the bundled loans could force the companies to buy them back, compelling them to eat enormous losses. New York state investigators could also find that those securities arent valid financial instruments at all and take action under state law. But an investigation into whether the securities these companies created are even valid represents a new front in his ongoing probe and raises fresh questions into the potential liability sellers of these mortgage instruments face. If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever, says Adam J. Levitin. Levitin also said that the problem could cloud title to nearly every property in the United States and could lead to trillions of dollars in losses.

Shahiens exclusive soon had company, Gretchen Morgenson of The New York Times also ran a story saying that both the Attorneys General from New York and Delaware were conducting such an investigation into the practices surrounding and involved in mortgage-backed securities. And if youre wondering whats the big deal about New York and Delaware, well Ill tell you The trusts were governed by the laws of the states in which they were set up. Roughly 80 percent of the trusts are governed by New York law with the rest by Delaware law. See I told you. So, heres how the Times described the same topic The investigation is being led by Eric T. Schneiderman, the attorney general of New York, who has teamed with Joseph R. Biden III, his counterpart from Delaware. Their effort centers on the back end of the mortgage assembly lines where big banks serve as trustees overseeing the securities for investors according to two people briefed on the inquiry but who were not authorized to speak publicly about it. The attorneys general have requested information from Bank of New York Mellon and Deutsche Bank, the two largest firms acting as trustees. Trustee banks have not been a focus of other investigations

because they are administrators of the securities and did not originate the loans or service them. But as administrators they were required to ensure that the documentation was proper and complete. A complex process that produced hundreds of billions of dollars in securities during the lending boom, the issuance of mortgage securities began with home loans, which were then bundled into investments and sold to pension funds, mutual funds, big banks and other investors. The bundles were created as trusts overseen by institutions such as Bank of New York and Deutsche Bank; they were supposed to make sure the complete mortgage files for each loan were delivered within a specified time and with the proper documentation. The stakes are potentially high. If the trustees did not follow the rules set out in the prospectus, they may be liable for breaching their duties to investors who bought the securities. That could expose the banks to costly civil litigation. Spokesmen from Bank of New York and Deutsche Bank declined to comment about the investigation, as did representatives from the offices of both attorneys general. Okay, so Gretchen and Shahien seem to be in a race. It seems to me that theyve both found a bush and they want to see who can be the first to beat around it. In fairness to them, it may be their editors that hold them back, but the point is, what theyre talking about is the 800 pound gorilla in the room. Or, another way of putting it in the contest to see whether mortgage-backed securities either taste great or are less filling, its seems that less filling has taken the lead. Were talking about mortgage-backed securities without the mortgage-backed part. Empty securities. Like a Twinkie without the creamy filling inside. Securities fraud. Bad, very bad. The sort of thing for which one gets sued or possibly even charged. Once again, Professor Adam Levitins testimony tells it best Many of the issues relating to foreclosure fraud by mortgage servicers, ranging from more minor procedural defects up to outright counterfeiting relate to the need to show standing. Thus problems like false affidavits of indebtedness, false lost note affidavits, and false lost summons affidavits, as well as backdated mortgage assignments, and wholly counterfeited notes, mortgages, and assignments all relate to the evidentiary need to show that the entity bringing the foreclosure action has standing to foreclose. Concerns about securitization chain of title also go to the standing question; if the mortgages were not properly transferred in the securitization process (including through the use of MERS to record the mortgages), then the party bringing the foreclosure does not in fact own the mortgage and therefore lacks standing to foreclose. If the mortgage was not properly transferred, there are profound implications too for investors, as the mortgage-backed securities they believed they had purchased would, in fact be non-mortgage-backed securities, which would almost assuredly lead investors to demand that their investment contracts be rescinded, thereby exacerbating the scale of mortgage putback claims.

Many of the problems in the mortgage securitization market (and thus this testimony) are highly technical, but they are extremely serious. At best they present problems of fraud on the court and questionable title to property. At worst, they represent a systemic risk of liabilities in the trillions of dollars, greatly exceeding the capital of the USs major financial institutions. While understanding the securitization markets problems involves following a good deal of technical issues, it is critical to understand from the get-go that securitization is all about technicalities. Securitization is the legal apotheosis of form over substance, and if securitization is to work it must adhere to its proper, prescribed form punctiliously. The rules of the game with securitization, as with real property law and secured credit are, and always have been, that dotting is and crossing ts matter, in part to ensure the fairness of the system and avoid confusions about conflicting claims to property. Close enough doesnt do it in securitization; if you dont do it right, you cannot ensure that securitized assets are bankruptcy remote and thus you cannot get the ratings and opinion letters necessary for securitization to work. Thus, it is important not to dismiss securitization problems as merely technical; these issues are no more technicalities than the borrowers signature on a mortgage. Cutting corners may improve securitizations economic efficiency, but it undermines its legal viability.

So any questions about that? Its a big deal. A really big deal. The banking industry associations say its not, but it quite obviously is. You know, there are reasons we have the laws we do governing the transfer of property rights, its not like such laws were created on a whim. And the pooling and service agreements, or PSAs, govern how loans are to be transferred into the REMIC trusts are some 500+ pages long, in most cases, and call me crazy, but compliance with such a document doesnt sound like a trivial matter either. So, now the Attorneys General from New York and Delaware are investigating in order to find out whether trillions of dollars in loans were seriously mishandled and therefore are not in the trusts, as the banksters said they were. The IRS is investigating too. And at least two large investors have already filed lawsuits alleging that they were sold empty trusts.

Heres an excerpt from a real lawsuit law suit filed this past April 21st by the Federal Home Loan Bank of Boston, an investor in mortgage-backed securities, against just about everyone youve ever heard of in the financial, services industry, from Aurora to Wells Fargo youll find it on page 28 of the complaint, item f.

In order for a mortgage to be enforced, basic steps need to be taken to validly assign the mortgage and mortgage loan to the trust and ensure that the trustee has the proper papers. These basic steps, and the representations made about these steps, were critical to investors because if a mortgage cannot be enforced, then the mortgage loans and the certificates dependent on these loans, are worthless. The Offering Documents failed to disclose that in fact basic steps regarding the transfer of mortgages and mortgage loans were not followed mortgage loans were not validly assigned, and papers necessary to ensure enforceability of the mortgage were never transferred to the trustee. Have I made my case yet? Its important stuff, right? The New York Times and the Huffington Post write about state Attorneys General investigating trustees about the issue, Professor Adam Levitin testifies in Congress about the issue, and the Federal Home Loan Bank of Boston files a lawsuit that incorporates the issue into its 575-page complaint. So, you agree, right? Its a serious issue, how loans are transferred into trusts as part of the securitization process. Right? Right. Okay, so heres PHASE TWO of yesterdays news: FADE IN: Were in the United States Bankruptcy Court, Northern District of California, in front of The Honorable Edward D. Jellen, a United States Bankruptcy Judge. Were watching an Evidentiary Hearing on Debtors Objection to Proof of Claim, which is another way of saying that the homeowner is saying theres something wrong with what the bank is claiming he owes. The homeowners name is Felipe Zulueta, Jr. and hes representing himself in these proceedings pro per, or pro se I can never figure out which is which or why to use one over the other. The point is that he doesnt have a lawyer hes representing himself. It is 9:35 AM on November 3, 2010 when the Clerk says The Clerk: All rise. This is the United States Bankruptcy Court for the Northern District of California, The Honorable Edward Jellen presiding. Be seated. Mr. Chun: Thank you, Your Honor. Mr. Zulueta: Thank you, Your Honor. The Court: This is the matter of Zulueta. May I have the appearances, please? Mr. Zulueta: Felipe Zulueta, Jr. Your Honor, Debtor. The Court: Okay. Mr. Chun: Joseph Chun representing the secured creditor. The Court: All right. Mr. Zulueta, are you going to be presenting any evidence to show that they dont have standing? Mr. Zulueta: Actually, Your Honor, I was going to address the exhibits that theyre going to present today. The Court: Yeah. My question was, do you have an evidence of your own Mr. Zulueta: No. The Court: that shows Mr. Zulueta: No.

The Court: All right. Mr. Chun, according to your trial brief, you have exhibits, is that correct? Mr. Chun: Thats correct, Your Honor. Mr. Zulueta: Your Honor? The Court: Yes. Mr. Zulueta: I just wanted to clarify, Your Honor, if counsel is representing One West Bank or Deutsche Bank National Trust Company as trustee for the mortgage loan trust. Mr. Chun: Were representing One West Bank, the servicing agent whos the servicing agent for Deutsche. Mr. Zulueta: Okay, so I just wanted to find out, Your Honor, if One West Bank has the proper authorization from Deutsche Bank to authorize them, because I dont see any power of attorney presented. The Court: All right. Well, you know, the bottom line is youre not getting a free house. Mr. Zulueta: Im not asking for a free house, Your Honor. I just want to make sure that the proper paperwork is in place so I can pay the right creditor. LATER THAT SAME MORNING Mr. Zulueta: Okay, so the first thing I want to point out, Your Honor, is, number one, on the bottom of the page of the recorded document, theres a handwritten scribble on the bottom after the signature of the notary that says, a notary on the basis within capacity under which means that this is not a true and correct copy. The Court: What difference does it make? Mr. Zulueta: Well, it does make a difference, Your Honor, because Im trying to establish a pattern here of the fact that this document appears fraudulent. The Court: Do you have any evidence that its fraudulent? I mean, whether its recorded or not doesnt make any difference. Mr. Zulueta: Well, it does, Your Honor, because all of the exhibits that counsel is presenting today, there is a system of how my loan is supposedly deposited into the trust, and since theyre representing the trust, I want to make sure that theyre the proper creditor for my loan. The Court: All right. Who do you think is the proper creditor? Mr. Zulueta: Right now, Your Honor, its a mystery. I mean, after my research The Court: All right. But you dont get a free house. Mr. Zulueta: I understand, Your Honor. So, how about that? And Im not making any of that up, by the way in fact, I didnt even change a single word from the court transcript. And you dont even have to take my word for it, because the link to the court transcript can be found at the bottom of this post. According to April Charney, of Jacksonville Legal Aid, this case goes before the 9th Circuit Court of Appeals next week. Any guesses as to what will happen? I dont really care whether the documents are all fraudulent. I dont really care how many laws were broken, or whether the REMIC trust is as empty as my wallet on December 26th I only want to know one thing Will Mr. Zulueta get a free house? Are you getting what Im trying to say here? Because we have here is a true dichotomy, wouldnt you say? Its dichotomous, if youre an adjective person. Thats only two of the contrasting stories I had to work with that day. At the same time, Fannie Mae announced that it would not participate in Hawaiis new mediation program. Why? Because they dont

want to have to prove standing that the servicer is foreclosing on behalf of the trust that actually owns the note as is required by Hawaiis new mediation program. And this afternoon, a lawyer in Hawaii told me that he has learned that title insurance companies are refusing to write title insurance on non-judicial foreclosures in Hawaii. And why in the world would that be, do you suppose? Meanwhile, in Utah, a judge apparently granted Quiet Title to Scott Harvey, a homeowner, who promptly sells his now free and clear house after no one shows up to contest the matter. Someone want to explain that one to me?

DEADBEAT BORROWERS AND THIEVES WHO CALL THEM THAT If youre allowed to foreclose and kick someone out of his or her home without being the party that either owns the loan or represents the person who owns the loan if you can ignore those laws, why cant you ignore other laws too? Which laws apply, when one of the parties didnt make his or her payments? Todays New But, You Didnt Make Your Payment Exemption to the Law Im not a lawyer, so lets be very clear about that, but Im about to tell you how the law has always worked in this country, as far as I have understood it. If you came to repossess my car, then you were required to be the person or entity that held the pink slip to my car, or you had to be working for the person or entity that held the pink slip to my car. If you were not the person or entity holding my pink slip, then you couldnt come repossess my car. In fact, if you came and repossessed my car but were NOT the person or entity holding my pink slip, then we had a phrase to describe that occurrence as well you were STEALING MY CAR. Pretty straightforward, right? I dont even think you need to finish law school if thats the extent to which you want to understand the law. And dont let any of the attorneys that may be reading this around you try to make it more complicated, because its not. It is that simple you cant repossess someones car unless youre the person or entity that holds the pink slip, or title, to that car or are working for that person or entity, of course. Thats the same way its supposed to work where houses are concerned. If you dont make your mortgage payments, that doesnt mean that everyone in the country is allowed to throw you out of your home only the person or entity that holds your mortgage is supposed to be able to do that, right? Of course thats right, silly. And dont play semantics with me, thats the deal. But in this country today, there appears to be a new exemption to quite a few laws its called the But you didnt make your mortgage payments exemption, and when it comes into play, nothing else seems to much matter you just lose. Like, what if you dont make your mortgage payments and the entity that comes to evict you from your home is one that youve never heard of before. And they have no proof whatsoever that they own your loan or represent the entity that owns your loan. Well, in general its tough cheese. The judge just says, But you didnt make your mortgage payments, and thats the end of that. And most everyone seems to be in agreement with this line of thinking. You say, But, your Honor theyve broken a dozen laws here important laws laws governing the transfer of property rights upon which the country has been built. And the judge

just gets annoyed saying, But you didnt make your mortgage payments, and thats the end of that. Its almost like a get out of jail free card. So, you say, But your Honor, theyve forged the documents, falsified the records, committed fraud on your court. But he says it doesnt matter you didnt make your mortgage payments you have no rights and the party thats foreclosing is now exempt from all of the laws that might otherwise apply. In fact, those laws are now reduced to being mere technicalities. And no one cares about technicalities as compared to you not making your mortgage payments. So, Im just wondering dont you think this sets kind of a dangerous precedent? Lets say that youre not making your mortgage payments. And one night after dinner, the doorbell rings and you answer the door and its a representative of your mortgage servicer and he punches you right in the face and then proceeds to beat the crap out of you. And you end up in court. And the judge says, But you didnt make your mortgage payments, and dismisses the case. And you say, But, your Honor my mortgage servicer beat the crap out of me and thats against the law, in fact there are all sorts of laws broken by him beating the crap out of me. But the judge just replies, But you didnt make your mortgage payments, and thats the end of that. Do you think Im being ridiculous? Why? Whats the difference between ignoring one set of laws and another set of laws? If youre allowed to foreclose and kick someone out of his or her home without being the party that either owns the loan or represents the person who owns the loan if you can ignore those laws, why cant you ignore other laws too? Which laws apply, when one of the parties didnt make his or her payments? You see, I think the reason we have laws about the transfer of property is because it was important that someone not lose their property without those laws being followed. Whether one made their payments or not, wasnt the point the point was simply that the transfer of property rights has always been seen as a pretty big deal under the law, as far as I can tell. I think the reason we let things get a little loose concerning foreclosure is that we trusted the bankers who were foreclose. In California, and all of the non-judicial foreclosure states, as far as I know, you dont need to prove to the court that you hold the title to someones home in order to foreclose, and Im pretty sure that the reason that was okay to our lawmakers was that they trusted the bankers and they never envisioned not trusting them in that regard. The problem is that today there is an abundance of evidence that says we cannot trust our bankers quite often they lie, commit fraud on the courts, and in general are more than willing and able to fabricate and falsify whatever is required to foreclose on someones home period. They dont care at all and they dont get in trouble for it either, which I find the most disturbing part of the whole thing. So, since its become clear that bankers lie, and cannot be trusted, were going to need to bring back the old laws about having to prove youre the right party to be foreclosing on someones home before youre allowed to do so. Several states have already done this Hawaii and Arkansas, most recently. Arizona tried to pass such a law, but the banking lobby got to them and killed them both. California had a bill that would have come close, but the banking lobby killed it in committee, for heavens sake. It was too dangerous to even debate in the legislature. Some have said to me, But Mandelman the banks need to be able to foreclose or repossess when people dont make their house or car payments. And I reply No one is debating that point. Of course they can foreclose when payments are not made. If theyre the party who holds

the beneficial interest, as the lawyers says, in the loan. If they lost the pink slip, theyll have to correct that problem before they can come take back my car. Its no different than if my car gets impounded for being parked in the wrong spot. When I show up to get it out of impound, I better have the registration, right? If I dont, what am I told by the man at the impound lot? No ticket, no laundry, right? We have laws about the transfer of property in this country and there are reasons for these laws. None of these laws say anything about banks only being required to follow them when someone is current on his or her payments. Lets stop making this more complicated than it needs to be if the trust can prove that it does hold the note, that the note was properly assigned to that trust, that the note was endorsed or whatever was supposed to happen according to the laws and rules, did in fact happen, then fine foreclose away. But if thats not the case, banker people then you have to fix it before youre allowed to foreclose. Sorry, and I know how unfair you think this is, but forging the documents isnt an okay answer to this problem. Like if you want to repossess my car and you lost the pink slip, the acceptable answer is not to fake one on your laser printer and get Linda Green to sign it, got it? Thats not how we fix things in this country, and it doesnt matter who made payments on time and who didnt. If thats inconvenient, then so be it. And I have to think its a damn sight less inconvenient than whats going on today, and if its even more inconvenient than that, then the bankers in this country have really screwed up bad, and we should all be shown what theyve done. I ran all of this by a lawyer friend of mine and here is the language from the Deed of Trust (page 23): Reconveyance. Upon payment of all sums secured by this security instrument, lender shall request trustee to reconvey the property and shall surrender this security instrument and all notes evidencing debt secured by this security instrument to trustee. Trustee shall reconvey the property without warranty to the person or persons legally entitled to it. So, apparently this language appears in EVERY Deed of Trust, including yours, your Honor. So when you want your pink slip/title/note in order to have your mortgage burning party, you may be disappointed to find that no one seems to have it. And what about title insurance in the future? Will we be able to get it as a result of this whole mess being allowed to go on unchecked? I dont think anyone really knows the answer to that question. Lastly, the question always seems to come around to one of damages. How did the note not being properly endorsed to the trust and the trust being permitted to foreclosing anyway damage the homeowner? Again, its quite simple, really If someone is allowed to repossess my car even though that entity doesnt hold my pink slip or work for the entity that holds my pink slip, then whoever repossessed my car STOLE IT. And that, by itself, sounds pretty damaging. But what if someone shows up later and says they have the pink slip? What then? Will they be understanding and say, Oh, someone else got it. No problem, were sorry to have bothered you. Well follow up with them. Somehow I doubt that will happen that way. And there are several reasons Im not at all sure that this wont be the case in the years to come. For one thing, both Taylor Bean & Whittaker and New Century Mortgage were found to have sold mortgages to more than one person at the same time, and others have admitted that it happens all the time.

And for another, I know of several homeowners who have filed quiet title actions and are still waiting for someone to show up and say they own the loan in one case thats recently been brought to my attention, its been almost a year and still no one has shown up. Does that mean no one will? Or will someone show up years from now? (Heres the case, click it and youll see.) Harvey v Garbett, Quiet Title Case in Draper Utah I dont really know, but wouldnt it just be easier for the entity foreclosing to be the entity that actually holds the beneficial interest in the loan? You know, just as the law has always intended? Theres another reason that it makes sense to require the right entity to foreclose because the right entity, the entity that does in fact hold the beneficial interest in the loan would be much more likely to want to modify the loan as opposed to foreclosing on it, in instances where the payments have not been made. You see, servicers chose to foreclose because its in their own best interests to foreclose, but what about the investors best interests? After all the investor is who put up the money in the first place, so what about the investors best interests? Surely the investor would rather have a modified loan, especially in instances where the home is terribly underwater and by foreclosing the investor will realize an enormous loss and then not be able to sell it perhaps for several years wouldnt you think that investor would prefer to modify the loan and get payments again? Louis Ranieri, who is often referred to as the father of mortgage-backed securities had the following to say about foreclosing: The cardinal principle in the mortgage crisis is a very old one. You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure. In the past that was never at issue because the loan was always in the hands of someone acting as a fiduciary. The bank, or someone like a bank owned them, and they always exercised their best judgment and their interest. The problem now with the size of securitization and so many loans are not in the hands of a portfolio lender but in a security where structurally nobody is acting as the fiduciary. Well, what do you know about that? So, it seems there are lots of good reasons that we should make sure that the entity foreclosing is the entity who does in fact own the loan, or at least work for the entity that owns the loan. So, why are we making this so damn difficult? And why is it such a big problem for a bankservicer-whatever to show up and actually prove that the trust actually holds the note in question? They dont really expect us to buy into that whole, But we lost them, your Honor. All of them, your Honor. It was a mass misplacement, your Honor. I mean, come on now are we really supposed to believe that ALL of the major banks lost ALL of the notes and ALL at the same time? Seriously? I know 14 year-old boys that could tell you that such a story is simply not believable. Its time to come clean banker-people. Your story stinks to high heaven and the homeowners, lawyers, investors, and even the government investigators are all getting closer to uncovering the truth every day. And until the banks start telling the truth, or modifying loans in the best interests of the investors and homeowners like they are supposed to how about we the people pass a bill that requires the entity foreclosing to prove they are the entity that owns the loan because its clear abundantly clear that we certainly cant trust the trustee any more.