(UPDATE: SEE ADDENDUM TO THIS POST AT THE BOTTOM!)
(BREAKING NEWS — OP-ED) — The author of this post has spent the last 12 years researching securitization, foreclosure issues and other consumer-related, debt collection topics. The opinions offered here are the authors and should not be construed as legal advice.
FOR MANY BORROWERS, THE SHIT WILL HIT THE FAN!
As expected, I’m getting backchannel feeds on the serious uptick in foreclosures, especially in the GSE-related foreclosure arena. So here’s the immediate concerns, based on my current research:
- The government (through Congress) issued a moratorium on foreclosures due to the corona-crisis. You can anticipate that it’s the calm before the storm because when the moratorium is lifted, the mortgage loan servicers for Fannie Mae, Freddie Mac, Ginnie Mae and conventional lenders have already made plans to ramp up on those lulled into a false sense of security. Congress will not interfere with the “pulse of the economic backlash” when it comes to the government’s own interests, FHFA or not.
- The mortgage loan servicers have been paying advances to the GSE’s REMICs (Real Estate Mortgage Investment Conduits) since Congress imposed the moratorium. Under their contracts, the servicers and/or subservicers are required to pay investors the principal and interest on every loan alleged to be in “default” under the terms of the mortgages and deeds of trust these mortgage loan servicers are collecting payments from borrowers on that are allegedly contained within the REMICs.
- The longer an extended moratorium lasts, the more “in the soup” the servicers become because their surplus funds accounts they use to pay the advances with are being further depleted and they would logically be forced to “borrow” from everyone’s escrow accounts (“rob Peter to pay Paul”) to make good on their contracts, knowing full well that when (not IF) the moratorium is lifted, they will force the shit to hit the fan in order to foreclose, sell and reimburse themselves for all their losses.
- Those who have been able to make their mortgage payments every month despite the moratorium might want to check their escrow accounts to make sure they are solid and accurate and haven’t been “borrowed from” (the “robbing Peter” side of the equation). The servicers will emphatically deny they’ve raped every account they could grab money from; however, if notations aren’t made of the alleged “robbery”, how would the servicer actually know WHICH ACCOUNT they borrowed from, meaning the innocent borrowers who’ve made their payments every month will see a shortfall in their escrows, which could inadvertently put their accounts in default, which in turn could force borrowers to have to make up the shortfalls (through no fault of their own) to make up the difference to bring their accounts current. This may be one of the reasons that Ocwen Loan Servicing and its parent issued $600-billion in securities to shore up their “advance” payments.
- Because the moratorium is set for 60 days out, whatever delinquencies occurred during that time will be calendared for default on that magic date I’ve talked about before … DAY 91! Expect a rash of threatening letters from the mortgage loan servicers to borrowers in trouble as they push their collection activities forward another 30 days past the moratorium to hit that magic date!
DAY 91 FACTORS INTO THE ACCOUNTING, MORATORIUM OR NOT!
It matters not whether you were given a “grace period” with this moratorium, the mortgage loan servicers are in business to make money by foreclosing on properties they can’t resolve; thus, if you don’t have a windfall to bring your loan delinquencies current, it will trigger DAY 91.
Prior to “DAY 91”, you may see the following actions taken by the mortgage loan servicers:
- DSNews is already reporting intended aggressive pricing on foreclosed properties to sell to third-party investors as quickly as possible.
- Anticipate MERS-related documents, particularly REMIC transfers and indirect transfers to the servicers themselves, as a means of justifying the upcoming foreclosures, which means those assignments are going to hit the land records just prior to the start of the actual foreclosure process.
- The faster the servicer can sell the property to the third-party investor, the faster it can convert title to the GSE “after the fact” and “lose” that REO inventory to the new buyer (with transfer of title) before the homeowner even knows what hit them. The GSE will then do a direct title transfer (through the mortgage loan servicer) directly to the third-party investor who will assume all risk of acquisition of a property stained by title issues.
THE GSE’S HAVE REMICS TOO!
One thing most people don’t realize (and this can be verified) is that the government sponsored entities set up REMIC trusts to obtain investor money they use to back the loans they guarantee. If you’ll go to irs.gov and type in Publication 938 for 2009 forward in the search engine, you’ll see the listings (by quarter) LOADED with GSE-backed REMICs! Depending on what year you took out your loan is the year you’d search for on that website, plus subsequent years in case your loan was traded into another related REMIC until trading stopped within the MERS System®. The securitization process is a virtual “shell game” until the foreclosure starts and the roulette wheel stops on the particular REMIC the servicer is paying. The servicer will then move toward the final DAY 91 objective … to cash in on the credit default swap, default insurance, PMI, LMPI or whatever other cash cow it can get its hands on to reimburse itself for all of the advance payments it made during the absent of the borrower’s payments.
In the meantime, Fannie Mae and Freddie Mac are now going to buy home loans going into the government’s forebearance program just after they close, something neither had done before, in order to provide liquidity to the mortgage markets so originators can keep lending.
So as not to keep regurgitating a point, I put a news story in the top link so you can see where the forbearance programs are headed. The CNBC article (above) affirms everything I’ve been saying … as noted in the following paragraph:
“The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market,” said FHFA Director Mark Calabria. “Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment.”
So you see, the servicers took a gamble on the advances and went into the hole doing it … and the government is in bed with this.
Some friend the government is, huh? They claim to give you relief yet who’s really getting relief? The banks and their minions. The Fed claims to have loaded $2.3-trillion into the economy, yet where did that money go? Not into our pockets I can assure you.
Know this … no matter what administration is running the United States, the end result is the same … protect the government at all costs … screw the dumb-ass taxpayer who doesn’t know any better (the way “they” think). These Congresspeople think they know more than you do. Could they be right? After all, who’s the smarter … the ones who got elected or those who elected them? Based on what promises? The existing Congress, a majority of whom have been serving for decades, have done their best to protect their power bases while kicking the can down the road … in the name of politics.
And we collectively let them do it. We have collectively fallen for their bipartisan, two-party, political crap.
Congress made a deal with the banks … to protect the banks … it’s in 12 United States Code … Banks and Banking. Congress has repeatedly let the banks screw us. And we collectively keep letting them do it. When is the merry-go-round of craziness going to stop? When we have a civil war? Or maybe a revolution? At the polls? Or in the streets?
And we should not worry about the mortgage loan servicer’s accounting practices, right?
IF YOU’RE NOT IN DEFAULT, HOW IS IT THEY’RE TRYING TO FORECLOSE ON YOU?
All the while the moratoriums have been in place, the servicers were stuck paying the advances on the mortgage loans, whether borrowers paid their monthly payments or not. Now the piper is coming to collect. If you didn’t (or couldn’t) work out a forbearance proposal or loan modification during the time you were a shut-in, the foreclosure process (unknown to you) was probably on the back burner and now things just got fired up again.
Those in non-judicial states will be suffering more dramatically as they try to figure out how to cope with aggressive mortgage loan servicer activities in stopping courthouse step foreclosures by publication and sale. These borrowers are in a definite time crunch as they don’t have the luxury of court hearings unless they create them through the filing of a lawsuit. That means money spent out of pocket in order to stay in the current “survival mode” we’re already experiencing as the economy starts to bounce back from quarantines and lockdowns.
Those borrowers residing in judicial states will ultimately “have their day in court”. It will be a 90-120 day average by the time the case gets to trial. Keep in mind that most courts will be closed until at least mid-July 2020, so the uptick in foreclosures will probably start after the 2nd quarter ends (in 2020).
But if the advance payments were being made … how is it you’re in default and the investors have been harmed?
That’s something the banks and their servicers say is not up to you to decide … as you don’t have a contract with the investors!
You have a contract with the originating lender, which in a securitized mortgage … is a corresponding lender!
And logically, you’re going to be searching the land records trying to find that pesky assignment, right?
But wait! The servicer’s attorney’s are going to argue that you’re not a third-party beneficiary; thus, you don’t have a right to bring a claim against the assignment. How is that relevant? Your name is on the assignment, right? The originating mortgage or deed of trust is referenced on the assignment, right? Who said anything about being a third-party beneficiary? You see … this is how the bank’s attorneys get the courts to agree with them, because your loan was securitized and you and the investor have no “nexus” or commercial connection to each other.
POTENTIAL SOLUTION … ATTACKING THE DOCUMENT ON DIFFERENT GROUNDS!
We are starting to see results in the use of the C & E (Cancellation & Expungement) Action as a viable way to throw a “monkey wrench” into the grind of the foreclosure machine. The questions about this process vary but the crux is the same … what is it and how does it work?
In a brief step-by-step process …
- The borrower goes to the public record and obtains an office copy and one certified copy of the assignment(s) in question. These are the suspect assignments, which may contain up to a dozen or so false statements and/or misrepresentations.
- The borrower then researches and procures evidence showing the statements contained within the assignment(s) are false and/or misrepresentative. You can bet that no right-minded cop or detective is going to investigate anything without being fully “briefed” on the subject matter showing why you believe the public record to be false and misrepresentative, constituting a felony recording under most state statutes. Developing harder-to-find evidence may require the services of a private investigator.
- The borrower (still on title, generally) goes to the local police department and files a criminal complaint on the assignment(s). The complaint filing is designed to generate a police department case number. The borrower can be expected to spend time with a detective or officer explaining the nature of the complaint, which is most likely going to be hand written on their complaint form. You can do this before or after you file (or respond to) a foreclosure action. I generally prefer to do it BEFORE I file the action, that way, I can include the criminal complaint in my civil action for damages.
- I file a declaratory relief action against those responsible for the assignment(s). I would suggest following the criminal statute religiously and if applicable, couple it with the consumer protection act statute individually for the State (of the Union) I’m in, in a claim for damages. I do NOT sue for wrongful foreclosure because the foreclosure hasn’t occurred yet.
- Make sure the other side’s lawyers get the criminal complaint included with the exhibits. This not only lets the court know a crime may be connected with the foreclosure filing, but that the attorney for the servicer may be held as an accessory if they keep trying to insist the document is legal. No right-minded attorney, bank lawyer or not, isn’t going to risk being disbarred for going up against a criminal complaint. If anything, it will certainly “shake them up”, possibly forcing a settlement.
- Make sure all parties (the party who prepared the document, the party who executed the document and the party who notarized the document) are served. I find suing the servicer themselves is a moot issue if the foreclosure hasn’t occurred yet. If the servicer sues and you find the assignment in question was prepared or ordered by the servicer or its law firm, then the law firm, if it prepared the assignment(s) are also named defendants because they knew or should have known that the information was false and/0r misrepresentative. Include the law firm and the lawyer who prepared the document in the criminal complaint.
- If at all possible, keep the civil action and the criminal action going simultaneously. Do not drop the civil complaint if the DA decides to prosecute the document and those responsible for creating it and recording it, in violation of the penal code. By dropping the civil complaint, you’re sending a signal to the DA that you’re not serious about pursuing damages. Two-pronged attacks are better than one.
- Prepare your deposition list. You’d be surprised once you start moving for depositions of the parties involved they don’t come at you with a settlement, rather than risk a criminal complaint against them moving forward, thus reinforcing the civil action in the judge’s mind as being even more legitimate. Do not hold back on the other side’s lawyer if the law firm prepared the document(s) that are suspect.
- Follow the court docket religiously. That means twice a day for the entire duration of the lawsuit. Once in the morning and once in the late afternoon, before the court closes. The other side will wait until the last minute to file stuff to screw with you, especially on Friday afternoon, when they can buy time over the weekend to screw with your calendar (your time off relaxing) and your ability to respond to their motion or brief.
- Be prepared for oral argument. You never know when you’re going to get called into a hearing to determine the validity of your lawsuit. The judge may also query law enforcement to see what they’re doing about your criminal complaint. In one instance we’re aware of, the local police department forwarded the complaints to the DA … AND the State Attorney General’s office for follow-up! Also, make sure you have expert witnesses lined up that can validate both your criminal and civil complaint information.
I know we haven’t taught HOW to set up the criminal complaints in our regular C & E classes; however, this new injection of the police report does add a certain flavor of suspicion in our civil claim, don’t you think? Imagine the consequences:
- The attorney handling the foreclosure matter attempts to interfere with the criminal investigation of the matter and ends up making the matter worse, potentially putting himself in a position of obstruction of justice. The attorney for the bank cannot attempt to persuade authorities from looking into your complaint without lending suspicion of them being involved.
- The law firm or the attorney preparing the document ends up being indicted by a grand jury as part of the grander scheme of things.
- The judge handling the civil matter is found to be “side dealing” and interfering with the criminal case in order to further the civil case along to help the bank out, either through direct interference in the criminal investigation or by pushing the civil case forward in favor or the bank knowing a criminal prosecution is likely, which would make him an accessory to a felony … enough to remove him from the bench and potentially put him in prison!
There is also a potential chance that the criminal investigation will go nowhere because the investigators: (a.) weren’t provided with enough evidence or information by you to establish probable cause; or (b.) didn’t understand the nature of the complaint because of the way it was presented.
I have 18 sets of the C & E class (8 DVD-video set and the book, The C & E on Steroids!) available online on the Clouded Titles website. Once these are gone, they will take time to re-order, more time than you might have. I don’t have to tell you that following this moratorium’s end, those in trouble … their days are numbered.
Remember, when you get the kit, I give you an hour of consulting on your specific case, which may include a call to a criminal attorney who can give me ideas as to how to posture your criminal complaint based on what evidence you have!
UPDATE ADDENDUM: As I mentioned on City Spotlight – Special Edition on WKDW-FM, which will repeat this coming Monday, May 4th at 2:00 pm. Eastern Time, CLICK HERE TO LISTEN, attorneys now have a duty to inquire whether the client is using their case to commit fraud or some other crime upon the defendant in a suit. The American Bar Association’s Standing Committee on Professional Responsibility has issued Formal Opinion 491, to clarify this requirement in the wake of increased reporting of individuals using legal services for money laundering and terrorist financing. But it goes beyond that definition, especially if the attorney(s) or their law firm participated in the drafting of the bogus assignment and then had it sent back to them once it was executed and recorded. This is a way to: (a.) name the law firm in the suit; (b.) name the attorney in the suit; and (c.) force the attorney to inquire as to whether he knew before submitting the document to be executed that it contained misrepresentative statements, which could warrant criminal legal action against him and/or his firm. This is where things get dicey for the other side because depositions and discovery can now target counsel who participated in any way in the drafting, execution and recording of a document that could be construed to be a third-degree felony in many states!
Here’s the formal opinion: aba-formal-opinion-491