YOU CAN’T TRUST THE MORTGAGE PAPER TRAIL
“You Must Secure The Collateral/Custodial Files & All Electronic Entries In The Lender’s’ Accounting, Financial, & General Ledger Systems & Document Custodian’s Tracking System”
This may be one of the most important papers I have written regarding mortgage foreclosures and the mortgage foreclosure crisis we face in America. Since 2007, our nation has been in the midst of the Great Recession and a fiscal crisis we have not endured since the Great Depression. In order for our nation to prosper and move out of this Great Recession, we must fix our housing, mortgage, and securities markets.
We must clean house, no pun, and take a top to bottom approach in this effort. To do this, we must rid our courts of the backlogs of foreclosure cases and bring homes and properties to the marketplace in as smooth a transition process as possible. To do this, we must reform many industry practices and educate judges and lawyers on how to accomplish this goal in a constitutionally protected manner.
No one and I mean no one should unjustly benefit and be enriched from this morass and the crimes committed. With this paper I am sure to take some shots from many of my advocate and foreclosure defense lawyer colleagues and friends who will not like some of what I write here. However, this is an equal opportunity and critical paper. No one deserves a free house. Any lawyers claiming they will get you a free house need to be reported to the their state bar association.
Servicers and corrupt foreclosure law firms should not get a free house either. They must prove up their rights and claims in a constitutionally protected fashion. Short of the death penalty and incarceration, the taking of a human being’s home or property should take be conducted with the utmost of care and caution in the judicial process. The automated and robotic foreclosure processes that have been engineered over the last two-decades must be reengineered to stop the frauds and abuses that have permeated our legal system.
Far too many major banks and servicers are getting a free pass to unjustly take away a borrower’s property and getting a free house in the process. The Florida Supreme Court recently acknowledged this issue in its decision1 in the Roman Pino v. the Bank of New York Mellon case. The Court, while ruling against the borrower, placed into context the issue when it stated “the context of the issue as presented in this case arises out of a widespread problem associated with fraudulent documentation filed by various financial institutions seeking to foreclose on real property throughout the state…”
Anyone blaming borrowers and homeowners for this crisis has not reviewed the facts and analyzed the situation correctly. The blame for this crisis lies squarely on the heels of the mortgage industry and its lawyers. These frauds were systemic and endemic, not isolated mistakes and errors. As you will see in this paper, the CEOs and boards of major banks and mortgage companies like Fannie Mae and Freddie Mac were fully aware of the frauds, but chose to turn a willful blind-eye to the abuse and its ultimate consequences.
Yet, despite the fraud and the abuse, there should be no free rides or free homes for the victims. Government, advocates, courts, and the industry need to address real issues with real solutions. The formulaic modification and short sale models should not continue to push square pegs through round holes. Each situation is uniquely different.
The industry must stop its automated processes and create more human interaction with borrowers. Solutions and resolutions must be created. I will strive to work on those in the near future and each person reading this paper must strive to do so as well, for our nation and our collective psyches.
While we need to speed the foreclosure process up, it must be done in a constitutionally protected process. I propose such a process in this paper starting with the foreclosure affiant and witness process.
As such, to protect our nation, taxpayers, borrowers, and investors each alleged lender must be required to prove their note ownership with their accounting and financial books and records, not fabricated and forged paperwork and dubious servicing records that only allege accounting for a borrower’s payments.
Due to the Sarbanes-Oxley Act that was created after the ENRON debacle, this should be a relatively simple process. Journal entries in the lender’s financial, accounting, and general ledger systems showing a borrower’s note as an asset and the asset being recognized and derecognized from the alleged lender’s books should be able to be produced with the push of a few keys and clicks of a mouse.
These accounting books and records, not servicing records, should be readily available and made part of each affidavit in support of summary judgment or provided to any borrower and their attorney, if requested, in non-judicial foreclosure states. They should a standard part of a note owner or their authorized servicer’s evidence in each foreclosure trial. If not, judgment cannot not be entered in that the servicing records may support the amount of payments missed, but it cannot support the actual “loss” and deficiency incurred, if any, to the foreclosing party or alleged note owner.
There are tens of billions of dollars in repurchases, substitutions, sales, servicing advances, lender paid mortgage insurance, guarantees, and other compensation and income streams in the pool of mortgage foreclosures that need to be identified and accounted for in each foreclosure action.
Issues such as who has really suffered a loss and what is the amount of that actual loss must be addressed in each proceeding? Is there really a holder in due course or can a borrower sue the current alleged lender for the torts of the originators and securitizers.
By now, the questions for judges and lawyers should not be whether frauds, bad, and unlawful acts were committed for we all know they were. The questions that should be posed to each court is how was the borrower damaged; who was responsible for the damages; who are or were the ultimate lenders that actually suffered any loss; how much is their actual loss; and how do we adjust the equities for the borrower and the true and rightful owner of the debt? Simply, who can a borrower sue and settle with?
In mortgage foreclosure reality, not legacy perception, there are a plethora of real parties in interest and indispensible parties that need to be before the Court in court contested non-judicial and judicial foreclosure cases. Many of the alleged claims in foreclosure brought forth in foreclosure court are in reality subrogation claims that need to be treated differently. Government Sponsored Enterprises (“GSEs”) such as Fannie Mae and Freddie Mac, pool mortgage, and lender paid mortgage insurers may all have to be part of the process.
When judges begin ordering the accounting and financial books and records of the alleged owner of a borrower’s note to be produced, not servicing records, at trail or attached to affidavits of indebtedness, you will begin to see a tidal wave of settlements, modifications, note sales, and new borrowing options presented to homeowners.
From options to buy the note at a discount or the value of the home; deeds in lieu with options to buy; and modifications to new notes, the mortgage market will begin to cleanse itself if judges mandate the simple production of the real lender’s accounting and financial records and the collateral file and entries in the document custodian’s tracking system. I promise that you will see a sudden abidance and adherence to rules of evidence and civil procedure.
The simple fact is this. If the industry once more ignores the warnings in this paper and does not fix their fatally flawed affiant and witness process, their next settlement may be far greater than their combined $35 billion settlement for robo-signing and foreclosure fraud. You see, robo-signing wasn’t the cancer I identified over a decade ago, only a genetic marker for a much greater cancer.
Full report below…