ESTOPPEL LETTER: CALLING THEIR BLUFF — Interesting Anecdotal Evidence

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“This reminds me of when we were asking for assignments and indorsements on loans that were not behind in the payments and they couldn’t come up with it. We realized that the only time those documents surfaced was in litigation years after the supposed assignment or indorsement took place and that is what led to the discovery of the LPS, DOCX etc., robo-signers and robotic signers. More importantly it led to the discovery that the failure to assign when (a) the loan was performing and (b) within 90 days of the creation of the “trust” (REMIC/SPV) meant that the trust could not legally accept the assignment years later when (a) the loan was non-performing and (b) it was years after the cutoff date provided in the PSA and REMIC statute.

“In fact, I think these two events are inextricably related, because most of their plan and profits would never have been created if they HAD done things properly. Properly documented mortgage loans and properly and timely execution and recording of documents of transfer would have prevented them from “securitizing” non-existent loans or selling the same loans multiple times or creating synthetic CDO’s creating leverage of 30x-60x betting on failure of the “pool”(which turned out to be completely empty except for the cash it had received from the sale of credit default swaps wherein the pool accepted the position of insurer of toxic waste tranches).

“It is on that basis that I arrived at the opinion that the documents were both prepared and handled intentionally to create ambiguity and to allow for claims of “mistake” or plausible deniability. If you look at the other end of the transaction where the pension fund investor advanced the money and the sophistication of the Wall Street investment banking firms and lawyers that corroboration of an intentional act bubbles up to the top. In order to steal from the investors, steal from the homeowners and take all the money and property bottle-necked in the middle, there could be no apparent privity of contract or even equitable relationship between the actual lender/investor and the borrower.

“This gap created the void that was utilized by investment banks and all the other intermediaries to make claims without notice or consent of either the actual lender or the actual borrower. They took what the real parties (those who were exchanging money and value) and inserted terms and conditions as well as unauthroized patterns of conduct that neither of the real parties knew about — any one of which would have stopped the transaction if the information had been properly disclosed.

“If they actually came up with THE one and only original documents it would prove the fraud of multiple sales of the same loan, or it would prove the fraud of misrepresenting the loan, and it would create a claim for fraud when the Master Servicer declared the downgrade of the value of the pool. Each performing loan set of documents became a ticking time bomb that could explode in the face of Wall Street investment bankers who had created the illusion of securitization and the illusion of compliance with local property and contract law.

“It should have come as no surprise when instead of providing proof of the ownership of the loan, obligation, note and mortgage, they offered “settlements” which were too good to pass up but which kicked the title question down the road. They would rather take LESS money than the amount offered than be required to provide authenticity of the transaction they claimed to won, collect or enforce. So the moral is that we have a whole wave of new title problems and a flood of litigation coming at us as these transactions come up for resale or refinancing and the title companies, stuck between a rock and a hard place, start placing exclusionary remarks in the commitment and the policy, and the real property lawyers actually look at the title record and see the breaks.” — Neil F Garfield

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LIVINGLIES FEBRUARY 27, 2011 BY NEIL F GARFIELD

Interesting response from my earlier report that some people were going to the nuclear option. Their premise: either we are right or we are wrong. These intrepid souls were willing to take the risk that we were wrong and pay off the entire mortgage even though the house was under water. So those with money or access to money they deposited more than enough actual “money” into a bona fide real estate escrow agent’s account who issued a standard estoppel letter to the “servicer” and to the “lender of record.”

For those of you who are unfamiliar with law practice an estoppel letter requests the current status of the loan, the current amount due, the payoff amount as of a certain date which usually relates to a pending closing on a refinance or sale of the property. It requires disclosure of the identity of the party to whom the payoff should be sent.

This strategy grew out of innocent transactions involving the sale of property where the mortgage was too low to cause the property to be underwater or where, it was close and the seller was willing to come to the table with money.

In most cases, the response was innocent in its appearance, but some lawyers for the new buyers picked up that it was insufficient, so they made sure that the recipient  of the request for the estoppel letter and the writer of the estoppel letter had actual possession of the original note (2) that they had it because the money was owed to them and (3) they could show with actual evidence the chain of assignments, indorsements etc  in recordable form such that their client would be “seized” with fee simple absolute title, free and clear of the mortgage or Deed of Trust. In other words, they needed the title record to SHOW the chain of title such that their client’s title would be marketable and not subject to questions (clouds on title) or challenges (defects in title).

This is nothing unusual and has been industry practice for hundreds of years.The basic premise behind any law of commerce, or for that matter any law at all is to create certainty in society and certainty in commerce. When you do a real estate transaction where you think you are buying the property, there should be no doubt that you own it after the transaction — if everything was done right.

As any lawyer will tell you a policy of title insurance is NOT a substitute for clear title — it just provides a financial remedy if it turns out that the title was defective and can’t be fixed. That remedy is only as good as the financial condition of the title insurer and the willingness of the title insurer to pay the claim. If the title company refuses coverage because of an allegation of fraud or “rescission” like we have seen with medical insurance, you can easily be stuck with no title, a claim on your property relating to a loan you never signed, and legal bills to defend what you thought was a simple deed transaction. And you can lose and possibly owe the other side their attorney fees and costs and any damages  caused by your claim which turned out to be without merit even though your intent was as pure as the driven snow.

So what happened? Under strict anonymity I have received more than 27 reports of a mere request for an estoppel letter resulting in the abandonment by the pretender lender of any claim on the mortgage, note or obligation in settlements carefully guarded by confidentiality. But 11 people wrote in and reported that the servicer challenged the escrow agent as to whether the money was really there. THAT was because several dozen people reported varying degrees of success of using letters of credit and other cash equivalents in lieu of actual cash in the account of the escrow agent’s account.

While some people were successful in calling the bluff of the pretender lender with “cash equivalent” deals, they are on to this scheme and if the money is not REALLY there they will force you into litigation. 7 people wrote in and told me that even though the cash was present in the escrow agent’s account, and even though the request for an estoppel letter was sent by email, fax and snail mail, the pretender lender went ahead with the foreclosure — eventually resulting in payment of damages to the homeowners as part of the confidential settlement.

I have no received no reports, so far, where the actual original documents and proof of of the title chain was ever offered, which means that even if the case was settled, there is a future title problem to be resolved. I conclude thus far, from this information that 100% of those seeking foreclosure are seeking to profit from self-help and self-serving fraudulent representations to fill the void left by the fact that the trustees and investors want no part of litigation with the individual homeowners.There is of course a question as to whether the investor’s claim exists, and if so, how much of the obligation is left AFTER loss mitigation payments that were made under express waiver of subrogation. But one thing seems “certain” in my opinion, and that is that the ONLY creditor, if one exists, is the party who actually funded the loan or actually funded the purchase of the loan.

With 96% of foreclosures resulting in sales involving a “credit bid” from a non-creditor, it is highly probable, based upon data received thus far, that NONE of the foreclosures are, or ever were valid exercise of rights by a creditor to recover or mitigate actual losses. In ALL cases these were interlopers who had neither loaned the money nor purchased the obligation who were submitting “credit bids” and fraudulently acquiring title.

There are some investor groups who formerly were doing short-sale  purchases that are now looking at using this strategy. If they are right, they need only maintain a balance in the account of the escrow agent, and then make a deal with the current homeowner for a new and valid mortgage, which in turn can be held for investment or sold properly on the secondary market. If they are right, a single deposit of a few hundred thousand dollars into the account of the escrow agent, could yield tens of millions of dollars in new, enforceable, valid mortgages. The yield is infinite since the money in escrow is never actually released because of the failure of the pretender lender to come up with the black letter proof of their status as the creditor and thus the proper party to execute a satisfaction of mortgage or reconveyance of the property.

The possibility for litigation still exists, but the position of the pretender lender is extremely weak.

Tags: assignment'indorsement, creditor, endrosement, estoppel letter, ownership, payment, payoff, transfer
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