THE NEXT MOVE: ACCOUNTING AND RECEIVERSHIP

The next step is preventing the pretenders from limiting the inquiry to the servicer report which only reflects a small part of the securitization chain. Let’s see ALL the money.

Let’s take a step back and get out of the forest so we can see the trees. As I draw back my perspective into a wider scope, several things become apparent, all of which are documented in one case or another. See today’s Post on the Grossman decision from a year ago for examples.

Zooming out back to 100,000 feet, we see that there were two actual closings and a series of fictitious ones. You should mark each item as relating to one closing or the other, like

• 1 Deed of Trust  — executed by borrower at closing with homeowner on August 26, 2006, but relates to undisclosed credit/lender in closing with investors that occurred on or about October, 17, 2006 and which was authorized by an general assignment and assumption agreement included in the investor’s closing and prospectus.
• 2- Substitution of Trustee. Purports to relate to deed of trust (see above) but derives all claimed authority from provisions and actions taken pursuant to provisions of documents that were used at closing with investors.

The point being here that you want the Judge’s head turning left to see the homeowner’s closing documents and right to see the investor closing. Do it a few times until he gets the fact that you have to look at both in order to know the terms of the transaction in which the investors loaned the borrower money. Then you have all the arguments about how the other side failed to attach pertinent documents etc. But more than that —

These cases are about money. And so the Judge is saying to the parties in court—

“Did you borrow the money?” Your answer will be that you’ll be more than happy to answer the question in an evidentiary hearing at which point the same corollary question will be addressed to your opposition: “Did you lend the money?” Neither one is entitled to any presumption other than that an issue of fact arises. If the putative creditor neither loaned the money nor purchased the loan in a real transaction in which they paid for the loan, then the putative creditor is merely a stranger to the transaction as the audit found in the records of San Francisco County.

And for theoretical purposes supposing the answer from the borrower is yes, he did borrow the money but he now knows he never was told (a) the identity of the creditor nor (b) the rest of the terms of repayment contained in the closing with the investor.

“Did you make the payments?” Your answer should be that I made all payments that were due. The parties here owe both me and the lender credits and refunds.

Which brings us to the issue of a cause of action for an accounting and appointment of receiver. The accounting would be for all money received and all monies disbursed including all bookkeeping and accounting entries relating to this loan, directly or indirectly.

The pretenders here would have you believe that they, not this court, have the right to determine, in their sole discretion, how payments are applied. We think that is not the law and never has been the law. If the investor has been credited properly, the debt from the homeowner is correspondingly reduced, which is an express provision contained in the promissory note which, as we have stated, does not describe the actual transaction because it excludes the name of the real lender and it excludes references to the pooling and services agreement which contain many more terms that relate to payment of the investor, credits to the homeowner, and expenses of third parties whose fees are paid by diverting payments from the investor to the vendors.

Since it is apparent that no effort has been made to even create an internal accounting of payments received on behalf of the investors, and there is no desire to do so, it is necessary to appoint  a receiver to collect all information  from all parties that in the closing with the lender and all parties in the closing with the homeowner and render a report as to the current status of the parties, the current status of the debt, when and if the debt was in default, when and if the default was cured and the balance currently due to the creditor after all appropriate debits and credits have been applied — not just payments from the borrower.

Specific questions the receiver should answer are as follows:

1. Did the homeowner accept a loan?
2. What was the principal amount of the loan due and what were the main financial provisions regarding repayment of the loan.
3. What accounting and bookkeeping records, correspondence and instructions were used at closing with the homeowner borrower and how were these records or the data on those records transmitted to any receiver?
4. What entities received the records and data regarding the closing of this loan and why did they receive it?
5. Did the named lender on the promissory note actually make the loan — i.e., was a loan receivable created on the books and records of the loan originator? Or, did the originator book the transaction as a fee for standing in as the lender when in fact it was not?
6. What was the identity of the actual creditor that advanced funds?
7. Did the party that advanced funds (aggregator) post bookkeeping or accounting entries for the loan as a loan receivable? Or, did the aggregator book the transaction as a fee for standing in as the lender when in fact it was not?
8. What is the name of the party who booked the subject loan transaction as a loan receivable? What is the current status on the books of that lender as to the loan receivable? What is the date of the entry on the books of the party identified as the lender in the subject transaction who booked the transaction as a loan receivable or any such similar entry indicating that they were owed money to be paid directly or indirectly by the homeowner borrower in this transaction?
9. At any time since the closing with the borrower has the loan been sold for value received to any other party?

10. At any time since the closing of the transaction with the borrower has the loan been settled with the investors who advanced funds for the subject loan? Who were the parties to that settlement and what were the terms?

11. As to the party who actually loaned the money to the borrower and who claimed it as a loan receivable or equivalent, is there a claim pending upon behalf of that party? If yes, what is the nature of the claim and against which parties does the investor(s) wish to pursue that claim.  How much is the claim relating to the subject loan in this case, as it would be allocated under generally accepted accounting principles as promulgated under the Financial Accounting Standards Board.

12. Does the actual lender in the subject transaction actually exist currently and if not, who are the successors?

13.  What parties in the putative securitization chain or otherwise received any money relating to the pool that claims ownership of the subject loan? How was that money allocated? Was the money paid or allocated to the investors and if not, why not? If the money was paid or allocated to investors, was the balance of the debts due from homeowners borrowers, including the homeowner borrower in the case at bar correspondingly reduced for receipt of those actual or allocated payments? If not, why not?

14. As presented to the investors, was there any part of the investment plan that contemplated holding the money taken from the investors for a use other than funding mortgages and standard industry fees for servicing and brokering the transactions? If there were no loans made or expected to be closed and considered included in the investment pool claiming ownership of the subject loan, do the documents with the investors call for a refund to the investors of all of their money?

15. As presented to the borrowers, was there any part of the loan program that contemplated funding of the loan from any source other than an investor or group of investors?

16.  What is the date that the obligation arose between the borrower and the investor pool?

17. What is the date that the note was transferred to the investor pool? Was the note sold to the investment pool? If so, for how much?  Where are the documents verifying payment and sale of the subject documents.?

18. What was the date that the mortgage was transferred to the investor pool claiming ownership of the subject loan? Was the mortgage sold to the investor pool? If so, for how much?  Where are the documents verifying payment and sale of the subject documents.?