The "Loan Closing" Debunked in Court Decision Slapping Attorney Title Fund

Sep 16, 2014

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Editor’s Comment: This decision (described in the article below, corroborates my recent articles as to what happened at closing. Instructions were not followed, except for the instructions contained in the assignment and assumption agreement, and other instructions received from the securities broker or its alter ego companies.

Note the reference to “closing agents’ fraud.” That refers to multiple violations by the closing agent or closing attorney. This is the tip of the iceberg. The closing agents took money from one party and applied it to the benefit of a sham entity that was controlled or was the alter ego of the securities broker that was selling bogus mortgage bonds to investors, contrary to instructions from government authorities.

At the end of the day, everybody knows everything. Eventually the basic black letter law will be followed, to wit: preparing documents for the borrower to sign that refer to a loan transaction in which the designated lender loaned nothing creates void documents that cannot be enforced — except possibly by a holder in due course. The risk in that case is generally shifted to the party who signed the papers and let them go into the stream of commerce. But to assert HDC status the party must show

Purchase — Payment of money

Delivery to Depositor and Custodian as per PSA

Good faith

No knowledge of borrower’s defenses

If the banks could have asserted HDC status, they would have because it would eliminate nearly all borrower defenses. But they didn’t allege HDC status which corroborates my view that the Trust never purchased or funded the origination of any loans (nor did the Trust ever receive delivery of the loan documents, as specified in the PSA — tot he Depositor and Custodian). Hence any “authority” derived from the securitization documents is a sham since the terms of the REMIC Trust were ignored and no transaction ever occurred.

This is why the servicers should be ignored and the inquiry and evidence should all relate to the actual lenders who were duped into thinking they were investing into a REMIC Trust. They got a notice of having purchased the bonds, but their money was never delivered to the Trust which issued the Bonds without consideration.

Removing the servicers from the mix gives both the borrowers and the real lenders an opportunity to settle matters relating to the loan balance and provide an opportunity for the execution of a new, enforceable mortgage reflecting economic reality.

The decision described in the article below shows that my prediction 7 years ago is coming true — the ultimate liability will be traced to what happened at the closing table — not just because of violations of lending laws, but because the contract was never formed and could never be enforced, thus eviscerating any documentation to the contrary including the note and mortgage.

One caveat: Closing agents were duped into allowing third party funds applied to a loan closing with a non-lender. The process of wire transfer was deliberately obscured by the securities broker and its alter egos. The title companies might be liable but the real party who owes damages is the party who received the benefit of the fraudulent scheme — the securities broker who both sold bogus mortgage bonds to “investors” (who turned out to be “lenders”) and sold bogus loan papers to borrowers. This is where BOA, Goldman Sachs, CitiMortgage, U.S. Bank, Chase, Wells Fargo are all trying their best to distract the attention of the Courts and the government regulators. The actual money trail is what cooks them.

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By IULIA FILIP

MIAMI (CN) – A title insurer owes $4.9 million for contributing to the failure of mortgages that caused the defunct Washington Mutual Bank to lose millions of dollars, a federal judge ruled.
The Florida-based Attorneys’ Title Insurance Fund (ATIF) issues title insurance policies in real estate transactions. Agents and attorneys in its network may also act as closing agents, supervising the final transactions between buyers and sellers and overseeing the transfer of money and property.
Between 2005 and 2007, ATIF provided closing agents for 14 South Florida residential loans extended by the now-failed Washington Mutual Bank. The Federal Deposit Insurance Corporation, which took over WaMu in 2008 and investigated 500 of its defaulted loans, alleged that ATIF’s agents caused WaMu to lend money to unqualified borrowers under false pretenses, leading to more than $9 million in losses for the bank.
The FDIC claimed in a 2012 federal complaint that the title insurer refused to honor agreements in which it promised to reimburse WaMu for losses arising out of its closing agents’ fraud or their failure to follow the bank’s closing instructions.
In addressing the parties’ motions for summary judgment, U.S. District Judge Patricia Seitz ruled that the FDIC has standing to pursue damages based on the closing indemnity agreements. Even though WaMu sold the loans in question to Chase in 2008, the indemnity agreements are separate from the loans’ title insurance policies, because they protect lenders against different risks, according to the Sept. 3 ruling.
Indemnity agreements are designed “to quell a lender’s understandable fear of entrusting an unknown agent with large sums of money and important legal documents,” while title insurance protects against defects in title, the 28-page order states.
ATIF also cannot argue that the FDIC sold its indemnity rights to Chase when it transferred the loans, Seitz said.
Because the FDIC failed to timely notify the insurer of WaMu’s claims under the indemnity agreements for eight defaulted loans, it cannot pursue damages for those loans. The FDIC was required to give notice of the claims within 90 days of learning of an agent’s fraudulent conduct or failure to follow closing instructions. In some cases, the agency waited a few years before making the indemnity-based claims, according to the ruling.
The FDIC may, however, recover damages based on the agreements for the six remaining loans. The borrowers in the six transactions defaulted on the loans, causing WaMu to sell the notes at a substantial loss. Since the FDIC can establish that the losses arose out of the closing agents’ misconduct, such as failure to follow the bank’s closing instructions and providing inaccurate closing documents, the insurer is liable for the difference between the unpaid balance and the value recovered for each loan.
ATIF failed to prove that the FDIC’s $4.9 million figure, which is based on the agency’s investigation of Chase’s records of the purchased WaMu loans, is invalid, Seitz concluded.
In a separate order, Seitz refused to disqualify a Chase representative who testified about the business records on which the FDIC based its damages figure. Although the FDIC disclosed the witness’s name only after the discovery cutoff, its notice that a Chase employee would testify about the damages complied with discovery deadlines. What’s more, there is no proof that the testimony prejudiced the insurer’s case. The testimony merely certifies Chase’s records, and does not offer an opinion on the FDIC’s damages calculation, according to the 5-page order.
Attorneys for the insurer did not respond to a request for comment.
The FDIC asked for $3.7 million pre-judgment interest as of Sept. 5, while ATIF argued that the interest should not exceed $2.5 million. The parties must respond to each other’s estimates by Monday.