When Legal Fictions Simply Go Too Far

I have been saying for years that the continuation of current securitization practices will result in another crash similar to 2008, although perhaps not quite severe. A key indicator is the number of pretender lenders that file for bankruptcy. It is spiking as you can see from the article contained in the link below.

see https://finance.yahoo.com/news/us-mortgage-lenders-starting-bankrupt-191500850.html

Lawmakers and law enforcement are taking some legal fictions too literally and coming up with absurd results — the very thing that a live human judge is intended to scrutinize and prevent.

One of them is that pretender lenders are lenders simply because their name is on the closing papers. In nearly all cases, no originator has ever loaned any money to anyone. Hence any document asserting the transfer of a “loan” from that originator to anyone else is fabricated and false.

The argument behind the lender status for these thinly capitalized fronts for Wall Street securities brokers is that they borrow funds to complete the transaction with the homeowner. And usually, there is a buyback provision that is never enforced but nonetheless creates a liability.

All the revenue generated by the originator consists of fees masked sometimes as profits from the “sale” of the transaction to a third party. That third party never pays any value for the purchase of that which the originator does not own. And the reason for that is that the securities brokerage firm that originated the real scheme —- creation and sale of securities — sent the money for closing through intermediaries to the closing table.

In other words, neither the “lender” to the originator nor the originator itself ever touched the closing funds. Hence the conclusion that neither one is a lender and neither owns an obligation claimed to exist by still other third parties (i.e., the lawyers for a foreclosure mill or the company designated to pose as “servicer”, which in turn does not perform any serving duties).

I know. All of this sounds like crazy conspiratorial thinking. But suppose you test any of the premises in this article in court. In that case, you will always and consistently be met not with proof corroborating the truth of the matter asserted against the homeowner but rather an argument that the lawyer from the foreclosure mill that it is not required to answer you.

The end result is that the court — and you, if you don’t get aggressive in litigation — will conclude the truth of the matter asserted in fabricated and false documentation — all on account of “we said so.”

So the new spike in bankruptcies of these originators simply corroborates everything I have been paying for 16 years. They’re bankrupt because they have no assets, and they’re left with “liabilities” owed to a “lender.” Like the originator, the “lender” has loaned no money. It is a contract intermediary between the Wall Street securities brokerage firm and the originator.

The bankruptcies occur not because of any “loan” defaults but because applications for loans are declining, reducing the fees generated from posing as a lender when they are merely an originator — i.e., a salesman.

You won’t find any assets listed in any of these bankruptcies that include ownership of loans because they all signed a document (originally labeled as an Assignment and Assumption Agreement) that effectively transferred ownership and control to the third-party intermediaries who would serve as fake warehouse lender.” This is what led to hundreds of foreclosures against consumers who never completed their deals after applying for a loan.

So the bankruptcy of these originators is the canary in the coal mine. When loan applications start to drop, then so do sales of the “certificates” that are falsely labeled as mortgage-backed bonds. Lacking the revenue from those sales of certificates, the Wall Street securities brokerage firm can take advantage of various devices to pay their investors less — whom they promised an installment payment that would extend indefinitely in time.

And THAT is how 2008 happened (the great recession).

PRACTICE NOTE: The advantage of having these companies go out of business and declare bankruptcy is that the Wall Street securities brokerage firms behind the false claims of debt securitization can launder title. If you look back into the promotional material for these schemes, they all proclaim that they’re using several layers of “Bankrutpcy remote” vehicles that cannot be penetrated. That means that no creditor of the petitioner (i.e., the originator) in bankruptcy can force the sale of “loans.” But it also means that the petitioner never owned the “loans.”

Subsequently, they file document upon document creating an illusion from which the reader erroneously concludes that a title interest (ownership of the mortgage lien) has been created. Title is never created by a false document. Either the grantor possesses title or it doesn’t.

You will never see an assignment of mortgage or an allonge executed by any US Trustee in bankruptcy or a receiver. The reason is simple: there is nothing to assign.

Posted in Uncategorized |