Posted by kevin on July 21, 2015 under Foreclosure Blog | 
A fundamental rule of law is that a plaintiff could only be paid once for an injury. So, if your lender has been paid the amount of the mortgage note, it should be correct that that lender cannot file a foreclosure action and take your house. Why? Because the lender is not owed anything/
If you read the prospectuses and pooling and servicing agreements of many of the NY securitized trusts that were prevalent from 2002-2007, you will note that the higher tranches (most conservative investments) contained a insurance component whether it be straight out insurance against default or a credit default swap (CDS). Moreover, the lower tranches were wiped out if a certain percentage of loans failed.
In discovery in most of my foreclosure cases, I request copies of all letters from the trustee to the investors. I want to know how many defaults have occurred with trust, and how the trustee is dealing with the various tranches. I also ask whether the trust had procured any insurance or CDS’s. Based on the unpublished Gomez case in NJ which relies on a 1st Circuit BAP case that was effectively overruled by a later 1st Cir. case, I never get that discovery. But the fact remains, if the plaintiff in your case has been paid, how can he come into court and ask to be paid again.
Last week, I had the opportunity to talk with a person who worked for a “too big to fail” bank and an investment house that was very active in the securitized mortgage business. She confirmed that whenever a loan went into default, the first thing that her employer did was to make an insurance claim. And her employer was paid on those claims.
A basic tenet of insurance law is that if the insurer pays a claim, then the insurer steps into the shoes of the insured and can go after the wrongdoer (in this case, the borrower). This is called subrogation.
Two questions? If a plaintiff is being paid twice, isn’t that against the law? And, why are the courts not interested in what amounts to a) fraud on the court, b) consumer fraud, c) theft d) criminal activity? (take your pick). The answer you get is that the borrower took the money, the borrower owes the money. However, in the above scenario, the borrower does not owe the money to the plaintiff, but to the insurer. So, why pay the plaintiff twice?
Posted by kevin on November 17, 2012 under Foreclosure Blog |
In my last blog, I observed that the SEC was in negotiations with JP Morgan to settle the agency’s action relating to fraudulent loans sold to investors by Bear Stearns. I questioned whether JP Morgan would get the proverbial “slap on the wrist” or whether the sanctions would be substantial. I was not holding my breathe for substantial sanctions.
Yesterday, it was announced that the fine would be $300 million. Sounds like alot of money, but you have to put it into context. Bear Stearns probably did hundreds of mortgaged backed securitized trusts from 2003 to 2007. In fact, the Schneiderman lawsuit in NY alleges that even after a memo circulated Bear Stearns in June, 2006 which indicated that 60% of AHM loans in its trusts were at least 30 days delinquent (of course investors not told that), Bear Stearns issued at least 30 more trusts.
My review of most mortgaged backed securitized trusts indicates the average trust contains at least a billion dollars of loans. So, from June, 2006 until taken over by JP Morgan in or about March, 2008, Bear Stearns issued over $30 billion of securitized trusts. That means investors paid Bear Stearns or its affiliates over $30 billion dollars for bad deals. $300 million/ $30 billion. Now, I am not a whiz at math, but that sounds like a fine of a whopping 1% of what was earned in the last 18 months of the alleged ongoing fraud (issues dried up by the end of 2007. Just want to send out an “Atta boy” to the SEC.
To put this in perspective, your home probably has lost 30% of its value since 2007-8.
Posted by kevin on October 8, 2012 under Foreclosure Blog |
In its editorial page, the Wall Street Journal took a shot at NY AG, Eric Schneiderman, for filing a suit against JP Morgan Chase for misrepresentations made by Bear Stearns (later bought by JPM at request of feds) to investors of mortgage backed securities. Somehow, WSJ thinks that 1) BS (how appropriate) was “sloppy” in bundling loans into securitized trusts rather than knowingly or recklessly putting loans into the trusts and screwing investors; 2) the fact that BS bounced loans back to loan originators but did not pass the savings along to duped investors was OK because it was somehow allowed by the trust documents, and 3) it was unfair to JPM to help the government out and then get sued.
Let’s deal with those arguments. First, BS was just sloppy. I guess the WSJ would want you to believe that originators and mortgage brokers were making loans, and then afterwards BS got the bright idea to package those loans. So, BS went out and bought loans for a given securitized trust. Unfortunately, BS got hoodwinked and got stuck with lots of bad loans. Don’t think it happened that way. BS put together hundreds of trusts which contained thousands of loans. Given the time constraints of marketing securitized trusts, the issuer cannot willy nilly buy loans for a trust. BS made deals upfront with originators and brokers to fund mortgages, and to buy them if they met with BS’s underwriting guidelines. So, BS was telling the originators and brokers exactly what type of loans it would buy. I just settled a case with JPM involving BS trusts. The loan originator, in a sworn deposition, testified that BS told him what had to be in the loan documents and what the borrower had to produce to get the loan. According to the broker, without following BS’s underwriting guidelines, BS would not buy the loans. So, BS not only knew what it was getting but got exactly what it asked for.
Second, trusts require insurance including credit default swaps, to protect investors against the bad loans within the trust. One of those was Ambac which sued BS and JPM because BS was bouncing loans back to originators (and getting a refund) while it made a claim against the insurance. So, BS was getting paid twice. Of course, those loans fell out of the trust. Say 10% fell out of the trust. That means that if BS did not pass the savings along to investors, the investors were being short changed by 10% of the proceeds used to fund that trust. WSJ praises BS for it slickness in drafting documents which did require a pass thru to investors. So, in reality, BS either beat the insurer or the investor or both. Very slick.
Finally, JPM purchased BS at an incredible discount. Why? Because JPM knew that it was buying a lot of crappy paper, and paid accordingly for the assets of BS. So, JPM had to know that there would be fallout from the BS purchase. I recently settled a case with JPM over predatory loans made based on BS underwriting criteria. Got a fair amount of money from JPM. I am sure that JPM was not taken by surprise when they first say my lawsuit.
I like the WSJ and read it everyday. However, I do not buy everything it tries to sell.
