February 25, 2010

One of the patterns which is emerging in foreclosure cases is what appears to have been a deliberate “set up” of the borrower to fail as an Option ARM loan “bump” kicks in, with the borrower only being qualified to pay the loan at the initial or “teaser” rate and not the life of the loan. As such, with the loan destined to default once the higher monthly payment kicked in where the borrower was not qualified to make these higher payments as per their income, the loan is a per se “predatory” loan. Many borrowers entered into what the “lender” or broker knew to be a predatory Option ARM loan based on information given to a broker or lender over the phone, only to find out later that the information was altered on the loan application, that they were not qualified to make the higher payment, or where a false promise of a later refinance (refi) to avoid the higher payment was given.

We were just recently retained in two cases where the securitized mortgage trustee took an assignment of a toxic, non-performing loan (that being one in serious default) from the assignor. One of the cases involves an assignment from Wells Fargo to US Bank at a time when both Wells Fargo, as assignor, and US Bank, as the “trustee” of the securitized mortgage loan trust, both knew that the loan was toxic. The same person acted as “Attorney In Fact” for both Wells Fargo and US Bank, so what we have is a situation where an agent of both banks is assigning a known toxic asset from one bank to another, with the recipient bank/trustee (US Bank) taking the toxic loan for purposes of assigning it to a securitized mortgage loan trust to allegedly provide “protection” collateral to the investors of the mortgage-backed securities allegedly “collateralized” by the trust.

Significantly, Judge Arthur Schack in New York had the exact same case on the facts back in 2008, the only difference being that the assignor was MERS and the assignee was Deutsche Bank. Judge Schack denied summary judgment based on a void assignment and ordered a sworn explanation of why, in the middle of this country’s mortgage crisis, a trustee of a securitized mortgage loan trust would accept assignment of a known toxic loan. As those of you who read this website and others know, the reason is simple and obvious: so that the trustee could tap the various insurances inside of the trust; get paid 2, 3, 4, or more times on the loan which was in default; and then sell the loan out of the trust to a “bottom feeder” for 2 or 3 cents on the dollar who would then seek to foreclose. A well-organized fraud, for sure.

Given these events and the fact that this situation is coming up with increasing frequency, it is more than apparent that the “lenders” (and their behind-the-scene investment banks) who lured borrowers into what they knew to be loans which were predestined to default (and were already pre-sold to an aggregator or an investment bank for securitization) had actual knowledge of what would happen to the borrower, but never disclosed this to the borrower. The situation is compounded where a borrower, who inquired of the “lender” or broker what would happen when the “bump” kicked in and the monthly payment increased, was told by the “lender” or broker “Don’t worry, just come back at that time and refi at the lower rate”. This statement was known to be false when made, as the loan was already sold or in line to be sold when the statement was made and thus there was no opportunity for any “refi”. This is one of the reasons why, as we have said before on this website, “loan mods” are not happening. 

As such, FDN will shortly be filing numerous fraud-based claims in cases where these facts are present and/or where a loan audit reveals that the DTI (debt-to-income ratio) for the loan far exceeded what it should have been. FDN’s loan auditors will be working with a Certified Fraud Examiner/CPA who FDN has become associated with to prosecute these claims against all responsible parties for the maximum relief permitted by law.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com