Foreclosure Fraud – What You Don’t Know Can Hurt You

“It’s actually been happening for a year or more in large numbers. Why the media hasn’t picked up on this story is a good question to ask…

I don’t think anyone realizes how big this area of fraud actually is or could believe that it’s truly happening. The biggest reason is probably because the judicial system is a player in this area of fraud. Not as an active participant but more as a guilty bystander. In about half of the states in the Union, foreclosures must be brought in a lawsuit in court, otherwise called judicial states. One would think that in non-judicial states, it would be much easier to get away with the fraud because the courts are not involved usually. Sorry to say but it might even be easier to commit Foreclosure Fraud in judicial states because no one’s really asking any questions in these foreclosure cases as I think that just about anyone would automatically assume that the Judicial System would exert much more quality control to prevent such massive fraud to work its way through the system. Guess again…

Statistically speaking, 98% of all foreclosure cases, judicial or non-judicial, go uncontested by the borrower. In other words, the borrower does nothing whatsoever to defend themselves in the foreclosure process. In a judicial state, an uncontested foreclosure complaint results in a Default Judgment against the borrower/defendant. Essentially, any and all claims made by the Plaintiff is accepted as true and legitimate at face value. The presiding judges, at least here in Florida, are doing practically nothing to inspect the merits of the case based on the documents produced – which, by the way, is very little – or the actual authenticity of the documents that are produced. Yes, they are slammed and overrun with foreclosure cases. No, it’s no excuse to deny citizens due process.

Here in Florida, 80-90% of the cases are being filed without any evidence of the debt, which is the original Promissory Note, not some early copy of it. Take a sampling of any 10 or 100 cases filed in court and you’ll find this to be true. In other words, a company/institution is coming into court, suing a borrower and alleging that the borrower owes them $_______. Yes, really fill in the blank… and they are producing NO DOCUMENTARY EVIDENCE that this allegation has any truth to it.

Oh, but it gets better. They are alleging that they lost the Note (or it was destroyed). Hmmm… if I gave you a $1000 check, would you lose it? How about if I gave you a $50,000 check? How would you treat that little piece of paper? But lo and behold, these institutions are saying that in 80-90% of the cases they have Lost the Notes! Now, let’s put this in perspective… in January 2009, Lee County, FL alone had about 2200 foreclosure cases filed. So let’s do the math together, shall we? That would put us at over 1700 cases where the Notes were mysteriously LOST! And that’s just one month’s worth folks. Now anyone with just a bit of common sense would say, something’s fishy with this. No? But most judges seem to have taken no issue with this. I mean, doesn’t this very fact make you, the reader, say to yourself, “this is not right, something’s up here, there should be an investigation into this.” But no, our judicial system seems to have no problem with this or even ask the deeper question as to “why?”

But it gets better… not only have they “lost” the notes, but the mortgages that were “recorded” in public records after closing (to declare to the public of who has a lawful lien on this property) are in someone else’s name. Let’s call them “ABC Lender.” So ABC Lender is the “mortgagee” of record in the public records. But ABC Lender is not the Plaintiff suing for Foreclosure! No, it’s XYZ Lender who is the Plaintiff; and in XYZ Lender’s Foreclosure Complaint, they allege that they are the owner and holder of the Note (that was lost) and the mortgage was assigned to them. Problem is (besides no note of course) is that there’s no Assignment of Mortgage recorded in Public Records; oh and no Lost Note Affidavit either, which by the way is supposed to be required.

Public records still show ABC Lender as the mortgagee. More than that, XYZ Lender/Plaintiff produces that very mortgage (which they can print online from the Clerk of Court’s website) in their Foreclosure Complaint and then simply states, for the record, that the Mortgage (in ABC Lender’s name) was assigned to them. But no assignment is recorded NOR is an assignment even produced in the foreclosure case in at least 50% of the cases. And when we do see an Assignment produced, lo and behold, you know who drafted that Assignment of Mortgage? Allow me to answer that… it’s the law firm that filed the foreclosure complaint for the Plaintiff. How about that, so you’re telling me that now foreclosure law firms are also in the business of transferring mortgages and notes? I think not. But this is exactly what is happening folks. Sure as my fingers are typing this post.

Oh, but I’ll do you one better… but before I do, all of what I just stated above is enough for XYZ Lender to be granted foreclosure in 98% of the cases because these ALLEGATIONS by XYZ Lender are never even challenged by the borrower/defendant. So the court places the proverbial RUBBER STAMP on this fraud and away you go… “NEXT” as most Florida Judges would say… all in about 15 seconds in their self-proclaimed ROCKET DOCKETS. Nice.

So back to doing one better… in these 2% of cases where the borrower does even a little something to defend themselves or better, has a competent attorney represent them against this FRAUD, we would ask the Plaintiff to actually prove their case. You know, “excuse me but I don’t think your claims are true Mr. XYZ Lender. Yes, I borrowed and owe the money to someone, but I have no idea at all who YOU are and I don’t think I owe the money to you and I don’t think that you have any right whatsoever to be here in this court suing me and trying to take my home away from me.” That’s how I would say it at least but attorneys are little more verbose than me…

So guess what these Plaintiff/XYZ Lender’s come back with to that request… you’re going to love this… “If it will please the court, your honor, these requests are out of line and merely meant to ’stall’ the process. The defendant hasn’t paid their mortgage in ____ months your honor; and this request for us to disclose who the real owner of the mortgage and note is proprietary information and we are not required to disclose that information.” Oh, I’m sorry, I thought you alleged in your original complaint that YOU were the owner and holder… now someone else is but you can’t tell us? Hmmm. By the way, 15 U.S.C. 1641(f)(2) says that the Servicers are under federal obligation to disclose the true owner of the obligation. Read the federal law here! Scroll down to paragraph “F” part 2.

Yep, you’re tracking with me now…. it gets even better. Somehow, by some miracle of St. Mary, mother of Jesus, in some of these cases, the Note magically appears! Oh, thank heaven, the Note has appeared. So XYZ Lender puts the court and everyone else on notice with a “Notice of Filing Original Documents” in the court record. To the unsuspecting citizen, this Note, purportedly a copy of the Original Note, sure does look the part. Never mind that one of these Notes can be re-created out of thin air. Have we Alzheimer’s this bad folks? I mean, what gives? Have we not been talking and ranting and raving as a country about all the FRAUD that occurred in the mortgage industry and WALL STREET these past 7-8 years? Does no one think that these Notes aren’t really being re-created. I mean, XYZ Lender did swear before the court that the Note was Lost. Was that a lie or is the Note they are now producing a fraud? I mean, which one is it? Or is our judicial system going to let them do both… Lie and commit Fraud that is.

But you see, I have a little more knowledge about this whole “SECURITIZATION THING” than the unsuspecting homeowner and probably even these foreclosure attorneys representing these financial institutions. You see, since the mid-80’s when the Secondary Mortgage Market Enhancement Reform Act of 1984 was enacted, 99% of all residential mortgages have been securitized. The opposite of a Securitized Loan is what we call a Portfolio Loan. These are our 2 options folks… it’s either a Portfolio Loan or it was a Securitized Loan. Your honor, it’s either Option A or Option B. Not BOTH.

So let me break this down into byte sized pieces. A Portfolio loan is a loan where ABC Lender makes the loan (ie. lends the money) and keeps that loan in their “portfolio” for the life of the loan. ABC Lender is going to keep the loan, service the loan and manage it until it is paid off. This “portfolio lending” thing is a DINOSAUR folks. This is a bona fide fact.

So, Option B, your honor, is this thing we call “Securitization.” And yes, your honor, I expect that we all take the time to UNDERSTAND IT because these thousands of CASES before your court involve PEOPLE, human beings (the same people who elected you by the way) and their lives, and their credit and their liability if this ‘aint done right.

Sorry about that, as you might guess, I am perturbed with the “pleading ignorance” of the courts or worse “I just don’t care” judges who’s pat answer is that “the borrower/defendant hasn’t paid their mortgage in 6 months so throw justice and matters of law aside because they’re all a bunch of deadbeats. I read the Wall Street Journal article on Feb. 18, 2009. We can all read between the lines your honor… Now let me say this real quick before I give a quick overview of securitization and the applicability of it to foreclosure cases… Not all judges are created equal. There are some very good one’s out there who care about the law and due process and making sure that the law is actually followed. For those judges out there who aren’t letting these issues just get swept under the rug because it’s so damn “inconvenient” – all these foreclosure cases, -we thank you and we hope you’ll see to it that more of your peers adopt the same position.

By the way, the question that the judges referred to in the Wall Street Journal story asked, “Are you paying your mortgage and are you living in your home?” – these 2 questions are completely inappropriate and immaterial to the case and matters of law. If I’m a homeowner and I don’t know who the heck owns my mortgage and my inquiries into this fact go unanswered, then I’m not paying ANYONE until I figure this out already! So if I”m before that judge my answer is very clear, “Excuse me your honor but that question is completely immaterial to my case before you. I owe the money to someone but I dispute the assertion by the Plaintiff that I owe the money to them.

I have asked them to provide valid and authentic documentation that I in fact owe them the money and they have failed to provide that documentation. The documentation that they have provided appears to be a complete fraud on this court and therefore I would humbly request your honor look into the material facts in this case, not whether or not I’m paying someone I don’t know even exists or if I’m living in a home that I have valid title to.” – and Judge G. Keith Cary, the Chief Judge in Lee County said, “A guy hasn’t paid his mortgage in a year, what’s there to talk about?” – well your honor, I believe I’ve presented plenty to talk about. If not, let me continue…

Ok, securitization and how it applies to a judicial foreclosure case. In securitization there are specific entities who are the “players” in this process. Not all entities are created the same because they have different ROLES in the securitization process. Roles: Originator, Sponsor, Master Servicer, Depositor, Issuer, Trustee and Custodian are the main ones. We also might see a “Special Servicer” in the mix here and there. The Originator is ABC Lender in the above fictitious case I mentioned. XYZ Lender from above is the Sponsor who usually serves as the Servicer as well.

Folks in 99.9% of these loans, the Trust owns the loan. The Trust is comprised of several to several hundred investors who own a “piece” of the loan. But more than that… EVERY loan including the specific loan in our fictitious case above has been bought and sold NO LESS THAN 3-4 times. When a Note is sold/transferred (and it is a true sale by the way), the Note MUST be endorsed, just like a check. From one payee to the next. IF the loan was securitized and it is very safe to assume that every loan is/was, there will be NO LESS THAN 3 endorsements on the actual, ORIGINAL note which has the borrower/defendant’s wet signature on it.

So when XYZ Lender produces the “Original” Note for the court and it has NO endorsements on it, it’s what we call a FRAUD folks – one way or another, it is NOT the original nor is it a copy of the original note OR, in the alternative, XYZ Lender lied to the SEC, the Securities and Exchange Commission AND the IRS. You see, in securitization, all of this activity MUST be disclosed. No, it’s not proprietary or confidential, it’s PUBLIC DISCLOSURE. These documents filed with the SEC are very specific. The players involved are all disclosed. Their ROLES are disclosed, the CHAIN OF OWNERSHIP of the loans in the Asset Pool is disclosed. The governing or operative document for this loan pool is the Pooling and Servicing Agreement, and it is disclosed. These Trusts are electing to be treated as a REMIC (short for Real Estate Mortgage Investment Conduit), which provides Pass-Through Taxation on the pool cash-flow, so that the Trust avoids double-taxation. That’s disclosed and strict guidelines of the chain of ownership AND timelines of ownership must be adhered to OR the REMIC status will be/can be revoked by the IRS.

So when XYZ Lender comes into a court of law and throws all these allegations of ownership, produces nothing to speak of, and expects to take Mrs. Smith’s home from her, I suggest that our judicial system do something more than turn a blind eye and claim that is their job to “efficiently dispose” of the case – all in about 15 seconds – or worse, ask completely inappropriate questions of that homeowner. I also suggest that Mrs. Smith defend herself and I highly suggest our local and national media do more to expose what you can now call “FORECLOSURE FRAUD” because it’s happening ladies and gentleman. The SAME INSTITUTIONS that created this global meltdown through greed and fraud, who have received hundreds of BILLIONS of taxpayer dollars to bail them out of their gross (and greedy) mismanagement are NOW stealing citizen’s homes from them like a thief in the night to boot. The FBI should be investigating, prosecuting and sending these fraudsters to jail – both the bank reps/employees AND their law firms colluding with them on this massive fraud!”
Author Info: Lane Houk has 8 years of mortgage banking and finance experience and also maintains an active real estate license in Florida. Lane has done well over 400 hours of research on Foreclosure Defense and Consumer Rights Issues in the areas of Fair Credit Reporting Act, Fair Debt Collection Practices Act, Truth in Lending Act, RESPA and more. He has combined his research, reading and experience in the real estate and finance industries to develop resources to help others who find themselves in a tough situation. You care read more on Lane’s Educational Blog at


4 Responses to “Foreclosure Fraud – What You Don’t Know Can Hurt You”

    Excellent article,

    However,I do make one correction. You say that the notes are owned by the securitization trusts. That is how it should be. The notes should be in the securitization trusts to back the mortgage backed securities. But the securitizers didn’t do that. They just held the notes in a black box. That’s right, MBS are backed by nothing but fraud. That is what your retirement fund invested in. And now its too late to put the notes into the securitiation trusts because the pooling and servicing agreements requires that the note are place in the trust within 90 days of the trust’s closing, and it requires that only performing notes may be placed into the trust. Wall Street defrauded the investors out of trillions. They sold the note and kept it too. And now they arre feeling a little uncomfortable.

    The securitizers want to foreclosure the property to hand it over to Feddie May FedFraudMac to get 100 cents on the dollar for the note. They need 100 cents on the dollar because the defrauded investors have to get 100 cents on the dollar or else they would have a cause of action for fraud. To file a fraud cause of action, you must prove damages. For instance, if I misrepresented a house to you, you bought it based upon my misrepresentation, and made $100,000 profit, then you have no cause of action for fraud. You lack the element of damages. Likewise, the investors in MBS have received every payment, and 100 cents on the dollar is backed by the taxpayer, so they can’t sue for fraud.

    Of course they could still sue for fraud in the inducement, which has a remedy of rescission. Rescission mean you get your money back, but the fed is printing QE like a big dog to liquify the bank so the MBS investors can get their money back, the investor who want it.

    What goes on in mortgage fraud in driven by two goals. The first goal is to foreclose the property so that the securitizer can pass the note to Fannie and Freddy for 100 cents on the dollar. The second goal is to avoid disclosing documents that makes it apparent that the investors have been defrauded out of trillions. So what they do is that they have MERS fabbricate an assignment to assign the note to the securitizer so that the securitizer can foreclose. The problem with this approach is that MERS never owned the note, so they can’t assign what they don’t own. MERS creates a conterfeit chain of title to hide the actual chain of title. securitizers record that fraudulent assignment. Securitizers use that fraudulent assignment in bankruptcy court to seek relief from the automatic stay.

    Courts are okay with it. Sometime they say, “Hey, you lack standing.” But they never say, “Hey, that’s fraud.” So an insolvent person whose house is being foreclosed is faced with coming up with alot of money for discovery to defend themselves. They can’t do it. And if an attorney takes up the cause and proves the banks don’t have standing, the courts never make the banks pay the home owner’s attorney fees. An attorney would starve fighting banking fraud, while the fraudulent bankster attorney’s are paid well by the banks. So if your waiting for the courts to save the situation, then you are out of luck. This amount of corruption is a political question, it is not a legal question. A legal system is designed to handle fraud on the edges, not fraud in nearly every transaction. And judges, trying to manage their impossible caseloads, cave in to rubber stamping the banks fraudulent requests. What I’m telling you is that unless the pitchforks and torches come out, we’re screwed.

  2. DinFLA says:

    What an excellent read! Thank you.

    You know what they do when they suspect a drug dealer selling from their home…they raid it…You know what they do when they know under age club kids go drinking…they raid the clubs.

    Why not raid these so called “Fire Proof Vaults” when there is case after case suspecting fraud??

    I would also ask to see if they followed the requirements for SEC Rule 17F-1 with proof of the X17-F1A form that is required when there is a missing, lost, stolen securities.

    It’s all a cover up! Thanks to PAULSON, GEITHNER…etc.

    Now since Florida and the entire US is discovering the fraud they are trying to get Florida to become a Non Judicial foreclosure inititive! Don’t Let This Happen!

  3. Brett says:

    While I wholly agree with you comparing a Note Endorsement with a “Check”, how does your argument stand when a Note (or so called “certified true copy” of the original) has an Endorsement in Blank? And when that endorsement is on the front of the signature page as opposed to the reverse side of that page.

    My belief is that the Plantiffs are simply “stamping” the blank endorsement on a copy of the original Note and then copying that – now that would be as good a Fraud as you can get!

    Clearly such belief would warrent a physical inspection of the Orginal Note, and if the copy does not match the original – someone needs to go to jail!

    You comments are appreciated.

  4. james says:

    oregon pers is investing in foreclosures judges are part of this pension

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