By Sydney Sullivan and Kenneth Dost
IT’S 3:00 p.m., DO YOU KNOW WHERE YOUR COLLATERAL IS? An enlightening paper every homeowner should read. Written by Christian A. Johnson, Assistant Professor of Law, Loyola University Chicago School of Law. B.A.; MPrA, Utah; J.D., Columbia, 1990
It was Saturday afternoon when a group of us were teleconferencing about foreclosure issues. The focus was on the late assignment of mortgages, when one person said, “…think about it, the Plaintiff Trust says it became the owner of the loan over 3 years after the trust closed… how could it sell certificates to investors for something it did not own?” Great question!
Selling what you do not own is the distortion of the legal principle of nemo dat quod non habet (―nemo dat”)—one cannot give what one does not have.
The group agreed that this aspect of securitization did not appear altogether legal and then another member of the group remarked that “if the trust did not own the collateral for the past three years – how could an actual sale or transfer have taken place?” Precisely.
With that in mind we began to research nemo dat and found another brilliant and informative paper called Distorting Legal Principles by Steven L. Schwarcz, Stanley A. Star Professor of Law & Business, Duke University School of Law. Another essential document for every homeowner and every foreclosure attorney and judge to read and absorb. This information is public and can be found on the Internet.
Professor Schwarcz’s paper explores the problem of distorting legal principles, initially focusing on rehypothecation, a distortion whose uncertainty and confusion contributed to the downfall of Lehman Brothers and the resulting global financial crisis.
Rehypothecation – a new word for most homeowners and their attorneys. It’s a word you won’t find in too many news stories, blogs or posts. Rehypothecation is a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing. Whose collateral do you think they were using? Right, your mortgage loans.
“A borrower would probably be alarmed to learn that its lender had an unrestricted right to use and sell the collateral that the borrower had pledged to secure its borrowings. Borrowers typically believe that a lender should safeguard and protect collateral pledged to it, not use the collateral for its own gain. Yet in the derivatives market, it has become
increasingly common for secured parties to insist upon such unrestricted use of pledged collateral,” writes Professor Johnson. Oh yeah… but now are you starting to understand why the assignments were not timely made to the trusts?
Professor Johnson continues: “The derivatives industry is a huge financial market measured in trillions of dollars. [Sydney: Now well over $700 TRILLION of debt]. When negotiating a derivative transaction (a “transaction”), the parties to the agreement often agree that the party with the resulting payment obligation under the transaction (the “pledgor”) is required to pledge or post collateral (“posted collateral” [Sydney: your collateral]) to the other party (the “secured party”), to secure its payment obligation. Participants in the industry currently pledge billions of dollars in collateral to each other.
[. . .] As part of an agreement to pledge collateral, dealers, banks and other financial institutions participating in the derivatives market aggressively seek (and insist upon) the right to use posted collateral pledged to them. This right to use posted collateral is commonly referred to as a “right of rehypothecation.” The right of rehypothecation in this paper refers to the right of a secured party to sell, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose of posted collateral.”
Okay, yes this is complicated – so, to boil it down in simpler terms – your mortgage loan was hijacked and forced into rehypothecation slavery and did not end up where it was supposedly headed… into a securitized trust – until you defaulted.
Rehypothecation is a distortion of a normally mandatory legal rule. The mortgage loans are apparently “un-owned” while they are in rehypothecation slavery – i.e., your loan (collateral) is not safely tucked away and secure… it is being risked, gambled in overnight sales, pledges, investments, over and over by someone who does not actually “own” it – but is making a lot of money prostituting it. This violates or distorts a normally mandatory rule or doctrine, such as the nemo dat rule, that is so generally accepted within a legal system and society that it forms a basis for reasoning, as Professor Schwarcz describes.
Rehypothecation has its inherent risks for example Lehman Brothers. In an over-extended position, Lehman experienced a situation similar to a “run on the bank” and ultimately its “inability to purchase and deliver the vast amount of equivalent securities demanded by its customers apparently led to its failure—just like a bank‘s inability to pay its depositors in a bank run can lead to the bank‘s failure.” Professor Schwarcz paper.
“Lehman, like many other prime-brokerage intermediaries, insisted that customers contractually consent to allow the intermediary to directly rehypothecate the customers‘ securities as collateral for financing obtained by the intermediary. Although this practice has been widespread and longstanding, it is conceptually flawed in that the intermediary does not own those securities but merely holds those securities on behalf of its customers, who at most give the intermediary a security interest in those securities. Lacking ownership of the customers‘ securities, the intermediary should not be able, under the principle of nemo dat, to grant a security interest that enables its creditors to obtain ownership of those securities through foreclosure. Conceptually, therefore, Lehman and other prime-brokerage intermediaries ignored nemo dat when engaging in this form of rehypothecation.”
There are many, many unanswered questions – some only a court could decide. It is interesting, though, that these securitized trusts were filed in government public files with the Securities and Exchange Commission (SEC), many of which had Mortgage Loan Schedules included that asserted that these loans would be made part of a REMIC trust; but when all is said and done – it appears, that the loans never made it securely into the trusts, that the force-placed rehypothecation took priority over the traditional mortgage loan transfer status (we all know that these were not traditional mortgage loans – if they were even loans at all in the first place). Not until the homeowner defaults – is the loan actually in a real sale or transfer position… surely doesn’t sound like a UCC Article 3-302(a), does it? To this end, consider the commercial law rules governing holders in due course of instruments—that is, persons who take an instrument for value, in good faith, and without notice of a problem. Ah, isn’t default a problem?
You know – when you think about it… rehypothecation happens after the mortgage loan enters the securitization process – so wouldn’t Articles 8 & 9 be more appropriate? These loans endorsed in blank allow the continuation of the rehypothecation until some judge wises up and makes them finally endorse the notes!
Probably the most despicable comment that lingers in our everyday conversations about biased judges is, “you’re not going to get a free house in my court…this is a court of 
equity.” Well, judge – glad you said that – because Mr. Homeowner here has unwittingly participated with his collateral in a risky securities scheme and we can prove that his social security number was essential to make it over to the secondary market… and since you are a court of equity – isn’t it about time that you compel the discovery, order the trust financials and make the intermediary accountable for every rehypothecation transaction that has taken place thus far? And then, your honor, award Mr. Homeowner his fair share…whaddah ya think judge?”
And pleeeeeeeze get off of that “free house” propaganda you bought into when this all began, cause it appears the mortgage loans have been paid over and over and over again!
BTW – Ken has added another sidebar here – JP Morgan Chase patented rehypothecation... Of course! Why not try to appear legal by filing in the USPTO?! Let’s legalize the distortion of legal principles… why not, of course, sure! How the hell do they get away with this stuff?? Click on the blue link above for the patent or Google patents for REHYPOTHECATION SYSTEM AND METHOD.
You can personally thank Ken Dost for providing this extraordinary information and tons of research and help him raise money for the legal fees needed to expose the corruption and non-disclosure on 72 million+ American homeowners. Would you please help Ken by donating to his GoFundMe campaign? Click HERE for Ken Dost’s GoFundMe page. Help Us Prove Mortgage Fraud.
No donation is too small (or too large) and the GoFundMe site is safe.
* Disclaimer: This is research and personal experience expressed and shared for the purpose of thought and conversation. Nothing in this post should be construed as legal advice or practicing law. If you need legal advice you should consult an attorney.
Click HERE for PDF of Distorting Legal Principles.
Click HERE for PDF of Derivatives and Rehypothecation Failure: It’s 3:00 p.m., Do You Know Where Your Collateral Is?
More of Ken’s research room photos:
Thanks again to Sydney, Ken, Wendy, and DW… great conversations and information! Special thanks to Prof. Schwarcz and Prof. Johnson for their brilliant work. Sometimes it feels like a cyber-jig saw puzzle… piece by piece the full picture comes together.
Deadly Clear 
Reblogged this on Justice League.
Great info and pics!
What isn’t clear and is part of the bank big lie is that there is fraud involved when these systems fail and fraudulent acts like forging documents take place. The patent describes this: ” the allocation engine comprising collateral distribution components for assigning collateral to lenders and lender/borrowers based on borroWer- selected parameters and an eligibility filter for verifying each assignment of collateral in accordance With lender requirements.”
So it’s not that they patented this illegal act though the widespread fraud it allowed made it a distortion of a legal principle it seems. As has been said it’s not securitization in itself it’s securitization fail.
Hammertime,
Exactly! Here’s where the ‘securitization’ (aka stock market casino) theorem falls to pieces:
The $700 TRILLION dollar Derivatives market is based on wealth beyond most folks scope of vision (& equates to the net worth of the world….the whole world, 4x-7x+/- depending who’s opining same <–yep, contemplate that), and is derived from (like when folks are buying Google or Apple stock when trading at 400x earnings. They are BETTING it's going to make even more than that. Sometimes it does, usually it doesn't. Mortgages & DIRT were [& once again are becoming] viewed as safe hedges against inflation and secure 'investments' while megabanks & hedgefunds play craps with Your/Our/EveryOne's Note[S]. The "Investors" (including nearly ALL State Retirement/Pension Funds, of which most JUDGES Participate) are all buying in at 'sticker price'. That's the "Total of Payments" [aka yield] at the bottom of amortization schedule on each note/mortgage/DOT.
The problem with the equation is: "How Many Owners do YOU Know who made every payment on their original 30 yr. fixed rate Mtg. and Never, Ever Refi'ed or paid off early? I've been in banking and mortgage lending and real estate for 35+ years now….I can not name one instance when that occurred (probably after dealing with over 50,000 transactions). They could have just as easily patented it as 'scheduled ponzi mortgage funding fraud' because theorem is flawed from outset. IF < 1/50,000 actually complete to fruition (which the investment theorem's CORNERSTONE sits upon), and ALL those 'exceptions' are Re-fi'ing because there's SAVINGS in doing so, Paying off early because there's SAVINGS doing so, or MOVING for any of a plethora of reasons, the 'model' is flawed, as NONE of the subject mortgages (& thereby notes) will EVER YIELD that which the 'gambling' Investors (albeit hedgefunds OR Retirement plannin investment banks) are 'BETTING' on. Too Big To Fail? More Like 'Constructed to Fail', from inception. This can't work, never could work, and everybody beyond originating bank[S], peddling their 'crap' (starting w/Mozillo, CW & all the minions who hopped in lock step behind their trillions in fraud) got sold a burning paper bag of crap. THIS is how You destroy Capitalism. Stand back and let the greedy bastids at the top debase the dollar, then gold, & finally even "REAL ESTATE". When the populace (legitimately) realize their dirt values are nothing (or ridiculously large amounts of only worthless dollars, but not much gold or silver)…well, '07-'09 weren't even a sneak preview. Then it was primarily Foreign Investors Clamoring to the fed. that they'd been duped by Fannie, Freddie & Wall St.
Do as we did; Owner Finance (if You must at all, vs. paying cash), avoid the big banks, and don't participate in a Mortgage/DOT that bears "MERS" on the front page.
my 2cents, worth probably just that these days.
Additional Resource:
http://moneymorning.com/2012/01/04/how-banks-are-using-your-money-to-create-next-crash/
^oops^ apparently great minds think alike, had in links folder & posted not knowing already cited below, sorry 4 the double reference
Excellent article, as are the two referred to, BUT — a key factor which many of these articles don’t discuss & often isn’t even mentioned, is Contract Law & mortgages fall into that category. The main reason judges say “you’re not going to get a free house” is that you signed a contract / promise to pay & it does not matter if the bank or mortgage co. uses your mortgage as collateral for many other purposes & gets paid on it 15 times — that still does not relieve you of your obligations under the contract.
Now you could say this mortgage is an “unconscionable contract” & one that no reasonable person would have entered into if they understood all it entailed, but on the flip side, if you didn’t understand the contract you shouldn’t have signed it. And the burden would be on you to show that the contract is constructed / worded as to hide or obfuscate vitally important terms & conditions (like the right of rehypothecation) so that no typical home buyer could understand it. You could also call it a “predatory loan” for the same reasons.
But IMO, mortgages are just plain evil & should not be entered into for any reason — ever. Yes, that probably means you can’t buy a house — better to rent & not get stuck with all the insanity of a mortgage & possible foreclosure. And, consider this — if the majority of people looking to buy a home said I won’t get a mortgage under any circumstances, I’ll only buy on contract (which is what I’ve done, twice), you could put the mortgage industry out of business. One of my uncles did that too — he moved 5 times during his working life, each time buying a home from the homeowner with no mortgage involved & simple interest. Then when he had to move he sold the home on contract between himself & the new buyer. When he retired, he still had payments coming in from the last three homes he’d lived in — that was his “retirement income” & he didn’t have to touch his savings!
If you look hard enough you’ll find some homes with a sign “for sale by owner” or “owner financing” & you don’t need a mortgage — just a contractual arrangement between you & the seller — you pay the seller, not a bank.
_____________________
the problem here is if the homeowner has an existing fake mortgage they are making payments to. Be very careful what you assume as you may be putting yourself in the same hell of Foreclosure merely by taking over payments in for sale by owner. If they do not own it outright then you must check the underlying obligation, the actual Escrow in the process will out the truth. The escrow will send for a payoff, in the payoff they will note what entity the funds are to be sent to, that is very telling. All should open an escrow to sell their home and the truth will be revealed, you are not sending funds to the entity thought to be holding any rights to payment.
According to contract law there needs to be two signatures and consideration to be a contract, a mortgage only has one signature on it, so is it a contract?
There is no requirement that a contract have two signatures — unless the contract itself says so. The foundation of contract law in the U.S. is spelled out in Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819) & in that decision the U.S. supreme court quotes from Powell On Contracts, which was published in London in 1720. So you see the foundation has been around for a long, long time & it’s no different today. From that decision:
“1. What is a contract? It may be defined to be a transaction between two or more persons, in which each party comes under an obligation to the other and each reciprocally acquires a right to whatever is promised by the other. Powell on Cont. 6. Under this definition, says Mr. Powell, it is obvious that every feoffment, gift, grant, agreement, promise, &c., may be included, because in all there is a mutual consent of the minds of the parties concerned in them, upon an agreement between them respecting some property or right that is the object of the stipulation. He adds that the ingredients requisite to form a contract are, parties, consent, and an obligation to be created or dissolved; these must all concur, because the regular effect of all contracts is, on one side, to acquire, and on the other, to part with, some property or rights, or to abridge or to restrain natural liberty, by binding the parties to do, or restraining them from doing, something which before they might have done or omitted.”
Thanks for the article from Deadly Clear.
I learned of “re-hypothecation” In Ellen Brown’s book, “The Web Of Debt”. If memory serves, pgs 147-8.
In her book she demonstrates that stock certificates are routinely counterfeited (“re-hypothecated”) and she refers to the Attorney, Austin Burrell in his fight to prove as much while prosecuting a case for Overstock.com.
There was a website: “The Faulking Truth” written by one of the participants in the struggle and I think they were referring to it, at the time as “Stockgate”.
I am working from memory here and if you are interested I can only suggest you read her book. I think it is a “Must-Read” for any and every patriotic American interested in the truth.
Of course, I learned of counterfeiting (“re-hypothecating”) interest to title after I had already been engaged for some time in performing the functions to its counter-part: “de-materialization”.
My family and many others in a small town roughly an hour from Manhattan (where 95% of the illegal trusts were created) were involved in copying paperwork to disc format (“de-materialization”) and then disposing of the papers.
In fact I signed an affidavit in superior court in an effort to demonstrate my family was engaged in destroying mortgages- both the notes and the supporting liens- for years. We burned them while drinking beer; shredded them and threw them by the thousands in the town dump.
In one instance, after one of my brothers-in-law died, I took boxes of them from the home of my widowed sister and left them for a time under my front stoop and groundhogs made a nest of them for the winter.
I wrote of this to Mr. Garfield awhile back and he posted it. It is also posted on MSFraud.
I became ill in-and-around the time I formed a petition to object to and expose these behaviors. It is below.
http://petitions.moveon.org/sign/the-wicked-which-of-the?source=s.fwd&r_by=4695413
The more corruption that is verified the more I realize how important it is to keep informing the public, our legislators, and the judges. Thank you so much for sharing.
This is another post about how dire the amount of debt has been allowed to escalate: http://moneymorning.com/2012/01/04/how-banks-are-using-your-money-to-create-next-crash/
Reblogged this on Awaken Longford and commented:
Ha ha….. it’s 3 o’clock ….do you know where your Collateral is?
Reblogged this on Alina's Blog.
Reblogged this on DOCTEL PORTAL.
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Reblogged this on California freelance paralegal and commented:
Great article. Just more evidence that the big banks and corporations truly do think they are above the law.
For those whose trust are suppose to be listed at the SEC of Delaware (the PSA will state it on the contract) I requested a certified letter stating the Long Beach Mortgage Loan Trust 2006-4 is not statutorily registered with the State of Delaware. Look up Statutes for Remics in Delaware. It is required.
From: WEB DOSDOC (DOS)
To: SHELLEY’S TOTAL
Sent: Monday, June 29, 2015 9:58:44 AM
Subject: RE: degov contact form Corporations
To obtain this document you will need to submit a written request, along with payment, for a Certificate in RE: no record. The fee for this document is $50 and I have provided a link below to our request form which may either be faxed in with Credit Card information or Mailed with a check.
Click to access certmemo.pdf
Thank you for your inquiry,
Division of Corporations
401 Federal Street
Suite 4
Dover, DE 19901
(302) 739-3077
Website: http://www.corp.delaware.gov
Email: corp@delaware.gov
Most loans were transferred to the US Treasury and/or Fannie Mae after the 2008 crash and as part of the Bailout. Fannie Mae was made “financial agent for the United States” (not sure how or by whom) and appears on all the US Treasury and Fanie Mae servicer contracts. See: https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/mha/Pages/contracts.aspx
Rather than include all the $11 TRILLION in debt MBS securities on Fannie’s and Treasury’s books – they plop these loans into their portfolio trusts and since securitization and rehypothecation fall under UNREGULATED DERIVATIVES (thank you Congress for sitting on your collective ass for 20 years), Fannie doesn’t have to recognize these loans exist. However, it can bundle them, sell them, rehypothecate them and instruct servicers to foreclose on them.
You’d need to understand securities (which these loans really are rather than traditional mortgages) in order to grasp the financial manipulation of your property, credit, and social security numbers. It is Congress’ collective responsibility to get educated here and write better and clearer laws – and ultimately reinstate Glass-Steagall.
You will see the trust listed which throws you off. They were listed but never completed by design to con the courts you and the judges all the public. Never statutorily registered.
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