By Sydney Sullivan
The main focus this week, Blackrock & PIMCO, et al v. U.S. BANK NATIONAL ASSOCIATION, was so powerful it deserves to be highlighted. As usual legal protocol, the Plaintiffs’ claims are accepted by the court to be true. For example, the next move for the Defendant might be to file a motion to dismiss, a court must accept all well-pleaded facts as true, viewing the facts in the light most favorable to the plaintiff.
WARNING: The contents of this complaint is likely to make certain foreclosure judges with hefty Plaintiff hedge funds preferred shares in their investment portfolios extremely nauseous.
Plaintiffs Blackrock & PIMCO and a multitude of subsidiaries, affiliates, associates, closely related and closely held companies for each sued U.S. BANK NATIONAL ASSOCIATION for BREACH OF CONTRACT; VIOLATION OF THE TRUST INDENTURE ACT OF 1939; BREACH OF FIDUCIARY DUTY; BREACH OF DUTY OF INDEPENDENCE; AND NEGLIGENCE.
“These institutional investors originally sued six of the largest bond trustees, accusing them of failing to properly oversee more than $2 trillion in mortgage-backed securities issued in the run-up to the 2008 financial crisis.” Where did the money go?
“The lawsuits, filed in New York state court, claim the trustees breached their duties to investors by failing to force lenders and sponsors of the securities to repurchase defective loans, the suits claim.
The investors are seeking damages for losses that exceed $250 billion and relate to over 2,200 residential mortgage-backed securities trusts issued between 2004 and 2008, according to a person familiar with the cases.” See more at Newsmax.
Plaintiffs’ allegations begin with the description and admission that:
“RMBS trusts are created to facilitate the securitization and sale of residential mortgage loans to investors. The trust’s assets consist entirely of the underlying loans, and the principal and interest (“P&I”) payments on the loans are “passed through” to the certificateholders.
Between 2004 and 2008, a handful of large investment banks dominated the RMBS market and controlled the process from beginning to end. These banks act as “sponsors” of the RMBS, acquiring the mortgage loans from originators, who often were affiliates of the sponsors, or beholden to them through warehouse lending or other financial arrangements. Once the loans are originated, acquired and selected for securitization, the sponsor creates a trust where the loans are deposited for the benefit of the Certificateholders.”
Not being picky, but that last line is very interesting. “Once the loans are originated” – the origination point may be filling out the Fannie 1003 application form; “acquired” meaning the application is submitted or the faux loan documents are signed? And “and” selected for securitization – does that refer to no obvious kick-out errors? It is very curious that there are 3 steps as opposed to 2. The transaction appears to be (1) originated and (2) acquired and (3) selected.
Let’s look at this even closer. What’s the goal here? Obviously, the goal and intent of the banks are to securitize the transaction. Was that your intent Mr. & Mrs. Homeowner? Were you informed that Blackrock, the world’s biggest asset manager and /or PIMCO, the world’s biggest mutual bond were anxiously awaiting your property to add to their Wall Street trading portfolios? Nah, didn’t think so.
U.S. Bank played an independent role as Trustee and was the sole contractual party in the Trusts’ securitization process. Mr. & Mrs. Homeowner, did you ever hear about or meet anyone at U.S. Bank while you were in the transaction process? Nope? Didn’t think so.
Plaintiffs’ admissions continue in paragraph 5, “U.S. Bank knew that the pools of loans backing the Trusts were filled with defective mortgage loans. The abysmal performance of the Trust collateral – including spiraling defaults, delinquencies and foreclosures,” then continuing, “[B]y January 2011, the Trusts’ total losses had increased nearly three-fold to $74 billion, meaning that 10% of the Trusts entire loan pool had been written off.”
Okay U.S Bank – if these transactions were so frickin’ bad – why the heck are you still suing homeowners after you wrote off the losses?! Isn’t that a little unethical? Did you collect insurance on those write-offs? Are we treading into unlawful territory? Did you repackage (rehypothecate) the write-offs and resell these packages?
As one of our favorite podcast personalities says, “Let me rememorize you.” Do you recall that nifty little government program called HAMP that ran on TV, radio, and print all over the place? Where homeowners could call their “servicer” and get a modification? Well, U.S. Bank, the majority of homeowners wanted to pay but your servicers told them to “miss 3-4 payments in order to qualify.” Aside from the fact that “missing payments” was not necessary to qualify for HAMP, in other words, an outright lie, homeowners were never told that they would be in default and never allowed back into their transaction! Don’t pass Go – Go right to Foreclosure.
It was “you” banks that caused the 2008 crash – not the homeowners as you alleged in your precursory statements and rumors to the media ‘before the crash’ – a bonafide homeowner SMEAR campaign.
Whether it was because the FBI had zero’d in on mortgage fraud in 2004, or you intended to color the courts opinions against decent homeowners, or maybe it was a big coverup for the lousy watchdog government at the time, or even a takedown of the middle class and union pension funds, the mockingbird media all too timely started chirping, “homeowners bought more than they could afford,” “they used their homes like an ATM,” “homebuyers who paid extra fees to avoid documenting their income… should have known they were getting in over their heads” (this is really why she lost – totally out of touch), and a real classic was Obama’s “responsible homeowners” campaign. It made most of us want to open up the windows and scream!
First, let’s clue in everybody. Homeowners were “sold” these transactions just like stock shares – with the big pitch. The majority of homeowners did not ask to pay fees for ‘no doc’ transactions. In some cases, the homeowners didn’t even know these were ‘no doc’ transactions and in many cases, they had provided pay stubs, bank statements and tax records and still ended up with a ‘no doc’ LIBOR ARM, which was a flawed financial product, to begin with.
As for “bought more than they could afford” – what a joke. Here’s the loan officer calling you out of the blue: “Hello, Mrs. Homeowner? This is Jack at ABC Pretender Lender. We recently reassessed the value of your home and you’ve got over $300,000 in equity just sitting there. And since you’ve been such an excellent customer, how would you like to refinance with no money down? You could roll your credit cards and that new truck your husband just bought into the loan and take some cash out to invest, or go on that vacation you’ve been talking about. Your monthly payments would come out less with all of it rolled into the mortgage over 30 years.” How stupid is that?!
Yes, U.S. Bank – you sued the originators for their hustle and false appraisals – but really U.S. Bank, are you going to swear to God you didn’t know what was going on with those pretender lenders? One fact for sure, homeowners didn’t. But you sue homeowners for foreclosure anyway, even though everything you make your claims against the originators is precisely what homeowners have tried to tell the courts since 2008. Rigged, maybe?
We could go through this lawsuit paragraph by paragraph but the pièce de résistance is found in allegations 251 to 253:
“251. The PSAs require the depositor to deliver to and deposit with, or cause to be delivered to and deposited with, U.S. Bank, the mortgage files, which must at all times be identified in the records of U.S. Bank as being held by or on behalf of the Trust. Furthermore, the PSAs require U.S. Bank to acknowledge receipt of the mortgage files on behalf of the Trust and to acknowledge that all mortgage pool assets, mortgage files and related documents and property held by it at any time are held by it as trustee of the Trust.
252. Once the mortgage files are in U.S. Bank’s possession, the PSAs require U.S.Bank to ensure that the underlying mortgage loans were properly conveyed to the Trusts, and that the Trusts have perfected enforceable title to the mortgage loans by reviewing the mortgage files for each of the mortgage loans. U.S. Bank is required to review each mortgage file within a certain time period after the “Closing Date” and deliver to the depositor a certification that all documents required have been executed and received.
253. If U.S. Bank identifies any defect in a mortgage loan file for an underlying mortgage loan contained in a Trust, U.S. Bank must promptly notify either the servicer or depositor, and that party shall promptly notify the applicable seller of the defect and take appropriate steps on behalf of the Trust to enforce such seller’s obligation to correct or cure the defect or repurchase or substitute such mortgage loan.”
To say the word “failed” as it applies to U.S. Bank in this lawsuit and appears at least 78 times is an understatement speaking to the rampant and wildly negligent and corrupt securitization/rehypothecation behavior in these Congressionally misunderstood UNREGULATED DERIVATIVES.
Okay, Foreclosure Judges it’s time to WAKE UP!
What we can derive from these lawsuits is the failing methodology, lack of adequate regulatory oversight, extreme neglect of fiduciary duties, fraud on the court and wanton disregard for property owners and investors. These lawsuits make clear that the Trustees’ carelessness caused the losses to the shareholders, and this was not caused by homeowners.
Look at an example of the losses! “BlackRock and PIMCO already having settled the Countrywide claims for approximately 8% or less of losses, they may be hard pressed to argue they would have recovered much more than that (or approximately $20 billion) through litigation/settlement.” Who’s Watching the Watchmen? RMBS Trustees Come Under Fire as Investors Launch NextWave of Lawsuits. Told ya it was painful.
Recently there have been two major developments in the foreclosure field, seemingly completely unrelated to one another, yet in reality highly interrelated.
The first major development is the ongoing 2015 Blackrock class action lawsuit in New York County Supreme Court, brought by hundreds of securitized trust major investors, including insurance companies and investment trusts, against U.S. Bank serving as Trustee for 770 securitized trusts, each with its own pooling and servicing agreement, which class action, surviving motions to dismiss just this year, has now been allowed to go forward in 2018 on its breach of contract claims.
These breach of contract claims by investors address deficiencies by U.S. Bank in the management of its securitized trusts, including “failure to ensure delivery of mortgage loan files” into the trusts, which of course is of special importance to individual mortgage borrowers challenging the pretender lender standing of securitized trustees suing for foreclosure while alleging possession and ownership of those loan files.
The second major development is the emergency interim suspension by the Florida Supreme Court of well known and highly successful Florida trial and appellate foreclosure defense attorney Mark Stopa for supposedly posing “great harm to the public” after one County Judge sitting as referee recommended his suspension, despite reportedly that ten other Florida judges had “testified glowingly of [Stopa’s] superior legal abilities and ethical behavior” in hearings this spring concerning a relatively few client complaints against him, and at the end of August agents of the Florida Department of Law Enforcement even raided Stopa’s Law Office, removing boxes of client files.
After all, the majority view still seems to be that borrowers are deadbeats and having no real defenses, attorneys representing borrowers are unethically merely preying on vulnerable deadbeats.
What do these two seeming separate developments in Blackrock and Stopa have in common?
Together they highlight the interrelated nature of the indefensible double standard being applied both to the ethical supervision of foreclosure defense attorneys in the United States compared to their foreclosing attorney counterparts, and to the judicial supervision of securitized trustees in foreclosure litigation compared to lawsuits by investors against securitized trustees.
And the interconnection between the two developments is the national war against foreclosure defense attorneys by Bar regulators, encouraged by foreclosure [mill] attorneys, which is the major reason that borrowers, lacking in defense resources, continue to be disadvantaged in foreclosure litigation.
Even emergency interim suspension was matter-of-factly recently sought against the undersigned by Hawaii Bar regulators claiming, for instance, that The Foreclosure Hour was “a menace to the general public,” supposedly the show guaranteeing clients favorable outcomes, which is not only untrue as every one of our listeners knows, but absurd, and, fortunately, the Hawaii Supreme Court recently denied that emergency petition so we are still on the air.
Meanwhile, while foreclosure defense has become more and more a low paying and truly hazardous occupation, pretender lenders and their foreclosure attorneys, both richly compensated, continue to go ethically unsupervised by Bar Regulators, who like the legendary Mr. Magoo, prefer to overlook outright forgery, perjury, dishonesty, and theft of homes, dozens of examples of which committed in court have been exposed on previous Foreclosure Hour shows and will be summarized today, time permitting, for any legislators, judges, and Bar regulators who may be listening and genuinely interested in stopping such dishonest practices.
Those practices, being indirectly exposed in the Blackstone class action having to do with covering up the widespread failure, for instance, of having delivered loan documents into the securitized trusts, are: false swearing by robo-signing documents recorded and filed in court, authenticating so-called original promissory notes by false testimony, assigning of mortgages to trusts that at the time did not even exist, loan servicers falsely claiming ownership of loans ordered blatantly to do so by Fannie Mae and Freddie Mac Servicing Guidelines, unethical control of foreclosure cases and counsel compensation by third parties hidden owners Fannie Mae and Freddie Mac, foreclosure attorney representation of non-existing clients, conflicts of interest of foreclosing attorneys representing both sides, use of manufacturing plants creating false “original” loan documentation, false appraisals, false loan applications, and false underwriting, and more.
And in closing, perhaps the final irony and double standard of them all is when courts treat mortgage transactions inaptly named securitized trusts as securities transactions from the enforcement perspective of trust investors, but merely as traditional mortgage loan transactions from the enforcement perspective of foreclosure courts.
Thank you to Dillon Ratigan – you were right and we miss you!
Special thanks to:
tonebobb and Wake Up Lady
Adrian A and the Rolling on the Floor Laughing Guy
HRC for her hypocrisy