Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Carrie
I have read for many hours the posts on this site and around the Internet. I think I can now do the commercial where the guy is sitting in front of the computer when a voice says, "You have reached the end of the Internet!"

I have much good information spinning around in my head and in my computer's brain, yet I have nothing but loose ends! I am very limited in what I can piece together myself. But I found this statement somewhere in my online research and it seems to be the place to start (Sorry, I failed to make a note of which case it came from):


A whisper of fraud can topple the pillars of even the most impregnable contract, for to base a contract upon fraud is to build it upon sand. This court has repeatedly stated that:

The purpose and effect of the evidence introduced in the case at bar is not to contradict or vary the terms of the written contract, but to show that the plaintiff was imposed upon, and the fraud was practiced in obtaining his signature thereto. Fraud vitiates everything it touches, and a contract obtained thereby is voidable. And evidence is always admissible to show that contracts have been fraudulently obtained.

We honor this rule because "the public policy fostering the certainty and stability of contracts gives way to the public policy against fraud."

This quote reminds me of when my son played college football. He was 5' 8", 185 pounds, but fast and fearless. As a mom, I worried when I saw 275-350 lbs. opponents crowd the field (I know, I know!). I asked him if he was afraid when he saw his huge opponents. He replied, "Naw, Mom, I just hit 'em low and watch 'em fall!"

I am facing a 99.9% chance of losing my home very soon. So with that reality, I'm thinking it unwise to keep supporting a lawyer monthly to essentially throw sand in the gears. (God bless Mark Stopa, who reportedly charges $1500 a YEAR to represent Florida homeowners.)

Since fraud vitiates everything it touches and makes a contract voidable, where should one start and finish in defending against the fundamental fraud? Or is defending against fraud in the inducement an impossible challenge because of the complexity and secret dealing?

I realize every case is unique, but in a way, they are similar: Most mortgages are permeated with fraud. Is it possible for the great minds on this site to come up with a concise plan or outline for defending against fraud in the inducement, especially with MERS mortgages?

I'm wanting us to topple a pillar or two!


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William A. Roper, Jr.
Carrie:

That there was unquestionably fraud in many mortgage transactions is unquestionably true.  Proving the fraud is more problematic.

Every fraud defense begins with a proof problem.

Moreover, one must distinguish between various types of fraud and the victims of that fraud.  With subprime origination fraud, the victim is most often the borrower.  But this is not universally the case.  Lenders were also sometimes victimized by fraudulent representations by the borrower.  And in some instances, both the borrower and the Lender were victimized by a loan broker, though the Lender was certainly in a far better position to protect itself and very often looked the other way.

Even when the borrower committed fraud, the fraud was very often coached by the loan officer, mortgage broker or real estate broker.  Even accountants were coaching borrowers how to obtain loans through fraudulent representations.

If the loan file contains false representations about the borrower's income, credit, character or other circumstances, was this because the borrower furnished false information?  Was the borrower culpable, but part of a collusive fraud that also involved the loan officer or mortgage broker?  Or did the loan officer or broker substitute the false documents and averments for the actual documents and application furnished by the borrower without the borrower's knowledge?

One of the documents that a borrower typically signs at closing is the so-called "conformed loan application" which includes a typed copy of the borrowers representations appearing within the original application "conformed" to the information ascertained through various verifications (e.g. if the borrower claims to make $4,000 per month and the borrower's employer says that the borrower makes $3,984, the figure is altered to reflect the amount verified by the employer).

This presentation of the conformed application is essentially a brief back by the Lender as to what it understands that the borrower is representing to the Lender to induce the loan.  And the borrower again signs this document.

In some cases, the borrower reads and signs.  More often, the borrower signs this without reading.  And, occasionally the loan officer or mortgage broker withholds this document and simply forges the borrowers' name.

So a loan might be made to a borrower who wouldn't qualify with the borrower brazenly lying from start to finish OR the borrower might have been a paragon of honesty and correctly represented everything, only to have each of these documents altered or substituted by the fraud of the incentive compenssated loan officer or mortgage broker.

*

If the borrower(s) retained copies of every document they submitted, had their parish priest or minister attend the application and closing, took meticulous notes during the application interview and at the closing, which was attended by the borrower's attorney, as well as the borrower, if the borrowers are true victims of origination fraud, this might be easily proven.

Reality often presents far less clarity.

The borrower rarely takes and retains thorough meticulous notes.  Copies of application paperwork, if ever received, are often misplaced or thrown away after the loan is received.  Borrowers save money by not involving a lawyer.  The lender engaged in fraudulent conduct may purposefully withhold copies of documents signed at closing, so the borrower never gets a copy, even though the borrower signs an acknowledgement that they received a copy of everything!

*

Fraud that occurs downstream in the securitization process may not actually victimize the borrower at all.  That is, if the Lender bundles and sells the borrower's loan and misrepresents the risk, character or security, it is the mortgage investor or purchaser of mortgage trust certificates being victimized.

Despite representations to the contrary, often by scam artists seeking to victimize the distressed borrower a second time, the borrower is not a party to the securitization transaction.

*

The proof problem is daunting, because the borrower will have the burden of proving the fraud.  And this cannot simply be done by asserting that fraud was rampant in teh industry.  The borrower must conclusively establish the fraud by the introduction of specific admissible evidence. 

*

Waiver is another problem.  I have heard from many borrowers would describe an origination bait and switch.  They were orally told that they would be getting a loan on certain terms.  At closing, they were presented with a very different deal.

The interest rate was much higher.  Additional unexpected fees had been added.  A prepayment penalty was added.  The borrower might have even noted some anomaly with the "conformed loan application" (e.g. "But I don't really earn $10,000 a month!").

The borrower could have walked away, but didn't.

When the borrower tells me that they KNEW ABOUT the fraud BEFORE they signed the note and mortgage, they are essentially admitting that they were aware of teh fraud and elected to waive the fraud and proceed with the transaction.

It is at this point that the Lender's attorney shows you the provisions at the very end of the note appearing in bold print just above the signature.  This almost always says:
"THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES."
In other words, when the borrower signs that agreement, they are essentially waiving any arguments that there was some other agreement not shown in the instrument.

This is singularly difficult to overcome!

*

Separate and aside from the proof problem are statutory problems presented by the holder in due course doctrine under the UCC.  A purchaser of a negotiable instrument which was regular on its face, not in default and not subject to a borrower assertion

The mortgage investor bought the loan from the Lender, usually before the borrower's default.  And under the holder in due course doctrine, the purchaser of the loan can basically tell the borrower that IF the borrower has a valid cause of action for origination fraud, that this cause of action should be brought against the originating Lender, NOT the mortgage investor.

This isn't an altogether unreasonable proposition in theory.  In practice, it tends to make recovery on fraud almost impossible.

The originating Lender is now out of business.  The mortgage broker has moved on to other boiler room swindles, such as selling debt elimination scams.  Oh, yes.  Those very same criminals who profited from the fraud in the origination are now busy trying to take your very last liquid cash -- the money you might use for an effective defense -- to sell you an overpriced "forensic loan audit", a "forensic securitization audit" or a debt elimination scam purporting to eliminate your obligation through a quiet title action!

The mortgage investor invokes holder in due course immunity.

*

Even if the fraud could be readily proven and this is most often problematic, it cannot usually be successfully asserted against the mortgage investor and the originating Lender has been dissolved.
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Thomas
Spot on as always William! The only reason for my reply is in that if Carrie were wanting to go back and find what she read, it would probably be through searching cases involving the use of parole evidence. I hope I spelled that right. Normally parole evidence is not allowed to prove fraud, but the parole evidence rule was not put into place to prevent exposing fraud either. Its a fine line to walk.
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Carrie
Thanks, Mr. Roper.

I should have known that far brighter minds than mine, especially yours, would already be advocating proving fraud if it were even possible to do so. I knew about the tough part of proving intent, but that seemed to be the next step after finding out whether a streamlined view of the patterns of fraud had emerged after all this time in Foreclosure Land.

Thomas, thank you too. I will look into your suggestion.

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Bill

Thomas wrote:
Spot on as always William! The only reason for my reply is in that if Carrie were wanting to go back and find what she read, it would probably be through searching cases involving the use of parole evidence. I hope I spelled that right. Normally parole evidence is not allowed to prove fraud, but the parole evidence rule was not put into place to prevent exposing fraud either. Its a fine line to walk.


The term you are describing is Parol evidence. 

http://legal-dictionary.thefreedictionary.com/Parol+Evidence

Quote:

Parol refers to verbal expressions or words. Verbal evidence, such as the testimony of a witness at trial.

In the context of contracts, deeds, wills, or other writings, parol evidence refers to extraneous evidence such as an oral agreement (a parol contract), or even a written agreement, that is not included in the relevant written document. The parol evidence rule is a principle that preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced in the document.



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George Burns
I do not think that Carrie got a good answer to her question, which, to me, was about making a foreclosure defense by claiming fraudulent inducement.

However, if I am correct that that is what she wants to do, then I ask Carrie to expand on her thoughts as to why she thinks a rational defense could be made and what was the nature of the inducement.

For example, Was she offered a "teaser rate" then when it was switched she could no longer afford to pay?

OR. Was she offered a "cash out" arrangement, but the cash never materialized, so she did not have the money to pay?

While the former could be used in a defense, the latter probably would work against her.

There are a number of things that could have been used as inducements, some fraudulent, some not. Then it also could depend on the operation/use of the item in question and not the item itself.
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Here is a great new case out of New York regarding the issue of fraud vitiating contracts.


 IndyMac obtained a judgment of foreclosure using an Affidavit of Amount Due signed by Erica Johnson Seck.  The parties at some time entered into a settlement stipulation.  following the settlement stipulation, Garcia filed a Motion to Vacate the Foreclosure Judgment claiming that Johnson-Seck is a "robosigner."  IndyMac then filed a "reverified" Affidavit of Amount Due signed by Charlotte Warwick but did nto deny that Johnson-Seck was a robo-signer.  

The court found that IndyMac had committed extrinsic fraud on the court and therefore Garcia did not need to present a reasonable excuse for his default.  The court noted that Garcia stated he was not served although the court does not rule on this.  The court vacated the final judgment of foreclosure and declared the settlement stipulation null and void because it was vitiated by the fraud.
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George Burns
The Original Post is not questioning fraudulent documents or documents filed in the case.

Carrie specifically stated " a concise plan or outline for defending against fraud in the inducement ".

It seems she is talking about fraud at the outset possibly even before the closing because she uses the term " inducement " more than once.
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William A. Roper, Jr.
Quote:
George Burns said:
I do not think that Carrie got a good answer to her question, which, to me, was about making a foreclosure defense by claiming fraudulent inducement.

However, if I am correct that that is what she wants to do, then I ask Carrie to expand on her thoughts as to why she thinks a rational defense could be made and what was the nature of the inducement.

For example, Was she offered a "teaser rate" then when it was switched she could no longer afford to pay?

OR. Was she offered a "cash out" arrangement, but the cash never materialized, so she did not have the money to pay? 


George et al:

By my exposition above, I do NOT mean to suggest that a strong case for fraud cannot be made out in some instances.  Nor do I mean to suggest that fraud defenses ought not be explored.

Rather, I was, to a very large extent reacting to the implicit suggestion that making out a case for fraud might be easy.

In my view, these cases can be very hard to successfully make out even when the fraud was particularly egregious.

In addition to the points summarized above, there is very often also a limitations defense.  Since housing prices and the subprime market peaked in 2006, we are now five years AFTER the worst of the origination mischief.  As I have pointed out, while limitations can be tolled in many places by a discovery rule, such rules are often based upon not simply when the fraud was discovered, but also when it should have been discovered by the reasonably prudent person.

This has given rise to the rather perverse defense that because a Lender or mortgage broker was engaged in particulary notorious and readily discernible fraud, that it ought to have been discovered right away!  In other words, they are so guilty, that limitations should have begun to run at the moment the fraudulent transaction occured.

I would encourage Carrie to organize her materials and to present and discuss these with one or more capable trial lawyers experienced in fraud.  If she has a really good case, perhaps someone would take the case on a contingency.  If the case is really marginal, they will probably want cash up front.

While making out a strong case can be daunting, it would seem to me that this could add considerable leverage to a negotiated settlement.  If she is facing a foreclosure, she needs to discuss this possible cause of action an understand whether she needs to present this as a counterclaim.

As I have pointed out elsewhere, sometimes the forgery of a post commencement or a post default assignment creates a false record that the plaintiff obtained its interest after the borrower's default.  This can be used to defeat an assertion of holder in due course.

Interestingly, if the originating Lender is out of business and the holder in due course immunity is pierced, the foreclosing Lender can actually be pretty vulnerable in its inability to find and marshal the witnesses and the evidence to impeach or refute a prima facie case of fraud!  That is, IF the defendant/borrower has a strong case, the purported mortgage investor has the proof problem
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This is to Mr Roper: Can you shed more light in your opinion that a securitization audit is basically useless?

(I just need more insight in this subject,
before I order mine)

Because it is true that the borrower is nor a party, but
I guess the other party will convert the note into a stock, right?,
then the "bank" will not be able in any way to breing the "note"
if I request it?,

Or the "bank", who probably "bought back" my loan for pennies on the dollar
will not be able to prove in court that they are the "holder in due course" of
the note, because is forever converted into a stock...

I am right...or completely lost??
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William A. Roper, Jr.
Quote:
tanya keppler said:
Because it is true that the borrower is nor a party, but
I guess the other party will convert the note into a stock, right?,
then the "bank" will not be able in any way to breing the "note"
if I request it?,

Or the "bank", who probably "bought back" my loan for pennies on the dollar
will not be able to prove in court that they are the "holder in due course" of
the note, because is forever converted into a stock...


Tanya: 

Unfortunately, you seem to be very lost.  Your note will NEVER be converted into stock.

If anyone is claiming to be an expert of any sort and is making such assertions, then it is total rubbish and you are simply being conned.

Securitization does not alter the underlying character of the note or mortgage AT ALL.  It only alters the identity of the party to whom the payments of interest and principal are owed.

IF you are facing a judicial foreclosure, it might be very useful for you to have a VALID and admissible expert affidavit to use in defending against a summary judgment.  Having additional facts about the character of securitization is probably useless you have some valid means of getting that information into evidence.

BEFORE you focus on getting evidence into the record, you need to be focused on answering any complaint with a viable and legally sound answer.   You ought to be focused on finding a competent attorney.

Read through posts from the past weeks and months.  Look at the cases.  Notice what is working at the appellate level!

Many foreclosure cases can be won on basic evidentiary arguments.  Cases can also be won using the plaintiff's evidence against them.

I am only aware of a handful of actually competent expert witnesses.  The world seems to be awash in swindlers and scam artists.

If the person seeking to sell you services is not up front about their identity and credentials AND if that person cannot show some cases in which they have worked as an expert, the person is probably just trying to swindle you.  This is particularly the case if the person uses high pressure sales tactics to persuade you to act quickly and/or asks for large sums of money up front.

If you are reasonably intelligent, you can find out essentially everything that would be discovered through such a "securitization audit" at essentially NO COST.  And if you had trouble, experienced folks at this Forum would help you at no charge. Unfortunately, there are also some dishonest persons who troll this site looking for new victims!
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Thomas
Bill, thanks for posting the description for me. I was in a hurry earlier or I would have had the time to find one. Many of the cases on parol evidence explain well what you can and can not use to try to prove fraud in a contract or a transaction which is what I thought Carrie was asking about
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William A. Roper, Jr. wrote:
tanya keppler said:


 Notice what is working at the appellate level!

Many foreclosure cases can be won on basic evidentiary arguments.  Cases can also be won using the plaintiff's evidence against them.


I am trying to makeup time in order to dig into this

can somebody send me an Email please?
because its said that the walls have ears, eyes and everything in between here, I don't know if is true, but better safe than sorry.

interested in learn how to dig into the "appellate level" stuff,

and I know there is a relation betwee the IRS publication 938?
and proving the unexistence of certain trust.

Email anyone?




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I messed up in the prevoius message:

it was a mixup, sorry william roper
it looks like I SAID things that you said.
an error
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