J.P. Morgan did suffer a crushing defeat in this decision. And the borrower definitely receive the benefits of a judicial decision that will allow the borrower to sue for wrongful foreclosure including equitable and legal relief which in plain language means reversing the foreclosure and getting damages. Probably one of the most damaging conclusions by the appellate court is that an examination of whether the loan ever made it into the asset pool is proper in determining the proper party to initiate a foreclosure or to offer a credit bid at a foreclosure auction. The court said that alleged transfers into the trust after the cutoff date are void under New York State law which is the law that governs the common-law trusts created by the banks as part of the fraudulent securitization scheme.
Before you give them a standing ovation remember that it is possible for additional documentation to be created, fabricated and forged showing that despite the apparent violation of the cutoff date, the trustee has accepted the loan into the trust. This will most likely be a lie. I don't think there is any entity acting as trustee of a trust that doesn't know that it is under intense scrutiny and doesn't want to be subject to liability that could amount to trillions of dollars advanced by investors with the purchase of bogus mortgage-backed bonds that were presumably managed by the trustee but in reality not managed at all because the bonds were worthless. This gave the banks the opportunity to claim that they owned the bonds and therefore had an insurable interest which gave rise to the whole problem with AIG and AMBAC and other insurers or parties who had guaranteed the bond, the loan or any loss (credit default swaps).
The fact that the loan in this case was definitely securitized is also interesting. Of course Washington Mutual was stating to everyone that it was not involved in the securitization of mortgage loans when in fact nearly all of the loans originated became subject to claims of securitization. This case explains why I never say that the loan was securitized or that the loan was in any particular trust, to wit: I don't believe that a funded trust exists with the ability to purchase loans and therefore I don't believe the loans are in any of the asset pools. So when people ask me how they can prove which trust their loan is actually in, I reply that they are asking the wrong question.
What is being played out here in this case and hundreds of thousands of other cases is a representation by the foreclosing entity that the trust owns the loan when in fact it never owned the loan nor could it because the money that was advanced by investors was never deposited into the trust. We have the same banks representing to regulatory authorities and insurers that it is the bank and not the trust that owns the loan even though the bank merely made the loan using money advanced by investors who believed that they were buying mortgage-backed bonds. The truth is they were merely making a deposit into an account maintained by the investment bank. The resulting transactions do not qualify for exemption as securities or insurance under the 1998 law. Nor do they qualify for REMIC treatment under the Internal Revenue Code.
In other words if you take a close look and actually follow the path of the money and the path of the paper you will find that despite the pronouncements from the Department of Justice and other agencies, this is a simple fraud case using a Ponzi model. The hallmark of a Ponzi model is that it collapses as soon as the investors stop buying the bogus securities. If the government cares to do so it can freely prosecute the individuals and companies involved without any air of exemption under the 1998 law because none of the parties followed the securitization path presumed by the 1998 law. So we are back to this, to wit: a security is a security and subject to SEC regulations and insurance is an insurance contract subject to insurance regulators, and fraud is fraud subject to recovery of restitution, compensatory damages, punitive damages, treble damages etc.
You should remember when reading this decision that the appellate court was not ruling in favor of the borrower granting the substantive relief the borrower was seeking. The appellate court merely reversed the trial court decision to dismiss the borrower's claims. That only means that the borrower now as an opportunity to prove the elements of quiet title, wrongful foreclosure, slander of title, cancellation of instruments and relief under California's version of unfair business practices. But the devil is in the details and proving the case requires aggressive discovery and aggressive preparation for trial. It is highly probable that the case will settle. The bank will probably be willing to pay almost any amount of money to avoid a judgment setting forth the elements of a wrongful foreclosure and how the bank violated the law.
The Bank will attempt to avoid any final order that undermines the value of loans that are subject to claims of securitization, because those loans supposedly support the value of the bogus mortgage-backed bonds sold to investors. Any such final order would also undermine the balance sheet of J.P. Morgan and any other major bank carrying the mortgage bonds as assets on their balance sheet. If those assets are diminished, then the bank is not as well funded as it has been reporting. In fact, those assets might well vanish completely from the balance sheet of those banks, causing the banks to be seized by the FDIC and broken up into smaller pieces for regional and community banks to pick up. Hence this decision represents a risk factor that could eliminate the legal fiction created by smoke and mirrors from Wall Street banks, to wit: it is not the borrowers who are deadbeats, it is the banks who are broke and whose management has run off with billions and perhaps trillions of dollars that should be in the United States economy. The absence of that money lies at the root of our unemployment and low economic activity.
This Glaski case has many of the elements that we have been discussing for years. Fabricated documents, forgeries, perjury, false affidavits and no money trail to backup the story painted by the fabricated documents. And of course it has our old friend Washington Mutual Bank And the supposed take over by Chase Bank that never actually happened.
And it involves the issue of assignments and the fact that the assignment is not the transaction itself but only a report of a transaction. If the borrower proves that the transaction reported in the assignment or other instrument of conveyance never occurred, or if the borrower is successful in shifting the burden of proof to the bank to show that it did occur, the assignment will have no value whatsoever unless the transaction is present, to wit: that someone actually purchased the loan through the payment of money or other valuable consideration that was received by a party who actually owned the loan.
Thus even if Chase Bank were able to show that it entered into a transaction in which the loans were transferred (something we can find no evidence of which the FDIC receiver says never occurred) that would only be the equivalent of a quit claim deed, to wit: whoever received the consideration for the transfer of the loans was merely conveying any interest they had even if they had no interest at all. Hence the transactions by which Washington Mutual allegedly came to be the owner of the loan must be examined in the same way as the transaction between the Washington Mutual bankruptcy estate and chase bank.
You should also take note that the decision was published with the admonition that it is "not to be published in the official reports." this is further indication that the court is concerned about the far-reaching effects of the decision and essentially tells trial judges that they do not have to follow it. So for those who wish to point to this decision and say "game over" we are not there yet. But I do think that we passed the halfway point and we are probably in the fifth or sixth inning of a nine inning game. Translating that to time, I would estimate that it's going to take another three or four years to clean up this mess and that it might take several decades to clean up the title corruption that was created by the banks.