The Free House Myth – or Reality?

The Free House Myth – or Reality?
July 20, 2011

Katie Porter posted an interesting viewpoint on the Credit Slips blog this week called the The Free House Myth.  A synopsis of the column points to the fact that the banks may
have bad paper now – but they’ll be back.  It almost sounded like Katie had been drinking  Kool-Aid with RCO when she stated in her closing line, “[T]he free house is political handwringing, not legal reality.”

Porter came under fire by no less than (my personal favorite) Adam J. Levitin, Professor of Law at Georgetown University.  Professor Levitin has provided significant testimony before Congress and has dissected the Wall Street securitization scheme that collapsed our economy.  Professor Levitin posted his comments to politely debunk Porter’s ‘no free house’ viewpoint…

Posted by: Adam Levitin | July 18, 2011 at 06:46 AM

“The author skims the surface of the latte and finds after skimming the surface there is no more cream. Duh.

The Banks are often appearing as trustees on behalf of NY Trusts most of which died on or about 2008. If the trusts are dead than who has the right to appear in court? Nemo est hires viventis. No one is the heir of a living person and I would suggest, no one is the a trustee able to act on behalf of a dead trust. If the paper was successfully transferred to the trust, then perhaps the thousands of suckers who bought a RMBS are the owners. But if the paper was never successfully transferred, then the trusts and the trustees are certainly not the owners with standing. The original lenders might be but after phony documents have been created assigning the note and the mortgage to dead trusts, how could they possibly have the right of ownership?

The “myth” of the free houses was created not by consumers “oy!!” but by the very Banks who are picking up “free” houses every day by pretending to be trustees acting on behalf of dead trusts or trusts that never properly held the mortgages and notes. It is very much like Ronald Reagan calling a nuclear submarine the Corpus Christie or calling armed combatants “peacekeepers.” The “free house” was the Orwellian double speak created by Bankers for Bankers and their judicial minions and hand maidens have adopted their language very well.”

Professor Levitin’s post  is precisely what judges and legislators need to thoroughly understand.  The Wall Street securitization scheme was fraught with fraud – so much so that they even failed to fulfill their paperwork, fiduciary duties and Trust obligations. Many litigators feel that this was on purpose and that there were other agendas and some speculate that it was just sloppiness.  In any case, there is no time machine to take the banks back to correct their bad habits (criminal or mistake).

The investors are not any less responsible because in most cases they carelessly invested public trust funds, pension and retirement funds belonging to government workers, unions and corporate retirement beneficiaries.  There was a fiduciary duty to inspect and insure that what they spent $$Billions of dollars for was actually real.  It doesn’t appear that any investor physically reviewed mortgage documents – their financial advisers just took Wall Street’s word that these Trusts were good.  Would you buy a car for your grandmother with her money and not even check to see if it had an engine?  Well, that’s what happened here.

Investors had full disclosure.  If you read a mortgage trust Prospectus and controlling documents – it is loaded with risks and warnings… hundred of pages of warnings.  This is more than the homeowner ever received.  He had no warnings or indication of risk when he filled out his application or when he signed his final loan documents.

Do I think there are or should be free homes?  Probably.  But that’s not the goal of most homeowners.  The majority want to pay someone – they just want to make sure they know who it is and that they haven’t been defrauded. Here is a classic example of what we are facing in Hawaii and all around the country…

There is a case currently pending in Hawaii U.S Bankruptcy Court.  The debtor was forced to file a Chapter 13 when he tracked his loan and found out that the bank [US BANK NAT’L] that was trying to foreclose did not, and could not, own his loan.  In fact, he obtained an Affidavit from the bankruptcy Trustee of the original lender, New Century Mortgage, that stated exactly when New Century had sold the loan and to whom – and it wasn’t to US Bank Nat’l.  It appears all the documents the foreclosure mill used to force his foreclosure are fraudulent – fake, phony, forged.

The debtor couldn’t find a competent attorney he could afford that could understand and make the fraudulent document argument so the debtor represented himself before the court.  The court is currently re-reviewing the documents.

So, from this perspective there’s a good possibility that the Trust is dead, all the participating lenders are bankrupt and the investors have been paid, by TARP, insurance (usually non-recourse) or some form of stimulus money.  If that should give anybody a “free” house – it shouldn’t be the bank.

4 thoughts on “The Free House Myth – or Reality?

  1. The only thing that you get for free in life is the grace of God. I am paraphrasing the main character in ” True Grit” , an excellent and very inspiring movie.

    I am not sure I understand the “free ” part. Who is expecting to get the house for free? The people that were foreclosed on, with illegal/fraudulent/improper/unprofessional/simply bad paperwork? I am appalled by each and every mistake that a financial institution has made, but the fact that a borrower defaulted on his loan still needs to be dealt with. And this opens another more interesting discussion that Virgina brought up: Is there a viable alternative to foreclosures?Can we find or invent one?

  2. Yes they can invent one or it has already been invented, It’s called More Fraud and the banks are using it right now. Wake up, Any bank caught forging,lying,robosogning, with any homeowner should have to provide clear title to the property immediately. Why is there a double standard here????

  3. so…………… let me comment here………… i have owned a home since 1991. i have never missed a mortgage paymnet intemtionally always when missed it was pre arranged wit the banking institution:
    in the 1990’s great western bank let me miss 2 paymnets
    in 2009 i had forebearance with wells fargo
    201o wells fargo servicer tells me i have to be eminent default before i can apply for ahamp loan.
    what is the definition of eminent default ….and where was i , i had just paid my 5th modification payment. denies a hamp i was paying a higher mortgage that i could not afford. so i calle dfor help after an illness. i was told not to pay. please do the research and get back to me. becuase what i know about contracts if the entity you have a contract with tells you to break the contract the contract is null and void, broken. i did not default i was simply trying to qualify for a hanp loan. anyone told by their servicer not to pay illiterally has a broken contract. we need that proven somehow,. we want to keep our houses and would not be on here answering garbage. deal with the defaults? i called for help not for anyone to steal my home.

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