







Federal Bankruptcy Judge Explains Wells Fargo Servicer Advances

In order to obtain forensic reports including servicer advances please go to http://www.livingliesstore.com or call 520-405-1688. for litigation support to attorneys call 850-765-1236.


Mortgage Lenders Network v Wells Fargo, Chapter 11, Case 07-10146(PJW), Adv. Proc., Case 07-51683(PJW)

In an adversary proceeding in which evidence was presented, Judge Walsh dissected the confusing complex agreements involving the real set of co-obligors’ liability to the Creditor REMIC trust. Many thanks to our legal intern, Sara Mangan, currently a law student at FSU.

I had no idea the case existed. It apparently got buried because of all the ancillary issues presented. If you really want to understand the complexity of repayments to the creditor, this is one case that deserves your full attention.

As usual the best decisions are found when the adversaries are both institutions. We are looking for more such cases. This certainly applies to any Wells Fargo case and explains the nervousness of the witness during trial when I asked him about whether the records he brought were complete.

The LPS Desktop system (formerly Fidelity) INCLUDES servicer advances and computations made based upon that. The unavoidable conclusion, drawn by this Judge, is that everything we have been saying about servicer advances is true. Everything in our forensic report is true as to all properties. The servicer makes those payments based upon a payment of enlarged fees for taking the risk on itself, according to the agreements. Whether there is an actual right to recover from anyone is actually not specifically stated except that the net proceeds of liquidation of REO properties after the auction are subject to servicer claims. This might include other insurance or guarantees.

There is no default experienced by the creditor. There is a new potential for a new party (not mentioned in note or mortgage) for recovery outside the terms of the note and mortgage. The expectation is that there will be a foreclosure and there will be a sale. If there is no foreclosure and there is no sale, then the amounts are not recoverable — unless the servicer too is insured. But all of those insurance contracts seem to have been purchased and procured by the broker-dealer (investment bank) that sold the bogus mortgage bonds. The conclusion to be drawn is that the default notice to the homeowner-borrower might be valid (probably not, because servicer advances have already begun) but it is cured immediately after it is sent by payments, often from the same party who sent the default notice.

Remember the language in US Bank and Chase et al. The servicer SHALL make the advances unless it believes the advances are not recoverable. If the servicer was merely making a loan to the trust beneficiaries there would be little doubt that the advances were recoverable. They can argue that the advances are recoverable in substance from the borrower, but that is only AFTER the foreclosure Judgement and AFTER the sale and AFTER the liquidation of the property after the auction sale.

In this case, the following issues are addressed:

1. Servicer advances — in 4 categories. Why they are advanced and when and how they might be recoverable — when the properties are liquidated. There is some confusing language in there about the trusts, so you need to read it carefully. But the main point is that this is a case of prior servicer and new servicer, both of whom take on the obligation of making servicer advances whether the borrower pays or not. If there is a short fall, the servicer pays — or an insurer. In reality, and not addressed by the Court is the fact that in all probability the actual money advanced by the servicer most likely comes from a slush fund created by language buried deep inside the Prospectus or Pooling and Servicing Agreement that allows the investment banker to pay the trust beneficiaries using their own money advanced by them when they became trust beneficiaries.
2. Recovery is clearly stated as whatever money is left after the REO property has been liquidated or from the borrower. [Note there is ONE reference by the Judge to recovering from the Trust but he doesn’t explain it nor does he cite to anything in the agreements]. Since this provision is not referenced in the mortgage, they cannot be traveling under the mortgage and there is no mention of the mortgage provisions in this decision. Since those proceeds frequently are far less than the amount advanced, there is ono direct right of action by the servicer against the borrower, although I postulate that they could potentially bring an unsecured claim for restitution or unjust enrichment.
3. In the end one previous servicer owes the other new servicer the advances, not the trust and not the borrower.
4. There is insurance that makes sure that if the servicer doesn’t make the payments, then the insurer will make-up the shortfall. The insurers do not appear to have any recourse against anyone.

5. There can be no doubt that there are two types of default — one where the borrower stops paying on a note and mortgage (assuming the note and mortgage are valid) and the other, where the REMIC trust beneficiaries fail to get the required distribution as set forth by the Prospectus and Pooling and Servicing Agreement.

6. The conclusion I draw is that the recovery of advances “by the servicer” takes place after the mortgage has been foreclosed, by which time the initial homeowner borrower is out of the picture. Hence, it seems that while there are “proceeds” that can be claimed by the servicer, it is under a separate transaction with the REMIC Trust and under a potential right to claim money from the borrower for contribution or unjust enrichment — with unjust enrichment being a center-point of this case.

This case also explains many other transactions that occur between the servicer and other entities. It isn’t the encyclopaedia of servicer advances, but it explains a lot of what I have been talking about. When the borrower stops making payments for any reason (and perhaps legal reasons for withholding payment, or being prevented from making payments by a servicer who proclaims the loan to be in default), the creditor keep getting paid. So even if the allegation is that the cessation of payments was a default under the note and mortgage, the fact remains that the creditor is not experiencing any default because payments are being made in full by various parties to the creditor. Hence, my question to corporate representatives, about whether they are showing the full record, and whether the books of the creditor show a default. They don’t, if servicer advances were made. I have personally seen a Wells Fargo witness get quite agitated as I approached this subject.

Servicers have kept this information away from borrowers and have withheld it from the courts when they do their accounting.  I would add that if the  argument from opposing counsel is that the servicer advances are secured by the mortgage because of language that includes the word “advances” then they are admitting at this point that the entire structure of the loan as presented to the homeowner borrower was a lie. Under the federal truth in lending act such disclosure was entirely necessary to complete the transaction.

It will also be inevitably argued that this gives the homeowner borrower a free ride. Of course we all know that there is no free ride in this. The homeowner has usually made a substantial down payment and has made monthly payments for years. The homeowner had spent a lot of money on furnishing and completing the house. There is no free ride. But the best argument against the “free ride” allegation is that this is asserted by the party with unclean hands (and often intentionally withheld information from the court or even committed perjury).

read all about it: case on servicer advances and unjust enrichment

Things that Should be Added to Affidavits and Expert Opinion Letters, Reports, and Declarations

What’s the Next Step? Consult with Neil Garfield



Editor’s comment: First let me emphasize the need to consult with competent legal counsel who is licensed in the jurisdiction in which your property is located. Second, let me emphasize that unless you have an “expert” who actually has credentials including experience, academic degrees, authorship of published books etc., the evidence from the expert might be allowed but it will most certainly be ignored.

In answering an email recently is edited some passages that I realized should probably be available for everyone to see whether they are lawyers, auditors, analysts, paralegals or homeowners.

Also as a caveat this field is evolving every time the banks move the goal posts. But for now, I think the wording below, if properly defended by someone who is coached well as an expert witness, will get traction more often than not at the preliminary stages of motion practice. And remember this wording is only an abstract from a much larger document:

“We could find no evidence supplied by the “lender” that shows that a payment or value of any kind was transferred to anyone in connection with the funding or purchase of the subject loan. In my experience normal practice in the industry would be to provide such information along with the documentation, or the documentation would be considered incomplete and would not be accepted by a title company or a bank that was refinancing a property. In those case where the proof of payment is excluded it is standard practice in the industry to supply same upon request. Such request was made and the foreclosing parties have ignored the request. This indicates, in my opinion, that the loan was purchased or funded by third parties in an table funded loan which is predatory (illegal) per se according to the the Federal Truth in Lending Act and Reg Z).

The significance of the above statement is that (a) the mortgage or deed of trust supposedly collateralizing the property was never perfected and is therefore unenforceable and (b) that none of the foreclosing parties is a
“creditor” within the meaning of applicable state statutes and therefore cannot submit a credit bid in lieu of cash, should the property be subject to an auction. But it would also indicate that any Notices of Default, Notices of Sale, substitutions of parties or trustees would be ineffective (the equivalent of wild deeds out of the chain of title) since the foreclosing parties could not be considered creditors, beneficiaries, assignees or lenders.

The facts in this case strongly indicate that the wrong payee was named on the note, the wrong “lender” was named on the note and mortgage, and the terms of repayment on the note were incomplete in that they failed to refer to the Master Servicer, and the indenture to the mortgage bonds that were sold to raise the capital to fun mortgages and fees — fees that were both disclosed and undisclosed. Undisclosed fees are required to be be credited or repaid to the borrower. Those fees include any sort of compensation to any party, disclosed or not, whose compensation or profit resulted from the apparent closing of the loan.

Hence the amount due or claimed by the collection letters and notices are are incorrect, if there were such fees and compensation. Based upon common practices in the industry such fees that would be ordinarily generated by transaction identical to the subject loan would include a tier 2 yield spread premium, and other transfer or servicing fees that did not appear on the borrowers disclosure statements nor on the HUD 1 settlement statement.

In addition, the accounting provided to the borrower and my office is incomplete in that the only accounting provided relates to direct transactions between the subservicer and the borrower and does not include the transactions between the Master Servicer  and all sources of payments or fees from the co-obligors including not bot limited to the subservicer, insurance payments, guarantees, proceeds from hedge instruments designed to protect the investors but yet allocated to the investor, and Federal bailouts. These payments received by the investment bank or its affiliates acting as Master Servicer (agent for the principal REMIC or its investors who purchased mortgage bonds) would most likely have occurred in this case following current industry practices.

The effect of receipt of money by agents of the REMIC or investors is to reduce the balance owed to the investor. If the payment was made to purchase the loan or bond then the purchaser would be the correct party to demand collection. If the payment was made without purchase of the subject loan or bond, then the payor would possibly have an action in contribution but it is doubtful that the action in contribution would be secured under the most favorable of circumstances, thus eliminating foreclosure as an option in collection. And if the payment was made with express waiver of subrogation, then the balance due to the REMIC or investor is reduced without any right of claim against the borrower, thus extinguishing the obligation, note and mortgage — to the extent of the payment.

As a general rule the banking industry has reported such fees, payments, profits and compensation as their own and has neither paid or disclosed the receipt of money to the investors who as a group constitute the principal in a principal agent relationship.

Hence, the obligation due on the books of the REMIC or investors remains unchanged despite the receipt of actual monetary payments by their agent. This in turn requires an accounting from the Master Servicer, Investment Banker and affiliates as to the nature of payments received and a determination by the court as to how those payments should be allocated.

The significance is again that the amount demanded might be far in excess of the actual debt due to the real creditors, thus nullifying the effect of collection procedures, notices and other actions undertaken by the putative “lender” who, as aforesaid, is not a creditor. The effect of this practice is to collect more than once on the same debt, obligation, note and or mortgage.

With All the Settlements, What is Owed on Principal?


The complexity and shroud of mystery surrounding claims of securitizations, assignments etc can be simplified if you just look at the money. This is why I have forensic auditors who chase this information down. Call living lies customer service 520-405-1688 if you can’t find an adequate analyst of your own who REALLY dig in.

  1. What money was paid to whom? When? How? Who is a witness that can authenticate and verify the documents used (ACH, Wire transfer, check) the documents used for money transfer?
  2. If the creditor already settled with the investment bank, then is the claim for collection or foreclosure on the mortgage still viable?
  3. How was the settlement allocated as to the investor-lenders?
  4. If the investor-lenders received all or part of the money from the investment bank, how much is owed by the homeowner and to whom?
  5. To whom was money paid? Who received the actual payments from borrowers, co-obligors, insurance, credit default swaps, federal bailouts and civil settlements? How much of this money was received as agent for the investor-lenders (creditors)?

There are lots of questions but they can all be answered with arithmetic. If investor bought a bogus mortgage bond for $100 million and received $50 million in settlement, then they are either owed still $50 million or they settled the claim and if you contact them, they will say they have no interest in pursuing the matter any further. So why the foreclosure? And if there is a foreclosure, who gets the money? Who is the “creditor that submits a “credit bid.?”

People don’t like talking about the free house syndrome, but SOMEONE IS GETTING A FREE HOUSE one way or the other — either the banks or the homeowner.

One thing I am sure about is that there is a claim that can be firmly supported by the presence of a settlement or proceeds from co-obligors (insurers, CDS counterparties etc.). Either the amount due is wrong, eliminated or at least subject to a proper accounting. This would negate the issues of foreclosure, at least for a while, in the notice of default and initiation of foreclosure based upon the assertion that the creditor has been identified as beneficiary or mortgagee and the amount due is as stated. The amount due is probably NOT as stated and the creditor identified might not even have a dog in the race anymore.

Judges get angry at borrowers for bringing this up. I think lawyers should have the guts to stand up to such judges and say your anger is misplaced. Don’t shoot the messenger! The borrower didn’t create this mess, it was the financial industry and this loan was not even originated using standard rules of underwriting and document preparation.

Weidner: Notes Are Not Negotiable Instruments

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Editor’s Notes:  

Matt Weidner appears to have mastered the truth about securitization and how to apply it in foreclosure defense cases. The article below is really for lawyers, paralegals and very sophisticated pro se litigants. His point about being careful about how you present this is very well taken. This is for lawyers to do and lawyers should read this and get with the program. Securitization turned about to be virtually all SHAM transactions with the real financial transaction hidden away from the view of the borrower, the courts and even securitization analysts. The operative rule here is that the existence of a financial transaction does not mean that strangers to that transactions can claim any rights. 

These loans were nearly always funded by other parties who had made promises to investors whose money was used to fund the mortgages. The very existence of co-obligors and payments by them defeats the arguments of the banks and servicers. I’d like to see ONE investor come into court and say that yes, they would ratify the inclusion of a defaulted loan into their pool years after the cutoff date which negates their tax benefits. There is o reasonable basis for an investor to do or say that. That leaves the loan undocumented, unsecured and subject to offset for predatory and wrongful lending practices.

The wrong way of approaching this is any way in which you are going into court to disclaim the obligation when everyone knows you received the money or the benefit of the money. The obligation exists. And the only way to discharge that debt is through payment, waiver (or bankruptcy) or forgiveness. Anything that smells like “I don’t owe this money anymore” is going to be rejected in most cases. But an attack on the lien and the reality of the true creditor is a different story. That needs to be presented as simply as possible and I think I good way to start is to deny the loan, obligation, note, mortgage etc on the basis of an absence of any financial transaction between the borrower and the party named on the documents upon which the foreclosers rely. Any discovery at all will reveal that the money never came from the payee on the note or mortgagee or beneficiary on the mortgage or deed of trust. 

by Matt Weidner:




673.1041 Negotiable instrument.—
charges described in the promise or order, if it:

FL Article 3




I have the right to make payments of Principal at any time before they are due.  A payment of Principal only is known as a “Prepayment.”  When I make a Prepayment, I will tell the Note Holder in writing that I am doing so.  I may not designate a payment as a Prepayment if I have not made all the monthly payments due under the Note.

I may make a full Prepayment or partial Prepayments without paying a Prepayment charge.  The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note.  However, the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying my Prepayment to reduce the Principal amount of the Note.  If I make a partial Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the Note Holder agrees in writing to those changes.

5.         LOAN CHARGES

If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then:  (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted limits will be refunded to me.  The Note Holder may choose to make this refund by reducing the Principal I owe under this Note or by making a direct payment to me.  If a refund reduces Principal, the reduction will be treated as a partial Prepayment.


This Note is a uniform instrument with limited variations in some jurisdictions.  In addition to the protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the “Security Instrument”), dated the same date as this Note, protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note.  That Security Instrument describes how and under what conditions I may be required to make immediate payment in full of all amounts I owe under this Note.  Some of those conditions are described as follows:




So, the deal is, if we were sitting in a law school classroom, there’s not a chance in the world but that every student in the room and the professor would agree and understand that the document being examined side by side is not covered by the definition provided.  The problem is we get into courtrooms and we get infected by considerations that are beyond and above the operative law.  Judgment gets clouded by preconceived notions and prejudices against our neighbors and favoritism for the criminal banking institutions that caused all this mess. Even to this day, years into this, years into all the fraud and the lies and the deceit, it’s like we’re still hypnotized by the banks and their black magic and voodoo.

Now, if you really want to take it a step deeper, Margery Golant makes a very credible argument that in doing this analysis we cannot just look at the note alone, but that we must also examine the mortgage that follows with it.  They truly are two integrated documents and you can see from her highlights that so many of the provisions in the mortgage have nothing to do with security and everything to do with conditions on the payment of money….these provisions are just jammed into the mortgage and kept out of the note to try and prop up this artifice of negotiability.  Read her highlights with this analysis in mind:

Fannie Florida Mortgage with Golant Highlights

Further supported by this case Sims v New Falls

Now, understand the industry never intended these notes and mortgages to transfer via endorsement.  The industry set this whole system up so that the notes and mortgage would transfer via Article 9 of the UCC.  It’s just so plain and simple.  They never set it up or intended that million dollar notes and mortgages would transfer via forged endorsements, undated squiggles and rubber stamps or floating allonges.  Of course not…that’s just crazy.  The entire system was created such that notes and mortgages and all the servicing agreements and rights and liabilities would transfer via far more formalized Assignments, with names and dates and notary stamps and witnesses.  The Article 9 transfer regime had nothing to do with protecting consumers, but everything to do with protecting the players in the industry from the scams, the lies, the cons that they all like to play on one another. (Hello, LIBOR anyone?)

But when the shifty con artists that set this whole securitization card game up, they were so focused on how much money they were making, they never considered what would happen when the whole house of cards blew down.  When it blew down, they threw their Article 9 intentions out the window and adopted the whole Article 3 negotiable instrument delusion.  Isn’t it an absurd argument when they cannot answer the question, “if assignments don’t matter, why do you still bother to do them?”  It’s because they do matter….assignments were and remain the foundation of their transfers.  The problem is Assignments, what with their pesky dates and legible names and notaries and all reveal the lies and the fraud and the con that developed once the system came crashing down and they all started stealing from one another. (With the explicit approval of our state and federal government to do so….too big to jail you know.)

Anywhoo, there’s still some faint glimmer of hope as long as we still have good judges out there that are willing to think these things through and do the heavy lifting, we might be able to rescue our nation’s judicial system and in fact our nation as a whole from this deep, dark black pit that we’ve all descended down.

I urge everyone to be very careful with these arguments.  I’m a very big supporter of pro se people and consumers being integrated into their courtrooms and being fully engaged in the public spaces they own. I’ve also seen some very good pro se people go into courtrooms and do some very beautiful things.  In some ways it’s like a “From the mouths of babes” experience.  Language and arguments stripped away from all their lawyerly pretense can have a magic effect on a judge’s ear and thoughtfully and well-prepared arguments are often received with great enthusiasm from our circuit courts….particularly those judges that recognize the roots of our civilian circuit justice system.  The danger is that ill-prepared and poorly presented arguments will taint the ears and poison the minds of judges that might otherwise accept with an open mind…..keep that in mind.  Max Gardner is the Obi One Kenobe of all this and there’s just something about the way he lays it out so clear and clean and simple that has it all make sense.  I really encourage everyone to get all his material and invest in the week long bootcamp before you go trying any of this out…..MAX GARDNER BOOTCAMP

And now my briefs:







Regulation and Prosecution on Wall Street


















Hats off to Dan for explaining the logistics of how additional people were added toy our deal, that you have a  right to know who they are and how their addition to your deal changes everything. Here is what he said:

So the homeowner gave an unconditional promise to pay. The “investors” who purchased securities from the issuing entity (the trust) stood up as the lender and provided the money. Now is where it gets tricky. Another 3rd party sprang up between the two and became the obligor to the lender. That is, they took over the CONDITIONS for providing payments to the “investors”. As Maher just said, they sliced and diced everything up into small pieces. But one thing is for sure, the relationship between the original borrower and the ultimate lender was bifurcated. They abstracted out the borrowers obligation to pay and replaced it with another 3rd party obligation to pay that is jacked up full of all kinds of goodies that apply not only to the investors, but to the borrowers also. This 3rd party took over the borrowers obligation to pay such that the borrower does not have to make payments and the “investor” lender’s payments are still “magically” made.

What are these “goodies” and magic? Advances, credit default swaps, hedges, insurance, over-collateralization, extra pools of funds, payments from borrowers in lower level tranches, you name it. And of course this does not even include government bailouts, write-offs, charge-offs, etc. The homeowners obligation to pay has been eviscerated.

Dan Edstrom

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