Friday, June 1, 2012


It's a secret -- hide the money - hide the default -- don't tell!

Are the big banks playing "Hide the Default" game with their investors on faulty mortgages and why?

On May 15, 2012 at a hearing before the California Legislative Committee on the Foreclosure Crises that took place in the afternoon session in Sacramento, bankers when queried about their expenses from defaulted mortgages gave testimony that indicates the banks are keeping these mortgages current with the so-called "investors" who actually own the notes/loans.


Is a loan really in default if the big bank servicing the loan continues to make payments to the "investor"? 

Black's Law Dictionary defines "Default" as a failure.  Under the UCC "default is left undefined though it is precisely what the parties agree it is.

Borrowers with access to a Bloomberg terminal and a CUSIP number for their home loans are discovering that the balance on their mortgages are inexplicably reduced by thousands of dollars  than the loan balance shown when the borrower was discontinued making regular monthly mortgage payments. How can this be?  Who is paying down the principal balance?  Not the borrower for he has lost his livelihood or fallen ill or fell prey to a predatory lender.  So who can it be making payments on the mortgage and why?

One west coast homeowner  (litigant in federal court) recently through a Bloomberg terminal in fact determined that his loan balance is thousands of dollars less than than the principal balance stated by the servicer.  As he himself has not been paying down the principal or interest for that matter, someone is making payments on the "Investor's" investment. Is his "Servicer" continuing to make payments to the investor or is it some phantom member of the 1% being Mr. Benevolent?  Or is it simply that his "servicer" is playing "hide the default" from the investor so the investor is misled into believing the homeowner/borrower is current on the mortgage?   Thus, the loan as far as the investor is concerned is not in "default" yet the Trustee is attempting to foreclose on the property -- and is demanding "tender" if the case is in a court of law.

This opens up another can or worms?   

Question:  What becomes of the income derived by the servicer from a foreclosure sale on a loan that is technically current with the investor?  Does the servicer continue the game and pocket the cash derived from the foreclosure sale?  Does the servicer actually pay the funds to the investor?  Or does the servicer continue to make payments on the foreclosed loan to the investor and use the proceeds of the foreclosure sale for their own enrichment?  Is it deemed by definition to be "unjust enrichment"?

In courts of law across America borrowers who are fighting foreclosures and seeking justice find themselves being required to make "tender."  All to often homeowners have no ways or means to tender and are thus denied justice -- especially troubling if there is technically no default, no harm, no foul to the investgor.

Tender is an offer of money, the act by which one produces and offers to an entity/legal person holding a claim or demand against him the amount of money which he considers and admits to be due, in satisfaction of such claim or demand, without any stipulation or condition. A mere written proposal to pay money without offer of cash is not "tender." Tender, in common law pleading, is a plea that the plaintiff has always been ready to pay the debt demanded and before commencement of the action tenders it to the debt holder and brings it into court ready to be paid. The two essential characteristics of tender are an unconditional offer to perform, together with the manifested ability to do so, and the production of the subject matter of tender.
"In the current flood of mortgage litigation, the so-called "tender rule"  —   that a borrower generally cannot set aside a foreclosure unless he or she tenders the full amount owed on the loan  — poses a significant obstacle for many plaintiffs. The rationale behind this rule is that a borrower should not be able to avoid foreclosure when the borrower cannot pay his or her debt and any procedural errors could be cured. In Ferguson v. Avelo Mortgage, LLC (Cal.App. 2 Dist. Jun. 1, 2011) --- Cal.Rptr.3d ---, 2011 WL 2139143, the Court of Appeal again affirmed the tender rule and, by doing so, took an additional step favorable to lenders."  

Seeking more information on this most unusual business practice.


  1. I hate to be the voice of reason here, but you fail to explain this properly. Servicers advance in some cases taxes, insurance, interest and on occasion payments to the extent that they believe they can recoup them after foreclosure. This is contractual in the PSA or MLPSA agreements. THIS IS NOT HIDDEN FROM INVESTORS. If you view the monthly investor reports they account for all advances and receive only those servicing fees on loan which are current. They list each and every loan which is delinguent and what state of delinguency it is in. Upon foreclosure they take the advances first as repayment and then the investors receive what is remaining. The servicers such as AHMSI float bonds to help with these advances. In the latest round of bond offerings Wilbur Ross failed to receive a AAA rating on the bond. AHMSI for example is out approx. 4 billion in advances. Headlines like this do nothing but give homeowners wrong information that they may then go into a court and assert which will certainly make them lose their home because this is not a valid argument, nor is it accurate.

    1. Technically the loan cannot be in default if the owner of the loan receives payments.

  2. The note is performing, and the investors are not suffering an injury or loss of equity. Couldn't be the wiser. They think they have interests in high rated securities. Both the homeowner, the investor, and the taxpayer have gotten hurt in this one. How are the bankers going to explain to the lady who's husband took his life rather than face an unlawful detainer, after a denial quiet title action, that her mortgage is to the day current. So the question is not about who is paying down the mortgage, but for the folks who lost their homes already, is their mortgage still out there showing current, being payed down, in avoidance of default. if the answer turns out to be "yes",...