Its complicated but read Niel Garfield's declaration and see why and what the problem truly is

1 Apr

Declarationrevised3-30-10FINAL Niel Garfield

JULY 1, 2007;
ENTITY 1 THROUGH INFINITY, unknown Defendants
(collectively “Defendants”)
Adversary # 4:09-ap-01447-JMM
Case # 08-10544-TUC-JMM
Chapter 13
Neil Franklin Garfield, deposes and states unsworn under penalty of perjury as follows:
“I am over the age of eighteen years and qualified to make this affidavit. I have no direct or
indirect interest in the outcome of the case at Bar for which I am offering my observations,
analysis, opinions and testimony. I have been a licensed member in good standing of the Florida
Bar since May 31, 1977. My Resume is attached and incorporated herein.
“My area of expertise, based upon knowledge, training and experience is in the field of securities,
the securities industry, derivative securities, securities regulation, special purpose vehicles,
structured investment vehicles, creation of trusts pooling agreements, issuance of asset backed
securities and specifically mortgage backed securities by special purpose vehicles in which an
entity is named as trustee for the holders of certificates of mortgage backed securities, the
economics of securitized residential mortgages, securitization of mortgage loans, accounting in
the context of said securitizations and REMIC vehicles and pooling and servicing of securitized
loans. I have been what might be referred to as a “Wall Street Insider” with contacts in
investment banking, including intermediary conduits, underwriters of reissued securities that
were sold to investors in the form of mortgage-backed securities. I have knowledge, training and
experience of various precursor asset protection strategies, including minimization of tax
liability, which also are constructed to be made bankruptcy remote in commercial and real estate
settings. I have knowledge, training and experience in loan origination, underwriting and the
assignment and assumption of securitized residential mortgage loans. I also have legal
knowledge, training and experience, including the areas of securities law, real property law,
Internal Revenue Code law as applicable to REMICs and Uniform Commercial Code law. I also
have knowledge, training and experience in the practices prevalent during the period of 2001-
2008 that enabled the accumulation and availability of an overwhelming abundance of
investment dollars, made possible because the derivatives sold to investors were made to appear
that they contained both exceptional growth and zero risk, because the history of mortgage
success up to that point in time had been high, and because these instruments were in addition
made to appear undeniably and excessively guaranteed by 3rd party sources. I also have
knowledge, training and experience that this abundance of funding was one of the direct and
inevitable causes of violations against homeowners and purchasers pertaining to funding of
mortgage loans for purchases and refinancing, including predatory lending practices and Truth in
Lending Act violations.
“All factual testimony made by me is true and correct to the best of my knowledge and belief.
All opinion testimony made by me is beyond a reasonable degree of probability in my area of
expertise, which is set forth in the above paragraph and in my Resume. I have no direct or
indirect interest in the outcome of the case at Bar for which I am offering my observations,
analysis, opinions and testimony.
“I have been asked to render opinions pertaining to the above case, in which Lucy Santa Cruz, is a
bankruptcy Debtor, and the Mortgage Note (“Note”), and Deed of Trust (“DOT”), the obtaining
of Automatic Stay Relief, the propriety of foreclosure, and securitization issues, among others,
are in question. The original Lender according to said documents was Everbank (“Lender”). An
Order lifting stay was entered by the Court on 03/22/09 in favor of HomEq Servicing
Corporation fka TMS Mortgage, Inc., dba The Money Store, (“HEQ”) was the Movant in this
proceeding. The Stay was lifted in favor of HEQ.
“I evaluated the materials listed below, among other materials, facts and data in basing my
opinions and inferences. Each of these documents and other materials, facts and data are of the
type that experts in my field would customarily rely upon in forming opinions and inferences.
The information sources I reviewed were sufficient for me to testify as to the facts and opinions
that are included herein. Where additional information is required to make other factual
statements and express opinions on further subject matter, I have so stated. To the extent that
information was presented to me by way of the forensic review and analysis performed by Brad
Keiser of Foreclosure Defense Group, I have confirmed the information through my review of
the loan closing documentation. I also performed independent internet searches as to
Securitization Documents available to the public online. Most of the testimony in this
Declaration was plainly clear from review of the below listed materials, but to the extent that
technical or specialized principles and methods were required, they have been reliably applied:
A. The closing loan documents relating to the loan transactions that are the
subject of this lawsuit. Not attached, because too voluminous and others are already
of record with the Court.
B. The factual results of a forensic review and analysis performed by Brad Keiser
of Foreclosure Defense Group, which I have attached hereto as Exhibit A.
C. The Qualified Written Request, served upon Everbank; MERS; Homeq; Mark
Bosco of Tiffany & Bosco and the responses, such as they were. They were
incomplete. In addition I also reviewed additional correspondence sent to the Mark
Bosco, who was the Substitute Trustee, that constituted written notice alleging several
improprieties in him going forward with the foreclosure Trustee Sale. Additionally,
there were emails from Ronald Ryan to Bosco requesting an accounting and other
information pertaining to the sale and return emails from the same law firm that
previously represented Defendant, HomEq and now represent Defendant,
Everbank/Everhome. These series of letters and email correspondence are attached as
Exhibit B
D. The following recorded documents: Note; Deed of Trust; Substitution of
Trustee; Statement of Breach or Non-Performance; Notice of Trustee’s Sale; Trustee’s
Deed. Not attached because already of record with the Court.
E. Various Bankruptcy Court pleadings and the Proof of Claim.
F. Various applicable Securitization Documents pertaining to Mortgage Trust
Pool, U.S. Bank N.A., Trustee for the Holders of the Pooled Mortgages, entitled
“Holders of MASTR Adjustable Mortgages Trust 2007-HF2,” including but not
limited to the Pooling and Servicing Agreement Dated As of July 1, 2007 (“PSA”);
Prospectus Supplement, dated July 30, 2007 (“ProS”). The Securitization Documents
are too voluminous to attach to this Declaration as they are perhaps 1000 pages. I
have attached a few key pages from the PSA, including a diagram of the transaction,
with the identity of the various Participants typed thereon, and a few pages from the
ProS. EXHIBIT C.1 and C.2.
G.I have also reviewed the MERS Min Summary and Milestone History, and the
correspondence whereby they were transmitted by Shar Bahmani, Esq., Wright, Finlay
& Zak, 4665 MacArthur Court, Suite 280, Newport Beach CA 92660, on behalf of
Everhome aka Everbank, which are attached hereto as Exhibit D.
H. I have also reviewed the MERS Servicer ID Report, which is attached as
Exhibit E.
“I use the following definition of “Creditor” taken from research in cases, the Bankruptcy Code
and the Uniform Commercial Code. A “Creditor” is a legal entity that has advanced funds, goods
or services in consideration of the right to payment, or has purchased the right to be paid. In the
bankruptcy context, a “Creditor” is an entity that had a Claim against Debtor before the case was
filed. 11 U.S.C. § 101(10). A “Claim” is a right to payment. § 101(5). Only a Creditor may file
a Proof of Claim. § 501(a). The “Official Form 10 reflects this requirement by describing the
‘Name of Creditor’ as ‘the person or other entity to whom the debtor owes money or property.”
In the context of securitized residential mortgages (including the one in the instant case), a
“Creditor” is a legal entity or group of entities or persons under the law who have advanced
money for the funding of mortgage loans and who are owed money from those mortgage loans.
The creditor in the case at bar can be generically described as an Investor, as defined under the
rules and regulations of the Securities and Exchange Commission who has paid money to an
intermediary in a chain of securitization that resulted in the funding of one or more residential
loan transactions; the promise to pay is from an entity usually referred to as a Special Purpose
Vehicle (SPV) which is frequently erroneously referred to as a “Trust” with a “Trustee,” that in
the applicable Pool in this case was U.S. Bank N.A. The creditor/investor receives an instrument
which is generically referred to as a Mortgage Backed Asset Certificate (“Certificate”). The
Certificate incorporates terms by which the promise to pay interest and principal is made by the
issuing SPV. The promise to pay is conditioned upon several terms, including but not limited to
the performance of a pool of loans, the obligations of third parties, and impliedly the receipt of
insurance proceeds triggered by partial non-performance of the pool of assets allocated to the
SPV. In turn the SPV pool is carved out of other pools created by Aggregators employed by
investment banking firms. The Aggregators are parties to Pooling and Service Agreements and
Assignment and Assumption Agreements, which are Securitization documents that predate the
funding of the loans in any of the Pools. The Certificate issued to the Investor conveys a
percentage interest in the Pool of assets that is allocated to the SPV.
“I was asked to render an opinion as to the factual basis pertinent to the issue of Standing. As
relates to Constitutional Standing, my opinion is premised on the following definition:
Constitutional standing under Article III requires, at a minimum, that a party must
have suffered some actual or threatened injury as a result of the defendant’s conduct,
that the injury be traced to the challenged action, and that it is likely to be redressed by
a favorable decision.
Valley Forge Christian Coll. v. Am. United for Separation of Church and State, 454 U.S. 464,
472 (1982); United Food & Commercial Workers Union Local 751 v. Brown Group, Inc., 517
U.S. 544, 551 (1996). My presumption, in the context of the question posed to me, is that
standing requires that a party will suffer financial loss derived from non-performance (i.e., nonpayment)
of the subject contract, which in this case is the obligation that arose when the subject
loan was funded on behalf of the debtor as homeowner and referred to in some documents as the
Borrower. Since the funding occurred out of a pool of money received by the investment banker
from the investors, the investors are the creditors. By way of indenture (usually incorporating a
prospectus) the investors agreed to an operating plan that defined the functions of the conduit
which was used to funnel funds to the investor from the pool. This operating plan is loosely and
erroneously referred to as a trust, with the manager referred to as a Trustee. However, since no
assets remain in the conduit which is defined under the Internal Revenue Code as a REMIC (Real
Estate Mortgage Investment Conduit). The REMIC is referred to in the world of finance as an
SPV (Special Purpose Vehicle). I presume the words “conduit” and “vehicle” convey the fact
that no actual business events of taxable or monetary significance takes place in the REMIC. I
conclude that this corroborates my opinion that the investors are the creditors, having been the
only parties to advance funds from which the subject loan was funded.
The note signed by said borrower and the mortgage-backed bond accepted by the investor who
purchased said security are both evidence of the obligation. The Deed of Trust is intended to be
incident to the note and possibly incident to the bond, if the chain of title was perfected. The
Payee on the note and the payee on the bond are different parties. The bonds were issued with
three principal indentures: (1) repayment of principal non-recourse based upon the payments by
obligors under the terms of notes and mortgages in the pool (2) payment of interest under the
same conditions and (3) the conveyance of a percentage ownership in the pool of loans, which
means that collectively 100% of the investors own 100% of the the entire pool of loans. This
means that the “Trust” does NOT own the pool nor the loans in the pool. It means that the
“Trust” is merely an operating agreement through which the investors may act collectively under
certain conditions. Accordingly, it is my opinion that the parties with standing in relation to a
securitized loan are the debtor/borrowers and the creditor/investors. This would be further
corroborated if, as a matter of fact, the investment banker followed industry standard of selling
the mortgage backed security FORWARD. “Selling forward” means that the security was sold
and the money was collected before the first loan was funded on behalf of borrowers. However,
even if the investment banker had not closed the sale of the securities with investors before
accepting applications for loans, it would have been on the basis of an expectation of said
funding. Ultimately, in all securitized loans there is really only one transaction — a loan from the
investors to the homeowner. Without an investor there would be no loan; conversely without a
borrower there would be no investor or investment.
“It is accordingly my opinion that none of the following parties are or ever were creditors and
that they therefore lack standing as defined above: U. S. Bank, N.A. As Trustee for the Holders
of MASTR Adjustable Mortgages Trust 2007-HF2 in a series of securitization transactions,
pursuant to Pooling and Servicing Agreement, dated July 1, 2007 (“USB as Trustee”); HomEq
Servicing fka HomEq Servicing Corporation, fka TMS Mortgage, Inc., dba The Money Store;
Wells Fargo Bank NA, MERS, nor Everbank had at any time relevant to the subject matter
before this Court, the filing of the Bankruptcy Case on 08/14/2008 to the present, suffered any
actual or threatened injury as a result of the Debtor’s non-payment of monthly payments pursuant
to the original terms of the Note, nor because of her alleged default thereon, nor can any actual or
threatened injury be traced to any other proceedings in bankruptcy court, including but not
limited to the motion for relief from stay proceedings, any action involving a Proof of Claim, the
Chapter 13 Plan or otherwise, and therefore there never was any legitimate redress available to
any of these parties by a favorable decision. Specifically, Everbank, named as “Lender” in the
Note and Deed of Trust at least held physical possession of the Note issued to it by Debtor,
though it likely did not have the right to enforce the Note, between approximately 4/11/2007 to
4/28/2007, but no later than 4/28/2007. Specifically, pursuant to the materials I have reviewed,
which I have been asked to assume includes all evidence presented to the Court, along with my
knowledge and experience involving securitized mortgages, and my legal training and
experience, it is certain that HomEq did not hold, own, nor have the right to enforce the Note at
any time from the filing of the case through to the time it obtained stay relief in this case. The
evidence in the Court’s record that is contrary to this opinion appears to constitute an intentional
attempt to misleadingly make it appear that Everbank was the holder of the Note, and that MERS
could contend that it could act through its Nominal Beneficiary status on behalf of Everbank
(apparently sometimes referred to as “Everhome”), when the case was filed and when the
automatic stay was lifted. However the Motion was filed on behalf of HomEq and the Order
Lifting Stay granted in Favor of it. The evidence fails even on its face to successfully even to
create the appearance that HomEq was the: A) holder of the Note; B) owner of the Note; or C)
party with the right to enforce the Note. Moreover, the evidence is overwhelming that neither
Everbank aka Everhome, nor HomEq held any interest at all in the Property, Note nor Deed of
Trust at the time the case was filed, nor any time thereafter. It is clear that Everbank transferred
the ownership of the Note to the above described Mortgage Pool, for which USB as Trustee
operated as the Trustee. There is no evidence in the record that any other Defendant attempted to
claim to own, hold, nor to have the right to enforce the Note at any time in these proceedings.
“The specific evidence that neither HomEq Servicing fka HomEq Servicing Corporation, fka
TMS Mortgage, Inc., dba The Money Store; Wells Fargo Bank NA, MERS, nor Everbank had at
any time relevant to the subject matter before this Court, the filing of the Bankruptcy Case on
08/14/2008 to the date of the Order Lifting Stay, dated 3/19/2009, nor even to the present is that
Between 4/28/2007 and 09/27/2007, the ownership of the Note was transferred from Everbank to
Mortgage Asset Securitization Transactions, Inc. as Depositor, and then to UBS Real Estate
Securities Inc., as Transferor, and then to U.S. Bank, N.A., as Trustee of MBS Trust.
Accordingly, it was impossible for any of these Defendants to own the Note during the above
time frame. Besides an admission from Attorney for Everhome, Shar Bahmani, Esq., Wright,
Finlay & Zak, these facts match with the MERS Min Summary and Milestone History
information, as well as pursuant to the legal and contractual requirements in the herein described
Securitization Documents of the above referenced Trust. Among other things, former Counsel
for HomEq filed Doc 49 on 02/19/09,”Declaration of Witness [Joy Vanish] filed by MARK
BOSCO of TIFFANY & BOSCO, P.A. on behalf of c/o Mark S. Bosco HomEq Servicing
Corporation fka TMS Mortgage, Inc., dba The Money Store,” which also admits that the Note
was owned by the above described mortgage pool.
“Accordingly it is my opinion that, pursuant to the above definition, none of the Defendants that
attempted to proceed in this Court to have the automatic Stay Lifted or to file a Proof of Claim
had Constitutional Standing to invoke the subject matter jurisdiction of the Bankruptcy Court in
this case. In re Foreclosure Cases, 521 F.Supp.2d 650 (S.D. Ohio, 2007); In re Kang Jin
Hwang, 396 B.R. 757, 764 (Bankr.C.D.Cal., 2008); In re Jacobson, 402 B.R. 359 (Bankr.
W.D.Wash., 2009).
“As relates to the issue of Real Party in Interest, the factual criteria and question I have
presupposed is: “Whether any of said Creditors own financial interest was at stake in the
outcome of the litigation before the Bankruptcy Court.”
“My opinion is offered based on all evidence before the Court to date is as follows.
A) That U. S. Bank, N.A. As Trustee for the Holders of MASTR Adjustable Mortgages
Trust 2007-HF2 in a series of securitization transactions, pursuant to Pooling and
Servicing Agreement, dated July 1, 2007 (“USB as Trustee”), did not have any of its
own funds at risk in the outcome of the litigation. USB as Trustee may have been, but
in my opinion was probably not, fully and completely authorized to appear as the
named party on behalf of the Real Party in Interest, in a representative capacity for the
parties whose own funds were at risk, the Creditors, whom I have described above, as
the investors in the securities for the above described and named Mortgage Trust Pool.
Also, the proof in the record is inadequate to establish that the ownership of the Note,
holdership of the Note, or right to enforce the Note was properly pooled to the above
described Mortgage Trust Pool. Accordingly, as the record stands, the evidence does
not establish USB as Trustee as being the Real Party in Interest.
B) Neither HomEq Servicing, fka HomEq Servicing Corporation, fka TMS
Mortgage, Inc., dba The Money Store; Wells Fargo Bank, MERS, nor Everbank was a
party whose own funds were at risk in the outcome of the litigation, and therefore none
of them were a Real Party in Interest.
“Additionally, my review of the evidence of record is that HomEq presented to the Court false
and misleading statements in conjunction with the following filings and proceedings, and in the
supporting evidentiary documents filed in conjunction with each such filing: A) Motion for
Relief from Stay; B) Proof of Claim, and C) in its Objection to Chapter 13 Plan. Additionally,
my opinion is that HomEq filed the Pleadings and the supporting documentation, and made
representations to the Court with knowledge that they were false and misleading. For example,
the following are false and misleading statements made with knowledge they were false.
A) Motion for Relief from Stay, Doc 22 Filed 11 04 08: “Movant is the
Assignee of the Deed of Trust.” ¶ 2; “Debtor is in default on her obligation to
Movant for which the property is security. . .” ¶ 5; “Debtor is indebted to HomEq
Servicing Corporation fka TMS Mortgage, Inc., dba The Money Store for the
principal balance in the amount of $131,205.36, plus accruing interest, costs, and
attorneys fees.” ¶ 6.
B) Proof of Claim, Claim 9 Filed 11/06/08: Issue not ripe, because claim
was filed by U.S. Bank National Association as Trustee, this is additional proof that
stay relief was obtained by party without standing (“HomEq”).
C) Objection to Chapter 13 Plan, Doc 32 Filed 11/14/08: “The Chapter 13 Plan
does not adequately provide for repayment of arrearages owed to HomEq Servicing
Corporation fka TMS Mortgage, Inc., dba The Money Store, pursuant to the proof
of claim in the amount of $11,997.53.” ¶ 1;
“In terms of the real estate portion of the transaction, the homeowner was the Borrower and the
Investor was the actual Creditor. The investor is still the Creditor if the investor has not sold,
transferred or alienated the hybrid mortgage backed security and if the investor has not been
directly or indirectly paid through credit default swaps, with or without subrogation, or paid
through a federal program with or without subrogation. Since no such instruments appear on
record, any right of subrogation would appear to be equitable. Thus for purposes of this
declaration, the unknown and undisclosed Investors constitutes the only Creditor presumed to
exist until the undersigned is presented with contrary evidence of the type that an expert in my
field of expertise would normally take into account in forming opinions and conclusions.
Therefore I conclude that if there remain any Creditors, pursuant to the Note, they are the
unidentified Investors and all other parties are intermediary or representative or disinterested.
Debtor has made unsuccessful attempts to obtain from Movant and others the identity of the
lender, the documentation authenticating the identity of the lender, and an accounting from the
lender as to all money paid or received in connection with the subject obligation. Neither
Affiant, nor Movant, nor the Court will be able to determine amount of Debtor’s equity in the
property until a complete accounting of all debits and credits including but not limited to the 3rd
party payments referred to above. Until such time as requests for said information have been
answered, I will be unable to identify with certainty the exact identity of the current creditor,
meaning the true owner of the alleged obligation, other than to say that it is not Movant, nor any
Participant in the Securitization chain.
“The only party that can claim to be a Holder in Due Course (“HDC”) of the Note are those that
paid value for the Note, without knowledge that there were any pending challenges to its validity
and who fulfill the other requirements for HDC status. This HDC and the Third Party Sources
are the only ones that could conceivably suffer a monetary or pecuniary loss resulting from
non-payment of the obligation. The Investor could lose if because they advanced the actual funds
from which the Financial Product Loan was funded, assuming these Investors that purchased
asset backed securities were those in which ownership of the Loans were described with
sufficient specificity as to at least express the intent to convey ownership of the obligation as
evidenced by the Promissory Note and an interest in real property consisting of a security interest
held by an entity that was described as the Beneficiary of a Trust created by an instrument
entitled “Deed of Trust.” These Investors were not named. This practice has been intentional, in
my opinion, based on the overwhelming commonality of this obvious reoccurring obvious
failure, and other overwhelming evidence. The Third Party Sources that could conceivably lose
because they would have paid value prior to default or notice of default, and fall within one or
more of the following classifications:
a) Insurers that paid some party on behalf of said investors;
b) Counterparties on credit default swaps;
c) Conveyances or constructive trusts arising by operation of law
through cross collateralization and over collateralization within the aggregate
asset pools or later within the Special Purpose Vehicle tranches;1
d) The United States Treasury Department through the Troubled
Assets Relief Program in which approximately $600 billion of $700 billion has
been authorized and paid to purchase or pay the obligation on “troubled” (non
performing) assets of the LOANS are part of the class of assets targeted by
e) The United States Federal Reserve, which has extended credit
on said troubled assets and has exercised options to purchase said troubled
f) Any other party that has traded in mortgage backed securities
1 “Tranches” is an industry term of art referring to the types of division within a Special Purpose
from the aggregated pools or securitized tranches containing interests in the
“I concur with the allegations in the Amended Complaint that challenge the validity of
endorsements and/or transfers as they have been presented in Court to obtain stay relief, and I
believe that there is good cause, based on the totality of circumstances to challenge that the Note
was endorsed or otherwise properly transferred to the Mortgage Trust for which U.S. Bank is or
was the Trustee. In my opinion, it is unlikely that any HDC exists, because of the way
securitization was universally practised within the investment banking community during 2001
through 2008. Hence the loan product sold to the subject homeowner included a Promissory
Note that was evidence of a real obligation that arose when the transaction was funded but lost its
negotiability in the securitization process, which thus bars anyone from successfully claiming
HDC status, such as by:
a) Also concurring with allegations in the Amended Complaint,
the negotiability of the note was negatively affected by (1) the splitting of the
note and mortgage as described herein; (2) by the addition of terms,
conditions, third party obligors and undisclosed profits, fees, kickbacks all
contrary to existing federal and state applicable statutes and common law
(which has relevance to the TILA, RESPA and related allegations in ¶¶ 21-23
in the Amended Complaint); and (3) knowledge of title and chain of title
defects in the ownership of the note, beneficial interest in the encumbrance,
and position as obligee on the obligation originally undertaken by the subject
b) None of the known Participants in the subject securitization
chain, including but not limited to Defendants herein, has suffered any
financial loss relating to the loan, nor are they threatened with any future loss
even if foreclosure never occurs.
c) None of the known securitization Participants has ever been
the real party in interest as a lender or financial institution underwriting a loan
while funding same with respect to the loan.
d) None of the known securitization Participants, will suffer any
monetary loss through non performance of the loan.
e) All of the known securitization Participants received fees and
profits relating to the loans.
f) The existence and identity of the real parties in interest was
withheld from the Borrowers/Plaintiffs in the closing and servicing of the loan,
and since.
g) All of the known securitization Participants fail to meet one or
more of the following two tests required for HDC status: 1) without actual
knowledge of defects; and/or 2) in good faith, meaning a legitimate belief that
the loan was solid, based upon the information they had at the time of
purchase of the Note.
“There was never a real Beneficiary named on any DOT, as in this case, prior to the foreclosure
as the Plaintiff’s Amended Complaint accurately points out in several paragraphs.
“Several transactions have purportedly taken place regarding the subject loan, as the Note was
transferred up the chain of securitization to the Trustee of the MBS Pool. In my opinion, the
“Lender,” as set forth in the original DOT, or Everbank in this case, in securitized loans is at best
only a nominee for an undisclosed principal. The transaction with the homeowner was subject to
a pre-existing contractual relationship wherein the Investors advanced the cash for the loan and
profits, fees, expenses, rebates, and kickbacks. This is known to many of the known and
unknown securitization Participants, inasmuch as they have been the recipients of memoranda
from legal counsel and advisers, which in my opinion are not protected by attorney client
privilege or the attorney work product privilege, in which they have been informed that any
nominee that does not advance cash for funding the loan and does not receive any payments on
the obligation. A situation has been created which at least theoretically would allow multiple
parties to make claims on the same property from the same borrower, claiming the same Note
and DOT as the basis therefore. The intended monetary effect of the use of such a Nominee was
to provide obfuscation of profits and fees that were disclosed neither to the Investor who put up
the money nor to the Borrower in this loan. In the case at bar, it is my opinion based upon a
reasonable degree of financial analytical certainty, that the total fees and profits generated were
actually in excess of the principal stated on the note which is to say that Investors unknowingly
placed money at risk the amount of which vastly exceeded the funding on the loan to the
borrower. The only way this could be accomplished was by preventing both the Borrower and
the Investor from accessing the true information, which is why the industry practice of Nominees
like the private MERS system were created. Even where MERS is not specifically named in the
originating documents presented to the homeowner at the “closing” it was industry practice from
2001-2008 to utilize MERS “services”, or to implement practices similar to those utilized by
MERS. Therefore it is possible and even probable that the data from the closing was entered into
the MERS electronic registry and that an assignment was executed to MERS purportedly giving
MERS some power over the obligation, the Note and/or the encumbrance. As a general rule in
securitized transactions and especially where MERS is named as Nominee, documents of transfer
(assignments, indorsements, etc.) are created and executed contemporaneously with the notice of
default thus selecting a Participant in or outside the securitization chain to be the party who
initiates collection and foreclosure.
“The notice of default in the case at bar was substantially before any fabrication or creation of
documents of transfer and before any such documents were recorded. Further it does not appear
that any such documents were executed in recordable form under the laws of Arizona and in
accordance with Arizona statutes governing recordation of instruments that purport to show an
interest in real estate. Hence it is my opinion that the existence of any document of transfer in
this case is inconsistent with the authority, apparent or actual, to execute same without some
additional documentation establishing a foundation for the document of transfer, assignment,
indorsement etc., from the true Beneficiaries. No such document having been produced the
inescapable conclusion is that no authority exists and that if permitted to move forward with a
foreclosure or foreclosure sale, a title defect would be created beyond the current cloud on title,
thus rendering the title permanently unmarketable without the entry of a court order from a court
of competent jurisdiction declaring the rights of all stakeholders, potential and otherwise. This
opinion should not be construed to deny the existence or validity of the Note, DOT or underlying
obligation. This particular opinion is solely that none of the parties known to the homeowner
had any authority, apparent or otherwise, to declare the obligation in default or to pursue
collection on the Note or enforcement of the encumbrance. This concurs with allegations
express and implied in the Amended Complaint.
“The loan made to Debtor was part of a two way transaction in which the two parties at each end
thereof each purchased a “Financial Product.” On one end, the home buyer or refinancer was
“sold” a residential home loan. On the other side, a Mortgage Bond was sold to an Investor. In
my opinion, both financial products were securities. Neither set of securities were properly
registered or regulated, and the information that would reveal the identity of the “Lender” is in
the sole care, custody and control of the Loan Servicer or another Intermediary conduit in the
Securitization Chain, including but not limited to the Trustee or Depositor for the Special
Purpose Vehicle that re-issued the homeowner’s Note and encumbrance as a Derivative Hybrid
Debt Instrument (bond) and equity instrument (ownership of percentage share of a pool of assets,
of which the subject loan was one such asset in said pool). Said Security, the Bond, that was sold
to an Investor was done by use of the Borrower’s identity and obligation without permission. In
my opinion, it is equally probable that the Investors were kept unaware that a maximum of only
2/3 of their investment was actually going to fund Debtor’s loan and others similarly situated,
with the excess being used to create instant income for Participants. Debtor was unaware that
such large profits or premiums were being generated by virtue of his identity and signature on the
purported loan documents.
“According to information from Debtor, Debtor has made unsuccessful attempts to obtain from
Movant and others the identity of the Investor/Creditor and possession of documentation
authenticating this identity. Neither Affiant, Movant, nor the Court will be able to determine the
identity of the Creditor, if any still remains, until requests for information and documentation
have been complied with.
“It is also my opinion that there is a very high probability that all or part of the Debtor’s Note was
paid in whole or in part by third parties, based upon industry practice, my personal review of
hundreds of similar transactions including the one at bar, and published reports. Until such time
that the identity of the Creditor, the document trail, and the precise money pertaining to
payments by third party sources is disclosed, neither Affiant, Movant, nor the Court will be able
to determine the amount of Debtor’s equity in the Property. Debtor’s “Obligation” is the amount
of money owed to the Creditor. The Obligation originated with the advance of capital by
Investors who purchased mortgage-backed securities and ended with the promise to pay by the
homeowner who is the debtor in the transaction. The securitization chain obscures the fact that
the Investor was the Creditor to the Homeowner/Debtor. HomEq’s prior assertion of a default is
based upon partial and insufficient information relating only to first party (Debtor) payments and
excluding many undisclosed Third Party payments and receipts that were obscured in the
securitization chain. Contrary to the Defendant’s assertion of default, it is my opinion that it is
much more likely than not that the debtor’s obligation has not been in default at any time and
even if in default it is highly unlikely that any party or entity in this adversary is at risk of loss.
The general practices of the industry during the period of time in which the subject transactions
were originated resulted in third party payments upon a Declaration of Default by a party without
knowledge of the entire accounting of all debits and credits. This triggered insurance-type
payments to the Investment Bank that originated the securitization chain that more likely than not
exceeded the total principal of the subject obligation, resulting in a liability of the Investment
Bank to the Debtor, the Creditor or both. Since the Investment Bank never advanced funds
except those delivered by or on behalf of Investors, neither the Investment Bank nor any other
Participant in the securitization chain was ever a Creditor. Further, based upon repeated
interactions with Servicers across the country and the specific documentation reviewed in this
case, it is highly unlikely that any of the current parties in litigation have or desire to have any
knowledge of Third Party debit or credit transactions in the securitization chain of the
transactions originated from the subject of this action. Hence, based upon industry practice, it is
my opinion that it is far more likely than not that they would be ignorant of the true status of the
amount of principal or interest due, if any on the subject obligation. It is not known by the
Servicer (in this case “HomEq”) or Originator (the “Lender” on original Deeds of Trust – in this
case, Everbank), whether the Debtor’s note is or ever was in default, a fact that can only be
known by the real Creditor, the Investment Bank that is the real party in charge of the
securitization management decisions (in this case, Swiss Bank U.B.S. or one of its subsidiaries),
although possibly the Trustee for the Pool (in this case, U.S. Bank as Trustee) and/or the Trust
Administrator (in this case, Wells Fargo Bank, N.A.) know at least some of the information.
Based upon experience with the parties claiming an interest in the financial product sold to the
homeowner in this case and their behaviour and method of operating as demonstrated in other
cases, it is my opinion that none of the Participants, with whom the Debtor had contact,
individually or collectively, has knowledge or has done due diligence to determine the existence
of a default as to the Creditor, nor whether as a factual matter, the Note, DOT or obligation has
been extinguished or paid in whole or in part by co-obligors, insurers, federal bailout and/or
etcetera. The reason “as a factual matter” is emphasized is that Investment Bank in charge of the
entire security never intended to credit any borrowers accounts for payments by these third party
sources. Considering the fact that Affiant is aware of many dozens of times in which there is a
pending action to enforce a mortgage and to foreclose upon the home in which information
providing the Identity of the Creditor and the fact that Third Party payments have been made on
behalf of Borrower’s Obligation, it is my opinion that this behaviour is intentional and designed
to obscure the facts long enough for the Court to presume that the action taken to collect on the
debt or foreclose on the home was reasonable and proper.
“It is also my opinion that many different parties in the securitization chain came to express title
or claim rights to enforce the DOT and Note and that there was an intention to split the Note
from the DOT, while heretofore unusual in the marketplace was commonplace in securitization
of residential loans. The recorded encumbrance was never effectively or constructively
transferred because it was never executed in recordable form nor was an effort made to create
such a document by the parties to the instant case until they decided to pursue foreclosure. All
transfers or purported transfers of the Note were not accompanied by the encumbrance being
incident to said transfers because the DOT interest as recorded remained in the name of the
Originator, or that party defined as the “Lender” in the Note and DOT. Applicable Arizona Deed
of Trust statutes require that every change of beneficiary interest in a DOT to real property to be
recorded. And Arizona recording statutes require that every change of beneficiary interest in a
DOT to real property to be recorded to be enforceable against a bone fide purchaser for value
without notice of a competing claim. Hence, it is my opinion, that the holder of the Note, either
singular or plural, were not the same parties as those who purportedly held the DOT at any time
pertinent to this case and that this was the result that was intended by the mortgage Originator
and the Participants in the securitization chain, since it was a typical practice in the investment
banking industry in their process of securitising loans throughout the period of 2001-2009. In
my opinion, with a high degree of certainty, the Debtor’s title was and is subject to a cloud on
title, a claim of unmarketable title and possibly a title defect that cannot be cured without court
order as a result of the manner in which Debtor’s loan was securitized. In all cases reviewed by
me, which include more than fifty securitization chains, the Prospectus and other published
documents clearly express that a securitized mortgage is treated sometimes as being secured by
real estate, and sometimes as not being secured by real estate, depending on the context and
purpose of the accounting. The naming of a party other than the Investor as Beneficiary under
the DOT as distinct from a third party named as Payee on the promissory note and the same or
other third party named as Beneficiary under the policy of title insurance demonstrates an intent
or presumption or reasonable conclusion that there was intent by some or all of the parties at
various times in the steps of the securitization process to separate the Note from the Deed of
Trust, thus creating a cloud on title for both the owner of the property and any party seeking to
express or claim an interest in the real property by virtue of the encumbrance.
“I have also reviewed, for the past 40 years, published Financial Accounting Standards obviously
intended for auditors involved in auditing and rendering opinions on the financial statements of
entities involved in securitization, securities issuance and securities sale and trading. If the
known Participants in the securitization scheme followed the rules, they did not post the instant
transaction as a loan receivable. The transaction most likely was posted on their ledgers as fee
income or profit which was later reported on their income statement in combination with all
other such transactions. These rules explain how and why the transactions were posted on or off
the books of the larger originating entity. These entries adopted by said companies constitute
admissions that the transaction was not considered a loan receivable on its balance sheet, or on
the ledgers used to prepare the balance sheet, but rather shown on the income statement as a fee
for service as a conduit. These admissions in my opinion are fatal to any assertion by any such
party currently seeking to enforce mortgages in their own name on their own behalf, including
but not limited to the securitization Participant in this case.
“It also appears that the standard industry practice of creating a yield spread premium between
the Creditor and Originator was extended and expanded in the case of the securitization chain
such that in this case, in my opinion, it is highly probable, far beyond 50% probability that the
Debtor’s loan was sold or pre-sold to the Investors at a gross profit to the Participants in the
securitization chain of at least 35% of the total principal balance of the note. It is also my
opinion that this was done without full disclosure to the Investors and that this is tantamount to
fraud upon the Investors. In my opinion the investors were and remain completely unaware that
much, and in many cases most of the money they supplied was used to fund fees for the
Participants in the securitization chain, with the rest used to fund bloated mortgage loans based
upon inflated appraisals by companies that had a less than arm’s length relationship with the
Originator and others involved in obtaining approval for the loan. These yield spread premiums
far exceed those ever paid prior to the securitization of residential mortgages. With yield spread
premiums such as these, there was no way that there could ever be a legitimate profit made by
any Investor under ordinary circumstances, with the exception of those in upper tranches, whose
profit was insured from the start, no matter how lacking in viability were these investment
vehicles on the whole, because of the way payments to the Investors were prearranged. It is also
my opinion that the overall Security was planned by the Aggregator (in this case, U.B.S. and
subsidiaries) and other Participants to fail from the start. The reason for the intended failure of
the overall Pool in my opinion was to better insure that the fraud perpetrated on the Investors
would be less likely to be discovered and to make it so that additional unearned profit could be
made by the Aggregator and other Participants, based on the Third Party Payments discussed
above that were payable only when there was a declaration of default by the Pool, often called a
“trigger event.” In my opinion, the allegations in the Amended Complaint regarding fraud and
conversion, as well as intentional aiding and abetting or conspiracy are well taken. The theory
that each Participant, including the very first party in the securitization chain, the Lender on the
Deed of Trust, is complicit in acts and series of acts with knowledge that these actions will harm
the debtors, including fraud and conversion, and/or are part of a scheme to commit fraud and
conversion in the form of not crediting borrowers account by third party source payments,
thereby converting ownership of the property from the borrower, the Debtor Plaintiff in this case,
is well respected among those that study transactions of this sort.
“The following are types of wrong performed upon borrowers, at least some of which occurred
with the Debtor/Plaintiff in this case, by Loan Brokers and Originators (“Lenders” in the original
deeds of trust), which were acts in furtherance of an overall fraud and conversion scheme that
were necessary to its success, because without a large number of loans doomed to fail from the
start the main planner and major Participants could not be certain that the Mortgage Pools as a
whole would fail.
a) The fact that Borrowers paid as much as double what the homes were
actually worth, due to a real estate market that was artificially inflated because of
the wealth of investment dollars looking for a home following the bursting of the bubble, followed by what amounts to an economic depression for the
working poor. Borrowers can’t afford the payments and they are losing their homes,
and the unbelievable abundance of foreclosures shows the extent to which any
defect in character they may have is common to large numbers of persons.
Appraisal values were often over-inflated even above the artificially high values
provided by the market and appraisers were advised they would not receive further
business unless they cooperated.
b) Borrowers were mislead as to what the monthly payments would be a few
years into the loans.
c) In more extreme cases, Borrowers were often offered teaser rates that they
qualified for, but which greatly increased within a very short period of time.
d) There was so much investment money looking for someone to borrow it
that could sign a note during this time, that loans were pushed at people with
persuasive and high pressure tactics;
e) Borrowers were advised that they could afford much more home then they
really could. It appears hard to resist a home that is much nicer than one thought
they could afford, when someone that appears to be a reputable professional assures
them they can afford. Optimism and wishful thinking overpower reason.
f) Loan brokers were pushed to offer loans that were on worse terms than
the borrower could qualify for. Sometimes they received higher commissions, often
in secret, for getting people to take out loans on terms that were less beneficial then
a loan that Borrowers would have qualified for. And sometimes the only loan
products that loan brokers had available to them were those containing unfavorable
g) Borrowers were advised that they did not have to worry about the
payments being unaffordable in the future, because they would be definitely be able
to refinance again at that point, because the market was so solid.
h) Underwriters were pushed by supervisors to pass through bad loans,
many of which were obviously doomed to fail from the start.
“Under the Truth in Lending Act, Regulation Z, and the Real Estate Settlement Procedures Act,
these undisclosed yield spread premiums are a liability of Participants in the securitization chain,
including the loan Originator and all Participants owed to the Homeowner/Debtor. In my
opinion, this disclosure does not appear on any of the Homeowner/Debtor’s documents
identifying the parties participating in fee-splitting or yield spread premiums nor the amounts
involved as required by the Truth in Lending Act and the Real Estate Settlement and Procedures
Act. Further, no information appears in Debtor’s closing documentation that would have caused
him to inquire about such a premium.
“In my opinion, the allegations contained in ¶¶ 21-23 of the Amended Complaint, pertaining to
TILA, RESPA and similar statutes are well taken. Questions as to statute of limitation would not
be applicable on a number of theories, including, but not limited to: fraud tolls the statute of
limitations; and until the name of the true creditor, lender, beneficiary is made known to the
borrower, the statute of limitations time frame does not begin to run.
“A MBS Pool Trust is not really a true “Trust.” The Trustee thereof has been involved in a joint
enterprise with the other Participants in the creation of a Financial Product for sale to Investors,
the purchasers of Mortgage Bonds. The so-called Pool “Trustee” is more like an administrator.
The first loyalty of the Pool Trustee is not to the Investors, but to the parties to which it entered
into contract with, the Participants. Based on its actions as can be seen over and over again, it
seems it is more interested finding ways not to reimburse the Investors than to find ways to do so.
In the securitization of the loans, the rights of various named mortgagees, assignees and/or
Trustees have each been superseded by succeeding conduits including the alleged Trustee or
officer of the Special Purpose Vehicle that issued bonds to the Investor who at least at some
point in time material to the subject transaction with the homeowner in the subject transaction
was holder of Mortgage Backed Securities. The powers of said officer or Trustee are limited to
ONLY what the Certificate Holders authorize. It cannot be overemphasized that the Investors
were not signatories to the Securitization Documents. Only the Participants were. The
transaction with the Investor in which they advanced “loan” money for the subject homeowner’s
loan product, was consummated most likely before the transaction with the homeowners or was
subject to binding agreements between various Participants in the securitization scheme that
pre-dated the transaction with the homeowner. Therefore, the actual and undisclosed Creditor
was the Investor who advanced the cash and who was known by the securitization Participants,
and therefore was the only party entitled to claim first lien either legally or under equitable
subrogation. Accordingly, the only potential party to a foreclosure wherein the purported
creditor alleges financial injury and therefore a right to collect the obligation, enforce the Note or
enforce the DOT is either a party who has actually advanced cash and stands to lose money or an
authorized representative who can disclose the principal, provide proof of service or notice and
show such express, unequivocal and complete authority to perform all acts and make all
decisions without condition. In my opinion, any condition placed upon the Trustee to act for the
MBS Pool Certificate Holders, including the power to enter into any compromise, makes the
Trustee something less than the Real Party in Interest on behalf of the Certificate Holders. Also,
a party must be present that is answerable to the claims, affirmative defenses and counterclaims
of the homeowners for such causes of action or defenses as might be applicable or they would be
blocked potentially by collateral estoppel if the court determined the foreclosing party was acting
within the scope of its agency for the Principal, the Certificate Holders. In my opinion, as above,
and with a reasonable degree of factual and legal certainty, the disclosed principals in the
securitization chain, up to and including the Pool Trustee, are not the Creditors nor are they
authorized agents for the Creditors, without proof that they have been granted this authority
pursuant to the terms of the Securitization documents. Otherwise, the Participants, including
Servicers and Pool Trustees, in my opinion, are interlopers or impostors whose design is to take
title to property they have no right to claim, and to enforce a Note which is evidence of an
obligation that is not owed to them but rather to another. The details of this information, whether
the Special Purpose Vehicle still exists, whether the investor has been paid in full through Third
Party Payments, are known only to these securitization Participants and the heretofore
undisclosed Investors. And the Participants have demonstrated time and time again that they are
not credible. In my opinion the attorneys for the known Securitization Participants do not have
any authority to represent the Creditor, and could not represent them due to the obvious conflict
of interest, to wit: the Investors upon learning that a substantial amount of their advance of cash
was pocketed by the intermediaries and now is left with a mortgage whose nominal value is far
below what was paid, and whose fair market value is far below the nominal value, would have
potential substantial claims against the securitization Participants for fraud, conversion, breach of
contract, and other claims. Fraud upon the investors in relevant to borrowers because it is
additional evidence of an overall fraud and conversion scheme against borrowers, because it
tends to show motive and intent in the fraud and conversion claims made by borrowers.
“This concludes this Unsworn Declaration, made under penalty of perjury.”
Signed on _________________________________, 2010.
Neil Franklin Garfield, Esq.


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