Chapter / Trick #1 – The Pretend Friend

A pretend friend, also called a fair-weather friend, is the kind of friend that is there when they need you and gone when you need them. In business, a pretend friend will help you get something you believe you couldn't get without them. The camaraderie will be based on a sly wink as your new friend beats the system for your benefit by doing something slightly outside the rules. You may believe the results are no more than what you deserve. You may have an intuition that the results you are being promised are too good to be true.  However you want to believe, so you ignore these red flags.

The pretend friend won't tell you their financial incentive for cheating you because they will want you to believe they have your best interests at heart. You will want to believe that too, but you will later find that they tricked you into something that benefited them and hurt you. In the end, you won't be beating the system, but only getting sucked into it. 

Pretend Friend # 1 – Big Banks

In the early 2000's, the pretend friends were the banks themselves, pretending that they were still lenders and beneficiaries, hiding the fact that the money for your mortgage was now coming from a Wall Street Investment Bank. Borrowers went into lending banks like Wells Fargo believing that the old system was still in place, that Wells Fargo would lend them money, Wells Fargo would charge them interest, Wells Fargo would hold their loan in the bank's portfolio, and Wells Fargo would be the party they paid back, that is Wells Fargo would continue to be the servicer. Nothing could have been farther from the truth.

These mortgages looked similar to the way mortgages had always looked but were profoundly different because they were being funded by Wall Street Banks to be securitized into residential mortgage-backed securities (RMBS).[1] The banks that originated these mortgages hid this from you because they didn't want you to realize that his type of loan would expose you to an increased risk of foreclosure. These loans would be riskier, with a higher debt to equity so there would be more chance of default.  There would also be less recourse if and when you fell into default.

For instance, if Wells Fargo was your beneficiary and you went into Wells Fargo and asked for a three-month forbearance and for the three mortgage payments to be added to the end of your loan due to a temporary crisis, they would probably do it. They might even look at your other accounts with the bank and they'd do it if you were a good customer (meaning a good payor) because they make their money by you paying them back, and they'd therefore be motivated to help you. However, once your loan is securitized to a RMBS the party that might care about you paying back becomes a balance sheet of investors you will never get to speak to who have hired a servicer that you will speak to. This servicer will lack any incentive to give you a forbearance or help you in any way to overcome a temporary obstacle, as the beneficiary would, because the servicer for the RMBS makes their money by foreclosure.

When clients come into my office after being tricked into foreclosure by a servicer, they all ask a similar question: "how did this happen… how do they get away with this?... how is this allowed to happen in America?[2] That's a big question with a big answer which is hard to sit through when you are suffering, but hopefully you’ll get an answer here. The summary answer is you have to look at where the money is coming from.  This foreclosure business by mortgage servicers was allowed to happen because Wall Street Investment banks got their greedy hands into mortgage lending and mixed it up with a toxic mix of deregulation, subprime mortgages and securitization so that all of the parties involved could make themselves rich at your expense.

If you're just happy to have your first home, you may not care where the money came from. It may not seem important that your mortgage money comes from Wall Street, or that your mortgage will be turned into a RMBS along with almost every mortgage in this country currently. However, following the money is just as important here as it is in any criminal enterprise. It will help you understand why and how servicers profit from foreclosure, why they will use every opportunity to trick you into foreclosure, why you should never trust your mortgage servicer, and why you should never ever miss a mortgage payment. 

Go back briefly to the 1920s which was the first dysfunctional marriage of mortgage lending and Wall Street Banks. That led to the great stock market crash of 1929 and the Great Depression. That was a time when 9,000 banks in this country failed and over a quarter of a million homes were lost to foreclosure.[3]

Then Papa Roosevelt came to office in 1933, in the thick of the Great Depression and within days pushed through the Banking Act of 1933, also known as Glass-Steagall.[4] Among other things, the Banking Act prohibited Main Street Commercial banks from investing in securities and Wall Street Investment banks from mortgage lending.[5] This emergency legislation was one of Roosevelt's New Deal programs, a cluster of safety net programs for the working class like Social Security, which also included housing legislation that made mortgages more affordable and allowed them to be federally insured.[6] Between these banking protections and the GI Bill, millions of regular Americans were able to buy homes and build family wealth for the first time.

This final death gasp of Papa Roosevelt's New Deal was in 1999 during the Clinton administration when Glass-Steagall was repealed by the Gramm-Leach-Bliley Act which removed restrictions against comingling of commercial and investment banks and allowed commercial banks and brokerages and insurance firms to merge.[7] The prior decade had seen the devastating deregulation of other New Deal programs that regulated the kind of mortgages banks could write, now allowing things that were never permitted before such as teaser rates, adjustable rate mortgages, balloon clauses, and minimum payments that would create negative amortization.[8] Prior to 1999, this deregulation of the New Deal protections and programs had already led to the Savings and Loan Crisis (1986-1989) and the first subprime bubble and collapse (1998-1999).[9]

Now Gramm-Leach-Bliley and the repeal of Glass Steagall allowed the sweeping mergers of the big four American Banks with Wall Street Banks that would turn the already powerful big four into multinational conglomerates. Over the next fifteen years this, along with the sweeping deregulation from the prior decade would coincide with the buildup to the mortgage crisis (2002-2007), the crash of the stock market and home values (2007-2008) and the aftermath (2009-the present).

In theory, securitization is not a bad thing. It had existed before the Great Depression and it continued during the Glass-Steagall era, usually involving prime conforming loans by regular banks on commercial and sometimes residential real estate, but these were high quality mortgages to stable borrowers with good debt to equity ratio.[10] The argument often given to defend securitization is that it increases liquidity in the marketplace; for instance once the shares to the RMBS are sold by the Wall Street bank to its investors, the bank gets their money back and can reinvest in more mortgages. More money, more borrowing, more home ownership. This was fine until Wall Street, with their love of risk, started pushing subprime lending.

During the days of stability under Glass-Steagall, and before the deregulation of the1980's, subprime loans with high interest rates and risky terms were only offered to borrowers who were a bad risk, meaning those with minimal or no down payments and low credit scores. Regular borrowers with substantial downpayments and good credit had always been able to get prime conforming loans with fixed interest rates and good terms, the kind of loans that are paid back regularly over time and were underwritten with enough equity and enough borrower debt to income ratio to have a built-in cushion that would predict human occurrences like death or temporary unemployment. Subprime loans are costly up front with high interest rates because they have a high debt to income ratio and are therefore designed and expected to fail and not to be paid back over time. Just as servicing is the business of foreclosure so subprime lending is the business of loan default and failure.

In the early 2000s, while Main Street banks were still pretending to be lenders, Wall Street Banks were fueling the explosion of sub-prime lending because those were the loans with the most risk and the highest short-term return for them. The friendly Main Street Bank pretending to be a lender and beneficiary was creating an illusion; the sheep's costume for the Wolf that is Wall Street.

Pretend Friend # 2 – the mortgage broker

In the early 2000's, because Wall Street liked risky subprime loans they began paying high commissions to originators to write them. These originators were also pretend friends, except now more out in the open. Because of these high financial incentives, brokers and agents, including those in main street banks like Countrywide and Wachovia, pushed these subprime loans on everyone, even those borrowers with good credit and low debt to equity ratio that were entitled to receive a prime conforming loan. The lure of an 8-10% commission for convincing a borrower to enter a subprime loan led mortgage originators to write these loans for everyone, good credit or not! In the case of borrowers with large loans the brokers would make huge commissions. And, as was expected and planned for, people betrayed each other for money.

In the early 2000's, it was sometimes a bank employee luring a borrower into a predatory subprime loans, but sometimes it was also a friend, a relative, a neighbor, or a friend from church. Regular people tricked their friends and neighbors into predatory subprime loans because of the huge commissions they got to write them. One of my clients, a doctor with perfect credit, was present to watch an agent write a $1.5M predatory subprime loan for his home purchase, for which he had a $500,000.00 down payment! That agent likely made upwards of $100,000.00 for writing that loan. My client remembered that the agent was sweating so hard that his tie was dripping. Maybe he felt guilty?

Wells Fargo had an in-house pretend friend con game going in the early 2000's whereby they systematically sent black salespeople into black communities to talk fellow blacks into predatory subprime loans either to purchase or refinance their existing loans.[11] In a particularly calculated and sinister scheme, Wells Fargo assigned black loan officers to go through heavily black areas of the east coast, such as Baltimore and Prince George's County in Maryland and Washington D.C. and forge relationships with churches and community groups where black congregants would be in attendance. Then they sent these black loan officers into these churches and community centers to push subprime loans on their fellow black citizens without concern of whether they had perfect credit, good credit, or no credit. Around 2012, after a whistleblower reported this, the Federal Reserve investigated Wells Fargo and the Justice Department eventually sued them for improperly pushing borrowers into subprime loans and exaggerating income information on mortgage applications.[12] In 2012, without admitting any guilt for this, Wells Fargo paid $175M to the Justice Department to settle these claims.

A typical promise of the pretend friend that I heard over and over from clients was I know it's a bad loan, but you can refinance this again in a year. This usually occurred if the borrower was savvy enough to know they were getting a bad loan, but there were multiple problems with this promise. Looking backward at the recent past, and without a historical perspective, a borrower could believe at that time that housing prices would continue to rise just as dramatically in the next few years as they had in the past few years, not realizing they were in a bubble that was expanding beyond what the market could bear.[13]

Another problem with this false promise was that as borrowing got easier people were encouraged to borrow more with less equity to debt ratio and this easy money caused housing prices to become over-inflated. If these over-inflated housing prices didn’t continue to rise there would be no equity cushion, meaning there would no way to borrow again without putting more money into the property to increase the equity to debt ratio. This promise therefore relied on these already inflated home prices continuing to grow by 20% over the next year, to create an equity cushion where none existed.

That obviously did not happen. What did happen was that the stock market crashed, home prices plummeted, equity became non-existent, and people were stuck with bad loans on homes worth less than what they owed. What happened with this bubble, as with all bubbles, is that it burst.

Pretend Friend # 3 – Hard Money Lender

Hard money loans are onerous unprotected loans that should never be used by borrowers on their primary residence. They should be used, if at all, only for business loans.  If you are borrowing against your primary residence, you want a prime conforming loan, with TILA and RESPA protections which include the right to receive disclosures related to your loan prior to signing it, and the right to rescind it.[14] A hard money business loan will not provide you with any of these protections, which you will realize only after you are stuck with one, and by then it will be too late.

The hard money pretend friend lender will be the smiley guy or gal that tells you not to worry and gets you to sign a bunch of documents without reading them which you will find out later are disclosures that you are borrowing money for a business purpose against you primary residence. Instead of a 30- or 15-year amortized mortgage you can afford, these hard-money lenders with shark teeth smiles will trick you into a short term (one or two year) interest-only balloon with a much higher interest rate than banks are charging – usually upwards of 10%. If you are counting on the money to pay off other debts, you'll also find out too late that you're getting far less than the loan amount, and far less than you thought, as these hard money lenders often take up to 30% of the amount they lend in fees.

Pretend Friend # 4 – Mortgage Servicer Employee

The first big lie mortgage servicers use to trick borrowers into foreclosure is the lie that mortgage servicers care about you paying back your mortgage. This lie feeds off the illusion that the mortgage servicing company is a beneficiary, or that they hold some beneficial interest in your mortgage, and that therefore they will benefit by you paying your mortgage and remaining in good standing. Only beneficiaries benefit when you pay back your mortgage and servicers are not beneficiaries.  Servicers and others benefit when your home goes to foreclosure. Beneficiaries own mortgages and they sell servicing rights to the mortgage servicers and the biggest servicing right that servicers buy is the right to foreclose. That is where the mortgage servicers make the most money.

Because servicers make their money by foreclosure, any time they tell you they care about you paying your mortgage, or they want to help you pay your mortgage, it's a lie. This lie starts with the audio introduction by the mortgage servicer while you wait on hold for a person to come on the line. It will start: ""Here at …. we want to help you.""

When a mortgage servicer employee tells you that you need to stop paying your mortgage to get a loan modification, that's a lie. The reason they tell you this lie is that if you miss a payment, they can charge you late fees. If you miss a lot of payments, that's a lot of late fees. If you miss enough payments so that you can't pay them back without a modification, that’s even more late fees. If they deny you that modification and you miss so many mortgage payments that they get to foreclose, that's a lot of late fees and foreclosure fees. 

When a mortgage servicer tells you that you are entitled to a modification or encourages you to believe that you are, that is also a lie. Nobody is entitled to a loan modification since it is always the servicers decision whether to give a modification or not to give it. The federal or state government may offer incentives, but it is always the servicer's choice whether to accept those incentives or not. 

It's also a lie when the servicer lures a borrower into applying for a modification when the borrower has equity. After months or years of applications when they finally tell you that nobody with equity gets a loan modification, you'll ask yourself why they didn't tell you at the beginning. Maybe you’ll ask them, but the answer will be a lie. The reason for this is that people with equity have the ability to refinance, or at least you do before they trick you into a long default. Your modification will be perpetually ""under review"" while your arrears accumulate, and your equity gets eaten away. Delaying a modification review in general benefits the servicer because it builds up arrears, but when you have equity this will go on and on until you eat all the way through it. 

Another benefit from a long default, for the servicer of course, is that it blocks you from refinancing. This is because with sufficient equity and income you can refinance, but in order to refinance with a prime conforming loan, a new lender will want to see at least a year of payment history on the existing loan. They will want to see your credit intact. Once your current mortgage servicer tricks you into a long default, especially if they record a Notice of Default with the county recorder, your perfect credit and your consistent payment history both go away. You could be in a situation where your home value has risen so fast that you have enough equity to refinance even with a long default, but you can’t find a conventional lender. If you've ever tried to refinance your loan after defaulting on the advice of your servicer, you have come up against this.

Tricking borrowers with equity into prolonged foreclosure has another lure for servicers. They will bring you to the point where you have lived off your equity for so long that you can't afford to pay it back, sometimes even with bankruptcy, and the foreclosure will be a foregone conclusion. The Bank knows when you have reached this point. It's the point where there will be just enough equity for an investor to get a deal, just enough to guarantee the lender won't be stuck with the debt after the foreclosure sale, and just enough so that any sliver of a surplus left over for you after the foreclosure sale can be eaten up by them with legal fees.[15]

Servicers also trick you into a long default to keep you from getting away from them. Once you have a prolonged default, they've trapped you. You either pay them up front, through a Chapter 13 bankruptcy, or get foreclosed on. Either way, you won't be able to refinance, and you'll be stuck paying them.

Just like the big Wall Street banks incentivized brokers to write predatory loans in the 2000s by paying exorbitant fees for these types of loans, the mortgage servicers provide positive and negative incentives to their employees to make sure they bring borrowers to foreclosure. When you hear: "your call is being recorded for training purposes," you think it's to make sure the employees are providing help to borrowers, but it's not. It's to make sure they don't help you.

For instance, if one of those servicer employees told you from the moment you asked for a loan modification that borrowers with equity don't get loan modifications, their supervisor might be listening, and they might be reprimanded or fired for not doing their job. Your hardship, and all the forms you fill out detailing your finances, are information they are required to collect to give to their employer to ensure foreclosure. That's why they lure you into a long default and multiple modification applications. That's why they string you along for months and sometimes years.

However, if they tell you that you are still being considered for a loan modification on the day of your foreclosure sale, trick you into sitting out the sale and then tell you: “Oops, you were denied" the day after the sale they'll probably be rewarded by their supervisor. They might get a $50 gift card to Target or some other reward. Showing concern for you in a way that would block the money flow to their employer from foreclosure would be insubordinate. It would be failing at their job. Tricking you makes them valuable. It entitles them to a reward. It is succeeding at their job.

I once saw an animal rights documentary about what happens at a chicken factory, and I never forget the image of the person whose job it was to stand at the conveyor belt full of baby chicks pushing the useless baby boy chicks into a grinder. Boy chicks are expendable because they don’t make eggs, meaning they don’t generate money. Once the servicer has sucked you dry of fees and you’ve stopped generating money for them, you, the borrower, are a useless boy chick, and the servicer employee will push you into the foreclosure grinder. It might be an unpleasant job, but it's a job. It's their job.

Pretend Friend #5 – The Loan Modification Company

Loan modification companies falls into a category I call "the vultures." These are individuals and businesses, including lawyers, that swoop in when borrowers are at their most desperate and vulnerable and promise special powers to help them stop a nonjudicial foreclosure and/ or get a modification. Most of these vultures will charge only a few thousand dollars, which may seem like a good deal until you lose your home.

In the case of the loan modification company, they will imply they have some secret skill with which to stop a nonjudicial foreclosure sale and get you a modification. There are only two ways to stop a foreclosure sale, and they are not secret skills. The first way is by court order, and the second is by bankruptcy. The Court Order requires an underlying complaint filed in state or federal court with substantial claims against the lender or mortgage servicer, allowing you to get a preliminary injunction to stop the sale while the matter is litigated. That's what attorneys like me do. The second is by a Chapter 13 bankruptcy.[16]

The bankruptcy way requires you to list your property in your Chapter 13 Bankruptcy and agree to pay back your servicer through a payment plan. The trick that these loan modification companies sometimes use is to list your house in other people's bankruptcies. They do this by grant-deeding or quit-claiming your title, or a portion of your title, to another individual with an existing bankruptcy which will stop the trustee from foreclosing. They may do this one two or three times, clouding your title with multiple other title holders and leaving you to clean up the mess when you figure it out years later. At that point, the loan modification company will be long gone.

Resolving this issue for people who have been tricked by loan modification companies, sometimes fraudulently without their knowledge, sometimes having not been entirely naïve to the scheme, requires a quiet title lawsuit. It involves attempting to reach the other title holders, waiting for them to default (not answer the complaint), and then receiving a court order that returns the title to the client.[17] Sometimes, a fraudster is involved, and it's clear that the borrower was in the dark. Still, this is an awkward process, with the judge questioning the borrower on whether they understood that what they were doing was an abuse of the jurisdiction of the bankruptcy court meaning against the law.

In the most devastating cases, the loan modification company will be working with an investor team, feeding them your information. In these cases, the modification company may even postpone your sale a few times to lure you into complacency and thinking you have a modification or can trust the fraudsters. They will trick you into not filing for bankruptcy to stop your sale while they line up their investors. They may be working with the trustee, who may also be a front for the investors. Meanwhile, there will be no modification, and they will have teed up your property for their investors to come in and get a good deal at the foreclosure sale.

There are laws in California to protect borrowers from servicer scams, most of which the servicer will craftily comply with. For instance, they are required to send you a loss mitigation letter prior to recording a Notice of Default, so they will usually do this even if they predate it to create a paper trail that makes it look like they complied, but you receive it after the Notice of Default. The servicer is also supposed to give you notice that you have been denied for a modification prior to conducting a foreclosure sale, and sometimes, you won't get this letter until after the foreclosure sale has happened. These actions by the servicer often happen with impunity because the borrower doesn't know the statutes they have violated, and the borrower, being already strapped, doesn't think they can afford an attorney.

Pretend Friend # 6 – Forensic Loan Auditor

These are the guys that do a deep dive into your loan history and tell you all the reasons why the bank that's foreclosing on you doesn't have the right to foreclose. They will tell you the bank doesn't own your promissory note, they don't have the right documents or recorded assignments, or your loan was improperly securitized. They’ll find robo-signing, notary fraud, and forgeries on your recorded documents.  These businesses are a scam to lure borrowers into thinking they are getting evidence to sue their lender. If you don't know the law, these guys will seem like geniuses, and they're smart alright, but not in the way you think.

The forensic audit is full of the information you can use to challenge the servicer's standing to foreclose in court, but to do that, you have to be in court. These geniuses will fail to tell you that forensic loan audits are useless in nonjudicial foreclosure states like California, where the servicer and trustee do not have to take you to court to foreclose. They are only useful in judicial foreclosure states where the servicer must take you to court to foreclose and where you can challenge a servicer’s or a lender’s standing to foreclose. In nonjudicial foreclosure states, if you want to be in court, you must sue them. In these states, for the most part as long as you received money for your mortgage, judges don't care about improper securitization of RMBS, loss of a promissory note, robo-signing, forged documents, or even if you're paying the wrong bank. Most importantly, they won't let you use this information to challenge standing to foreclose or to stop a foreclosure sale.

Pretend Friend #7 – Attorney

This is the category of vulture I see most because I hear all the stories of the other attorneys that clients paid and how much they paid when people came into my office. Sometimes these are faux paralegals offering low-cost attorney services to clients so they can do things in propria persona (pro per) meaning without an attorney. Foreclosure litigation is hard and costly, and the worst thing a foreclosure litigation attorney can do is to mislead people about this cost. Most of the time, when people lose their home over bad legal advice, it is from an attorney who gave them a cheap retainer, what I call "the red flag price."

The "red flag price" is a retainer fee of $3500.00 to $5000.00, and I call it that because it is a red flag that no work is going to get done. For this amount of money, the attorney will promise to file a lawsuit to scare the lender into giving you a loan modification. They will promise to stop your sale with a temporary restraining order. What you will get for this money is a weak underlying complaint that won’t entitle you to a temporary restraining order, or a loan modification, and won’t scare anyone.

After that, they will tell you to file for bankruptcy, or they may file for bankruptcy in your name without you knowing it. You will come up against the same problem again because bankruptcies also involve hard work, and they won't follow through. Once you've filed for bankruptcy and not followed through, especially if you’ve done this multiple times, it becomes harder, and eventually impossible, to use bankruptcy to stop a foreclosure sale. If you file for bankruptcy multiple times before you file your lawsuit, this also paints a picture for the court that you are the one behaving badly, not the bank.

The" red flag price" is also a red flag of danger because it may signal an attorney working with the servicer or investor to ensure you don't go elsewhere. You'll get clued into this pretty quickly when the attorney becomes hard to reach immediately after paying them. Stopping a foreclosure sale with a complaint and a preliminary injunction is conservatively about $15,000.00 or more of attorney work and this work requires constant communication with clients to clarify facts, read the pleadings, sign declarations, and so on. If you have a pending foreclosure sale and your attorney isn't communicating with you regarding pleadings, don’t assume they’re helping you. Assume they’re not and get out of there fast. Attorneys who don't ask for money, especially if they don't call you back or answer the phone, maybe working a side hustle, and they are the ones that will ease your home right into foreclosure.

Some attorneys may mean well but just be inexperienced, which is sometimes just as dangerous. A couple came to me asking if they had a case against their lender, which they didn’t, and I told them to file a Chapter 13 bankruptcy and start paying their arrears back with a payment plan. They hired a bankruptcy attorney and started paying, but the regular and plan payments were too much for them to afford, and they were struggling. Wishful thinking sent them to another attorney who promised she could file a lawsuit and get them a modification, which didn't work.

When they came to me again, it was to read the other attorney's complaint to see if it had any merit, which it didn't. Thankfully, they were safely tucked into a bankruptcy with their substantial equity protected, so the wasted money on the second attorney was just that and not fatal. We strategized that the best plan for them would be to use the money they had been spending on an attorney to do some needed costly repairs to get the house in salable condition, sell the house if they couldn't afford it, and downsize. They would be lucky enough to emerge with a few hundred thousand in equity, certainly enough to go on living a good life. Hopefully, that's what they're doing. 

Pretend Friend #7 – Foreclosure trustee/ investor

You may ask why I put the foreclosure trustee in here as a pretend friend because most of you don't even know there's going to be a foreclosure trustee, and you don't think of them at all, friend or otherwise, but you should. When you purchase a property by grant deed in California, you own title to that property. However, when you incur a deed of trust, you surrender that title to your friendly trustee, who holds your title until you pay back the money, which is when they reconvey your title to you. If you default, the servicer will replace that original trustee with a foreclosure trustee.

The foreclosure trustee who holds title to your property will conduct a foreclosure by the power of sale that is granted in the fine print of your deed of trust.[18] This will happen nonjudicially by the trustee recording notices with the county recorder and mailing them to the homeowner. Foreclosure trustees exist only in nonjudicial foreclosure states, and they go along with nonjudicial foreclosure and deeds of trust. In nonjudicial foreclosure states, these statutes give a privilege to the trustee's communications, which presupposes that the trustee is a non-interested party.[19] These trustees are supposed to be neutral parties, answerable equally to the lender and you, but in reality, they are hired by the servicers; they are not neutral and have become increasingly corrupt.

One of the ways that trustees are corrupted is when they begin operating as fronts for investors or when they are purchased and owned by investors. Go onto many of these foreclosure trustee websites. You can see that they are mainly investor clubs, with the trustee business being operated as a conduit to feed properties to their investor members. These investors are interested in good foreclosure deals, and they increasingly employ aggressive and thuggish tactics and schemes, often involving threats, theft, and physical violence to make these deals happen.

In one of my cases, my client hired a loan modification company to get him a loan modification with Wells Fargo and that loan modification company got a callback number for Wells Fargo that was actually the number for an investor company, let's call them Chippendales.  When the loan modification employee thought he was calling Wells Fargo he was actually calling Chippendales. I can only guess how the Chippendales employee tricked the modification company employee into thinking he had a number for Wells Fargo, but he did. The Chippendales employee then lied to the loan modification employee about a sale date so that my client missed the foreclosure sale. If not for the fact that the Chippendales employee slipped and used his real name, I would never even have guessed at such a scheme.

In that case, the same Chippendale employee later paid two of my client's tenants cash for keys so that they would move out and he moved other Chippendale employees into these units.[20]  This was while my client was still living in the third unit and these Chippendale thugs surrounded my client, physically attacking him and sending him to the hospital. While the client was at work, they broke into his garage and stole his tools. When one client tells you they were robbed while in litigation with an investor, you might not believe it, but when you hear it so many times, you know it’s true.

With each new law that arrives to protect regular people, the trustee and/ or investors will think up new scams to try to thwart them. The latest is California Senate Bill 1079, which started out as a way to help renters become homeowners by giving them a chance to outbid investors at a foreclosure sale. At first, this law only gave this opportunity to tenants living in the properties, but later, it was expanded to allow any owner-occupier who intended to live in the property to take it back from an investor. SB1079 would later become California Civil Code §2924m.[21]

The gist of California Civil Code §2924m is that it creates a category of eligible bidders who must be potential owner occupiers and gives them the right to take back properties from investors by bidding higher than them after the foreclosure sale occurs.[22] This starts with a fifteen-day period after the sale when the eligible bidder has to provide an affidavit that they intend to bid on the property.[23] The eligible bidder then has an additional 30 days (45 days from the foreclosure sale) to tell the trustee how they will receive the money or how they will deliver it to them.[24] No part of the law says a trustee has to tell you your affidavit was accepted, so sometimes they won't respond and hope the eligible bidder goes away.

SB1079 also creates responsibilities for the trustee and puts additional scamming power into their hands. To begin with, the trustee has to list the property on their website, including the foreclosure sale date, the foreclosure sale amount, and an address where the trustee can receive certified mail.[25] If they are fronts for investors, they regularly won't do this.

Second, the trustee needs to get a declaration from every purchaser at a foreclosure sale stating whether or not they are an investor or intend to owner-occupy.[26] Investors lie on this declaration, and trustees allow them to lie, even if they have dealt with the same investor over many properties. Later, this false affidavit/ declaration can be used to prevent any eligible bidder from submitting a bid. This happened to one of my clients, where the investor lied on his affidavit to buy my eligible tenant’s property at the same time that he was in court being sued by another trustee for lying on another affidavit. He still had the nerve to lie again. In this case, while the fight with the investor went on, the subject property was broken into, and my client was robbed of her passport, forty-thousand dollars in cash, and multiple important title documents.

Third, the trustee can do something I have heard a judge refer to as "fishing for eligible bidders." This occurs when the original bidder is admitted, and the trustee actively recruits another investor to pose as an eligible bidder to outbid him. This involves the trustee's investor lying about being an eligible bidder by providing a false declaration that they intend to owner-occupy the property they are bidding on. This scam is easy for the trustee to run because they know what the bid needs to be and can feed the information to their investor friends. It's easy for the investor friend of the trustee because they are 1) getting hand-fed a good deal and 2) getting all the inside information the rest of us have to guess at, for instance, what any other bids might be. It would be fair to assume the trustee would get some kickback.

What makes this a minefield for regular borrowers is that when you try to sue a foreclosure trustee for any kind of wrongdoing, you come up against a huge loophole in the law that allows them to commit these acts with impunity. This is a statutory presumption that assumes the trustee to be neutral and gives them immunity from any kind of intentional tort.[27] This presumption of neutrality and immunity from intentional wrongdoing is based on an outdated and false assumption that foreclosure is not profitable for trustees. This is a double bind for homeowners because, at the same time, the trustee is operating as a corrupt profit center for investors with a financial incentive for tricking people into foreclosure; even if you catch them, they have a presumption of neutrality, and you can't sue them.

These outdated laws date back to those olden days when banks wrote loans, held them, and serviced them, and foreclosure was rare because they only wrote the kinds of loans that people could pay back. It comes from a time long ago when foreclosure was not profitable for the parties involved, including the trustee, and when being a trustee was a job for regular people, not investors. It comes from a time before investors came to circle what the foreclosure business calls distressed properties like bottom feeders in a frenzy for chum.

Things get worse quickly when the investors that own the trustees also engage in hard-money lending, as happened in the case of Chippendales. When this happens, these investors now control the entire cycle of loan to own, from the hard-money lending to the foreclosure and then to feeding those properties back to themselves and their friends. This type of loan-to-own scheme is a practice long engaged in by loan sharks, bookies, and organized crime, who take collateral and loan money with the intent of owning what they are allowing you to borrow against.

[1] The best explanation of securitization is still by Professor Christopher Peterson: Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. CIN. L. REV. 1359, 1398 (2010).

[2] Big Four – Wells Fargo, JPMorgan Chase, Bank of America, Citi.

[3] See: Encyclopedia.com Housing 1929-1941, available at: https://www.encyclopedia.com/education/news-and-education-magazines/housing-1929-1941#:~:text=In%201932%20between%20250%E2%80%93275%2C000,dropped%20by%20approximately%2035%20percent.

[4] President Franklin Delano Roosevelt who served four presidential terms (died in the middle of the fourth) was beloved by the working poor who called him Papa Roosevelt. The rich Wall Street elite usually referred to him as that Commie bastard; Glass Steagall was sponsored by Sen. Carter Glass (D-VA) and Rep. Henry Steagall (D-AL); Available on the Social Security website (www.ssa.gov) at: https://www.ssa.gov/history/bank.html.

[5] The main provisions of the Banking Act of 1933 effectively separated commercial banking from investment banking. Senator Glass was the driving force behind this provision. Basically, commercial banks, which took in deposits and made loans, were no longer allowed to underwrite or deal in securities, while investment banks, which underwrote and dealt in securities, were no longer allowed to have close connections to commercial banks, such as overlapping directorships or common ownership.

[6] The National Housing Act of 1934 created the Federal Housing Administration (FHA), now encompassed by the Department of Housing and Urban Development (HUD) to insure mortgages by private lenders. The Federal Savings and Loan Insurance Corporation (FSLIC) which later had its activities moved to the Federal Deposit Insurance Corporation (FDIC) was a similar agency that insured deposits.

[7] 1999 - Gramm-Leach-Bliley Act PL 106-102 Available at: https://www.ftc.gov/business-guidance/privacy-security/gramm-leach-bliley-act.

[8] The deregulation of mortgage lending during the 1980s began with a Supreme Court ruling in 1978 that affected a change in usury laws. See: Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299, 99 S. Ct. 540 (1978); Then, on December 20, 1979 Congress raised the limit of deposit insurance provided to Savings and Loans (S & Ls) by the Federal Savings and Loan Insurance Corporation (FSLIC) from $40,000.00 to $100,000.00. H.R. Res. 6216, 96th Cong., 1st Sess. (1979); The next thing to happen was the introduction of “national banks” which was the result of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DDMIC) which repealed all usury caps on first-lien residential mortgages, including those enforced by states, and banks began to market their services across state lines. This eventually led to inter-state banking and the growth of national banks. In 1981 Reagan also signed into law the Garn-St. Germain Act (full name "An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans") which increasing their lending limits on the S&Ls and also on the large commercial banks. The Alternative Mortgage Transaction Parity Act of 1982 (the Parity Act) was the one that allowed a category called “specialty mortgages” which now included teaser rates, adjustable-rate Mortgages, balloon clauses, and negative amortization. See: (http://www.fdic.gov/regulations/laws/rules/8000-2200.html) and (http://www.fdic.gov/regulations/laws/rules/8000-4100.html).

[9] In 1999 eight of the top ten subprime lenders including New Century, Option One, First Plus Financial, The Money Store, Famco and Long Beach Mortgage declared bankruptcy, ceased operations, or sold out to bigger banks and the rate of subprime mortgage securitization dropped from 55.1% in 1998 to 37.4% in 1999. This was sometimes referred to as Subprime Crisis I..

[10] A conforming loan meets either Freddy or Fannie’s underwriting and loan limit guidelines while non-conforming loans do not. Prime is a classification of borrowers, rates, or holdings in the lending market that are considered to be of high quality. This classification often refers to loans made to high-quality prime borrowers that are offered prime or relatively low interest rates.

[11] This was reported by Wells Fargo whistleblower Elizabeth Jacobson. Available at: https://www.democracynow.org/2009/8/28/former_wells_fargo_subprime_loan_officer.

[12] See Reuters July 12, 2012 by Rick Rothacker, David Ingram “Wells Fargo to pay $175 million in race discrimination probe.” Available at: https://www.reuters.com/article/us-wells-lending-settlement -idUSBRE86B0V220120712

[13] A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst." Typically, a bubble is created by a surge in asset prices that is driven by exuberant market behavior. During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset's intrinsic value (the price does not align with the fundamentals of the asset).

[14] Truth in Lending Act, Real Estate Settlement and Procedures Act

[15] When your home is sold at a regular sale, the difference between the debt and the sale price is your profit. When the home is sold at foreclosure sale, the difference between the debt and the foreclosure sale price is called the surplus.

[16] If your loan amount is over $2.5M, you may need to do a Chapter 11 Bankruptcy.

[17] This is done by a type of mini-trial called a default prove-up hearing.

[18] California’s nonjudicial foreclosure scheme is set forth in Cal. Civ. Code §2924-2924k; The statutes that control the trustee’s actions and rights in California begin with Cal. Civ. Code §2924(a)(1)

[19] Cal. Civ. Code §2924(d)

[20] “Cash for Keys” is an agreement between an owner and a tenant for a renter to move out on an agreed upon date in exchange for cash so as to avoid an unlawful detainer lawsuit and/ or judgment.

[21] California Civil Code 2924m(a)(1-3).

[22] Properties of one to four residential units.

[23] California Civil Code 2924m(c)(2)

[24] California Civil Code 2924m(c)(3-4)

[25] California Civil Code 2924m(e)

[26] California Civil Code 2924m(d) allows this to be either a sworn affidavit or a declaration and this is later attached to the trustee’s deed upon sale.

[27] Kachlon v. Markowitz, 168 Cal. App. 4th 316 (2008).