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Foreclosure Fraud: A Scheme and Artifice to Defraud

The use of perjurious affidavits isn’t “sloppiness." It’s part and parcel of a massive fraud and can be prosecuted under federal mail and wire fraud statutes so long as the mail or a wire transmission was used in the commission.

Section 942 of the Department of Justice’s Criminal Resource Manual entitled “The Scheme and Artifice to Defraud" tells us that Congress did not define these terms in either the mail fraud statute or the wire fraud statute  The identical phrase appears in both, however, and the Supreme Court has determined that it means the same thing in both. The Manual goes on the say:

The fraudulent aspect of the scheme to defraud is to be measured by nontechnical standards and is not restricted by any common-law definition of false pretenses. "[T]he words ‘to defraud’ in the mail fraud statute have the ‘common understanding’ of ‘"wrongdoing one in his property rights by dishonest methods or schemes," and "usually signify the deprivation of something of value by trick, chicane, or overreaching."’" Carpenter, 484 U.S. at 27 (quoting McNally v. United States, 483 U.S. 350, 358 (1987) (quoting Hammerschmidt v. United States, 265 U.S. 182, 188 (1924))).

Black’s Law Dictionary defines chicane as “swindling, shrewd cunning. The use of tricks and artifice” and artifice as “an ingenious contrivance or device of some kind, and, when used in a bad sense, it corresponds with trick or fraud. It implies craftiness and deceit, and imports some element of moral obliquity.”

Here’s what happened in it’s simplest form:  

1)     A homeowner took out a mortgage from a loan “originator”; the originator would have lined up a bank to purchase from the originator the loan along with a bunch of other loans from the same time period. Call this bank the “depositor”;

2)     The depositor bank would enter into a “Pooling and Servicing Agreement” with a couple of other banks. The Agreement called for the creation of a Trust. One of the other banks in the Agreement would become the “trustee."

3)     The depositor bank was supposed to deposit the mortgages into the trust. Often MERS was designated as the virtual warehouse for the mortgages.

This was the first place that things broke down. At the time that the depositor bank bought the mortgages from the originator, it did not know where that particular loan was going to end up, so although it paid money for the mortgage it often did not have the originator sign it over to the depositor, instead waiting to find out where the loan was going to go and with the intention of signing it over later. This was because the mortgages often changed hands many times before the actual attempt to deposit was made. So all the bank got at the time it paid the money was a spreadsheet with a list of mortgages on it.

When the bank attempted to deposit the mortgages, all it gave to the trustee was the spreadsheet. The idea was to go back after the deposit was done and have the originator assign to the Trustee for the benefit of the trust. The problem was, either through laziness(cost savings) or because the originator went out of business before it could be done, the assignment never got done.

If the depositor never had title to the mortgages it paid for, than the depositor never validly deposited them into the trust. That means the trusts are empty. Which also means that the collections of mortgage payments made by the servicer for the trust, were made without any right to receive those payments.

It also means that the securities offerings for the Residential Mortgage Backed Securities backed by these trusts was a huge material misstatement in connection with the offering of securities and may face liability to the investors in those securities.

To cover up the failure to properly convey the mortgages, MERS and the Banks acting as servicers or the banks acting as trustees — it varies, let’s just say the “foreclosing entity” — gets a document mill to forge a backdated assignment or allonge, or produce a perjurious affidavit claiming that a chain of title exist and that the foreclosing entity has the right to foreclose.

Let’s review all the forms of fraud in this situation:

1) Securities sold to investors that claimed to be backed by a trust fund full of mortgages, but the trust funds were actually empty.

2) Payments taken in by servicers that they had no right to receive.

3) Counterfeiting documents to be used in court to cover up frauds (1) and (2); houses stolen by foreclosing entities that had no right to them, because the problem can’t actually be fixed.

This is not “sloppiness” and if David Axelrod and Shaun Donovan cannot see the difference, they are too stupid to be working for our president.

CitiGroup already had a conference call with its investors to alert them to how totally FUBAR the foreclosure crisis really is. Go read this excellent article by Dianna Olick, who appears to be the first MSM reporter to “get” it.

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Cynthia Kouril

Cynthia Kouril

Cynthia Kouril is a former Special Assistant United States Attorney in the Southern District of New York under several different U.S. Attorneys, former counsel to the Inspector General for the N.Y.C. Department of Environmental Protection where she investigated threats to the New York City water supply and other environmental crimes, as well as public corruption and fraud against the government, former Examining Attorney at the N.Y.C. Department of Investigation and former Capital Construction Counsel at New York City Parks and Recreation.
She is now in private practice with a colleague whom she met while at the USA Attorney's Office. Ms. Kouril is a member of the Steering Committee, National Committeewoman and Regional Coordinator for the New York Democratic Lawyers Council, a member of the Program Committee of the Federal Bar Council and a member of the Election Law Committee at the Association of the Bar of the City of New York. She is active in several other Bar Associations.
Most important of all, she is a soccer mom.