COMMENT OF AMERICAN PROPERTY OWNERS NETWORK, INC. ON PROPOSED NEW RULE 12 C.F.R. § 7.1031 

RE: Docket ID OCC-2020-0026 

TO THE OFFICE OF THE COMPTROLLER OF CURRENCY (OCC): 

American Property Owners Network, Inc. is a 501(c)(4) organization dedicated to educating the public and holding government officials accountable to investigate, regulate and provide relief from fraudulent foreclosure activities throughout the nation. Leo Blas and Wendy Alison Nora have been authorized by the Board of Directors to submit the comment on the new Rule that the OCC is proposing to be adopted as 12 C.F.R. § 7.1031, which will provide: 

  • 7.1031 National banks and Federal savings associations as lenders. For purposes of sections 5136 and 5197 of the Revised Statutes (12 U.S.C. 24 and 12 U.S.C. 85), section 24 of the Federal Reserve Act (12 U.S.C. 371), and sections 4(g) and 5(c) of the Home Owners’ Loan Act (12 U.S.C. 1463(g) and 12 U.S.C. 1464(c)), a national bank or Federal savings association makes a loan when the national bank or Federal savings association, as of the date of origination: 

(a) Is named as the lender in the loan agreement; or 

(b) Funds the loan. 

Director Leo Blas graduated with accounting major at Appalachian State University and got his CPA with KPMG, where he worked as a bank auditor. Mr. Blas worked with the FDIC and was “on loan” to the Resolution Trust Company (RTC) and has defended his own home against foreclosure. Director Wendy Alison Nora earned her J.D. at the University of Wisconsin in 1975 and worked on her Ph.D. at the University of Minnesota’s Department of Sociology in the area of Law and Economics with a focus on the nature and uses of “money”. Ms. Nora practiced foreclosure defense during the Farm Crisis of the 1980s and the Residential Foreclosure Crisis of this century and focused on foreclosure defense since 2008. Both Mr. Blas and Ms. Nora are very familiar with the issue of “loan” documentation in mortgage securitization transactions, the application of the Uniform Commercial Code, and the issues of the identity and standing of foreclosure claimants in judicial and nonjudicial foreclosure actions.  

All of the Directors of American Property Owners Network, Inc. have professional backgrounds and training in accounting, business, education, finance, or law (both trial law and tax law). The Board of Directors of American Property Owners Network, Inc. selected Mr. Blas and Ms. Nora to express the position of the Board of Directors of American Property Owners Network, Inc. in these comments.  

Mr. Blas and Ms. Nora have thoroughly reviewed your Notice of Rulemaking and the Supplementary Information in the context of our professional training and reports of the personal experience of numerous homeowners. Rather than provide a complete analysis and critique of your Supplementary Information, we provide, on behalf of American Property Owners Network, Inc. a simple, straightforward opposition to the language in proposed 12 C.F.R. § 7.1031 as it applies to the rights of homeowners in foreclosure proceedings.  

Not only will proposed 12 C.F.R. § 7.1031 create more confusion in the courts than the current lack of any definition of the term “Lender” by the OCC but it is entirely unmanageable for litigation purposes. Moreover, proposed definition will be harmful to parties who the OCC  identifies as “borrowers” but who the American Property Owners Network, Inc. identifies as the property owners. Prior to the Financial Crisis of 2008, the property owners provided Collateral 

Documents in the false belief that they were entering into lawful contracts in which material terms were not fully disclosed and not concealed. Prior to 2008, the true nature of the transactions as “securitization transactions” was never disclosed to the property owners.  Two (2) Definitions of “Lender” in Proposed New Rule 12 C.F.R. § 7.1031 

By using the conjunction “or” in the new definition of “Lender” when no definition has previously existed by rule, the OCC identifies two (2) types of parties with different interests and  relationships to foreclosure proceedings arising from what are known as “securitization transactions”, when neither is entitled to payment in the usual case.  

12 C.F.R. § 7.1031(a)  

The first definition of Lender proposed for 12 C.F.R. § 7.1031(a) is the entity identified as the Lender in the document identified as the Note which is acquired in securitization transactions. That entity is rarely the entity which funds the transactions and is commonly known as the “originator”. The party which originated the loan is almost never the party which appears as the plaintiff in any judicial foreclosure proceeding and many of the originators in the period leading to the 2008 Financial Crisis were unregulated nonbank entities which appeared at the origination of the securitization transactions which were represented to be “loan closings” but were actually conducted for the purpose of obtaining Borrowers’ signatures on “loan documents” (facially appearing as Notes and Mortgages or Deeds of Trust) to be immediately transferred to unidentified entities for a commission or fee. The entity named Lender on the documents labeled Notes which were acquired at what appeared to be real estate mortgage loan closings were usually originators only and were not entitled to receive any payments in the future. The party entitled to claim payments was concealed and not disclosed.  

Many of these nonbank “originators” filed bankruptcy petitions in 2007 (usually Chapter 11 cases for liquidation). Others were merged into parent companies or were subsequently acquired by warehouse lenders. Some regulated entities, like IndyMac Bank, FSB and Washington Mutual Bank, were liquidated by the FDIC. Many of the “originators” no longer exist. Including originators in the definition of Lenders is completely inaccurate in securitization transactions.  

While the OCC may intend new proposed rule § 7.1031(a) to have some utility in OCC regulatory matters in the future, it is inaccurate for purposes of determining the identity and  standing of the entity entitled to seek the remedy of foreclosure in any judicial or nonjudicial foreclosure proceeding based on transactions originated by entities that loaned nothing, many of which no longer exist. The public land records are filled with apparent assignments of security interests which have been fabricated by servicers’ employees purporting to assign the security interest to the mortgage servicers (self-assignments never heretofore allowed by law).  

The assignees of security interests are usually the “servicers” acting as agents for third parties. The nonexistence of the “originators” is one of the causes of fabrication and recording of assignments of mortgages or deeds of trust (security interests) to make it appear that a new entity is prudentially entitled to foreclose in judicial foreclosure actions. Likewise, for purposes of nonjudicial foreclosure proceedings, assignments of mortgages or deeds of trust are fabricated to make it appear that the entity having the beneficial interest in the mortgage or deed of trust will receive the proceeds of the sale.  

The definition in proposed new Rule § 7.1031(a) not only has no utility for court determinations of the identity and standing of the party seeking the remedy of foreclosure but the definition may be relied upon in courts to establish an impossibility: to wit, that an (often no longer existing) entity which never provided any funds for the transaction is entitled to payments and to the remedy of foreclosure in the event of an alleged default. This misidentification of originators as Lenders will cure none of the confusion regarding the “securitization” transactions and appears to give validity to an event which did not occur. The originator in most  securitization transactions is not the Lender because the originator did not “fund the loan” and had no future interest in receiving payments from the property owners1 as the Lender. 12 C.F.R. § 7.1031(b)  

The second definition of Lender proposed for 12 C.F.R. § 7.1031(b) is the entity which “funds the loan”. The entity which may have “funded” the “loan” was concealed and undisclosed in millions of securitization transactions and is commonly referred to as the “table funder” or “warehouse lender”. While it would be helpful to the property owners to require the party which “funded” the “loan” be properly identified, to appear in the public land records as the beneficiary of a deed of trust or the mortgagee of a mortgage, and as the real party in interest in a judicial foreclosure case as the plaintiff or the holder of the beneficial interest in nonjudicial  

1 Some originators also acted as servicers which collected payments for unidentified third parties in exchange for a fee. foreclosure proceedings, the entity which “funded” the “loan” usually transferred the “loan documentation” to other entities involved in the securitization transactions which are not covered by the proposed new Rule. By defining the “Lender” as the party which “funds the loan”, the proposed new Rule is inapplicable to the true nature of the securitization transaction because there are multiple unidentified parties and undisclosed transactions in the securitization process which are not covered by the definitions in the proposed new Rule. 

In the experience of the Board of the American Property Owners Network, Inc. and based on evidence in gathered and made available in hundreds of cases, post-origination participants in securitization transactions (parties not covered by the proposed new Rule), known as “sellers” and “depositors” frequently failed to deliver the Notes, Mortgages and Deeds of Trust (“Collateral Documents”) as required by the Pooling and Servicing Agreements (PSAs). This failure to transfer the Collateral Documents is contrary to the representations made to investors in the filings with the Securities and Exchange Commission (SEC) which claim that the securities which were issued are backed by Collateral Documents. Instead, documents have been and still are being fabricated to create the appearance that securities which were issued claiming to be backed by Collateral Documents are in fact supported by genuine and authentic documents, when they were not. The proposed new Rule provides definitions which inaccurately identify the Lender in securitization transactions involving Notes, Mortgages and Deeds of Trust who never had an interest in the Collateral Documents or have long since ceased to have any such interest.  American Property Owners Network, Inc. Opposes the Proposed New Rule The Supplementary Information accompanying the Notice of Rulemaking indicates that part of the purpose of the definition of Lender in the proposed new Rule is to provide definition of the heretofore undefined term “Lender” is, in part, to “(3) ensure that any claim against a borrower is legally enforceable.” See Supplementary Information at page 12. The dual definition of Lender in the proposed new Rule 12 C.F.R. § 7.1031(a) and 7.1031(b) is conflicting and inaccurate. As shown above, the new dual definition of Lender is inapplicable to securitization  transactions. 

The proposed new Rule offers nothing helpful to “ensure that any claim against a borrower is legally enforceable” in foreclosure actions arising from securitization transactions.  Instead the proposed new Rule will create the appearance that parties which never had or no longer have an interest in the Collateral Documents have standing to pursue the remedy of foreclosure as the “Lender”. Therefore, American Property Owners Network, Inc. opposes proposed new Rule 12 C.F.R. 7.1031.  

Verification of the Identity of the Party Entitled to Enforce the Collateral Documents  For over fifteen (15) years and extensively since the Financial Crisis of 2008, property owners have been seeking to verify the identity of the party entitled to enforce the  Collateral Documents. Enforcement of security interests is governed by state law. We suggest that the OCC require regulated entities and their third-party partners to comply with Section 9- 203 of the Uniform Commercial Code (UCC § 9-203) in order to ensure that security interests are enforced legally.  

Value must be paid for the right to enforce the security interest under UCC § 9-203(b)(1);  the debtor (the party which used the Collateral Documents as security to obtain funds must be shown to have rights in the collateral or the power to convey the collateral to a secured party under UCC § 9-203(b)(2); and the only applicable condition of UCC § 9-203(b)(3) (“the debtor has authenticated a security agreement that provides a description of the collateral”) must be met. Any new Rule to be proposed by the OCC for the purpose of “ensur[ing] that any claim against a borrower is legally enforceable” must require that the entity making any claim to enforce a security interest in a home or other tangible collateral is not based on documents fabricated for the purpose of making a false claim of the right to enforce any security interest.  Conclusion 

The definition of Lender in proposed new Rule 12 C.F.R. § 7.1031 identifying either the entity named in the Collateral Documents (the originator which usually has no interest in future payments) or the entity which “funds the loan” has no application to the securitization transactions involving multiple concealed parties and into which property owners were induced by falsely believing that they were receiving conventional mortgage loans. In the context of most securitization transactions neither the originator nor the initial undisclosed funding source are the parties entitled to enforce the security interest. The definition of Lender proposed by the OCC describes a relationship with the property owner that is inaccurate as detailed above. The party entitled to enforce the security interest arising from a securitization transaction can only be established under UCC § 9-203.  

Please contact Mr. Blas or Ms. Nora with any questions or concerns. American Property Owners Network, Inc. is ready, willing and able to provide the OCC with evidence which supports the positions taken by in opposition to proposed new Rule 12 C.F.R. § 7.1031