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Jon Roland, Austin Constitution Meetup, Oct. 15, 2013
Discussion of how most deeds of trust (mortgages) now in use are fraudulent, and brought about the securitization bubble and much of the current debt crisis.
See http://obitur-dictum.blogspot.com/2013/10/mortgage-fraud.html
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this is another episode in the Austin Constitution Meetup of October 15
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2013 in this video I'm going to be discussing mortgage
0:19
fraud now there's been a great deal of discussion of mortgage fraud in the last
0:24
few years uh but I want to examine some aspects of it of basically how to
0:32
prevent it most of the focus has been on how to
0:37
avoid foreclosure but I've had the occasion recently to
0:44
examine a presumably typical note indeed of trust for the
0:52
purchase of a house and what I found was somewhat
0:58
alarming now I've had we used to be in the Real Estate Field I was a real estate agent
1:06
back in the uh 60s and
1:12
70s uh I wrote a lot of my of the
1:18
paperwork for many real estate transactions I didn't leave it to the
1:24
lawyers many of the deals in which I was involved were complicated enough that
1:30
the standard forms used by lawyers were not always
1:35
adequate although we used them to the extent that we could in those days the standard form
1:44
for a deed of trust in Texas was a State Bar form it's a long
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two-page uh document very fine print which by the
1:58
way was one long sentence grammatically which I found rather
2:05
interesting but it did provide protections of the
2:11
rights of both parties to the deal it wasn't just all in favor of the
2:19
lender it also protected the borrower the purchaser
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now when I was the purchaser and I frequently was I invested in a lot of real estate I would typically also
2:36
add Provisions to the deed of trust to provide additional
2:42
protections and I almost always got the seller to agree to
2:48
them now what was in the original need of
2:53
trust form well one of the things that was in it was simply the provision that once
3:00
the note was paid the deed of trust ceased to exist it ex it didn't require a
3:09
release uh it was released by simply paying off the note now most title companies wanted a
3:16
release anyway as evidence that it had in fact been paid off but all that was really
3:25
required to terminate a deed of trust was was a note with the word paid marked
3:34
across it and signed by the owner and holder of the note that was all it
3:41
took now there were other Provisions that I typically
3:47
added to the deed of trust provided for example that uh the borrower had to be
3:56
notified of any change of address or or ownership of the note so
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he would always know where to send payments and I further provided that if
4:12
there was ever a failure to notify the borrower and payments were made anyway
4:20
that all such payments that were issued to the last
4:26
known re proper recipient and address for the note
4:32
holder uh would be had to be considered valid even if they didn't make it to the
4:38
owner and holder of the note so you could not have a situation
4:44
that has occurred to some friends of mine a few years ago where they were buying a home they made all the payments
4:52
the servicing agent who was collecting the actually collecting the payments went bankrupt
5:00
the owner and holder of the note foreclosed on the house evicted them
5:06
from their home and when they went to when they protested they made the payments says
5:13
well you're just an unsecured creditor of the Sur servicing
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agent now I had not actually anticipated that sort of thing might
5:24
happen at least not hav't thought through it in any great detail
5:30
back but when I was writing such Deeds of trust but in fact the language that I
5:37
would typically add to a deed of trust would have prevented that
5:43
situation uh I also required that in some cases
5:49
that the borrower had to give consent to any tra change of ownership of the node
5:57
indeed of trust so uh and if he made all
6:06
payments or if if there was only a dispute on the concerning the amount of
6:12
the payoff the uh hold owner and holder of
6:17
the note could not accelerate the note and uh add 10% attorney's
6:26
fees just over a dispute over over the ballots there it could only be done if
6:34
there was actual refusal to pay so I covered a lot of
6:41
contingencies uh in a way that would provide additional protections to the purchaser of the property and the maker
6:49
of you know the granor of the deed of trust uh
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so uh this provided a level of protection in that day time in fact in
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that day time uh typically all these transactions went through a title
7:10
company which had a lawyer and and the lawyer would not allow a deal to be made
7:17
that was too unbalanced in favor of either the buyer or the seller and I as a real estate agent
7:25
would never have allowed any of my customers either my sellers who I of course was working for on
7:32
commission or my client my buyers to enter into a deal that was not fair to
7:38
all parties I had a fiduciary responsibility in my view to make sure
7:45
that all parties were protected that everybody came out ahead my mother and I had an ethic on
7:53
the subject that you know we agreed that a deal was only a good deal if it
7:59
benefited all parties uh no Zero Sum games for
8:05
us so uh that was the way things proceeded in the 70s and
8:10
80s somewhere somewhere along the way that broke down and lenders
8:18
started using their own Deeds of trust of which the one I examined
8:24
recently is apparently a typical example it has no protections at all for the
8:32
purchaser of the property for the for the borrower
8:40
none in fact and the under the actual written terms of that note indeed of
8:46
trust even if the borrower paid off the note completely and on time there's
8:54
nothing in it that really requires the older and holder of the note to grow
8:59
Grant clear title to the property in principle he could have paid
9:06
it all off over a 30-year period and still lose
9:12
it and he have would have no recourse it could simply at the end of
9:18
the 30 years not paid just evict him as though he were a tenant will instead of
9:26
the purchaser of the property in other words these current notes and deed of trust do not
9:34
confer any rights to an equity on the part of the
9:39
buyer when you sign one of these notes and deeds of trust today you're signing
9:46
away all rights all you're doing is being allowed to be a ren a render of that
9:56
property if if they ever give you a clear tile it's just because they're
10:01
feeling good that day it's not legally required of them and you probably cannot
10:08
successfully sue them to get a release of lean
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now that means that essentially you're better off leasing the property than you
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would be purchasing it because at least if you leased it the landlord would have
10:28
a duty to maintain it at least to do major maintenance he might provide that you
10:34
take care of minor maintenance but if a roof leaked or the sewer overflowed or
10:41
the plumbing broke or anything like that he would have to come and pay it and on
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these so-called purchase agreements you're stuck for the entire bill so and you're also stuck for the
10:54
taxes if the lender doesn't pay the taxes from the under the uh typically
11:00
the escro agreement so
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uh no one should purchase or refinance any
11:15
piece of real estate under the terms now being offered and demanded by mortgage
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lenders anyone who does it is a fool and you have no what to blame but
11:30
yourself you have no protections no
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recourse it it's useless to try to go to court and sue because the note and deed
11:42
of trust as written provide you with no protections
11:48
whatsoever and if you had a lawyer advising you on the transaction
11:54
and you should have had he committed malpractice and should be
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disbarred and in my view all the lenders that loan
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money for the purchase of houses under such
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terms should have all of their debts declared null and
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void they should be put out of business the loan officers should go to
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jail they should be S us I would say fraud typically 5 years in prison
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consecutive 5 years uh prison terms for every mortgage
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that they enter into on that basis and
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uh so I hope that this video becomes viral
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because you need to spread the word to everyone who might contemplate
13:00
purchasing a house off using a mortgage under these terms to refuse to enter
13:08
into a mortgage aditive trust that does not
13:14
provide that it first of all that there must be a release of lean when the the
13:21
note is paid secondly that requires the borrower
13:27
to be notified of any change of ownership of the note and any change
13:34
of the trustee on the deed of trust that requires that any payments
13:41
made must be credited even if they don't make it to the owner and holder of the
13:48
note and that if there's any dispute over
13:53
whether the payments were made or what the balance might be
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the lender may not accelerate the note or add attorney's fees as long L and
14:07
until the amounts are settled so these are the the critical
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elements that need to be included in any note and deed of
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trust and you need to insist on them being there and if they're not in the
14:24
deed of trust don't sign it
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and if you get a lawyer to advise you make sure that he recognizes that you
14:35
will sue him for a malpractice if he advises you that you are protected when in fact you are
14:44
not would this shed any light or
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perhaps draw a contrast between uh what appears to be
14:59
overwhelming now is this fraud and stupidity and there were periods where
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all of this was done quite ethically um how might this be compared
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to the idea of a warranty deed well originally almost all Deeds
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were warranty deeds which meant that the maker of the deed the the grant her
15:29
of the deed as opposed to the grant her of the deed of trust which goes in the opposite
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direction uh warrants that good title to the
15:42
property in other words he's saying that he is the owner of the property and
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therefore has the authority to convey it and that if the title is later shown to
15:53
be invalid that he guarantees to correct
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it which means either refunding the money paid for it or clearing up any
16:05
defects in the title and what title companies are supposed to do is to ensure clear title
16:15
they're supposed to do a title search on the transaction to make sure that the
16:21
the seller is in fact the owner and that he therefore in conveying
16:27
title in that deal is in fact authorized to do so and there are no clouds on
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it now there is
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uh several aspects to this the uh first
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of all it's a good idea for buyers to do
16:53
their own title searches because title companies can miss things
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and uh I used to do my own title searches and I F often found things that
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the title companies overlooked they often merely did a title search of what they could find in the
17:14
courthouse and neglected to look for other things that uh could eventually be
17:21
clouds on the title such as for example uh work that
17:26
might have been done that might have incured a mechanics lean which doesn't necessarily gets filed
17:31
with the courthouse so uh there are lot of things that can go
17:37
wrong uh when you're doing this kind of thing and uh uh it's a case a buyer
17:48
beware now with the
17:55
uh proper handling of this transaction where there are protections
18:01
for all parties involved uh one can reasonably ensure
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that a lot of adverse consequences will never occur one of the reasons why the ethics
18:17
worked in those days was because people were careful to make sure that if
18:23
anything went wrong there was recourse now Texas had then as now
18:31
nonjudicial foreclosures but non-judicial
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foreclosures work because everybody involved knew they could get into
18:43
trouble if they tried to gain the system and where it began to go
18:49
wrong was with securitization it used to be that your
18:55
lender was your local bank or Savings and Loan the chances are you knew the loan
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officers personally and had known them for years uh when I used to borrow money
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under for more things like purchases of real estate I knew my
19:13
Bankers I knew my savings and loan officers I mean I was a member of the
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savings and loan it was a membership organization the way credit unions are today still are some of them uh
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uh my banker was somebody my mother had grown up with gone to school
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with and the bank or Savings and Loan serviced their own
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loans and they kept them they didn't sell them to anybody they didn't bundle them into security and ship them off to
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Parts Unknown so when it came time to pay off
19:56
your note and you did you got a release
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right then and there from the same guy who made you the
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loan and he had a reputation to maintain in the community if he abused people uh people
20:16
wouldn't deposit their money in his a bank and he'd go out of business so everybody had a stake in
20:24
maintaining good reputations and the whole whole thing was based upon personal knowledge of one
20:31
another and personal reputation and once securitization set
20:39
in in the 80s that's when it all started going to hell because after that all these
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transactions began to become Anonymous everything was by the Numbers there was no longer a personal
20:54
involvement on the part of your local lender and in fact one of the things
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that happened at the same time was that uh a change in the tax law tax
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code uh
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made investment in real estate less profitable you could no you could no
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longer write off some things you could before and suddenly a whole lot of
21:23
mortgages being held by Savings and Loans the the underlying property became
21:31
worth less than the balance on the mortgages because of the change in the
21:37
tax laws because of the change in the tax law and the result of that was that
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suddenly all the almost all the Savings and Loans were insolvent
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technically and so this the fslic uh the equivalent of the FDIC for
21:58
for Savings and Loan associations scooped in and shut them
22:04
all down now in fact as long as people kept paying there was they were not
22:11
insolvent but they had an excuse to declare them insolvent and shut them down they got bought up for pennies and
22:18
the dollars mostly by the big Banks who then had the same thing happen
22:23
to them and that's how we got the few large Bank chains
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the big Banks gobbled up the little local banks most of the banker friends of mine
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that I grew up with lost their Banks they got bought out big big big
22:44
chains uh so uh that was the change in the
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situation of course after that personal knowledge of the banker of by the banker
22:56
of the borrower was no longer important there was a time in those days
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if I needed a loan uh I could you know for any reason all I had to do is pick up the
23:09
phone call my banker secretary whose name was Cassandra by the way I said
23:15
Cassie I need 20,000 says okay John I'll put it in your account and you can sign the note
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the next time you're in the bank that worked in those days
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next time I came in the bank I signed the note you know closed the deal you know it was but I already had the money
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was already doing business with it and of course the the Big Crunch came
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when following the uh oil shock of 1973
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and the collapse of uh credit that I would go to the bank and
23:55
suddenly they were they were calling me and saying can you you please pay off your loans we need the
24:03
money that's when that's when the things began to go go
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south uh so all of that is just
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regulation big changes in the world yeah making it much more difficult to make a
24:22
profit in the banking business and that did that actually set the stage for the
24:30
securitization well in a way it did yeah because a lot of lenders found they had
24:36
to securitize in order to avoid going out of business and the securitization
24:42
is they're basically out making loans that they know they can't afford
24:49
to keep on the books so they sell them to somebody else right but they bundle
24:54
them into bonds they take a bunch of mortgages put them together and and create a bond for
25:01
it okay backed by those mortgages then they start pedaling the the bond well
25:07
the bond can beg begin to be pedal sold and resold and resold for a lot more
25:14
money then those mortgages are worth and there's no real examination of the
25:21
underlying mortgages to find out if they're worth as much as the bond is
25:26
being sold for so in fact they could be bad loans they
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could even be loans that are all about you know within a month of being paid off of course once they're paid off no
25:39
more Revenue you know so what is a bond back by mortgages worth that are all about to
25:45
come due and be paid off well the answer is nothing but the there's that's not
25:52
disclosed so uh it became a big uh kind of a in a way kind of a
25:59
Ponzi scheme yeah shell game yeah P
26:07
Ponzi and it was not to to be too surprising when it came crashing
26:13
down in 2008 but of course the problems that uh
26:18
occur came to light in 2008 have not been solved well and they're all all we did
26:25
correct me if I'm wrong they're all strictly political well in a sense they're also of course
26:33
speculative which is a kind of problem in itself what the government did is pump
26:41
money into the financial sector essentially they inflated the bond
26:48
market which then fed into the stock market so it kept stocks and bonds from
26:55
collapsing uh I that doesn't necessarily benefit the general
27:02
economy the speculators are not using the money that they make speculating in
27:10
stocks and bonds on building new businesses they can make more money
27:16
speculating within the financial sector than they can by investing it in in
27:22
industry and businesses and paying it back into society yeah uh so when you wonder why business
27:31
is not growing or why they're not hiring and
27:37
producing more well if you talk to a lot of these big businesses and it's mostly
27:42
big ones now uh they'll can quite kinded to tell
27:48
you well we make more money investing in the financial
27:54
sector than we do by making and selling products or by hiring
28:01
people the the the business sector is sitting on more than enough
28:08
money to hire every unemployed person in the United
28:13
States but they don't do it because the rate of return on doing that is not as
28:22
high as it is on investing it in stocks and bonds
28:28
so if we if we really want to cure unemployment we need to let the financial sector
28:36
collapse so the money has nowhere else to go but into the productive sector of
28:42
the economy but of course there's no graceful way to do that because the way
28:48
they're all tied together if you let the financial sector simply
28:54
collapse completely it would take the productive sector with it
29:01
therefore therefore my uh my metaphor of the the mouse with a tick on its back
29:08
that's sucking blood out of it and growing at the by sucking the blood
29:15
swelling swelling swelling until the poor Mouse can no longer move well the the tick is the financial
29:22
sector the mouse is the productive sector uh
29:28
what the government has been doing with quantitative easing is pumping more blood into the tick so that it doesn't
29:36
suck so much out of the mouse that it kills it but eventually the the tick is going
29:43
to burst but instead of burst and scattering blood all over the cage it
29:49
bursts through its mouth and feeds all that blood into the mouth killing
29:55
it so uh that's and when the blood goes into the mouth that's called
30:04
hyperinflation so uh we have a a lot of pathologies here and
30:12
if buyers and borrowers of real estate had insisted on the kinds of Deeds of
30:19
trust that we were using the 70s 60s and 70s the whole thing could have been
30:26
avoided now something uh more related back to
30:32
the uh the detail in the personal level is something that we've recently become
30:39
aware of that uh a lot of these and the one that's started our
30:46
interesting Safari is a is a refinancing the
30:52
paperwork produced in the refinancing for what we're able to see
31:00
there was not even a need of trust depending on what more may be
31:10
found how much of that do you think is going on in other words somebody
31:17
buys they don't check and then people start to investigate and
31:24
there's not even a deer trust to find y well the of course
31:30
the in this the case you're referring to is that perhaps because there's not
31:35
Title Company well the in their case you're referring to apparently the if there was a deed of
31:42
trust the refinancer the home buy homeowner didn't get a
31:47
copy because you haven't been able to find it in their records now it might exist in the
31:53
courthouse we can go there and find out if it doesn't exist and the
31:58
authority that they have uh under any refinancing agreement seems to be void
32:05
in itself because they certainly terms are certainly different than they were in the original note and the the more
32:11
the original deed of trust is not going to work for the a new note you would need a new deed of
32:19
trust now one of the things too that used to be the
32:25
standard in in law there's an old rule called the best evidence
32:30
rule if uh you sign a note and somebody tries to sue you for
32:38
payment of the note they have to produce the original signed note in
32:45
court the best evidence of the obligation is the original sign
32:50
note and the rule has always been that if they are unable to produce
32:56
the original sign note that there is no obligation and it has to be declared the
33:04
the court has to decide in favor of the borrower essentially cancelling the
33:11
obligation and what's been going on through all this time is that lenders have been simply going to courts and
33:17
saying filing an affidavit that they are the owner and holder of the Noe and that
33:23
it's in default but without producing the Noe and in some cases we found they've
33:30
either lost the note or have actually shredded it but the way it works each original
33:39
signed note is a separate obligation if somebody ever tried to
33:45
sell you a house and they gave you two or three copies of the note and said
33:51
sign each one of them don't do it because each note is a separate
34:01
obligation so uh it can only be one note only one note for One
34:09
Mortgage can't be any any duplicates you can have unsigned copies that are you
34:14
know passed around for people's records but no original
34:20
signatures and in fact I once had somebody tried to sue me on a note and they had apparently lost it I have had
34:27
reason to believe they had lost it so then try to produce it in court they produced a
34:33
forged copy they Tred to sign my name to
34:38
it and of course I could show the court the judge this is not my
34:45
signature I did once sign a note like that but this is not it and they
34:52
lost so uh it should always be that
34:59
yes so uh of course in another case we involved we're talking about
35:05
forgery uh there was a transfer of title to a piece of property that was
35:12
forged uh there was a uh there was in
35:17
fact a transfer but it had never been delivered and somebody found found it
35:23
Whited out the recipient and signed their own name on top of
35:29
it and uh tried to and then tried to resell the
35:35
property of course in the copy the photoc copy of the
35:41
deed that it didn't show up in the uh in
35:47
the courthouse records They just made a photocopy of it uh it was the white out was good
35:54
enough to cover that up but I happened to get a hold of the original so I
36:00
presented it in court and of course that shot down that
36:06
case so uh I've had some interesting I've had some interesting adventures in
36:12
real estate and uh you know I've had to confin with lawyers for the opposition
36:19
who would go into the courthouse and steal documents from the court dockets
36:25
from the the court files so I had to made very very sure that I
36:30
already had always had my own copies of everything because I was up against
36:35
lawyers who would go in and steal stuff or substitute forged copies of things in
36:41
place of The Originals uh the court records were wide open then in those days it was assumed
36:48
that any lawyer was an honest person and that he would never do
36:53
anything like that well they may have been at one time
36:59
but uh they that began to break down about that about that time and I saw in
37:06
plenty of instances of it
37:12
so the uh this all speaks directly to the fact that if you're going to get
37:17
involved in something like that pay
37:22
attention and be sure of all the details yeah well a lot of people people are advising people who are facing
37:30
foreclosure if there's a they think they suspect that the lender has not been
37:36
handling the paperwork properly to file a suit to for Qui a title that might work if all payments
37:44
have been made on time but if you pay them into an
37:52
escrow where there without the consent of the lender you're are technically in
38:00
default and the the sad thing is that that won't help you probably won't help
38:06
you if your more if your need of trust is like the one I
38:11
examined because a suit to quiet title would not work with that paperwork you
38:18
are doomed with that paperwork so I'm I'm advising people
38:24
tell tell everybody far and wide do do not purchase do not refinance with the
38:31
kinds of Deeds of trust that they're going to try to fo on you insist on the
38:36
terms that I laid out in the beginning of this video to protect both sides that
38:42
protects both sides not unequal not in your favor only
38:48
but not on the seller lender's favor either uh it needs to be two-sided and
38:56
protect all part uh and uh uh it doesn't hurt to throw it
39:04
to if if you insist on certain terms like these such as that you have to be
39:11
give consent to any transfer of ownership of the note now they might
39:16
object to that but what you can do is insist on consent to any transfer of
39:23
ownership of the note out of state
39:29
now if they want to trade it in state that's one thing if they're going to trade it out of state that creates a
39:36
problem in trying to enforce your rights so it's perfectly reasonable to get your
39:42
consent for such a transfer but of course that would pretty well shoot down the use of that mortgage
39:49
for in a sec securitization system so you can see that if people
39:57
have been wiser you know back in the 60s 70s and
40:02
80s they had insisted on proper Deeds of trust we could have avoided this entire
40:10
Financial debacle and it's not too late to start
40:17
insisting now on proper Deeds of trust
40:22
going forward right now most people if they are in that situation might might as well just walk
40:29
away all they are as tenants at will with the duty to pay for
40:37
maintenance they'd be better off leasing the property so you don't have any Equity
40:45
that you can lawfully claim uh just forget it you've lost you
40:51
lost when you signed the document and uh uh uh going forward
40:59
insist on a note and deed of trust that's properly
41:04
done and if not don't make the deal rent instead or
41:10
something uh if enough people do that if if nobody if they can't sell to
41:17
anybody that doesn't insist on a proper note and deed of trust it will solve the problem in going
41:26
forward it'll force them but it's up to you it'll force them to be accountable yeah
41:32
no one else can protect your rights except you you have to learn enough to
41:39
protect your own rights don't just sign anything that's put in front of you not only read every word but understand
41:46
every word and if you don't understand it ask a lawyer I mean I hate to tell people to
41:54
to hire a lawyer for doing that for doing something that they should be able to do by
42:00
themselves but I'll tell you I was a lot better off because I did that and of
42:08
course that's how largely how I began to learn law I learn law by through
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starting with real estate law and uh everything else has been buil built
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on that since uh you have have to learn anyone
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who doesn't learn a certain amount of law in this Society is
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pray he's pray for lawyers and bankers and people who know the law better than
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he does and cops who don't even know the law yes so uh you know like I say spread
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the word don't let your friends and neighbors buy sign mortgages like the
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ones being used by lenders today insist on terms that protect your
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