Interesting Appeal - Deutsche Bank and the California Housing Mess

Thu, May 1, 2014 - 11:24am

California, some say, was ground zero for the housing crisis brought about from reckless lending to unqualified borrowers. I say it was the natural, rational outcome created by the reckless FED printing worthless FRN's using the illusion that somehow those worthless FRN's have any value.

Saving was dis-incentivized, while borrowing, at artificially low rates, was incentivized. Yield-chasing TBTF institutions needed underlying collateral upon which to build their behemoth derivative structures, and housing was it.

Not only did the financial engineers recklessly lend, they single-handedly revolutionized the entire traditional residential real estate market, right down to the local land records. Gone were the anachronistic paper documents, on file at the local land office. Instead, a new scheme was created where the residential real estate backed loans, which loans were in turn used to support financial securities, in turn which were marketed to yield-chasing institutions. All of it rested upon the assumption that the underlying collateral backing the loans would not all collapse. Under that assumption, risk models were created that forecast SOME defaults would occur, but not defaults or loss of underlying value of the thousands of residential units serving as collateral.

Of course, this was the weak point, as was the oversight at the loan initiation starting point. So long as residential real estate values kept rising, or at least did not decline, the entire collateral structure would produce revenue. If some of the residential units declined in value, or, alas, defaulted, no worries, because in the aggregate, those in last position on the lending tranches would take the losses while the first position tranches would still enjoy revenue streams. Or so it was thought.

No one, and I mean no one, correctly anticipated the reality and natural outcome of forcing too many unqualified borrowers into the pool. No one did so because NO ONE HAD ANY INCENTIVE TO DO SO. The FED loved this concept, as it provided a ready means to blow another bubble and prop up the failed Keynesian economy. Banksters, and their FIRE economy-dependent sycophants loved it too, as they all made off, well, like banksters.

Politicians, those ever money grubbing psychopaths, true to form, loved it too, as it gave them cover to buy votes and pander to the down-trodden, ala Bawney Fwank.

Marginal, unqualified borrowers loved it, too, because they could fog a mirror and get the keys to a shiny new home no questions asked. Income from which to make payments? Shhhh! Just pretend. Housing never goes down in value. If someone gets into trouble, just refinance the loan and roll over the debt! Yaaayy!

Durable goods manufacturers loved it, too, because all of those homes needed appliances, etc.

Auto manufacturers loved it, too, because all of that fake wealth, the so called "home equity," accruing yearly in amounts greater than the median yearly income, created tons of paper wealth, that was immediately tapped in the form of home equity loans, and spent like crazy on consumer goods, including brand new cars, yaayyy!!! What could go wrong?

So it went, for years.

Some people clued in, most did not. Then, the greed and avarice, manifested nicely by ol' orange face Mozillo, came into focus, and things began to unravel. The FEDS undertook QE to infinity, not to stimulate the economy, no. It was done to stave off massive deflation occurring from the utter destruction of trillions of paper debt, based on inflated home values bearing no rational relationship to median incomes. As that debt defaulted, and was destroyed, it jeopardized the derivative structures based upon that now worthless, or soon to be worthless, "collateral" known as overbuilt residential housing.

Then, of course, we have the aftermath. Granted, it has taken years, and years, but we have arrived at the end game. Foreclosures, bankruptcies, ad nauseum, tons of human suffering and misery from misallocated capital. But still, those residential structures have some value, and for that, there is still a story to be told.

One such natural consequence is highlighted in a case decided against TBTF Deutsche Bank. The court of appeal ruled that the lender, here, Deutsche Bank, is exposed to California State Law wrongful eviction claims, despite Deutsche Bank's claims that only the servicer bears liability for kicking out a tenant. "Deutsche Bank National Trust Co., a U.S. unit of Europe’s largest investment bank, was the beneficiary of the deed of trust securing the loan on the property in Sunnyvale, California. Deutsche Bank, as trustee, acquired the home, which had a two-bedroom garage rental unit, after the owner defaulted on the mortgage. The tenants, who paid rent to the owner, sued after their belongings were tossed outside and destroyed and police barred them from the home. Deutsche Bank says the foreclosure ended the tenants’ lease, it played no role in evicting them, and loan servicers are responsible for dealing with renters."

The court of appeal ruled against Deutsche Bank, and said they can be held accountable for wrongfully evicting the tenants.

The ramifications are ENORMOUS!

The federal law, which expires at the end of this year, requires that tenants be given 90 days’ notice of eviction. The San Jose appeals court said Deutsche Bank stepped into the landlord’s shoes when it acquired the home and had to honor the existing lease until it expired 10 months later or a new owner moved in and gave the tenants 90 days’ notice.

It doesn’t matter that the rental wasn’t legal because the owner hadn’t obtained the proper permit, the court said.

A California law granting the same protections to renters in foreclosed properties was passed last year, Rothschild said. [Link is here:

“We are unaware of even a mild dent in the housing market,” he said in a filing urging the California Supreme Court not to review the case. Median home prices in California rose to a six-year high in March to $376,000, according to San Diego-based research firm DataQuick.

More than 480,000 properties nationwide were bank-owned as of last month, compared with more than 1 million in January 2011, according to research firm RealtyTrac. Almost 45,000 California homes were bank-owned, down from about 146,000 in January 2011, according to RealtyTrac.


The full story is here:

In any event, in what is not a surprising ruling at all given the facts, Deutsche Bank lost the ruling, and the California Supreme Court let stand the decision that said this here:

Deutsche Bank lost its challenge to a California court ruling that exposes bank trustees to wrongful-eviction claims it says will depress prices in foreclosure sales and spur lawsuits against unsuspecting homebuyers.

The California Supreme Court yesterday let stand a lower-court ruling that the Frankfurt-based bank stepped into the shoes of a landlord for a rental unit on a property it acquired through foreclosure and must face a lawsuit the tenants filed after they were evicted and their possessions trashed. The court didn’t give a reason for its decision to deny the bank’s petition to review the ruling.

“It’s good news and not surprising,” said Richard Rothschild, an attorney for renter Rosario Nativi, who lost her possessions and Sunnyvale, California, home in 2009 after the homeowner she’d been paying rent to defaulted on the mortgage, unbeknown to Nativi, and the bank acquired the property.

The ruling upheld yesterday “says essentially that banks and other players in the mortgage industry have to play by the same rules as other property owners,” Rothschild said in a phone interview. Nativi’s lawsuit, which seeks damages for the loss of home and property, will proceed in state court in San Jose, California, he said.

So, what does all this mean?

The TBTF banks, are now potentially liable for state law violations upon foreclosing. "Lenders and investors will have to weigh the risks of buying properties that house unwanted tenants, are subject to leases, or are vulnerable to lawsuits brought by renters evicted by paid middlemen, they said." [From the article, here].

Look what the dunce bankster had to say:

Ari Cohen, a Deutsche Bank spokesman, declined to comment after yesterday’s decision.

Cohen said earlier that Deutsche Bank filed the petition for review with the California Supreme Court as trustee of the mortgage-backed security “on behalf of the investors.”

“Deutsche Bank has no financial stake in this case,” he said in an e-mail. “Loan servicers, and not Deutsche Bank as trustee, are responsible for foreclosure activity, including actions relating to tenants of foreclosed properties, and the maintenance and resale of foreclosed properties.”

No financial stake in the outcome? What a buffoon! Of course the TBTF bank has a stake in the outcome! If there was not financial stake, then why did the bank allow the servicer to foreclose? Oops.

What this will do, of course, is engender indemnity or breach of contract lawsuits. What is even more likely is a shareholder derivative lawsuit against the TBTF banks for their failure to hold the servicers accountable for their foreclosure misdeeds. Watch and see.

The aftermath will no doubt result in more foreclosure delays, if not outright pull backs in the rate of foreclosures. This is going to slow down the resolution of foreclosures, and the mark to market, absolute dire necessity to clear inventory and bring the housing market back to normal.

All of this means yet "MOAR QE" because there is no way that all of this debt can go "poof" without seriously jeopardizing the collateral supporting the big derivative structures held by the TBTF institutions and sovereigns.

Isn't this fun?

Stay tuned for more from the lovely, but crazy, State of California.

About the Author


May 1, 2014 - 11:32am

Housing now that is interesting

Over here we have a situation. Will comment more later. Have to run.

May 1, 2014 - 11:32am


CaL that is great stuff! Very, very important info. Well done!

Mr. Fix
May 1, 2014 - 11:45am

1st, & The housing market will never go back to “normal”.

Just like all of the other markets that we watch these days, the “endgame” is being played out currently, with rampant fraud and theft throughout every system.

What we are watching is a prelude to a systemic collapse, one that nearly nobody sees coming, and when it is finally unleashed, the catastrophe will be biblical in proportion.

The only thing you can do now, is to stock up on food, friends and family, whatever it takes to defend yourself, and of course, physical gold and silver to preserve your wealth, since it is unlikely that any other store of value will survive what's coming.

Even real estate at this point may not be of much value since we are living in a completely lawless society, and the governments/bankers can simply steal your property and there will be absolutely no one to turn to for regress. Even the “little victories” that you outlined in your article will go completely unenforced. The too big to fail banks, are also too big for law enforcement to have any control over. Besides, even these small victories will simply be appealed to a higher court where the judges have long been bought and paid for.

California Lawyer, thank you for this article, but I have become quite dubious as to how the law will apply to any of this in the future, when the shit hits the fan, all pretense of law will evaporate, in fact, for the most part, it is already gone.

May 1, 2014 - 11:53am

so glad

i'm no longer a landlord. .....nor ever expect to be one again.

May 1, 2014 - 11:54am



May 1, 2014 - 11:59am
May 1, 2014 - 12:00pm


Nice recovery Ag. You'll go far some day.

Someone on ZH linked this. Hilarious.

Silver taking potshots, and the public reaction to pm investments.

The Jerk
bullion only
May 1, 2014 - 12:07pm

California mess

Hey! I resemble that comment.

Actually bought my place at the November 1989

top of the market. 20% down with an adjustable rate mortgage.

7 3/4% rising 1/2% ever 6 months.

Underwater when the lower rates came so had to put another 10% down and

buy pmi insurance.

Cant imagine buying at the top now.

Urban Roman
May 1, 2014 - 12:09pm

The TBTJs do not want foreclosure

Remember way back when, the DB story, I think it was out of Chicago?

A judge determined that the Delta Bravo bank did not, in fact, own a house that it was trying to foreclose on. The news story was quickly swept under the carpet, but it was there for a brief shining moment. I think it was in 2007 or 2009 or so. And the reason that they did not own it, was because the actual mortgage, the document everybody signs when they buy a house, had been 'lost', and the bank's chain of evidence was broken. And in most states if you want to foreclose you must produce the mortgage. Not an abstract electronic 'record' of it, but the actual pile of paper.

Over the next year or so, stories emerged on ZH and 4closurefraud and various other sites, and experts such as Janet Tavakoli and Meredith Whitney, stories of wholesale fraud, with thousands of fake mortgage documents signed by illustrious folks such as Linda Green and Urban Roman. Special "rocket docket" courts, with crooked judges and lawyers, were set up to rubber-stamp these and expedite foreclosures.

See that Everest-size lump in the middle of the carpet? Yeah, that one. It's starting to stink.

Well, along about 2011 or so, the foreclosures stopped happening. Or at least they slowed way down. The reason is that all the real estate that was coming on the market was beginning to depress prices. So what Douche and the other banks are doing is they are delaying and dragging their feet and not foreclosing. Eventually they will get your house if you are in default, but you might be able to keep it for quite a while. Your kids could be grown up and moved out by the time they get around to filing on it, or with the news in this article, they might never file.

As for this one case, it is in fact good news. It's obviously a case that has been working its way through the system since the rash of foreclosures 5+ years ago. Thanks for the update, CL, it's good to hear.

Weasel Tracker
May 1, 2014 - 12:16pm

2013: A Silver Market in Review

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
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8/30 8:30 ET Core Inflation
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Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
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8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

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8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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