The Lehman Collapse and the Myth of the Mortgage Loan Asset: A Deep Dive for Homeowners and Litigants

Introduction

Since 2008, the foreclosure crisis has produced a flood of litigation, settlements, and administrative rulemakings. But one of the most telling omissions in the narrative is this: where are the assets? Specifically, if securitized mortgage loans were real, enforceable assets, why didn’t bankrupt institutions like Lehman Brothers list them as part of their estate? Why were investor lawsuits only seeking repurchase and indemnification — not return of the assets themselves? The answer exposes a massive contradiction in the judicial and financial system’s understanding of “loan” transactions.

1. Mortgage Securitization: Designed to Derecognize

When a bank or originator securitizes a mortgage, they claim to have executed a “true sale” to a bankruptcy-remote trust. Under accounting standards like FAS 140 and now ASC 860, this means they have derecognized the loan asset — it no longer appears on their balance sheet.

Lehman Brothers, like others, used this structure to remove mortgage loans from its books, pool them into RMBS, and sell certificates to investors. By doing so, Lehman retained servicing income but disavowed ownership of the loans. This is key: they could not enforce the loans directly because they no longer owned them.

2. What Happened in Bankruptcy? No Loans Listed.

In its 2008 bankruptcy, Lehman Brothers filed detailed Schedules of Assets and Liabilities. Mortgage loans were not listed as active assets of the estate. Why?

Because they had already been derecognized.

Trustees representing RMBS investors (like Bank of New York Mellon and U.S. Bank) didn’t claim the loans either. Instead, they filed multi-billion-dollar claims for breaches of representations and warranties. They sought damages, not return of the loans.

“The investors never asked the court to declare them the owners of the loans.”

That’s because none of these parties had the loans on their books. They were already traded, bundled, derecognized, and monetized long before the collapse.

3. The Enforcement Paradox: Who Owns the Debt?

This sets up a critical contradiction in modern foreclosure litigation. On the one hand, servicers and trustees claim the right to foreclose. On the other, no one shows the loan as an asset on their financial statements.

If a party truly owns an asset, they account for it. They must.

Yet foreclosure plaintiffs routinely:

• Fail to appear in bankruptcy asset schedules
• Use shell trusts with no tax ID or business registration
• Refuse to show accounting entries of debt acquisition

This means the alleged loan is no longer a legally recognized asset — it’s been derecognized. And yet, homeowners are being evicted for a debt nobody claims to own on the books.

4. Judicial Response: “But You Got the Money”

When courts push back, they often say: “Well, you got the loan. Where did the money come from?”

Here’s the answer:

• The borrower issued a security (the promissory note)
• That security was monetized and used to create new credit
• The “lender” did not risk or lend their own capital

The real transaction is credit creation via securitization — not a traditional loan.

5. Why This Matters for Litigants

If you can show:

• The asset was derecognized under GAAP
• No creditor books the loan
• The foreclosure proceeds without accounting support

Then you have a strong argument that no lawful debt exists and the enforcement action is fraudulent or ultra vires.

This matters not only in foreclosure defenses, but also in tax strategy, administrative notice, and even whistleblower filings.

This is where I come in. With over 15 years of national investigative experience and 450+ sworn declarations and affidavits across state and federal courts, I can assist you in:

• Developing the factual record to prove derecognition
• Executing administrative notice processes
• Identifying fraud in securitization and enforcement
• Structuring legal and tax strategies based on entitlement holder status

Whether you’re facing foreclosure or preparing an IRS strategy, my services help uncover and document the absence of a lawful creditor.

Conclusion: The Absence of the Asset Is the Proof

Lehman’s bankruptcy didn’t just show us what failed. It revealed a hidden truth: the loans weren’t there because they never really belonged to anyone in the way the public was led to believe. If a multibillion-dollar portfolio vanished from the balance sheet of America’s largest financial institutions, what does that say about the legitimacy of foreclosure claims based on those vanished assets?

The courts and IRS can no longer look the other way. It’s time to reframe the question from “where’s the loan?” to “who ever had the loan at all?”

William Paatalo – Private Investigator – OR PSID# 49411

bill.bpia@gmail.com