Foreclosure Defense: WHERE’S THE NOTE?

In the context of the Mortgage Meltdown-Securitization Frenzy, it just might be possible that most of the promissory notes issued by homeowners on refinancing or purchasing their homes are lost and destroyed. It might even be all of them. If that is the case, it can be argued that nobody is entitled to receive payments under this unique circumstance. It sounds silly, but the documents from each closing, which more and more resemble the issuance of a security, and the securitization process that led up to the sale of asset backed securities to investors, parsed the notes and security instruments to such an extreme that there is no one party who has possession, control, custody, authority or even knowledge enough to enforce the terms of the note or the mortgage.

At this point it appears to us in our investigation, that the actual real party(ies) in interest cannot be identified by anyone.

As we probe deeper into this mess, many thins are becoming apparent, not the least of which was that the alleged financial geniuses who became “gurus” were simply ordinary people who understood barely enough of the process to SELL it.

We have not found, thus far, anyone in the financial industry or any text, treatise or book, that contains a complete and valid description of the logistics of the typical mortgage meltdown transaction — starting with pre-sales to hood-winked investors of asset backed securities (often before any loan was closed) and ending with the loan closing on the ground where some poor sap had been convinced that he/she was a real estate investor.

EVERYONE WE KNOW HAS SOME KNOWLEDGE OF PART OF THE PROCESS BUT NOBODY HAS KNOWLEDGE OF THE TOTAL PROCESS — AND THIS APPEARS INTENTIONAL TO CREATE THE FACADE OF PLAUSIBLE DENIABILITY WHEN THE MESS EXPLODED, WHICH MANY OF THE PLAYERS KNEW WOULD HAPPEN SOONER OR LATER. 

The promissory note is the instrument that is being enforced at a mortgage foreclosure, or in the non-judicial sale states (which we contend violates fundamental due process rights) where the process of notice of sale commences.

In the judicial sale states the “lender” must file a foreclosure action and start off with alleging that they are the owner of the note and possess the rights under the mortgage. They say that they were the one that the borrower(s) was supposed to pay and they have not received payment. But in this unique context, the “lender” is not the actual lender and never was.

We know Taylor Bean is filing foreclosure suits affirmatively alleging that they don’t have the note and don’t know where it is. We know that Wells’ Fargo has been found to have pre-sold the mortgage loan PRIOR TO LOAN closing and was never the real party in interest even though their name was used at closing. It appears that every loan from 2001-2008 is subject to the analysis in these pages. It is possible that loans prior to that date might also be affected.

When you or your client appeared at closing to get the loan and refinance the home or purchase the home, they had already pre-sold or pre-arranged the sale of your loan to a mortgage aggregator. This “sale” involved assignments and begins the process of parsing the various documents into what becomes, in the end, meaningless gibberish. The straightforward nature of the foreclosure process has become a corkscrew of reverse logic, lost documents, dubious powers and even more dubious obligations to pay on the note. 

We have found no situation, as yet, where the original note has appeared or where there is any allegation that anyone knows where it is. We are receiving streaming reports that the notes are lost or destroyed. ANd we have some suspicions, that the actual rights to the enforcement of the note and/or mortgage, and perhaps the physical custody of the notes, actually might reside in the Cayman Islands or some such safe harbor, where a structured investment vehicle with no actual interest in the note or mortgage is holding all or some of the rights of the “lender” by virtue of transmittal documents or assignments that conflict with other assignments in the securitization process. 

Thus it may fairly be argued that there is no known person to the borrower against which he can exercise his rights of rescission, no known person or entity to whom payment may fairly be made without risking a claim for payment from third parties who claim entitlement from assignments or pledges that may or may not be valid, in whole or in part.

THIS IS WHY THE FIILNG OF A BANKRUPTCY ON BEHALF OF A BORROWER SEEKING TO FORESTALL FORECLOSURE MAY RESULT IN ATTORNEY MALPRACTICE OR EVEN BAR GRIEVANCES — AS TO BOTH THE LAWYER FOR THE PETITIONER AND THE LAWYER FOR THE ALLEGED LENDER.

THE “LENDER” IS ACTUALLY UNKNOWN. THE AMOUNT OF MONEY OWED, IF ANY, IS UNLIQUIDATED BECAUSE OF THE RIGHT TO RESCISSION, AND THE RIGHT TO RECEIVE REFUNDS, REBATES AND DAMAGES. AND THE SECURITY INSTRUMENT IS AT BEST CONTINGENT AND PROBABLY VOID BECAUSE OF THE RIGHT TO RESCIND. UNDER TILA, SECURITIES LAWS AND OTHER FRAUDULENT AND DECEPTIVE PRACTICES LAWS AT THE FEDERAL AND STATE LEVEL. 

IF THE SCHEDULES ARE FILED PROPERLY, THEN WHEN THE “LENDER’ FILES A MOTION TO LIFT THE AUTOMATIC STAY, THE BURDEN THEN FALLS ON THE LENDER TO PROVE ITS CASE BEFORE GETTING THE ORDER LIFTING THE STAY. ON THE PETITIONER’S SCHEDULES, IT IS SHOWN THAT THE “LENDER” IS MERELY A LOAN SERVICER OR OTHER THIRD PARTY THAT NO LONGER HAS ANY INTEREST IN THE NOTE NOR POSSESSION OR AUTHORITY TO PROCEED IN FORECLOSURE. THIS “LENDER” IS SHOWN AS HAVING A CONTINGENT, UNLIQUIDATED CLAIM OF UNKNOWN AMOUNT, AND IT IS UNSECURED.

“JOHN DOE” ET AL IS LISTED ON THE SCHEDULES AS BEING PARTIES WHO DESPITE DEMAND FROM THE BORROWER, ARE NOT DISCLOSED BUT WHO MAY HAVE A CLAIM AGAINST THE PETITIONER. AND JANE DOE IS ALSO AN  DISCLOSED PARTY(IES) WHOSE OWN OBLIGATIONS HAVE BEEN MERGED WITH THE THE PETITIONER.

It would be the position of the Petitioner that the payment has been either made or is covered by a sinking fund, insurance, co-borrower payment, third party payment or fund from proceeds of the sale of asset backed securities. 

At this point there is little doubt that the assignments or sales of the note were split off or parsed from the obligation to pay in the securitization process. Other parties were either substituted as obligors under the note, co-borrowers, etc. Thus the mortgage service provider could at best only state what they have received from a particular borrower on a particular piece of property securing a particular note.

But this servicer cannot state whether OTHER payments have been made upstream that cover the revenue from the borrower’s note. And neither the servicer (nor the Trustee in non-judicial sale states) can state that they have possession of the original note, or any document from the current holder of the original note because the note is gone. In fact they cannot state or assert they know where such documentation exists or even that they know who would know where such documentation or authority exists. 

One Response

  1. Neil, again, many thanks for the fine work you and your team are doing in this area.

    I’m curious if you’ve yet tackled the issue of reporting “lost” notes (read securities) per SEC requirements? My guess is that foreclosing lenders who rely on the “lost” note strategy have not filed the proper paperwork with the SEC. Any thoughts?

    Thanks!

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