Foreclosure Offense and Defense: Debt Defined


Funds owed by a debtor to a creditor. Outstanding debt obligations are assets for creditors and liabilities for debtors. May or may not be covered by written agreements. See Asset Backed Security.

  • The significance of the definition of a debt, being an asset on one balance sheet and a liability on another, is that the securitization process parsed the standard debtor-creditor relationship and its terms.
  • In the Mortgage Meltdown environment, the “debt” of the borrower in the refinance or purchase or real estate was parsed into multiple streams of revenue, each with a different obligor, guarantor, insurer, assurer, and subject to cross collateralized hedge products.
  • The “assets” allegedly represented by the note and mortgage were parsed in similar fashion; in fact, these transactions came to be known as “off-balance sheet transactions” wherein the fees were recorded as income but the potential exposure to loss was not reported.
  • Since the “lender” named at closing was (a) frequently not known until the day of closing and (b) never had its own resources at risk because of the presale or expectation of sale to a mortgage aggregator, it never reported the loan on its balance sheet — because PAYMENT (see PAYMENT) was received by the “lender” from a third party before or contemporaneously with the loan transaction.
  • Hence the actual mortgage loan was satisfied and paid in full, albeit not by the original borrower. The Payor received an assignment, which according to our investigation was restricted to the stream of revenue. These rights in turn were re-assigned to multiple third parties as described in the securitization process defined and explained in Garfield’s Glossary.
  • No assignment appears in the County property records, hence neither the note nor the mortgage were legally assigned. With no proper assignment of the instruments, the “lender” was left with a right to enforce the note and mortgage, but no financial interest in the mortgage or note. Thus the “lender” is left with empty paper.
  • The “assignee” receives nothing but a promise of revenue FROM THE “LENDER.” The Mortgage secures the debt from the borrower, which is no longer due or payable. Hence the mortgage is unenforceable.

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