Reality Check: Holder in Due Course Doctrine is not some fancy trick to get out of paying

Too many people are looking for an easy way out and reporting that Judge’s don’t like their arguments because they are going into court saying they don’t owe the money and there is no obligation. This argument starts you off on the wrong foot and heads for disaster.

The better approach is to start off with acknowlegding that a mortgage or deed of trust was executed, a note was executed, funding took place, and that an obligation was created. Your approach should be that you are not seeking to eliminate the obligation by some slight of hand trick but rather that the obligations exists, it might be enforeceable if it was not paid by federal bailout or insurance, but that the people and entities that initiated the foreclosure process are imposters.

So your argument is not that your avoiding ALL possibility of liability, but that you are fighting for your right to avoid multiple liability on the same debt — because when the REAL holder in due course walks into court holding the note and an assignment and says you owe the money, the house or both, you will have already lost the money and house to the imposters who said they were foreclosing as the “lender” or on behalf of the “lender.” when they had no documentation or actual authority to do so.

Good Question from Ron Ryan in Tucson:

WHY ARE THEY NOT THE PARTY ENTITLED TO PAYMENT IF THE RECORD SHOWS THAT THEY ARE? Answer: There is no trick here. Either they ARE the holder in due course or they are not. If they gave the loan and funded it from their own accounts using their own loan department at their own bank and they still have the note and they never assigned it, sold it or transferred it, then they have a good loan and it is enforceable by them. There might still be claims for TILA violations and the potential for rescission, but these claims are probably minimal in comparison to the vast majority of loans. There ARE some loans given by local community banks that are substantially in compliance with the law and did not raise the spectre of appraisal fraud etc. But most of the small banks got knocked out of the market because they understood the appraisals were inflated and they couldn’t approve a loan that was (a) already scheduled to fail and (b) where the loan to value ration was vastly skewed. So just like the honest appraisers who didn’t get any more business (8,000 of them petitioned congress in 2005 to do something about it to no avail), the honest banks couldn’t compete because they knew they were competing for lousy business that would bring their bank down with losses. The point of our strategy is that more than 1,000 banks were created or lured into this mess with the prospect of making $30,000 or more on a $300k loan that was bound to fail. In doing so they dropped their underwriting standards to zero without informing the borrower that the borrower could no longer rely on the bank as the expert who was evaluating the value of the property, the borrower’s ability to repay, and the viability of the loan. They didn’t care because it wasn’t their money at risk. If the borrower knew that the “lender” didn’t care whether they could repay the loan or not, the borrower would have been on notice that something unusual was going on — and by the way, something that violated the Truth in Lending Act and a whole host of other statutes, rules, regulations and common law duties..

7 Responses

  1. First your honor, Plaintiff’s implies that only one set of material facts and one side of the contract is in play here: that being the obligations on the Defendant and the facts surrounding those obligations when the court full well knows “there are two sides to every coin and every contract”. And the issues are no more relevant on one side of this case than on the other side the court must consider.
    We have submitted into evidence defendant’s Affidavit FDCPA EFD with documentary evidence of correspondence affirmed in our affidavit of first hand knowledge, proving Plaintiff had not responded to Defendant’s good faith requests for verification and validation of the debt according to the legal definition of these terms that act to estoppe the Plaintiff and his Attorney from further collection action under the FDCPA including the filling of this claim until this dispute was resolved according to law. This is not disputed by plaintiff and therefore stands as fact before the court on which this claim should be denied.

    We have affidavit SRC of first hand knowledge, affirming there is no evidence found by Defendant or provided by the Plaintiff as to whether plaintiff has complied with the law and is authorized by its corporate charter to engage in this type of contract or to file suits in foreclosure of consumer debt which fact has been disputed by the defendant. We affirm this has not been disclosed by the Plaintiff nor has any documentation been provided by them to show the court they have complied with these requirements of law to bring this case and it is not found by the defendant, and on this basis the claim should be denied.
    Then your honor we have submitted into the record affidavit, A, wherein we have affirmed first hand knowledge this presented by plaintiff is not a copy of the contract I entered into and that we have received no competent fact witness by affidavit or other documentation from them showing they are the true holder of the debt and can produce the unnegotiated, unconverted, signed debt instrument/credit application agreement or the signed charge slips that should still be in plaintiff’s possession as their own from their payment of purchases on the card on which any claim of an amount owed must be based, showing they are the potentially injured party who would have standing to bring this claim.

    In the day of computer technology and the sophisticated means by which a document can be put together to make the copies say whatever the bank wants to have them say is no proof of anything without competent fact witness what the original contract actually was, or my agreement to it, which can only be the original agreement itself.
    From the Securities and Exchange Commission, Release on ASSET BACKED SECURITIES; relevant portions now submitted into the record as exhibit ABS we find on pages 10 and 11 as far back as 2003, 128 billion dollars in credit card receivables accounted for 16% of the total Asset-Backed Securities market Wherein a sponsor acquires a pool of financial assets and sells them to a specifically created investment vehicle that issues securities “backed” by those financial assets…..” and that these markets have grown every year which gives rise to reasonable suspicion this credit card account may have been part of such an Asset-Backed Securities pool, and if so, as indicated it would have been sold to and owned by the “specifically created investment vehicle that issues securities “backed” or supported by those financial assets…..” and could not then or now be actually held or owned by the Plaintiff if it is still in such an Asset-Backed Securities pool. Again, Plaintiff’s affidavit offers no affirmation that the debt instrument/credit agreement can actually be produced to evidence this is not the case or to support their affirmation they are holders of it in support of Plaintiff’s standing to bring this suit
    and it should be denied on these grounds.
    And Defendant should be granted relief and monetary damages for plaintiff’s FRAUDULENT MISREPRESENTATION AS TO STANDING TO ENFORCE CONTRACT and has further damaged the Defendant by its ABUSE OF PROCESS and MALICIOUS CIVIL PROSECUTION.

    Then your honor we have shown from Federal Reserve Bank publications and other authoritative sources of the banking and accounting industry, exhibits G and M, in our Affidavit AFR we have submitted into the record, showing standard banking practices in financial markets, that this loan has not been made by taking the bank’s existing assets or of its depositors and giving it to the borrower with the full equitable risk of loss represented in the contract, but was instead made by “expansion of depository institution credit” from the receiving of my note into the bank as equity of commercial paper money equivalence, bringing new deposit money credit on to its books which has been debited and transferred out of the bank in settlement of its card obligations Without the bank bringing its already existing equity to the transaction, and without the full risk to its other assets and deposits to recover represented to me in the contract as basis for my agreement to it.
    This is not our supposed faulty understanding of what happened your honor. We are just quoting what their own authorities have said,
    Federal Reserve Bank of Chicago
    Loans are made by creating additional deposit money.”
    ….. they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created.

    ……..”When a bank makes a loan, it accepts as an asset the borrower’s debt obligation and creates ….on its books ….a demand deposit in the amount of the loan…….. This money creation increased the bank’s assets and ……Thus, the loan did not simply bring about a redistribution of assets.”

    Federal Reserve Bank of Chicago
    “The total of currency — the money supply — is increased. New money has been brought into existence by expansion of depository institution credit..”

    Which is further documented by the official Federal Reserve System website cited in Affidavit AFR showing the cash fractional reserve percentage of the original lender or any successor’s assets required to be held and actually placed at risk of the actual face principal of any loan amount or its purchase would not exceed 10% of the face of the loan in any Federal Reserve District for an institution of any size as a standard banking practice in the present world financial markets.

    This use of the credit agreement is further established by federal regulations and the United States banking code: 12 USC Sect. 1813 we have submitted into the record.
    According to 12 USC Sect. 1813, and the authority of legal definition in federal law of a deposit, in front of you there your honor, by definition a deposit is “the unpaid balance of money or its equivalent received or held by a bank. Any such account or instrument must be regarded as evidencing the receipt of the equivalent of money when credited or issued in exchange for” among other things “a promissory note.” [[ or such commercial paper debt instrument as this ]]] That’s what a deposit is your honor, “the receipt of the equivalent of money”. And this note/debt instrument and signed charge slips is included in what may be received as
    “ the equivalent of money” and credited as such on the bank’s books “in exchange for it”.

    As standard banking practice, shown by the authority of legal definition in federal law, The bank deposited the note/debt instrument, and/or signed charge slips. And by the inclusion of it in the United States banking code’s official definition of a “deposit”, by the authority of legal definition in federal law, the bank has, in fact, gained monetary conversion of the commercial paper money equivalent equity asset of my note/debt instrument as equity converted into money on its books which has funded or offset the funding of at least 90% the extensions of credit in this contract or [[$ XXXXXXXXX ]] and did not bring this equity to the contract for which there could be an injured party with actual loss and damage from my performance as basis to bring this claim for them to seek recovery on.

    By its “deposit, ” they have converted the equity of it into money on the bank’s books which has offset any loss or damage they had from my performance,
    excepting only the 10% or less cash fractional reserve required to be held and actually placed at risk for the loan or its purchase at any time as a cause for action to bring this suit.
    This is not disputed by plaintiff and therefore stands as fact before the court on which this claim should be denied.
    We further affirm, in Affidavit A have we not received any competent fact witness whether there may be markings on the debt instruments, that deposit or monetary conversion of them, or the signed charge slips, into equity has been made by the bank negating and offsetting any loss or damage from my performance for them to seek recovery on.

    Nor we affirm in Affidavit A and AFR are there any pleadings or evidences in this case they have suffered actual equitable loss and damage from Defendant’s performance to have sought relief in the amounts shown that would not be offset by deposit or conversion of the debt instruments or signed charge slips into equity, by definition cited in the banking code : 12 USC Sect. 1813, “credited as money” on the bank’s books in exchange for the debt instruments or signed charge slips, as is standard banking practice we have shown from authoritative documentation of the Federal Reserve System and the American Banker’s Association, how loans are made in this way. There is Nothing from them or in their affidavits that factually rebuts these evidences on this point to establish they brought equity to this contract already their own before the contract was made and are at actual face loss to get to back, in compliance with their own representations in the contract. None of these facts established in our affidavits A and AFR by these authorities and official documentation cited therein is disputed by plaintiff on any point affirmed and therefore stands as fact before the court as prima facie evidence the bank has not complied with the representations of its contract it is at risk to its own assets or its depositors to recover the full face amount of the equity loaned.
    This purported risk is what all the terms and obligations on the borrower in their contract is based on your honor
    and is probably the most fundamental material fact of it.
    And the breach of those representations they have this risk represented is a fundamental breach of the agreement that voids the contract and this claim from the beginning before the borrower’s obligations ever began.
    In support of their case, Plaintiff offers only the affidavits of [Constance Curtis ], and [ name] who acknowledges they are only [an] agents of the bank and declares no competency of legal knowledge or status to affirm or dispute any of these material facts that we have established.
    First, Pursuant to Rule 56.06. of the Rules of Civil Procedure says under Form of Affidavits —“Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith.”

  2. I am actually trying to understand what a holder in due clause is and the rights and duties. I would therefore appreciate your updates with the most recent case law. Thanks

  3. I don’t know of any lender who requires a non-borrowing spouse be removed from title. Can you (withholding name of borrowers) show any specific loan where this was required? It would be quite unusual. .

  4. i need to consult an attorney knowledeable in securitization.


    Defendant, DOUGLAS SCHWARTZ AND TAMMY SCHWARTZ, files its response and additional answer to plaintiffs U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR STRUCTURED ASSET SECURITIES CORPORATION (SASCO) 2007-BNC1, Mortgage Pass-through Certificates, Series 2007-bnc1 motion for summary judgment and to tax attorneys fees.

    1. Plaintiff alleged that they had standing as plaintiff in hearing to dismiss case based on being the true holder and beneficiary of the Mortgage and the note based on affidavit testimony by attorney Emily Lang. When in fact in the days following the hearing file a motion to substitute another plaintiff on this case. It is defendant’s opinion that Florida default law group was not completely honest with this court in their affidavit testimony.
    2. Plaintiff also submitted to the court an affidavit from Chase Home Finance llc. Stating in their own words that they are only a servicer on the loan that the plaintiff alleges to own and hold, and that they have only personal knowledge, and have only reviewed a file which is hearsay at best.
    3. In their own sworn SEC document filings This Mortgage was pooled with other John Does (1-1000) and sold on the open market, making the true Owners of this Mortgage and Note truly unknown and mixed with a pool of beneficiaries. See Exhibit A
    4. Affidavits are often submitted to prove default that are conclusory and insufficient. Manufacturers & Traders Trust Co. v. Medina, 01 C 768, 2001 WL 1558278 (N.D.Ill., Dec. 5, 2001); Cole Taylor Bank v. Corrigan, 230 Ill.App.3d 122, 595 N.E.2d 177, 181 (2d Dist. 1992). Computer-generated bank records or testimony based thereon are often offered without proper foundation, or are summarized without being introduced. Manufacturers & Traders Trust Co. v. Medina, supra, 01 C 768, 2001 WL 1558278 (N.D.Ill., Dec. 5, 2001); FDIC v. Carabetta, 55 Conn.App. 369, 739 A.2d 301 (1999). Testimony, whether live or in the form of an affidavit, to the effect that the witness has reviewed a loan file and that the loan file shows that the debtor is in default is hearsay and incompetent; rather, the records must be introduced after a proper foundation is provided. New England Savings Bank v. Bedford Realty Corp., 238 Conn. 745, 680 A.2d 301, 308-09 (1996), later opinion, 246 Conn. 594, 717 A.2d 713 (1998); Cole Taylor Bank v. Corrigan, supra, 230 Ill.App.3d 122, 595 N.E.2d 177, 181 (2d Dist. 1992). It is the business records that constitute the evidence, not the testimony of the witness referring to them. In re A.B., 308 Ill.App. 3d 227, 719 N.E.2d 348 (2d Dist. 1999). Nor is such an affidavit made sufficient by omitting the fact that it is based on a review of loan records, if it appears that the affiant did not personally receive or observe the reception of all of the borrowers payments. Hawaii Community Federal Credit Union v. Keka, 94 Haw. 213, 11 P.3d 1, 10 (2000). If the underlying records are voluminous, a person who has extracted the necessary information may testify to that fact, but the underlying records must be made available to the court and opposing party. In re deLarco, 313 Ill.App.3d 107, 728 N.E.2d 1278 (2d Dist. 2000).
    5. By the very nature of the way they “pooled” these notes, the note lost its individual identity under the express terms of the pooling and services. What that means is that the revenue from the note was made part of a larger promise to pay, under which the payments under one note could be effectively applied to another note where the payment was not made. This was even more expressly provided when the pool was assigned in different parts to the Special Purpose Vehicles, that issued certificates to investors in which the investors thought they were buying triple AAA cash equivalent securities backed by mortgages and notes that were, according to the sellers of the certificates negotiable. But a negotiable note is ONLY a note where there is an unconditional promise to pay. The pooling with the aggregator, the placement of parts of the pool into tranches (divisions) of the SPV (corporation that issued the certificates of mortgage backed securities). In this case the obligation was created by the funding of the loan. The source of the loan was an undisclosed party. That party was calling the shots, including the terms of the note that it needed to justify the presale (selling forward, which means selling what you don’t have “yet”) of the asset backed securities. With the pooling agreement at the aggregator (loan wholesaler) level combined with the re-pooling at the SPV level the note was converted from an unconditional promise to pay to a conditional promise to pay — i.e., if you didn’t pay your note, it is quite possible that a third party could and in fact did pay part or all of the payments or the principal of your note. The presence of insurance, credit default swaps, bailouts from the U.S. Treasury and Federal Reserve indicate that the only party who could possibly claim to be holder in due course has been paid in part or in full. I am therefore left with two extremely high probabilities to the point of being, in my opinion, virtually certain: (1) BNC MORTGAGE INC. was paid in full contemproaneously with my loan closing and (2) the note was negotiated despite the fact that it was non-negotiable. This leaves BNC MORTGAGE INC on my closing documents in the position of (a) having been paid in full and probably not even taking the loan on its balance sheet and (b) lacking an argument that it “negotiated” (Sold) the note to a third party. If the note was not sold and the lender received payment in full, neither the obligation nor the security (mortgage) exists by operation of law entitling defendants to file a lawsuit to quiet title my property.
    6. For any claiming that the defendants are seeking a windfall — that isn’t true. The homeowner admits to signing a note but is merely saying that the party claiming rights to foreclose, and any party acting in furtherance of that claim is acting ultra vires (without authority, right, or justification). To do otherwise would cause the unjust enrichment of a party seeking to obtain ownership of property despite the fact that the party seeking foreclosure has already been paid in full, plus fees. Which is the windfall — a homeowner who got hoodwinked by deceptive and predatory lending practices or a thief who already got paid and now wants the property too?
    7. Defendants believe there was Fraud in the Factum since securitizations were involved. The Defendants filings with the Securities and Exchange Commission (SEC) shows interconnected and affiliated parties that aided and abetted a pattern of fraud by the originating lender and, thus, trust cannot acquire the rights of a holder-in-due-course per U.C.C.§ 3-203 (b). (England v. MG Investments, Inc., 93 F. Supp. 2d 718 (S.D. W.Va 2000)).
    8. For example, a federal district Court held that the Wall Street underwriters (Lehman Bros.) for a predatory lender could be liable to injured consumers on an aiding and abetting theory where consumer allege that the underwriter knew of the lenderʼs fraud and provided substantial assistance to the lenderʼs scheme (Aiello v. Chisik, 2002 U.S. Dist. Lexis 5858 (C.D. Cal. Jan. 10, 2002)
    9. Defendants believe that the powers afforded to the plaintiffs as trustees or services per the trustees service agreement do not give any authority to prosecute this case and do not give any justification to tax attorney’s fees on a frivolous case. See exhibit B (Demurer)
    10. Exhibits submitted suggest that a trial is needed before any judgement can be awarded to alleged plaintiffs.

    WHEREFORE, Defendants reaffirm their original answer and respectfully request the court enter an order denying the motion for summary judgment and an order to deny attorneys’ fees until a trial can be heard and determination of the right of the plaintiff to have valid standing. Defendants request a trial by jury on the facts contained in answer and submitted discovery items.

  6. I have a question, have a case in Florida, the Plaintiff (bank), from the outset when suit was filed, never attached a recorded assignment. To this day no assignment has ever been recorded. Summarily, Plaintiff filed the original note and mortgage, judge granted summary judgment in favor of plaintiff. Can a foreclosure, in Florida, still talke place where there was no assignment recorded but the original note and mortgage produced during the pendency of the case? Would the plaintiff still have standing to sue and have stated a cause of action where no assignment recorded but original note and mortgage produced later?


  7. Amen Neil. I watched U/W standards being thrown out the window starting in the late 90s. I literally almost came to blows with more than one loan officer because I’d refuse to document or fund his or her loan because of a complete lack of due diligence. I even went so far as to write directly to, among others, the OTS, OCC and FDIC about what I was seeing – to no avail. I witnessed wholesale violations of Reg. B and Reg. Z (“No, Mrs. Smith WANTS to have her name removed from title to her home of 20 years) because loan officers were grossly ignorant of the restrictions imposed by these regulations. I think most attorneys have no idea how many non-borrowing spouses were unlawfully removed from title to their homes as a “condition” for extending credit to the borrowing-spouse. (This is yet another area attorneys should closely look at when interviewing a potential client).

    Thanks for the “reality” check.

    Walter Hackett, Esq.

Contribute to the discussion!

%d bloggers like this: