Assume that the transaction is a single transaction. The investor (creditor) lends the homeowner (debtor) money. Thus arises the obligation from the debtor to pay the creditor. In securitized loans a peculiar thing happens. The debtor signs a note like in all the old kind of mortgage loans, but the creditor gets a bond. As stated elsewhere on this blog this shell game leads to different or changing terms, conditions and even parties to the original obligation undertaken by the debtor, thus negatively impacting negotiability of the note, obligation and bond and probably negatively affecting the effectiveness of the security instrument (mortgage or deed of trust).

If the pretender lenders were legally correct in their premise the transaction would cease becoming an event and forever become a dynamic process wherein the beneficiary, payee, lender, and others would be constantly in motion depending upon the exigencies of the moment.

Their argument is that the reason their position should be sustained is the desirability of certainty in the marketplace. But their own behavior undermines their contention. By using nominees (e.g. MERS, or a “Trust” or “Trustee”) they fail to identify the real parties, whose identity is only revealed upon the happening of a future event or at least the passage of time The hapless borrower is left waiting in limbo for the creditor to be revealed.

It is usually stated in law books that the note is evidence of the obligation, it is not the obligation itself. And it is further stated that the mortgage or deed of trust is incident to the note and not the note. In securitized residential mortgage transactions, the evidence of the obligation is the note PLUS the mortgage backed bond, because it is the bond which the investor has received.

The bonds are sold with wording similar to JP Morgan wording as follows:

“The underlying certificates represent beneficial ownership interest in fixed-rate and adjustable-rate, conventional, first lien residential mortgage loans, substantially all of which have original terms to stated maturity of 30 years.”

It therefore follows that the evidence of the obligation consists of the NOTE and the BOND, since it is the BOND indenture that provides for conveyance of an ownership of the loans.

The obligation arose when the funds were advanced for the benefit of the homeowner. But the pool from which those funds were advanced came from investors who purchased certificates of asset backed securities. Those investors are the creditors because they received a certificate containing three promises: (1) repayment of principal non-recourse based upon the payments by obligors under the terms of notes and mortgages in the pool (2) payment of interest under the same conditions and (3) the conveyance of a percentage ownership in the pool, which means that collectively 100% of the investors own 100% of the the entire pool of loans. This means that the “Trust” does NOT own the pool nor the loans in the pool. It means that the “Trust” is merely an operating agreement through which the ivnestors may act collectively under certain conditions.  The evidence of the transaction is the note and the mortgage or deed of trust is incident to the transaction. But if you are following the money you look to the obligation.

The other peculiarity is that the name of the mortgagee or beneficiary is the name of an entity who serves as a nominee or in other words, in name only.

They never were the real beneficiary. In all securitized loans the named beneficiary is the nominal beneficiary — i.e., in name only. It means the Deed of Trust is void or voidable, but subject to reformation in court, which means they must file a lawsuit to reform the mortgage to comply with the real terms.

22 Responses

  1. Just submitted my FOIA request yesterday. The credit default swaps for my trust are in Maiden Lane One (TARP). I sent specifics (CUSIPs, IRS #’s, SIC numbers, identification of involved entities) and will advise on what happens.

  2. Sam,
    I am no expert but I believe the FDIC would have information on your loan only if they “took over” a bank involved in the securitization of your loan. So for instance if your originator or servicer was IndyMac/OneWest, the FDIC would have something on your loan (most likely). If your loan was a GMAC loan or Wells Fargo loan involving parties that the FDIC did not take control of, they would not have information on your loan.

    Dan Edstrom

  3. A short while ago, someone posted that they actually received from the FDIC, via a “Freedom of Information Act” request, the identity of the entity that currently owned the note. That person actually stated that their note was even paid off.

    I just tried to do the same thing and the FDIC sent us a response stating it does not have any information regarding the note….at all. ???

    What gives? Did I do something wrong? Did I misunderstand the poster of that message? Was the information that was posted incorrect????

    Any help or clarification would be great.

  4. I am noticing in a county in Texas a lot of foreclosure filings that have a heading of Notice of Substitute Trustee Sale Maybe this is how they are able to get past trustees who have legal title to people’s home. I have read many posts about doing a rescission of signature to a Trustee, and if the servicer that wants to foreclose is filing a Notice that they will use a Substitute Trustee even though the original Trustee is still holding papers for the person who has the Note, then there is some ‘real’ under handed dealings going on.

    I see people are getting foreclosed on without their knowledge..so there must be an answer to dealing with a substitute Trustee. MERS, PNC Mortgage, CITIMortgage so far are all doing it as if they are all talking to the same people to get around the challenges.

    I have no answers, only clues.

  5. Andrew and others

    Just to let you know that there are two “Anonymous” here now – the April 4, 2010 post by “Anonymous” is not me – the original ANONYMOUS – all caps is me.

    Just to not confuse

  6. Dave K.

    I have a similar JP Morgan Chase situation as Neil describes, however JP Morgan Chase, in buying a pool from one of the more notorious ‘originate & sell’ subprmie lenders was clever enough to set up multiple Chase entities to handle the securities and even lined up another large banking entity to be the ‘trustee for the securities trust’….thus Chase created the trust but hired another party to be the ‘trustee’.

    AND this securities trustee has specifically stated to me that ‘we are indemnified’!

  7. Walk in to ANY title company in the United States and tell them you would like to set up escrow for a transaction you are wanting to close.

    Tell them you are purchasing property on behalf of a TRUST and listen carefully to the number of documents they will require.

    Question is; if standard practice for conveyance (with TRUST) means providing proof of existence of the trust, letters of authority, power of atty, etc. when using a local TITLE COMPANY, why does the Judicial Branch have the opportunity to BYPASS these requirements?

  8. Andrew,

    I have a Deed of Trust in Texas. My Lender sent notice on their letterhead that they “changed their name”. Then I got a servicer notice of a “right to collect payments”. Although I have no advice on how to deal with this, to answer your questions above, about the judge who says a) and b).
    You can always view your Deed of Trust for the answer. Two things I’m looking into are 1) My Deed says the note or partial interest in the note can be sold, assigned, or transferred along with the security instrument. That security instrument is defined in the beginning as the Deed of Trust, so answer to a) and b) is you have an obligation and the bank can sell it to whoever it pleases, but that owner of the Note must also possess the Deed of Trust. Now I’ve filed some things in the county before. They put a number on the top page of your original, they file it and mail you the original. If changes had to be made to that document you would make it to the original and they re-file it. So why can’t a person truly holding that document produce the original when I can produce the copy I got a closing? Could it be they aren’t holding the Deed of Trust? Wasn’t one of the arguments that once you separate the Note and the Mortgage or Deed of Trust, there is an enforceability issue? 2) UCC 3-501 is about Presentments and Dishonor. If someone makes a presentment you can ask for evidence of the obligation and they must show it, or you can ask for information of who’s authority they attempt to collect the debt. If they don’t provide that, then you can refuse to pay WITHOUT DISHONOR. Now you must have a paper trail of your request it seems.
    I have no answers, those are the two avenues I am pursuing. For my number one, I’m calling it a breach of contract. The beneficiary has abandoned the claim and the ‘new name’ has not perfected theirs by re-filing and as it stands the public Deed of Trust has no beneficiary, or no record it has “changed it’s name”. For my number 2, I call it for what it is and state in my correspondence to the Senior Vice President of the company pursuing these actions that I will use my letter or request in a court of law if they attempt to bring a judicial or provide it to a trustee in the case of a non-judicial foreclosure. The Trustee doesn’t care about you. You created the document. I wrote my trustee, I asked about getting legal title to my home. HIs response was, and pay attention. His response was (I’m paraphrasing this)….I am not bound by law, I am bound by trust law. I do not answer to you, I answer to the beneficiary who holds the note and has a security interest in the home.
    So I learned from that, that I created a document, gave title to a trustee and can’t get it back because he doesn’t have talk to me (now I know why people tell us our Deeds were created in fraud..who would do such a thing to themselves!), but the second thing I learned is..his writing appears to recognize “any entity” as the beneficiary, regardless of the beneficiary named in my Deed of Trust, and that entity will be known to him if they 1) have the note and 2) has a security interest in the home. Who is that entity? I say they don’t exist because I say the note is separated from the security instrument and the word security instrument is defined as the Deed of Trust, and I believe to have a security interest in the home, you have to have the Deed of Trust in your possession if not in your name on file. So I must pursue it that way. I think foreclosure are lost because the offending party raises arguments that are bogus, and we fight the wrong battle. Stick to what matters. Who cares they changed their name. Who cares they say they have a ‘right to collect payments’. I’m like Judge Judy now…”show me.” Breach of contract or Breach of trust, that’s what happened. I don’t know where to go with this, but I am documenting, and I did file an FTC complaint on this ‘new name’ as ‘other than creditor’ who will not validate the debt, and is demanding money from me via ‘mail’ (isn’t that mail fraud? Trying to legitimize a claim without proof of a debt). I think these companies are doing all kinds of things to get something for free, and all the while we are treated as if we are trying to get something for free. Once they get these homes, they will do the same thing again, so it’s more money for them if we’d hand them over, but we are wiser. We are awake. Stay with what you ‘know’ to be true. Do no argue a point that is worthless. That’s how they get you. What judge wants to hear about securitization or sold notes. You have to prove that something inequitable happened. That both parties were not on fair ground. The fact that you bought something and they sold it to someone else doesn’t matter, but to breach a contract or breach a trust, now that will wake up any judge. I don’t know how to do this, but I know enough that a breach of contract or breach of trust is voidable. Failure to perform their obligations or failure to abide by their own laws per UCC 3-501 that’s a big deal. Each state adopted UCC, it may be called Statues, it may be in the Business Code, but look up their chapter 3 and their section 501 and see it in there. Lender should produce evidence of the obligation, servicer should produce information on who’s authority they are collecting the obligation. I’ll show you how it’s phrased in my state.
    Sec. 3.501. PRESENTMENT. (a) “Presentment” means a demand made by or on behalf of a person entitled to enforce an instrument to:
    (2) On demand of the person to whom presentment is made, the person making presentment must:
    (A) exhibit the instrument;
    (B) give reasonable identification and, if presentment is made on behalf of another person, reasonable evidence of authority to do so; and
    3) Without dishonoring the instrument, the party to whom presentment is made may:
    (B) refuse payment or acceptance for failure of the presentment to comply with the terms of the instrument, an agreement of the parties, or other applicable law or rule.
    I only put in the relevant statements. Keep it simple, keep documentation and while they try to lock you into an obligation that isn’t yours, you lock them into an obligation too. Tell them in writing that by pursing that debt they agree to pay the court costs on both sides of the dispute since the burden of proof is on them. File your FTC complaint, per Section 6 RESPA if you have a dispute and provide it in writing they have 60 Business Days to settle the dispute. Show they are violating the law in their activity. I haven’t had to use this, I’m resisting “new name” and requesting proof they are who they say they are. If all you did is change your name, it would seem you could point me to something that showed me that. These people drag their feet on proving who they are. I do plan to pursue the rescission of signature on the Power of Attorney, but my document is called something else; it’s called a Consent and Obligation form or something…I”m not looking at it right now, but at least when I rescind my signature it should be rescission for a document of titled the same as the one I signed, I would think. (they thought of everything in their fraud), oh well. Light and Love,

  9. Dying Truth

    Judges do not question representation. Big problem. Cannot even get to discovery to question it. Initial disclosures are not enforced – including liability coverage. Herein lies the problem.

  10. Come on Neil, there more than likely is no Trust. You know that, I know that, Soliman knows that… it doesn’t matter if there are SEC filings for “Trusts”. simple example: my lender was fremont inv & loan, they have SEC filings that say “FREMONT HOME LOAN TRUST 2006-C” but if you look them up in the institutional directory on the FDIC website under the “Trust Powers Granted” column it has “N/A – NO” therefore no Trust exists. I also pointed out to Soliman a long time ago that we should be going after them for rescission of securities, because they are probably hiding behind the guise of the securities brokerage exemption contained in the TILA. As well they are also purposely maintaining the appearance of gradual market decline(which IS what they’re doing by creating fraud and uncertainty) by fabricating an “emergency crisis”. Then to add leverage and insurance so that they’ll get away with it they put judges retirements at stake(why do you think that all of the sudden after the FHLB suit and I point out the Conflict with CalPERS CA judges aren’t in court?) and now after the’ve pocketed millions in fees for setting up the investment deals that these pension funds have taken HUGE losses on the impartiality of judges is VERY questionable to say the least. This is all obviously systematic and easily comparible to the strategy used in the great depression. I just can’t believe so many people are so blind to see the obvious pattern used back then that lead to the “Home Building & Loan Assn. v. Blaisdell 290 U.S. 398” state of things that’s being used now. And the more and more things evolve the more that I see that it was mostly all a plan connived by some bankers but mostly attorneys to monopolize every aspect of the crisis, because who’s hired to increase the revenue in CalPERS?(it says it in the CA Code) Public/Private Partnersips-Lawyers. Who are the ONLY people that can represent a Corp., LLC, Bank LP et…? Attorney(a lot of the time it’s an empty Co that the attorney is using). Such a Large demand for consumers needing representation… where did all the lawyers go? they must be busy doing something. In CA anyone accepting an advanced fees for foreclosure prevention services is punishable with a crime except, Who? Attorneys(CA is a Non-judicial foreclosure state).

  11. I think that since Maiden Lane is holding certificates of the bonds, I could challenge plaintiff’s standing?

    “Yerronnnerrr, it seems that whoever the ‘confidential mystery investor’ is that plaintiff’s counsel is pretending to represent, would it not be proper that counsel, if acting on behalf of the United States Treasury, that this would be authenticated by some proof of agency or disclosure under Sarbannes-Oxley, or maybe their is no real holder in due course, other than the Federal Government, as far as the proceeds of this loan are concerned, and plaintiff is simply a ‘third-party debt collector,’ trying to defraud the court and the homeowner, knowing the debt is already extinguished with the default of the bond? “

  12. Andrew

    Not suggesting anything – as far as I know – there is no one better court to be in – state/federal/bankruptcy. It is just that in bankruptcy, the judge is aware that the proper creditor must be stated or the bankruptcy is – simply false. From what we have seen, bankruptcy courts – at least a few – seem to take the issue more seriously. In my opinion, credit is destroyed anyway – rather have things done right now. But that is just an opinion.

    Also, in my opinion, you cannot go in asking for a free house – but you have the right to resolve the situation with accurate disclosure and valid documents. The people have been victims and should not continue to be victims – there is a middle ground that should restore borrowers at least to the position before the mortgage was signed and before the crisis hit. People became trapped – and due to fraud. The stories of a free house are rare- but the onion is peeling away as to restoring homeowners to a prior position before the chaos and fraud. Have to portray this, in my opinion. And, have to use every bit of current opinion, including the Federal Reserve, to support your position. Federal Reserve opinions have great weight in court. Have to back up statements with support. Opinions do not matter in court – back up matters.

    Disclaimer – I am not an attorney – and this is not meant to be construed as legal advise and only for educational purposes.

  13. Neil, I sent a letter of errors and omissions as a last ditch effort prior to Foreclosure on April 2 in Colorado. It definitively had impact as the attorneys for Castle Meinhold postponed the auction till April 16th. Should I send another letter.? Any suggestions?

  14. Neil,

    I’d suggest trying to see this through different eyes. You are all assuming that a creditor actually exists. In fact, the Note was deposited into a standard transactional account (DDA) and funds were drawn off of that account to escrow. This transaction is treated as a cash item (Tilte 12 1813(L)(1) and then de-recognized through an in substance defeasance, but they cannot de-recognize that liability without extinguishing the opposing asset at the same time. Thus, you were the original creditor and the banks are all assuming the role of creditor without lawful authority. This is the switch. They are merely making a currency exchange and not disclosing this. Challenge their claim of creditorship and make them prove their claim. They cannot.


  15. Lender Processing Services in today’s WSJ under investigation by the DOJ. Reported here on LL 4-6 wks ago? DOCX mentioned also. DOJ needs to be bombarded with info by any and all.

  16. Thanks anonymous. So, your contention is to pursue a bankruptcy instead of state courts as a better venue to establish your theory of who is the real creditor. I wonder if you can do this with full liquidation bankruptcy and listing the mortgage as unsecured, backed up by the argument that the note was paid during the securitization process, went from unconditional promise to a conditional promise, and certainly was paid by the AIG swaps if it cannot be agreed that the original note was paid. If successful, all of the debt would be discharged.

    I know someone here advocates this. But like the state courts, you can almost see the judge’s eyes role and her thinking “this guy wants a free house”. Then you look over at the bankruptcy trustee and see the same thing.

    Still, someone has to get in there and peel away the layers of the onion so all can see how title can and did get so screwed up…lost even.

    By the way, I was one of those homeowners who couldn’t sell their home. On the market for three years.

  17. if the Plaintiff is a “bond holder” (third-party investor of mortgage-backed securities), the bond they hold is an aggregate “pool” of loans, not particularly your loan, so how are they the “holder-in-due-course” when it cannot be proven what part, if any of your loan they have “pecuniary interest” in? secondly, the bond they hold has a debenture warranted by the bank, not you, so the bank, in the securitization process has converted the liability, when they “issued” these bonds. a bond is NOT the instrument being enforced in a foreclosure action. a bond is not incidental to a mortgage note, it is incidental to THEIR promise to pay, not ours!

  18. Andrew

    True, and some courts take this attitude – “who cares if it is not the real party – you owe it.” But this is a problem, especially in bankruptcy – the creditor must be divulged. Also, by concealing the creditor from the onset, borrowers were duped at table funded origination, and prevented from directly contacting their creditor to negotiate more reasonable terms once the crisis hit. Everything else also comes into play – including inflated appraisals and egregious terms that, once the crisis hit, could not be “fixed” by the borrower. That is, borrowers became stuck – unable to finance into fixed rates, unable to sell home, and unable to negotiate with their true creditor.

    Judges cannot say “you owe the money” and disregard the law. Purpose of “real party in interest” is to protect against owing the money TWICE. In addition, valid title is a “public interest” issue. And, third parties are profiting by purchasing at steep discounts and using foreclosure victims as the vehicle. This is not being allowed to be heard in court because judges are too quickly disposing of valid actions.

  19. Mr. Garfield:

    I think our difference regarding “creditor” is not monumental.

    The distinction, in my view, is that the security underwriters played a far greater role than is currently conveyed. Regulation Z (TILA) is important because the Fed says beneficial interest – does not make a creditor. You quote JP Morgan “The underlying certificates represent beneficial ownership interest in fixed-rate and adjustable-rate, conventional, first lien residential mortgage loans.”

    First, many of the SPV trusts were not funded directly by security investors in the trust – but were funded by commercial paper issued by the security underwriters.

    Second, in the process of securitization, subsidiaries of the security underwriter (not always a subsidiary – but those SPVs were just “shells” for the security underwriter), purchase the loans from the originator. Warehouse lines of credit, often funded by commercial paper – or other short term means, were separate from the trust and used to table-fund. After the security underwriter’s subsidiary purchases the loans, this subsidiary sells the loans to another subsidiary (the Depositor), who then sets up the trust.

    Third, the certificates to the Trust are then sold to security underwriter – another subsidiary of the Corporation – who also owned the “purchaser/seller” and “depositor” – before they offered for public/private sale. Often the certificates were sold to other investment banks – who repackaged into CDOs and then sold again to security investors. Thus, the security underwriter gets the certificates first – they are the certificate “holders” – then resell “pass-through” (cash flow) rights ONLY to other banks – or maybe another one of their own subsidiaries.

    None of this is openly accounted for by the large Wall Street banks who, in my opinion, are the culprit – and the creditor. They are the creditor until they sell (or Swap) the whole loan defaults to a third party. None of this was divulged to borrowers at the table-funding. And none of this is divulged in foreclosure actions.

    The Trusts cannot hold money – they own nothing – because they must pass on all cash flows. If the Fed says investors “with beneficial interest” in pass-through is not the creditor – then it is the entity that organized the pass-through is the creditor. In order to pass through account receivable cash flows – there had to be accounting for the receivables. The originator sells the loan – and no longer has cash flows. They sell all rights to the security underwriter (pre-arranged agreements prior to mortgage closing) – who removes the receivables accounted (which should have accounted for by the Wall Street underwriter) to their own off-balance sheet conduit. They are the creditor – until they dispose of – and remove from the “pooled” receivable pass-through by sale/swap to unidentified party that is concealed by the Trustee in courts.

    I think you say much of the same thing – our difference lies in the role of the security underwriter, who I attribute to a much greater role. Here, in my opinion, is where the source of the lies started and continues. They are who the government had to bail out – and in the process, allowed borrowers to take the hit and fall. And, they continue to allow falsehoods abound in courts across the country. It will be a bankruptcy court that first gets to the bottom of it – that is the duty of the bankruptcy court.

    Need to throw whatever concrete opinions you have to the court. Fed’s TILA Z is concrete. Need to work around it.

  20. Neil,

    From this article, and JP Morgan’s quote you furnished, that it looks like we need to be suing the actual trustee for the “underlying certificates’ because they are the ones who supposedly hold the portfolio the actual mortgage loan is in.

    I still maintain that this changes the character and status of the debt according to the FDCPA; but I still don’t think a federal judge is going to let that argument fly either.

    The “wild west” attorneys appear to be having rotten luck when it comes to referring to MERS liens as a product of “conspiracy” because they can’t prove all of the elements necessary to sustain any kind of motion; the other side keeps successfully muddying up the waters (except for Kesler and a handful of other cases) with these nonsensical “convenient” arguments. I am still noting Mortgages Restatement (Third) on the 3-point litmus test: (1) MERS didn’t advance any proceeds; (2) MERS didn’t accept monthly payments (in any capacity); and (3) in the event of foreclosure, MERS gets none of the proceeds from it. Thus, even if, for argument’s sake, as in Lacy J. Dalton v. Citimortgage et al in Reno, NV (just read the oral arguments on that), Judge Robert Jones told the Plaintiff’s attorney that his 7 clients had better seek bankruptcy protection because attorney Bob Hager’s petition didn’t prove the MERS conspiracy either … and the class of Plaintiffs were not all specifically, similarly-situated. The “wild west” judges would rather singly hear these cases in the bankruptcy courts.

    This may tip us off to the fact that singularly, if we stick to the format and theories of the bankruptcy cases that won (Chapter 13) … you’ve got a Court Trustee AND a judge looking down their noses at the Plaintiff Lender for proof they own the debt … at a meeting of the creditors … the lender has to prove they have real beneficial interest in order to prevail. Of all the cases I’ve read, very few have ever gotten close to securitization.

    I think a real securities expert that knows what’s going on, on the inside needs to be tracked down and talked to about the insider’s take on all of these “underlying certificates” because trustees can’t wear two hats and somebody’s lying. The trustee cannot create the trust and then be the trustee. Thus, if we even get to securitization, we simply attack the formation of the trust and see whether the trust is properly being administered and was properly created. That’s what the IRS does in tax court to “bust trusts”. They like going after trusts where the trustee is the beneficiary too. The judges will open those suckers up and just hand out the proceeds!

    That particular trustee can be deposed and made to prove the existence of the trust and be made to testify as to HOW he received those certificates … by what path. That trustee should be able to thoroughly explain his “res”; this is why we are seeing “resecuritization”; because the old portolios (res) were so diminished in value, they had to split them up and create new portolios to enhance their value to make them worth something again. I’ll bet they’re even trying to bet against their failure again. The arrogance of banks! Even the resecuritization is still all a bunch of illusory promises by which mutual fund holders and 401k investors are just going to get stung again.

  21. So what about a judge who says that a) you have a mortgage, note, and obligation and b) the bank can sell it to whomever it pleases (whether a securitized trust, another bank or whomever)? As the homeowner, you are obligated to pay the note regardless of what happened to it once created.

    It seems to me that is the argument the judge was making in that audio clip of a pre se defendant in court.

    I guess that is what you are taking about when you say “exactly judge, the question is who do I pay? Certainly not these pretender lenders because as you can see here judge, the bond is evidence of the obligation as well as the note. And only the certificate holders have ownership interest in the bond, not the pretender lender, trustee, or anyone else.”

    I think I am starting to get it.

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