Virginia Court Gets It Wrong Forez v. Goldman Sachs Mortgage

April 15, 2010

In Forez v. Goldman Sachs Mortgage, Lexis 35099 (E.D Va. 2010) plaintiffs asserted that Defendants lacked “authority” to foreclose under Virginia’s non-judicial foreclosure statutes. Second, Plaintiffs argued that loan securitization bars foreclosure because securitization “splits” the Note from the Deed of Trust or because “credit enhancements” related to securitized notes absolve borrowers of any liability under a mortgage loan as a “doub1e recovery.”

The only problem was that there was no evidence the subject loan had been securitized. The loan had been originated by CTX Mortgage who had sold it to Goldman Sachs who subsequently sold it to Freddie Mac. The list of usual suspects included MERS as nominee for the lender and Litton as the servicer. Regardless, the court held that under Virginia law negotiation of a note or bond secured by a deed of trust or mortgage carries with it the security instrument without formal assignment or delivery. The court cited toStimpson v. Bishop, 82 Va. 190, 200-01 (1886) (“It is undoubtedly true that a transfer of a secured debt carries with it the security without formal assignment or delivery.”). And in Williams v. Gifford, the Supreme Court of Virginia ruled:

[I]n Virginia, as to common law securities, the law is that both deeds of trust and mortgages are regarded in equity as mere securities for the debt and whenever the debt is assigned the deed of trust or mortgage is assigned or transferred with it.

139 Va. 779, 784, 124 S.E. 403 (1924).

“Thus, even if, as Plaintiffs assert without any factual support, there has been a so-called “split” between the Note and the Deed, the purchaser of the First Note, in this case GSMC and then Freddie Mac, received the debt in equity as a secured party.”

The court further noted “federal law explicitly allows for the creation of mortgage-related securities, such as the Securities Act of 1933 and the Secondary Mortgage Market Enhancement Act of 1984. Indeed, pursuant to 15 U.S.C. § 77r-1, “[a]ny person, trust, corporation, partnership, association, business trust, or business entity . . . shall be authorized to purchase, hold, and invest in securities that are . . . mortgage related securities.” Id. § 77r-1(a)(1)(B). Foreclosures are routinely and justifiably conducted by trustees of securitized mortgages. Therefore, the court held “Plaintiffs arguments for declaratory judgment and quiet title based on the so-called “splitting” theory fail as a matter of law.”

According to Plaintiffs “any alleged obligation was satisfied, once the default was declared, because the various credit enhancement policies paid out making any injured party whole.” Plaintiffs averred that foreclosure on the Property to collect on payment owed under the First Note will result in a double recovery prohibited by Virginia statute and case law. However, the court went on to say that Plaintiffs’ double recovery argument against Defendants is based on false assumptions because neither MERS, Litton, nor Goldman own the Notes or securitized the Notes. Therefore, the court concluded, none of the named Defendants could receive a “double recovery,” assuming such claim existed.

Judge Claude Hilton reminded the Plaintiffs “no provision in the U.S. or Virginia Codes supports [their] argument that credit enhancements or credit default swaps (“CDS”) are unlawful. No decision from any court in any jurisdiction supports such a claim.”

Hilton further stated that “Plaintiffs’ double recovery theory ignores the fact that a CDS contract is a separate contract, distinct from Plaintiffs’ debt obligations under the reference credit (i.e. the Note). The CDS contract is a “bilateral financial contract” in which the protection buyer makes periodic payments to the protection seller. See Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d 168, 172 (2d Cir. 2004).”

If the credit event occurs, noted Hilton, the CDS buyer recovers according to the terms of the CDS contract, not the reference credit. “Any CDS “payout” is bargained for and paid for by the CDS buyer under a separate contract. See In re Worldcom, Inc. Sec. Litig., 346 F. Supp. 2d 628, 651 n.29 (S.D.N.Y. 2004) (explaining that a premium is paid on a swap contract to the seller for credit default protection, and if the default event does not occur, payer has only lost the premium).”

The court held that “CDS do not, as Plaintiffs suggest, indemnify the buyer of protection against loss, but merely allow parties to balance risk through separate third party contracts. Therefore, Plaintiffs’ “double recovery” argument fails as a matter of law.”

5 Responses

  1. Krieger, your a fool,
    “Crappy lawyering?” Nguyen v. Chase Bank was completely “Pro Se” from the start. It’s more like “Crappy Courts” after all they are the ones who control attorneys, regulate procedures, destroy–I mean enforce rights and unconstitutionally–I mean constitutionally make up–I mean interpret the Law.

  2. @ Dave Krieger

    Dave absolutely right on.

    Why would you argue anything else about the NOTE or TILA or RESPA, etc when the whole Quiet Title issue is about their right to even be in the courtroom.

    I had requested that court case you offered in another post and never received it. Also, would like to talk to you about promoting your book.

    Thanks,

    Mike

  3. In my humble opinion, the reason this case failed …

    When you throw in the kitchen sink, the baby goes out with the bathwater.

    Quiet title actions are not used to prove bifurcation. They are used to prove the title was clouded. The problem is, when you start tossing in arguments about the note, which have nothing to do with the chain of title, you get these kinds of rulings.

    Sure, the banks may come in claiming they own the note … this is normal. What they can’t explain is WHY THEY DIDN’T RECORD THEIR INTEREST AND KEEP THE CHAIN OF TITLE INTACT! They inadvertently knocked themselves out of agency position. Study the law of agency. I can guarantee you the title companies have.

    We’re either going to argue about the chain of title being irretrievably broken, thus separating the deed from the note in the quiet title action itself, or why bother to file a suit at all?

    When you load these QT actions up with arguments at the onset of the case, you are asking for trouble. You can argue “standing” to prove a claim when they show up with screwed-up documents with some “robosignor’s name” on them. Once you’ve separated the deed or mortgage from the note … they damned sure as hell are bifurcated then, aren’t they?

    I spoke with a bank attorney about all of this. I asked him flat-out if it was possible to legally reconstruct a broken chain of title (because maybe some of the necessary parties or witnesses weren’t around anymore) and he told me … and I quote … ABSOLUTELY NOT! That means that when a foreclosure action in a non-judicial state is commenced, quiet title is about the only way I can see you’ll get a simple, state-oriented resolution. If you go throwing in federal questions, the case will be removed. Quiet title does NOT argue NOTE … NOTE is “NOT” with an “E” on the end of it. NOT THE NOTE! DO NOT ARGUE THE NOTE!

    They will try to pull this crap out of their hat. This is not the purpose of quiet title. It’s to prove that the chain of title is clouded … they clouded it … they took themselves out of agency position (In Re Box) and THEY can’t fix it. Duh. They will argue the note to pull you off point. NOT THE NOTE!

    The deed of trust and/or mortgage is evidence of the lien. When the players come in and launch phony documents and file them out of sequence, title is clouded. I have 2 title companies that will back me up on that statement.

    READ THE DEFINITION OF QUIET TITLE IN EVERY STATE STATUTE AND YOU TELL ME TO MY FACE THAT THESE STATUTES SAY YOU HAVE TO PROVE THE NOTE IN A QUIET TITLE ACTION!

    My cloudedtitles.com website is almost up and running. I will keep you posted. Several quiet title actions are in the mix in Missouri, Kansas, Washington, California and Arizona.

    Now for some other news …

    THERE ARE CURRENTLY SOME 20,000 QUIET TITLE ACTIONS ALREADY FILED AND BEING SETTLED. THE BANKS DON’T LIKE THESE EITHER (courtesy of Nguyen v. Chase) … ask yourself why it took TWO AMENDED COMPLAINTS to get this result? Crappy lawyering? Keep it simple. A quiet title action is mostly exhibits. The exhibits carry more weight than the pleadings anyway. Think on these things as you complicate your case pleadings with unnecessary B******T!

    SECOND … the title companies are freaking out. Some have referred to MERS as “the big black hole”. Everything I put in my book is coming true about all of this. This is why I had to explain why NOT to sue the title companies. Think about who your friends are here.

    This case was lost because the note was argued instead of sticking to the essence of why you file a quiet title action. Could it be that attorneys don’t want to take these QT actions unless they can make a puttload of money asserting other claims? Why not assert them in a separate action and stop “clouding” your quiet title suit?

    Examine others’ simple pleadings with exhibits and check out the results for yourself. Simple observation; not legal advice.

  4. To this non-lawyer, this ruling doesn’ t look good for homeowners.

  5. What I find interesting about Judge Claude Hilton’s thinking, as outlined in this Opinion and Decision, is that Judge Hilton’s Court is viewing Mortgages as matters of “contract,” while in foreclosure matters the Curt views these as matters of “Equity.” Arguably “contract” law and “equity” law can and probably will lead to different results.

    Yet all real property is inherently a matter of equity, as all real property by its nature is unique. thus equitable solutions should apply. In equity, the “lender” is made whole by the Credit-default swap, or insurance on the property note. The Court argues that in “contract” it is not; that the CDS is a matter of risk apportionment, or balancing.

    But is the lender paid? If “yes,” then in equity he has no further claim. If the CDS is “recourse,” then the issuer of the CDS can “stand in the shoes” of the Obligee, take over the Note, and make demand from the Note Obligor. If the CDS is non-recourse, as seems to be the case almost in all CDS contracts, then the Note is paid in equity, and the home belongs to whoever is on title down at the land registry office.

    Yet Judge Hilton does not want to see it that way. His view is peculiarly perverse. He seems to take the view that if an insurer issues a fire insurance policy on a house, then uses re-insurance to spread his risk,and then the house burns down, so the Insurer collects from the re-insurer, then the insurer can still go take the property (land plus burned house shell) in exchange for the insurance payout. Yet under these circumstances does the insurer not collect twice?

    So why is it different with financial instruments on property?

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