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There have been a number of questions lately about the collateral source rule and whether it has any effect on the payments made by the servicer of principal and interest even after the borrower stops paying. First let us note that the servicer is required to make payments to the creditor and that finding out who the servicer is paying will start you on the path to discovering the actual creditor although it is likely not to be a direct route.

The collateral source rule was basically adopted around 1854 on the premise that just because an injured plaintiff is going to receive some money for his injuries in some kind of accident, it should not offset the damage award against the defendant who created the damages. So if somebody got hit by a wagon and they sued the driver, the fact that they got some money from the maker of the wagon might not offset the damages the plaintiff could receive. It is specified in most decisions that this relates to torts and not contracts although there are some decisions around that the rule might apply also to contracts for non-economic damages.

The idea is that a tort-feaser should not be rewarded by the fact that the plaintiff is getting some relief from a collateral source. The reason cited is that the damage awards usually don’t cover all the ways the plaintiff was hurt, so if they are able to mitigate the effect of the injury in other ways, they should be able to keep the money and not have it subject to offset one way or the other. Homeowners are not tort-feasers and nobody is claiming they are.

In order to apply the rule, you would have to assume that the homeowner had done something wrong. While we could have an ideological discussion about personal responsibility, the issue is not whether there is a moral obligation to pay a debt. In a straightforward mortgage foreclosure, the bank would offset any money it got to offset its actual economic damages from the breach of contract by the borrower in not paying making the payments due on the obligation. Whether some collateral source rule would or could be applied against Banks is debatable in the traditional mortgage situation.

Where loans are claimed and treated as though they were securitized (even if they were not successfully securitized) I can’t think of a theory under which the collateral source rule would apply. The contract is not between the creditor/investor and the borrower. The obligation and the right to receive payment is between the investor and homeowner but it is obscured by multiple sources of third party payments that may or may not relate to a claim of “default.” Since the question posed is not relating to insurance payments and credit default swaps or credit enhancement or hedge products and proceeds, I will limit myself to the the issue of the payments made by servicers who continue to pay the creditor despite the cessation of payments from the alleged borrower.

The collateral source rule does not apply. And the reason it doesn’t apply is that the four corners of the contract include all the documents that were created and executed and all the agreements that were created and executed or intended to be executed and not just the ones that the borrower signed. The investor advanced money based upon several premises only one of which was the promise that any payments received by the borrower would be paid to the investor. The creditor was to receive payments from multiple sources and the obligation to pay the creditor would end when the creditor was paid in full.

The investors has no non-economic damages and has no damages at all if he has been paid in full. If he has not been paid in full then the amount is determined by taking the obligation as it was agreed with the investor when the investor advanced the funds and reducing it by ALL the payments received in accordance with THAT set of promises included in multiple documents incorporated into the securitization scheme. It is true that neither the investor nor the borrower would have any right, under contract law, to any more credit or payment than the amount of the obligation assumed by the borrower and the amount of the money expected by the investor pursuant to contracts.

So if there was extra money made by the intermediaries as a result of the various instruments exotic or otherwise that were used to trade in the securities markets, neither the investor nor the borrower would have a claim under contract. But they both might have a claim under common law and the borrower might have claims for undisclosed compensation under TILA and RESPA. Thus you might assume that the collateral source rule was in operation here once the contract was fulfilled as to both the borrower and the investor. In that limited sense, the rule could be applied although the legal reasoning would be convoluted.

Thus my conclusion is that the collateral source rule should not be used to make a borrower pay money on a debt that has been paid down by collateral sources, because the debt is no longer due to the creditor and the debt has not be assigned nor have the payors been subrogated to the rights of the creditor. And the act of continuing to make those payments precludes the claim of default against the borrower by the creditor — but might give rise to a claim by the servicer against the borrower for equitable restitution. That claim would obviously be unsecured by any encumbrance and not be subject to foreclosure.

In actuality this issue is being raised by “lenders” who are not lenders in order to justify their non-existent standing. Under their theory an investor who has been completely repaid and is satisfied would nonetheless serve as a straw-man to collect money from the borrower to be paid to an entity that never loaned him any money and who did not purchase the obligation. The pretender lender theory is that the borrower owes the money anyway. Thus the pretenders arrange themselves into a collective “creditor”, all of whom are covered by the mortgage even though the parties to the mortgage and the note never included them. The obligation however, did in fact include them and they had both the obligation to pay the investor and the opportunity to profit in excess of the amount due to the investor.

The reality of the transaction is that they took more money from the investor than was actually used to fund loans keeping the balance as their fees and profits. This was an undisclosed profit the knowledge of which would have prevented the transaction from ever happening. Now they want to institutionalize their theft and  make it legal with the collateral source rule. My guess is that no court will apply it.

64 Responses

  1. anonymous – oh. The depositor owns the trust, as you said. So endorsements and assignments should have been done all the way to the depositor who is now endorsing (in blank) the notes and there should be assignments of the dots to the trust, as well. Which there weren’t.
    Sometimes I have to write to get things………

  2. Anonymous – you said:

    “First, although GSE loans are securitized — the note remains with Freddie/Fannie — and is not negotiated to security investors — Again, I emphasize the difference between “investor” and “security investor.” An investor can pass-through payments to another party — but the note remains with the investor. In the case of bank securitized trusts — last stop for note is with the Depositor — they own the note — and they own the trust. Security investor are beneficiaries — but not negotiable holders. In fact, this is the case with any trust — someone owns “assets” — and can pass-through benefit to beneficiaries — that does not change the fact of Trust ownership. Depositors own the trust — and notes — they pass-through benefit to security underwriters — who passes through benefit to security investors. No security investor takes possession of notes.”

    The querry: **What’s your take, then, on why all the mumbo-jumbo in the psa’s etc about the notes being endorsed either to the trust or in blank (none that I know of were, of course, ever end’d to the trust).**

    Taken together with your other comments re: who owns those notes and my own impressions, was this all just a hustle to make the sec’n investors believe they had some recourse they didn’t?
    I recall a lawsuit against CTIC, a medical deal wherein the stockholders were suing CTIC for priming the pump as to the stock value. Looks like the sec’n investor lawsuits are along the same line because even in the absence of rights under the note and dot whether a surprise or not, the value of the certificates was, in a word, over-stated.

  3. anonymous – the way we last left it, I think, was that you believe a false default was cooked up on subprime loans in refinances, and I leaned toward participation or wraps done by the ‘new’ guys. But, you may be right. False default may have been entered so they could get the original loans out of the pools or something like that.
    I’ve also sa
    I also said it was my impression all the apr’s on those reg Z’s would likely be fatally errant fwiw, which is something if one has the energy to take on rescission. I also had some impressions of how either way, so one way or another, whatever was done would probably result in the defaulted or wrapped portion of the new loan being re-sold wrongfully. If subprime loans comprise a large portion of securitization, then it would follow that financially this would have devastating consequences.
    I still believe generally that taking a write-off is an election of remedies, and don’t know then how collection rights to written-off debt may legitimately be sold:

    The liberty of choosing (or the act of choosing) one out of several means afforded by law for the redress of an injury, or one out of several available forms of action. An election of remedies arises when one having two coexistent but inconsistent remedies chooses to exercise one, in which event she or he loses the right to thereafter exercise the other. The doctrine provides that if two or more remedies exist that are repugnant and inconsistent with one another, a party will be bound if he or she has chosen one of them.”

    So where a noteowner has elected to take the remedy of a write-off, to me, it precludes the sale of collection rights as a second remedy. The law affords one or another. The election of remedies doctrine plays a role
    in deficiency judgments in regard to foreclosure and it also plays a role
    in an election to go after a guarantee or to foreclose. I am definitely no authority on the matter, but I don’t believe those jokesters are entitled to
    double remedies such as would be evidenced imo by a write-off and the sale of collection rights. But of course, that doesn’t mean they aren’t doing both. And that begs a question: if one wants to sell the collection rights because one would realize more recovery than with a write-off (and thus only elect ONE remedy), what is the “book” position /status of the loan (allegedly) in default? Obviously, I’m not an accountant, either.

  4. Jeff
    PSA pooling and servicing agreement
    GSE government sponsored entity
    bk bankruptcy
    cdo collateralized debt obligation
    sec’n securitzation
    FASB financial accounting standards board

    You can find more info by googling or yahooing the abbreviations.
    We bandy these words about, as in my case, but it makes none an
    expert all the same.

  5. @joann — whether or not securitization itself splits note and dot imo is something else. If the sec’n investors only bought the right to “current” payments, as anonymous is so keen to point out, one of my questions, at
    least, remains. Who owns the note? Is the ‘note’ simply the right to payments which are made? I say no, it isn’t. The note contains a promise to pay and a right to be paid. Were the promise and right sold, or just the right to any payments made? Obviously if it’s the latter, that was a gamble falsely induced by the words “mortgage backed security”. I know this may be perceived as an odd question or theory (the note has itself been
    “disassembled”); nonetheless I think it bears scrutiny. Well, I’ll stick my neck out there and say again, it appears to me that if only the payment stream -as received- has been sold, this does not include the right to enforce. Conversely, if the payment stream is sold, what is there for the ‘noteowner’ to try to enforce? I don’t know what is true here, but it appears to me that everyone besides the wall street players either got or is getting the shaft. Investors didn’t get secured investments, aka mortgage backed securities. Maybe the “mbs” was not to be taken literally, but was a sales tool to promote the sales of the derivatives. It’s all sort of horrendous. But I’m pretty sure there will be no end to the ‘misappropriation” of our homes until these issues are resolved, and of course, that includes getting rid of MERS, making their strictly-voluntary-entries-by-members-with-zero-oversight public, and returning our records to our land offices. I forget with whom MERS entered into the Consent Order, but whomever it was understands the illegitimacy of MERS. Think I’ll look at that order again and see just what MERS agreed to quit the hell doing.
    As long as liarsforhire have the wiggle room they are currently enjoying whether by possession of live notes or clever copies, we are all at risk. I just don’t believe these bums didn’t plan all this when they decided to use the infamous endorsement in blank. This allows them to say anything they want about that endorsement. It also allows any criminal to stick whatever name is handy in that blank.
    If the sale of the note were truly intended to the trust, why not make the note payable to the trust or its trustee? There’s really no good answer to this imo.

  6. It would be very helpful to us lay people if you very knowlegeable people would explain the various abreviations that you cite in your posts. I have read them all from beginning to end and quite honestly I find some of the abreviations confusing, which makes it somewhat difficult to understand the flow of what you are talking about in your posts. Some abbreviations I know, others I don’t.

    Example: What do the following abreviations mean? PSA’s, GSE’s, BK, CDO, SEC’n, FASB. Thank you.

  7. johngault:

    You said: “I want to try to figure out WHO can enforce the notes n dots on the day they allegedly went into the trust.”

    Thank you for your posts – I have now tried to go back and read your prior posts on prior entries and saw the posts on the Article 9 entry. I hope you stay on the issue of whether the notes were ever negotiable even without behind the scenes shenanigans or further shenanigans. I wish to understand this now too 100%.

    Please continue to weigh in on this. Adding that I think the party who can enforce the sale is the only party entitled to income because that is the agreement on the DOT and Note. If only the income stream was sold, it didn’t even accomplish a separation of the Deed of Trust and the Note because that arrangement is impossible for the agreement represented by the DOT+Note=Mortgage and confirmed over and over again in court decisions. If the note was “essentially” sold seperately (because trust investors did not have the right to enforce a sale) The Note and the Deed of Trust are NULL and VOID….just thinking – not saying this is correct. The judge in the Horace Alabama case and others including Adam Levitin I think have held the opinion that the borrower is a third party to the securitization. Am thinking even if all the paperwork was in order to the trust, it isn’t the agreement the borrower signed and that renders it NULLand VOID. The borrower’s signature did not execute the payment stream only deal. If paid to the trust – the borrower’s payment went to the wrong party…..

  8. johngault,

    Good points — and for what you are interested in. Is it same link as joann posted as to Adam Levitin?

    The thing about subprime is that it was very “unique” — as compared to GSE loans. Almost all loans after 2008 are now GSE loans. Those victims are victims of the crisis in a different way (such as loss of job) — and those loans may not have the same “paper trail” fraud that subprime has. Nevertheless, Freddie and Fannie (now the government) also dispose of default loans — it has always been that way.

    Very important issue is how the GSEs disposed of loans BEFORE the subprime crisis hit the brakes. Remember — during subprime — we went from a market dominated by the GSEs to a market dominated by the “banks.” At one time, almost every subprime refinance was originally a GSE loan (except if jumbo). When did MERS start — about the same time as subprime??

    I have said — these subprime trusts were backwards funded — with debt buyers purchasing bottom tranches first (non-pass-through tranches — at least non-pass-through until top tranches paid first) — — with security underwriter (debt buying) banks retaining top tranches. These trusts were collection rights to GSE rejects. Bottom tranches cheaply purchased for eventual removal of collection rights – by swaps. Tranches (including bottom) were also repackaged into CDOs.

    What kind of funding was used to purchase collection rights from GSEs??? None. Because insurance covered the (false) default.

    Know you do not like all focus on subprime — but, to really understand — you have to really study subprime — and go back — go back.

    Security investors are challenging the “origination” — that is where the fraud started. There can be no valid origination on purchased collection rights.

    Irritates me to the hilt — that security investors — with high priced attorneys get the attention — and victim homeowners still left in the dark. Rare that judges give pro se and small firm attorneys the attention in court that they deserve. Still not really sure how courts lost objectivity. But, number one problem remains — access to records that are considered private — by deregulation.

  9. I posted a link to levitin’s deal, but apparently no one wanted to read it.
    I haven’t been able to read half of what I want to yet. I still haven’t bought the argument that the lender on the note is not the lender at the moment the debt was originated, which is apparently the one espoused by Mr. G.
    It’s what happened to the note after that which I have tried to concentrate on and that includes consideration of whether or not the notes remain
    (if they ever were) negotiable instruments and WHO can enforce them. Dale Whitman appears to believe the same thing as Gardner about notes containing additional conditions outside the promise to pay, btw, i.e., they were never negotiable instruments regulated by article 3.
    The borrower was loaned money and agreed to pay someone money at closing. (A – okay, not subprime stuff) IMO it’s what was done later which
    may vitiate these loans altogether. I have to study, at least for me, the
    ‘book entry’ issues some more.
    MS, you might as well hop on because this train is eventually going to leave the station, with or without your input.
    It will still require someone recognized as an expert to get things accross to the judiciary.

    I need to digest all this some more because I am catching up, having spent so much energy on the legal fallacy and fiction which is “MERS”, but yes, it looks to me like our notes are collateral for ‘sold payment rights’, if that(?) But then, not exactly, because they are not straight-forward cdo’s since they are allegedly held in trust. I wouldn’t know if that’s the ‘norm’ for cdo’s, but I doubt it. Some kind of stinking collaterized debt obligations, which also explains why sec’n investors don’t go after the homeowner – they can’t. If this is true, then the trustee may not purport to represent the trust as the proper party to foreclose in their (trustees) new bids to snarf homes now that MERS entered the Consent Order. I’m aware of no authority, other than one a court might only call ostensible (and I would certainly now call crap) for the sec’n trustee to foreclose/enforce in the first place, other than false reliance on the UCC. And this wreaks havoc with Rule 17’s real party in interest tenets, which precludes servicers from foreclosing without joining the rpii. I give – who might that be?
    I am reminded – aren’t I? – that the sec’n investors, just like the pool
    insurors, have no subrogation rights. They did not get the contractual right to stand in the shoes of the noteowner, right?
    Btw, does anyone know this: if the aggregate amt of the loans in a trust is
    100 million, how much money did those guys pay for their payment streams (not counting payment streams sold 5 times)?

  10. joann

    Adam Levitin is great — and yes important points.

    But to quote November 2010 TARP Oversight Committee report — again — (Footnote 35) — “Without the note, a mortgage is unenforceable, while without the mortgage, a note is simply an unsecured debt obligation, no different from credit card debt.”

    Know some do not like to focus on subprime — however — subprime is the root cause of the crisis and chaos that now exits.

    Subprime loans were GSE rejects — most likely falsely — for which – by GSE charge-off — only collection rights remained. But, the subprime refinances did not state this — these refinances were procured with by the concealment of prior mortgage — that was NEVER paid off — at least, not by the borrower — as it should have been.

    What are we then left with??? A note without a valid mortgage???? (as never paid off) — or a mortgage without a valid note???

    In either case — we have a HUGE mess..

  11. ANONYMOUS and johngault:

    “negotiable notes”? not:

    (Footnote in the section: What Steps Must be Taken for the Owner of a Mortgage Note to Transfer Ownership of the Note to Another Person or Use the Note as Collaeral for an Obligation – From the “Draft Report” on the UCC Rules Applicable to the Assignment of Mortgage Notes and to the Ownership and Enforcement of Those Notes and the Mortgages Securing Them)

    Footnote 27:
    “Similar nomenclature conventions define “debtor” to include the seller of a payment right, “secured party” to include the buyer of a payment right, and “collateral” to include a sold payment right.”

    So do I get this now correctly? They loaned us their book entry credit and credited and debited their accounts accordingly and charged us interest on it – all of which is illegal and then they also became a debtor/seller by selling the Note (separated)? Our debt to them used as “collateral” for their debt to the buyer? (thinking that collateral has nothing to do with the real property collateral). Then they “loaned” that book entered windfall over and again? Do I get that right? We signed on to that in writing on the docs we signed – I don’t think so. Also think this comes out to them owing us on the “deals” plural even if it wasn’t fraudulent and 3 times the “loan” ought to be due. Do I have this right?

    Challenge is to get from here to there in a lawsuit and keeping the eye on what you really wish to accomplish in your individual case.

    Also found Adam Levitin’s letter to the Permanent Editorial Board regarding the “Draft Report” illuminating:

  12. johngault,

    You may also find this link interesting. Am not 100% in agreement — and would add more — but interesting.

  13. johngault,

    Quite some time ago, think before you were here, the negotiability of notes was discussed. Dale Whitman of Pepperdine had published an article that called for the end of negotiability due to secondary markets.

    First, although GSE loans are securitized — the note remains with Freddie/Fannie — and is not negotiated to security investors — Again, I emphasize the difference between “investor” and “security investor.” An investor can pass-through payments to another party — but the note remains with the investor. In the case of bank securitized trusts — last stop for note is with the Depositor — they own the note — and they own the trust. Security investor are beneficiaries — but not negotiable holders. In fact, this is the case with any trust — someone owns “assets” — and can pass-through benefit to beneficiaries — that does not change the fact of Trust ownership. Depositors own the trust — and notes — they pass-through benefit to security underwriters — who passes through benefit to security investors. No security investor takes possession of notes.

    However, Dale Whitman brought up some very good points that may challenge the status of a claimed negotiable instrument. First, he points out the elements of negotiability. — Quote —

    “(a) be signed by the maker or drawer; and (b) contain an unconditional promise … and no other promise, order, obligation or power given by the maker or drawer … ; and (c) be payable on demand or at a definite time; and (d) be payable to order or to bearer.” n52″

    The important part of this is that the note cannot reference any other documents and cannot be conditional. Whitman challenges his students to find that a note was not negotiable — and one student does — for a particular note.

    Quote — “Then a student sent me an e-mail pointing out a different clause – one that the other students and I had overlooked. The introductory paragraph of the note provided: “All of the terms, definitions, conditions and covenants of the Loan Documents are expressly made a part of this Note by reference in the same manner and with the same effect as if set forth herein at length.” The term “Loan Documents,” as defined in a separate Loan Agreement, included “this Loan Agreement, the Commitment, the Note, the Security Instrument, the Financing Statements, the Assignment of Management Agreement, and all other documents evidencing, securing or relating to the Loan.” Needless to say, these documents were chock full of promises “to do … acts in addition to the payment of money,” n78 and in any event it had become absolutely clear that incorporation of any other document would make a note nonnegotiable! n79 ”

    When we discussed this awhile ago here — I pointed out that Mortgage Loan Purchases Agreements — which claim to sell “notes” to trusts — were conditional — ie — subject to numerous Repurchase Agreement terms (Repurchase Agreements are part of Mortgage Loan Purchase Agreements). Thus, if sale of Notes to the trusts is conditional — the note can no longer be negotiable — because the sale, being conditional, changes the the very origination of the Note — which was dependent on conditional terms from the onset. I quoted a case that determined that this was so — but, I cannot remember the name of the case — maybe you can search here if you want.

    Dale Whitman’s article is entitled — Article: How Negotiability Has Fouled Up the Secondary Mortgage Market, and What to Do About It.

  14. thanks, a, that was informative, truly, but still doesn’t answer the question about notes where one party is deemed the owner but has sold the payments, called current pass-throughs, to another. How could such a note remain a negotiable instrument?

  15. My simplistic attempt to understand who owns the note would be to say the “beneficiary” owns the “obligation” and the “mortgage” that encumbered the home whatever you choose to call that obligation or that mortgage and that this is true for judicial and non judicial states and Deed of Trust states and Lien states. Beneficiary is the only true creditor. Trustee and servicer act on behalf of the beneficiary. Identify the beneficiary according to the rule of law. If there is none, there is no mortgage, there is no trustee and there is no servicer and they all cease to exist when a mortgage is paid in full.

    So we have contitutional law, county, state and federal law, property and title law, commercial code law, trust law, securities law, taxation law, FDIC and Federal Reserve law, consumer law and FASB. What governs the Deed of Trust and the Note which was the “agreement” “contract” the homeowner signed? Maybe they all can be shown to agree – that would be the strong case.

    Found the quote from the decision in re Cruz CA interesting and may jive with what Anonymous is saying:

    b. Defendants’ Primary Authority is Out-Dated.

    Defendants primarily[13] rely on Stockwell v. Barnum, 7 Cal. App. 413, 416-17 (1908), and the District Court cases[14] that follow it, to assert the power of sale in a deed of trust is held by the trustee, not the beneficiary. Stockwell is not a sound basis to determine how the California Supreme Court would apply § 2932.5 because it relies upon the archaic title theory of deeds of trust rather than the modern lien theory. 4 Witkin Sum. Cal. Law STRP § 6(2) (10th ed.) (“In most situations, the title theory has been disregarded, and the deed of trust has been deemed to create a mere lien on the property.”).

    In Stockwell, id. at 415, an assignee of a note and deed of trust failed to record her interest before the property was sold at a foreclosure sale. Before the foreclosure sale, the borrower had conveyed the property to someone else. Stockwell held that the purchaser at the foreclosure sale had superior title over the successor owner because the predecessor statute to § 2932.5 only applied to mortgages. Id. Its reason for the distinction was that a deed of trust “instead of creating a lien only, as in the case of a mortgage, passes the legal title to the trustee, thus enabling him in executing the trust to transfer to the purchaser a marketable record title.” Id. at 417.[15]

    This reasoning of Stockwell is now inapposite. Under Monterey, 49 Cal. 3d at 461, a deed of trust is no longer a conveyance of actual title to the Property, but merely a lien. The borrower now retains actual title to the property. Bank of Italy Nat. Trust Sav. Assn. v. Bentley, 217 Cal. 644, 656 (1933). That this title theory is discredited by the Supreme Court is recognized by the Ninth Circuit. Olympic Federal Sav. LoanAsso. v. Regan, 648 F.2d 1218, 1221 (9th Cir. 1981) (mortgages and deeds of trust are “legally identical,” so that the borrower retains actual title to the property that the Internal Revenue Service can redeem despite the presence of a junior deed of trust). See also Aviel v. Ng, 161 Cal. App. 4th 809, 816 (2008) (to interpret a subordination clause in a lease, the terms mortgages and deeds of trust were treated as synonymous based upon Bank of Italy, 217 Cal. at 656).

    This Court finds the California Supreme Court is likely to overrule Stockwell’s holding that the trustee of a deed of trust holds actual legal title, rather than a lien. It has done so before. Monterey, 49 Cal. 3d at 463 (overruling Johnson v. Curley 83 Cal. App. 627 (1927), which held that beneficiaries under a deed of trust were not necessary parties to an action to have that deed declared void for fraud).

    c. The Beneficiary, Not the Trustee. Holds the Power of Sale.

    A better predictor than Stockwell, 7 Cal. App. at 416-17, of whether the California Supreme Court would apply § 2932.5 to deeds of trust, is that Court’s analysis of the respective roles of trust deed trustees and beneficiaries found in Monterey, 49 Cal. 3d at 463. The trustee merely holds bare legal title to the extent necessary to reconvey the lien if the debt is paid, or to foreclose the security interest if it is not. Id. at 460. The trustee is bound by no fiduciary duties, and has no duty to defend the rights of the beneficiary, or authority to appear in the suit in its behalf. Id. at 462. The trustee of a deed of trust serves merely as a common agent of both parties. Vournas v. Fidelity Nat. Tit. Ins. Co. 73 Cal. App. 4th 668, 677 (1999). Because the beneficiary’s economic interests are threatened when the existence or priority of the deed of trust is challenged, it is the real party in interest under a deed of trust. Monterey, 49 Cal. 3d at 461 (trust deed beneficiary must be named in a mechanics lien foreclosure suit since trustee does not protect its interests). See also Diamond Heights Village Assn., Inc. v. Financial Freedom Senior Funding Corp., 196 Cal. App. 4th 290, 304 (2011) (beneficiary is the real party in interest in a fraudulent conveyance action to void the security).

    To claim the trustee, rather than the beneficiary, is the party who holds the power of sale under the deed of trust, elevates form over substance. The beneficiary is the real party in interest and should comply with § 2932.5

  16. johngault

    Case of subprime — I would not call it bifurcation — because there never was a valid note to begin with. How do you separate an invalid note from a mortgage??? MERS — vehicle to conceal — transfer of collection rights — by false default.

    But, assuming not subprime — first you have to valid conveyance — if chain broken — no valid conveyance.

    As to who enforces — IF validly conveyed — it always remains the creditor/mortgagee —the legal title holder — not beneficial security investors. Their recourse is against the security underwriter — security underwriter (actually parent) recourse is against the borrower.

    Security investors, contrary to some myth — cannot collect twice — and they do not try to. Some other party tries to falsely collect under security investor name (or by the trustee “agent’ name — this is why you will not likely find affidavits coming from the trustee — they know this).

    Security investors get their “investment” back from security underwriter upon default –either by swap protection — or voluntarily — or by government bailout (hah).

    Any security investor lawsuit is for lost interest on terminated investment — they cannot recover foreclosed home — no current cash flow to that.

    Who can enforce payment if validly conveyed and borrower is current??? No need to enforce payment — borrower is paying. Whole different ballgame when loan goes into default — but NEVER the security investors.

    Courts are coming clean — slowly but surely. Trustee game will be over soon. Feel bad for those that already been defrauded — not just once by the fraudulent mortgage — but, second time by the fraudulent foreclosure.

    And, government sat by — knowing all — just watching — hoping to clear the market of those “nasty” foreclosures —- also, knowing — title can NEVER be fixed for those victims — without exposing the fraud. Only way — to them — is to let the victims fall—- again.

  17. anonymous – that is a lot for a securities eejit to take in, but I’ll try. Before I go down the path of what may ultimately happen to these notes, dots = loans, I want to try to figure out WHO can enforce the notes n dots on the day they allegedly went into the trust. I think you tried to explain how they are ultimately swapped out, but first i want to look at what i said, or maybe they are inseparable (for all I know). But, this is not the end of the story. If the sec’n investors don’t own the loans, and have no recourse against the borrower in the event of non-payment, the singular value of WS stating them as mbs’s is to pretend there is recourse, remedy, to the sec’n investors which does not in fact exist? They were not true sales to the trust and that’s why the notes were not endorsed to the trust and the dots were not assigned? The bankster in his best light would have all believe the ends were in blank and the assignments tho in reality non-existant were to have been done “in recordable” form (poppycock!) in blank, or another way, but at any rate, any way other than to the trust – for the purpose of enforcement? The UCC further complicates everything, at least to me. You didnt’ tell me if you think the note itself has been ‘bifurcated’ by its weird treatment…..?

  18. johngault,

    You are right — “sec’n investors never owned those notes.”

    See what I just wrote to joann.

    The key — johngault — is that since only current cash is passed-through — which is required for SECURITIES — then the note itself remains with the purchasing bank — until that bank disposes of collection rights — elsewhere — They do this by charging-off the loan — and disposing via derivative swaps — or direct contracts. Or, they can retain for themselves. In any case, the security trustee role is GONE. However, there is likely a derivative swap trustee — which may or may not be the same.

    Now — have had many conversations with top officials — will not name — but, believe me. And, before the crisis even hit. Most important — is they emphasized to me that collection rights are “SWAPPED-OUT” —- not “sold’ from the Trust. This allows pretend creditors to claim an “attachment” to the trust — of course, they never state attachment — they claim the trust itself. And, if they divulge that there is an attachment — they would have to divulge that party. So — they continue to conceal.

    When securities die — because cash flow has ceased — swaps do not involve a transfer of the actual security — the security just dies — there is no transfer — that is why there is a “swap-out” of collection rights. The security never changes hands. It is just gone.

    Biggest issue that I have had with this blog — as great as Neil has been to bring so many together —- is the false continued notion that security investors have a right to foreclose. Absolutely false. And, continued acceptance of this false notion — is detrimental to homeowners. This does not mean that derivative swap holders/contracts cannot try to claim a right to foreclose — but they do not — they do not divulge themselves. They try to attach themselves to trust — without divulging — which is fraud.

    Proving swaps/contracts/derivatives — is impossible in court — because there is no public information. Instead, have to trace the chain in trust agreements — which is deeply flawed — to prove the party standing before you — is NOT the creditor. Hence, any undisclosed derivative holder claim — is also not valid.

    I know the challenges in non-judicial states are even more difficult — due to antiquated laws. But, BK is universal. And, if the proper creditor is not named in BK —- you still owe the debt!!!!!!! Never recover.

    And, that is why lobbyists forced Congress to vote down BK reform — which would have made it easier — twice!!! But, we do not need the reform. Just need disclosure.

  19. joann

    Do not confuse “certificate holders” to Trusts – with security investors.

    Again, — I am talking subprime here – which were never even loans – but, rather mods of collection rights. . .

    The certificate to the trusts — were (I say were because these trusts are Kaput) ALL sold to the security underwriters (subsidiary of bank that purchased the loans from originators). (Depositor assigns its rights to the certificate holders — of course, rarely see any valid assignments in complete chain anywhere). The certificate holders are limited in number — to the number of pass-through tranches — (some tranches were not sold). So at most you have 20 – or so — certificate holders. Of course, unless there are multiple security underwriters — the certificate holders are one and the same. The securities were then derived from the certificates — that were derived from the loans. The certificates were repackaged into CDO securities and synthetic securities for pass-through of current cash flows. .

    According to TILA Amendment, the creditor with the largest position must divulge itself to borrower when a “sale” of the loan as taken place. Since the security underwriters purchase ALL the certificates — the security underwriter — or it’s parent bank — must divulge itself — with contact information.

    Once in default, the collection rights — are “swapped-out” of the Trust — this makes sense because there is no longer a current cash flow — unless servicer advances — which they only do, at minimum, for a short time. At that point the swap “investor” — or direct default debt buyer — is the creditor — this by the way, is a “sale” of collection rights — and also obligated to be divulged to creditor by both the TILA Amendment and the FDCPA.

    The problem borrowers encounter in courts — is that courts still do not understand securitization — and the main reason courts do not understand is because swaps and debt buying contracts are deregulated — no information is required to be filed as public information.

    Most important is that swaps and contracts are NOT part of any trust — and not under the trustee to trust responsibility. They are simply derived from the trust.

    Debt buying banks can retain collection rights — but, it is their goal to sell them. Privacy of contracts conceals this from borrower — who continues to deal with servicer — for undisclosed creditor.

  20. joann – Hope you WONT drop this thread. We need to keep going and at least I (and I’m sure others) appreciate your valuable contributions. I work better (don’t we all?) when I have someone to bounce things off and get other perspectives.
    anonymous – thanks. that’ll make it easier to find the right stuff. And anonymous, yeah, that probably is MS’s deal or part of it. What do YOU make of it? The bottom line, to me, looks like the sec’n investors never owned those notes. What do you think? If they didn’t, then we need to see if they remain negotiable instruments. The depositor, if he owns them, may not give payment rights to another by way of endorsing the note because he no longer owns the rights to payment, right? I asked this before, and yeah I know it’s weird, but haven’t the notes themselves been bifurcated?
    In addition to causing them to lose their negotiable features, what else might this mean? Anonymous, really need your input on this. You’re one of the only ones here who contributes in regard to these note issues. Joann, what do you think please? Anyone else?

  21. johngault,

    TILA Amendment (May 2009) is 15 USC 1641 (g) — but, most important is the Fed Res Opinion — 12 CRF 226 – Regulation Z —- now codified as Rule to the law. The reason Fed Res RULE is so important is because it changes the original TILA definition of creditor. Due to confusion, by securitzation, as to who is a creditor, the Fed Res expanded the definition to “covered person” — and articulates quite well — who is NOT the creditor — and it is not security investors.

    You discuss FASB 166 and 167 — this is M. Soliman’s “baby” — as to FDIC Safe Harbor — .

  22. johngault:

    Begging forgiveness for yet another post on this thread. It is my understanding as per the UCC 3 and 9 taken together (see below re Neil’s post) as Ron Ryan articulates in his letter to the AZ AG and according to the UCC Draft memorandum (ignoring the ca or other state statutes that wipe out the whole deal if not acknowledged by “lender” and a “writing” ie CA Civil Code section 2932.5):

    Certificate investors by way of their trustee (trustee bank na) who was supposed to inspect the required “writings” and accept and keep or hand loan files to custodian for the protection of the interests of the investors….if they cannot show the “writing” as required by the trust agreements as in assignments to the Deed of Trust and endorsements to the note from the sponsor-seller to the depositor to the trust (New York Trust Law nullifies it right there for 80% of the trusts – maybe not for Delaware Trusts…if not done within 30-90 days depending on closing date for the trust) or if they lost or destroyed the loan files and documents – now must show the purchase for “value” as per UCC. Can’t do that? Go back in the chain of title….

    Depositor who sold it to the trust must show the writing or the puchase for “value”. Can’t do that? Go back in the chain of title….

    Sponsor-Seller who sold it to the Depositor must show the writing or the “value”. Can’t do that?

    Now the original lender and beneficiary is again lender and beneficiary? Not so fast – certificate investors already got certificates, psa, prospectus and other and sec got reports and the thing’s been sliced and diced and traded around. Homeowner payments have been purportedly going to the certificate investors and most importantly all of the above in the language of all of the above said they “sold” the mortgage to the certificate investors “without recourse”. In addtition it may not be still identified as owned by the trust and someone else also has none of the above in writing starting with the original lender sponsor seller.

    First I don’t think the original lender or all of the above wish to admidt they didn’t do the “writing” or why it wasn’t done or lose tax status and therefore definately do not wish to show the sale-purchase for “value” (so settlement offered or case dropped or foreclosure dropped). But if they did and it reverts to the original lender (which it can’t because now it’s a commodity or stock and governed by the rules of the SEC and UCC 8 – investors can sue all of the above to get their money back but cannot actually foreclose on homeowner) seems like it wouldn’t be too hard to make a case in court – if it was ever possible to get to that point (and re Hendricks, re Horace, re Silverberg and a few others got there) – original lender needs to prove he was the source of funds for the homeowner’s loan in the first place because if investors did not purchase it from him, where did their money go and when was it collected from them? That was not a Mortgage to the homeowner as defined on the Deed of Trust and Note and the “lender” and “beneficiary” on the Deed of Trust and the Note was a fraud. Who lawfully owns the obligation now and who can enforce the point of sale now?

  23. johngault:

    This thread has expired from front page so do not know if you will read or not but regarding “Note” see Neil’s post “UCC ARTICLE 9 EXPLAINED: YOU MUST HOLD AND OWN THE OBLIGATION TO FORECLOSE”. September 7th if you have not already seen it.

    Be sure to open up the UCC Draft Report about it straight from the horses mouth. Also read Ron Ryans letter to AZ attorney general. Foreclosure fighters liked this draft report when it came out but there are some who have some issues with it and discuss the importance of state laws ect.noteably Adam Levitin who’s letter to them and discussion is now officially appended to the draft in a few places on line.

    My two cents offering today:

    Homeowner signed a Deed of Trust and a Note. Lender and Beneficiary were identified on the documents (if not true lender and beneficiary, it was a fraudulent transaction).

    Home was encumbered in an obligation secured by the property. Homeower agreed to pay beneficiary and no one else or give up the property to the beneficiary and no one else.

    Call them owner,holder, or whatever you wish – the Deed of Trust + Note = Mortgage is being decided this way by the courts. Can’t sell or transfer one without the other by all kinds of precedent. In addition it is clearly spelled out on the Deed of Trust that the homeowner signed if you read what it actually says.

    One single secured tranaction. MERS as an entity is getting thrown out by many courts as not a lender or a beneficiary and not all securitized mortgages are MERS. If certificate investors are not now or never were the beneficiary of the obligation secured by the home (and if there is no writing from the lender acknowledging them ie assignment to Deed of Trust by the lender and endorsement from the same to the Note recorded or otherwise) then who is? There is no other obligation than the obligation secured by the home. That was the contract. There is no such thing as an unsecured obligation – the signature on the Deed of Trust and the Note – created a single obligation that was secured by the home. Only the party who can enforce the point of sale can receive the benefit of the payments.

    Veal AZ

    “A thorough understanding of the concept of a “person entitled to enforce” is key to sorting out the relative rights and obligations of the various parties to a mortgage transaction. In particular, the person obligated on the note – a “maker” in the argot of Article 3 – must pay the obligation represented by the note to the “person entitled to enforce” it. UCC § 3-412.

    “Further, if a maker pays a “person entitled to enforce” the note, the maker’s obligations are discharged to the extent of the amount paid. UCC § 3-602(a).”

    “Put another way, if a maker makes a payment to a “person entitled to enforce,” the obligation is satisfied on a dollar for dollar basis, and the maker never has to pay that amount again. Id. See also UCC § 3-602(c).”

    “If, however, the maker pays someone other than a “person entitled to enforce” –*even if that person physically possesses the note the maker signed* – the payment generally has no effect on the obligations under the note. The maker still owes the money to the “person entitled to enforce,” (Miller & Harrell, supra, ¶ 6.03[6] [b] [ii]), and, at best, has only an action in restitution to recover the mistaken payment. See UCC § 3-418(b)”

  24. I’m still hunting for the real TILA amendment, anonymous. the reason I am doing this is so that people may continue to discuss the matter of who owns these notes when they are securitized. Carie – I believe as you do that most if not all the notes didn’t make it into the trusts, but that’s not my querry. Joann, I’m working on your latest thoughts but want to read this TILA deal first.
    Mr. G posted info re: the tila deal here on April 1, 2010.

    Here is a blurb written by Larry Doyle at in December, 2009, and if this pea brain gets it, it’s shocking. MS is probably all over it. It came up in my tila search:

    ” Is Wall Street getting a reprieve from the capital constraints that would be effected by the implementation of FASB 166 and 167? I first broached this topic a month ago in writing, “12th Street Capital Reviews FASB 166 and 167 and Tells Us Why Wall Street Will Need More Capital”:

    In brief, FASB 166 and 167 will require hundreds of billions in assets to be moved from off-balance sheet vehicles onto the balance sheets of the financial institutions. As those assets, which are embedded in an array of securitization transactions, come on balance sheet, the banks and non-banks alike will have to raise more capital to support the growth in their balance sheets. Best guesstimate is that the institutions will need to raise capital in the tens of billions.

    12th Street Capital provides us updated developments on this very important topic with the following release:

    A bit of good news for banks today. In a Bloomberg interview, FDIC Chairman Sheila Bair said that she is in favor of giving banks “some breathing room” to raise the additional capital that will be required to support the hundreds of billions of dollars of securitized assets that will be consolidated onto their balance sheets as as result of the implementation of FASB Statements 166 and 167. Bair said she hopes to have the matter voted on at the December 15 meeting of the FDIC’s board.

    Bair noted in the interview that there is not yet agreement among the banking regulators on the question of “breathing room.” The background is that FASB Statements 166 and 167 change the GAAP sale rules for securitizations and will require most off-balance sheet deals to be consolidated back onto their sponsor’s balance sheets (assuming that the sponsor retained an interest in the deal and control). The Statements are effective beginning January 1 for calendar year companies.

    In September, the FDIC, Fed, OCC and OTC jointly issued proposed rules that would require banks to comply with their leverage and risk-based capital requirements with no grace period or “breathing room” to accomodate their grossed up balance sheets. The comment period on the proposed rules ended October 15. Final rules have not yet been published.

    Why are FASB 166 and 167 being implemented? So that a true measure of integrity can be effected in assessing banks’ books and balance sheets. Clearly, the integrity of operations within the SIVs (structured investment vehicles) housed off-balance sheets were massively violated by the banks.

    Pardon my cynicism and sarcasm, but I wonder if the capital needed by the banks to comply with FASB 166 and 167 has already been committed to the bonus pools of the banks. Who takes the risk? Taxpayers. Who takes the money? Wall Street.

    The joke continues.”

    Not being an economist or even having much smarts about this stuff, even I can see – can’t I? – that these loans were laid off to affect the books, the balance sheets, of the gangster banksters? Is this article saying the banks really owned these loans but had reasons someone like most of us here wouldn’t be able to readily identify in making it appear as if the sec’d investors owned them? And now they were being ordered to have ‘true’ books, but were being given ‘breathing room’ to get their acts together (aka quit breaking every law in the book)? I don’t know how it applies on Wall Street, but there are state laws which I’ve previously ref’d which make it a crime to make false entries in private books, so what the heck???????
    What those laws say is that if you don’t own something, you damn well better not show in your own books that you do and conversely that if you own something, you damn well better show it as an asset on your books. One of the reasons I can guess this rule exists is to make it a further crime to launder money by showing a false source of it as income. Like if i made 500k selling hot appliances, I can’t show it as something else, something legit. But back to Mr. Doyle’s article: Among other reasons, is it that Washington perceives the bread lines will be even longer if Wall Street is made to 1) follow the law (0h, no not that!) and 2) be appropriately punished for this willful fraud so vast it defies belief? How in the world did it become that Washington is afraid of Wall Street? That’s a sick inference I’m getting.
    At any rate, this may be a further clue to just who the heck owns these loans when securitized.

  25. johngault,

    Got that — yes. But, new law preempts state laws. The very reason it was put into place (Congressional Intent) — was to finally give homeowners the right to know their creditor.

    Odd thing is — servicers were already liable under TILA to identify the creditor — now creditor must identify itself. Even if law is not retroactive — the new definition of creditor – by the Fed Res Opinion (codified) — now stands. And, it is not any party that holds a beneficial interest.

  26. About evidence of authority in the record, imo: You may give me your power of attorney, say, to attend a closing for you and sign the docs if you are selling your home but will be out of town on the date of closing. Your name is Sam McGillicuddy. My name is Jose Emanez.
    The record – public record at the recorder’s office – shows the title to the home in your name, of course, because it’s your property. So if I, Jose Emanez, sign the deed to the buyer and it is recorded, it looks like a stranger sold the house belonging to you. If this were in fact the case (I had no poa from you, Sam M.), I Jose Emanez would have transferred nothing to the buyer because I had nothing to transfer. It would also be a false instrument. The authority you gave me must be evident from/in the record. The power of attorney you granted me must be recorded to impart notice.
    People are signing documents, like notices of default, notices of trustees sale, substitutions of trustee, etc. with no apparent authority. The notices state that Joe Blow is signing as agent for Kiss Tail trustee. This recitation, this allegation of agency by Joe Blow for Kiss Tail does not cut it. Joe Blow’s authority must be evident in the record. It’s no different if I, Jose Emanez, execute the deed to a buyer for Sam M. with no evidence in the record of my authority to do so. Look at your documents. I’d hazard a guess you’ve got your own Joe Blows and all those documents may be challenged.


    MERS has a new ceo. this link is to his first interview fwiw. It’s a bit vague, probably because MERS is vague, but he tries to express their game plan, which is to buff up their image and legal strategies. We canNOT allow this.

  28. all right, anonymous. I will read it. But, remember , I was talking about the dot trustee holding one form of title to the real property, not the sec’n trustee. You got that, right?

  29. Salazar CA
    “Civil Code section 2932.5 must therefore be applied to deeds of trust to ensure trustors are provided the same protection as mortgagors under
    California law.”

    Cruz CA
    “For the same reasons as a mortgagee must record its interest before it forecloses, so must a beneficiary of a deed of trust under § 2923.5. The ministerial role of the trustee does not justify any distinction between the two instruments for purposes of § 2932.5 because the trustee as agent simply acts at the direction of the beneficiary.”

  30. joann

    Do not know what full quote you looked up — Fed Res?? or VA???

    Under either — Trustee and security investors not the creditor — thus, not in possession — since never conveyed.

    Once — homeowners come out in full force on this — it is over for “them.” Certain courts already know — others — in the making.

  31. joann,

    Federal law preempts state law —- old definitions are gone. Need to go to new law. Fed Res Opinion is now LAW.


    Trustee is NOT legal title holder — never was — never will be. Need to expand your reasoning. Problem is — too many get caught up in “ideas” they will not give up. This is not a criticism — just trying to allow you to “expand” your reasoning. You need to go forward and incorporate all new law.

    Please first read it — then let’s talk again. And, understand that Fed Res Opinion is now CODIFIED — as law.

  32. Thanks johngualt – just struggling to learn this stuff and try out the understanding with those who know so much more and would hope for education. Not at all thinking I am correct about anything. Thanks for a push in that direction. See statutes below. Add some more or explain please…

    ANONYMOUS – looked up the full quote – slightly different but to both of you – thinking it says the same thing and nothing is at odds with existing title laws in title theory states or lien theory states…..In lien theory states the “creditor” acquires legal title by proving the lien in a judicial review… In title theory states the trustee on deed of trust holds bare legal title in trust for borrower and can enforce the point of sale for the beneficiary…. so either that is still the trustee on the deed of trust and the beneficiary is now trust investors identified by the trust…. or (even though not recorded which is not ok in some states ie non-judicial and or ie statute of frauds ) the bare legal title is now held by the trustee bank for the trust (as per trust documents) until either mortgage is paid in full or point of sale is enforced. At that point beneficiary (whoever that is and they are the only entity who is entitled to benefit of payments or sale of home) receives legal title and equitable title. Same as the agreement signed in writing by the borrower on the Deed of Trust and the Note.

    (California codes)

    Civil Code section 2922:
    ““A mortgage can be created, renewed or extended, only by writing, executed with the formalities required in the case of a grant of real property.”

    Civil Code section 1624(a)
    “The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent:… …….(6) An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust upon the property purchased …”

    Civil Code section 1091
    writing and forfieture

    Civil Code section 2932.5
    same as above for an assignment.

  33. Joann citing Ibanez:

    “Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee.”

    Well, I’ve always disagreed with the last part of that because it’s the trustee,
    not the mortgagee (known as the beneficiary in the dot) who holds the legal title, even tho he does so in trust for the benefit of the beneficiary. But maybe that’s a hair which doesn’t need splitting. The fact is, the dot creates an estate (legal title) in the borrower’s home to someone other than the borrower. We care because all interests in real property implicate the statute of frauds and therefore must be in writing, and that’s why assignments are necessary. This statute of frauds implication includes any alleged rights to sign documents impacting interests in real property. You may in fact give me the authority to sign something for you in regard to real property, such as in a power of attorney or other binding agreement. But you and I may not keep the evidence of that authority “secret”. If the trustee grants to another party the authority to sign something on his behalf, evidence of that authority must be demonstrated on the record or at least it can be legitimately challenged. If ANYone grants to another the authority to act in his stead in a matter regarding real property, that authority must be apparent from the record. Joann, you’re onto such a good, easily understandable explanation of these relevant issues. Maybe you will have time to give us some on the statute of frauds? Anyway, thanks again.
    Only the party who is the owner of the debt with rights to payment and also
    is the record beneficiary of the dot (which means there must be a complete chain of title and it may not properly go from A to D) has a right to make a credit bid (altho I don’t purport to be an expert on credit bids) at a foreclosure sale. I may not make a credit bid on your home if I don’t meet those requirements. The fact that I assign my credit bid to a party who might changes nothing if the record does not show that I have been given that authority by the party meeting those two requirements.
    The banksters will get hip to this with enough complaints about what the record does not evidence and will buff up their acts by noticing
    these authorities. In the meantime, anything not evidenced on the record is subject to legitimate challenge by the homeowner and a place to start is to cite the statute of frauds as it pertains to real property.

  34. Traditional definitions of title — including legal and equitable — have been replaced by new law. The Congressional intent of the new law was to define who is — and who is not a creditor — given the advent of securitization — and congressional intent was to give borrowers the ability to directly confront their current creditor.

    May sound like a broken record here — but, the Federal Reserve has redefined “Covered Person” — ie. Creditor — according to the May 2009 TILA Amendment.. The Federal Reserve Opinion — is now law. While we can look up definitions in dictionaries — will not hold up to the Fed Res law.

    Quote — again, and again — again — until everyone gets it. Note — “covered person” is new definition of “creditor.”

    From the Fed Res —

    “To become a “covered person” subject to Section 226.29, a person must become the owner of an existing mortgage loan by acquiring legal title to the debt obligation. Consequently, Section 226.30 does not apply to persons who acquire only a beneficial interest in the loan or a security interest in the loan, such as when the owner of the debt obligation uses the loan as security to obtain financing and the party providing the financing obtains only a security interest in the loan. Section 226.39 also does not apply to a party that assumes the credit risk without acquiring legal title to the loans. Accordingly, an investor who purchases an interest in a pool of loans (such as mortgage-backed securities, pass-through certificates, participation interests, or real estate mortgage investment conduits) but does not directly acquire legal title in the underlying mortgage loan, is not covered by Section 226.39.”

    Thus, — Fed Res — has done the work for you — why anyone wants to still make-up their own definition — is beyond me. Also, suggest reading the FR conclusion as to Servicer — also negates as Creditor.

  35. joann – just got here today. Your last post is marvelous! So simple and yet so informative.

  36. snippets:

    equitable title: the right to receive legal title upon performance of an obligation

    legal title: title that is determined or recognized as constituting formal or valid ownership (as by virtue of an instrument) even if not accompanied by possession or use legal title to the property> legal title to the goods until the debt was paid

    clear title: title that exists free of claims or encumbrances on the property clear title to the farm>; broadly : MARKETABLE TITLE

    A deed of trust is an arrangement among three parties: the borrower, the lender, and an impartial trustee. In exchange for a loan of money from the lender, the borrower places legal title to real property in the hands of the trustee who holds it for the benefit of the lender, named in the deed as the beneficiary. The borrower retains equitable title to, and possession of, the property.

    Title Theory State: State in which the law splits the title to mortgaged property into legal title, held by the lender, and equitable title, held by the borrower. The borrower gains full title to the property upon retiring the mortgage debt. In a title-theory state, mortgage lenders may possess the property upon default of the borrower. In a lien theory state, lenders must go through the process of foreclosure.

    Lien Theory State: A lien theory state is where the borrower holds legal and equitable title to real estate. The mortgage is the lien on the property. The lien is released at the time the mortgage is paid in full by the borrower.

    Ibanez MA

    “In a “title theory state” like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1, 6 (2010). Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee. See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751, 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315, 316 (1880) (although “as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands,” mortgagee has legal title to property); Maglione v. BancBoston Mtge. Corp., 29 Mass.App.Ct. 88, 90 (1990). Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.”

    Veal AZ
    “The concept of a “holder” is set out in detail in UCC § 1-201(b)(21)(A), providing that a person is a holder if the person possesses the note and either (i) the note has been made payable to the person who has it in his possession or (ii) the note is payable to the bearer of the note. This determination requires physical examination not only of the face of the note but also of any indorsements.”

    “……. under the common law generally, the transfer of a mortgage without the transfer of the obligation it secures renders the mortgage ineffective and unenforceable in the hands of the transferee. Restatement (Third) of Property (Mortgages) § 5.4 cmt. e (1997) (“in general a mortgage is unenforceable if it is held by one who has no right to enforce the secured obligation”). As stated in a leading real property treatise: When a note is split from a deed of trust “the note becomes, as a practical matter, unsecured.” Restatement (Third) of Property (Mortgage) § 5.4 cmt. a (1997). Additionally, if the deed of trust was assigned without the note, then the assignee, “having no interest in the underlying debt or obligation, has a worthless piece of paper.”

  37. Prospectus: “On…….., which is the closing date, the mortgage loans that support the certificates will be sold by……….., the sponsor of the securitization transaction, to ……….., the depositor. On the closing date, the depositor will sell the mortgage loans and related assets to the…..Trust. In exchange for the mortgage loans and related assets, the Trust will issue the certificates pursuant to the order of the depositor.”

  38. joann and johngault

    joann’s post is very important. Everyone has to understand that securitization is only a pass-through of current cash flows — thus, only a BENEFICIAL interest in “pool” of cash flows derived from the loans. Securitization is not a transfer of legal title to security investors.

    The Depositor owns the trust — and parent “bank” owns the Depositor.
    Depositor conveys the beneficial interest in cash flows to the security underwriter (also a subsidiary of the “bank.”) Once the cash flows on loan stops — it ceases to be back a “security” — because there are no more current cash flows — (unless servicer continues to advance). All of this is a beneficial interest in the “loan” — not legal title. Legal title never leaves the Depositor/security underwriter (parent bank) — until the parent bank disposes of elsewhere.

    Security investors only possess a beneficial interest in loans — and, therefore, are never the creditor. This applies to ALL securitization – not just subprime — which were never valid loans to begin with.

    Those that claim the security investors “put up the money” and therefore, have legal title — are on the wrong path. Security investors do not — and cannot – directly fund loans — they “fund” banks. And, with subprime — this is even more complex — as bottom tranches were “sold” before pass-through tranches — which created more of a problem.

    Legal title can be transferred via swaps and contracts — but swaps and contracts are NOT securities.

  39. thharry,

    Sorry, don’t mean to offend. I was interested in crowdsourcing views on the collateral source issue while trying to avoid too much discourse on specific litigation strategy.

    I welcome discussing the issue more fully in in a private forum, with as many folks as want to participate, so long as it is known who those folks are and what interests they represent. I would have directed my comments toward such a forum but don’t known of one.

    Thank you for your comments, they are much appreciated.



  40. @anonymous – can you please reframe your discussion outside subprime loans AND assume there has been no default and no write off?
    WHO owns the stinking note when there is securitization? I know next to nothing about securities, so I can’t do it beyond my speculation that the note is owned by the depositor but the payments were purchased by others, which is so weird. Or do you think the trusts own the notes?

    Joann – thanks for keeping it going. i’ll try to figure out your comments tomorrow.
    We need to unwind this stuff first, agree on point A, and then see what it looks like and where we can go from there rationally. BTw, there has got to be a reasonable basis for discovery when the facts, the info, the docs, which might prove one side’s case are singularly in the possession of the other side. Any lawyers reading this, check it out please if you would be so kind. I lost my conduit – too much $$$ for me these days. Plus you have Westlaw and we don’t.


    I hear you – just that to get to the discovery of what you say or get a judge to demand the discovery – was just saying this is simple request for what is already supposed to be in writing according to title laws, ucc laws, trust laws and other and already supposed to be kept by the trustee and cusdodian for the protection of the interests of trust investors – which ought to be a simple request from an investor or a borrower or a judge to determine the beneficiary’s existence and status at inception of the trust. Where’s the assignments and endorsements for Deed of Trust and Note to the trust? Was also saying…. wondering Note… cannot be separated from the Deed of Trust and the secured interest.

    ……the further proof of the true sale (because they don’t have the documents showing the transfers and ucc and other laws say proof of the sale is required in that case I think) gets into your area……think I was also trying to say…wondering… collection rights cannot exist separately from the party who can enforce a sale – beneficiary…..

    Prospectus: “With respect to any security backed by a Mortgage Security, the depositor will transfer, convey and assign to the trust all right, title and interest of the depositor in the Mortgage Securities and related property……….The depositor will cause the Mortgage Securities to be registered in the name of the trust, the trustee or its nominee, and the trust will concurrently authenticate and deliver the securities. The trustee will not be in possession of or be assignee of record of any underlying assets for a Mortgage Security.”

    Sample Certificate:………”Evidencing a beneficial interest”

    PSA: Conveyance of Mortgage Pool Assets; Security Interest. The Company does hereby irrevocably sell, transfer, assign, set over and otherwise convey to the Trust, without recourse, all the Company’s right, title and interest in and to the Mortgage Pool Assets

    (company is defined as Depositor)

    Prospectus: “The depositor will, with respect to each mortgage asset, deliver or cause to be delivered to the trustee, or to the custodian, a mortgage note endorsed to the trustee, the trust, or in blank, the original recorded mortgage with evidence of recording or filing indicated on it, and an assignment (except as to any mortgage loan registered on the MERS® System) to the trustee, the trust, or in blank of the mortgage in a form for recording or filing as may be appropriate in the state where the mortgaged property is located…..”

    “Mortgage File: The following documents or instruments with respect to each Mortgage Loan, (X) with respect to each Mortgage Loan that is not a Cooperative Loan: (i) The original Mortgage Note endorsed (A) in blank, without recourse, (B) to the Trustee, without recourse, or (C) to the Trust, without recourse, and all intervening endorsements evidencing a complete chain of endorsements from the originator to the endorser last endorsing the Mortgage Note…….

  42. joann,

    Not completely correct as to your first paragraph. All certificates to trusts (bank owned trusts) were sold first to the security underwriters (banks’ subsidiary) — the OTHER bank subsidiary was the Depositor that purchased the loans from so-called “originator.” Off-balance sheet bank-owned trust — was just an accounting conversion of on-balance sheet receivables — to certificates that the subsidiary security underwriter purchased. All a bank can transfer from it’s receivable balance sheet — is current cash flows. Thus, securitization is an accounting conversion of on balance sheet receivables — to off-balance sheet ‘”certificates” — purchased by subsidiary security underwriter. From there, derivative (meaning derived) CDO “securities” are sold to subsequent pass-through cash flow security investors. And, from there CDO Squared –further pass -through cash flows to derived- derived “security holders.” At all times the Depositor owns the Trust — and the Security Underwriter owns the certificates. Both the Trust and the certificates are “derived” from the “loans” — in case of subprime — fabricated.

    So, who owns collection rights to fabricated loans??? Not the squared CDO “security” derivative investors, not the CDO “security” derivative investors. MAYBE — the certificate holders/buyers — who are the security underwriters — who purchased from the Depositor — who are both subsidiaries of the bank that purchased the fabricated loans by which the false securities were “derived.”

    Of course, that is until the “bank” disposes of collection rights — elsewhere.

    If you make too complicated — courts never get it. Although my above explanation may sound complicated — it is not — all supported by PSA and Prospectus.

  43. John Gault:

    “Have we ever gotten a consensus here on who owns these notes, not the payment streams, but the notes? (assuming they made it to the trust) And if we haven’t, don’t ya think this is kind of important?”

    Trying to figure this out – what do you think?……

    If they made it to the trust – in a Deed of Trust state anyway – certificate investor ie “Name of Trust” is now the Lender and Beneficiary as per the Deed of Trust and the Note the borrower signed (assuming there was a purchase of value ie “sold” evidenced with proper assignments to Deed of Trust and endorsements to the Note as required by the PSA and the state title and commercial laws and other ect.) The Trustee is now the Trustee Bank NA for the trust with bare legal title (even though none of it is recorded). Is this correct so far?

    In reality the Note can never actually be separated from the Deed of Trust can it? Deed of Trust says ……“Sale of Note; Change of Loan Servicer; Notice of Grievance. The Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times ……”(A) “Security Instrument” means this document, which is dated…together with all Riders to this document.” …..Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security”………

    Pretending that it is separated and fabricating documents to separate it or create a new chain of title after the fact, is the problem. Seems like this whole thing would go away quickly if non-judicial states required the proof of the “true sale” purchase of the “mortgage” to the trust and the witten evidence of it with proof of the required original assignments to the Deed of Trust and the required endorsements to the Note. Isn’t it already the law? Judicial should be doing that already. All have been confused and bamboozled by the sham paper presented.

    If the “paperwork is lost” the trustee bank can still prove it with the proof of the purchase. (I think that’s actually in the UCC 3 and 9 taken together). No true sale means the trust as a lender and beneficiary is not a lender and beneficiary and the trustee cannot enforce a point of sale and doesn’t even exist without the lender and beneficiary. The borrower still has the equitable title (title theory states anyway) but can never pay the mortgage in full and receive the legal title. He’s paying parties who never funded or purchased his mortgage. Original lender? They already signed off on it to the trust. If they didn’t get paid in a true sale who did? Without lender and beneficiary or trustee the borrower can’t legally modify or refinance. A legal foreclosure cannot take place. No legal sale of the property can ever occur either. So now the borrower owes “someone” forever – so who is entitled to his payments or the house? Who can enforce the sale and who can satisfy the lien? They need to please stand up and identify themselves. Pretty simple really if you think about it. Otherwise it ought to smell like fraud to those we are supposed to trust to enforce the rule of law.

  44. johngault

    You are right — consensus is weak here — that is because some are still trying to make a buck on the fraud.

    But, also, consensus cannot be – one size fits all.

    If there was a subprime “loan” — for that refinance (and all subprime were refinances) , there is no “NOTE” — only collection rights survived to fabricated GSE (false) default. There was NO note (even though borrowers THINK they signed one) . “Note” and “Mortgage” are fraudulent from the onset. But, you have to dig deep for this — as much more complex.

    As for those with GSE loans — or new home purchases — the question becomes when was the (default) loan charged-off — when did “servicer” cease advancing payments to trustee for pass-through of CURRENT cash flows by a securitized trust.

    In both cases, only collection rights survive — not the Note (loan) that has been charged-off. This does not mean that the “creditor” did not retain collection rights after charge-off. GSEs could retain — and so could bank debt buyers. Or, they could sell/swap the collection rights elsewhere.

    Believe the consensus is that the “creditor” — is never disclosed to foreclosure victims. Sometimes there is an attempt to disclose the “original creditor”, but this is in violation of the law as CURRENT creditor must be disclosed. And, very often, even the original creditor is not named because false default is concealed — prior to the loan in question.

    So– not one package for consensus — but, one package that clearly demonstrates fraud — in one capacity or another.

  45. tnharry

    Do not feel sorry for security investors that can now only make 4% — instead of 13% plus — which was fraudulent to begin with and security investors failed to do due diligence that would have exposed the fraud against the homeowners. No matter how you try to justify — just cannot make money on fraud. Eventually, all blows up.

    Homeowner victims were defrauded everywhere they turned to support the deep pockets — that eventually exploded. That is what happens to deep pockets — procured by fraud — they explode. And, in this case, also exploded the whole economy.

    The absolute irony – is that many security investors actually believed middle/lower income American homeowners could support their lifestyles and retirement. I just cannot get over the audacity — or stupidity – of security investors. And, as to “investors” — they really thought that they could make a bundle by purchasing collection rights dirt cheap??? The tide is turning. .

    Outrageous!!! Would you not agree???

  46. @carie – maybe we did establish that the notes never made it to the trust. My memory comes and goes it’s looking like. Do you mean they never made it to the trusts because the endorsements and delivery didn’t happen?
    Or for some other reason? But my question was did we ever form a consensus about who owns notes which were ultimately endorsed in blank (had all relevant endorsements) and allegedly held physically by the trust custodian? WHO owns these notes, not just the payment stream? Is it not so that the trust investors may not own the notes? Does the sec’d trustee (supposedly) hold the notes in trust and if so for whom? And are the notes still negotiable instruments (which may continue to change hands by endorsement and delivery) if one party owns them but another owns the right to payments by way of some stock derivative? Looks like a messed up deal to me, the stock, wall-street-created-trust un-expert, novice, rookie, whatever. Until securitization, no one ever heard of a note being ‘owned’ by one party with another ‘owning’ the payments, right? What if anything is the recourse of the sec’n investor ? Did he just make a gamble and if he doesn’t get paid (assuming the guarantee by a third party is short-lived) tough cookies? Why can’t we identify these issues beyond speculation?
    There’s talk about the investors choosing not to go after the homeowners. Me thinks that may be a very large red-herring if the sec’n investor can’t go after the homeowner by way of the note and dot.

    If we have not formed a consensus is it because we don’t give a hoot because people think our alleged salvation lies elsewhere? I would call any other solutions secondary to the initial issue of who the h owns these notes, just like I would call other issues secondary to the first line of defense for homeowners, which is that the MERS dot is a sham and anything involving MERS is a sham, including the infuriating self-assignments done by members allegedly under the MERS’ cover. I say allegedly because not even MERS authorizes member to member assignments. (Don’t want to belabor this here since I’m trying to understand what if anything we have come up with about notes, but MERS also swore it was the agent of its members, right? An agent is controlled by its principal, who is its boss in essence. How is it that the agent can tell the boss – the member who is its principal – what he can and can’t do? If you own a business and hire an employee, do you think that as a matter of law or for any reason, that employee may make policy at your business? This is the very tweaked
    and illegitimate MERS schematic.)

    MERS named itself beneficiary in the deed of trust. They did not name themselves the nominee of the beneficiary, which MERS MIGHT have been able to do legitimately. They didn’t. MERS IS the beneficiary and the note and dot are bifurcated, or the MERS-created dot is a false instrument imo.
    Then, to me, the issue becomes is the bifurcation fatal at the instant it was done either as a matter of law or equity.

    I just had an attorney write me that MERS never tried to foreclose on my home in 2008 – it was the servicer, and since the servicer is allegedly holding a bearer note and the dot follows the note, said he, I can pound the pavement. (That’s not what the paperwork says, but hey, why bother with facts, Mr. LiarforHire.) I’m mentioning this because that is a current line of offense for some banksters – they don’t need no stinking assignment of the deed of trust and some people and even courts buy into it. That may be true where a mortage is a lien (sorry – someone else’s battle), but it is not true in title-theory states. So, yeah, imo, we need to get real about who the heck owns the note and has the right to enforce it notwithstanding issues regarding assignment of the collateral instrument. No?

  47. @dw – now that’s just plain bizarre. you took us down this road, got Neil or someone to post an article on it, asked the specific question to which i replied, and now are “a bit reluctant to discuss further publicly”. it’s ALL been public…. good luck in your endeavors

  48. tnharry,

    Understand your point. I am a bit reluctant to discuss further in public. Not sure if there is a forum that is private and one where everyone can be sure conversation is with people on the same side.


  49. @DW – my question was WHO sues the trust and trust counsel? the investor or to borrower? i could see the investor but not the borrower maintaining the action. if anything, the trust has benefited borrower by creating this issue and making the quiet title action possible. investor has been more screwed by the loans not making it into the trust more than the borrower has. I think the RICO versus trustee and counsel is off the mark. getting to their counsel as a defendant is in all likelihood a nonstarter anyway.

  50. jg—I thought we had already established that they NEVER made it to the trusts—no proof otherwise. Manipulation, obfuscation, fraud and fabrication is the name of the game…and we have ALL been gamed…and continue to be—because the banks own Congress and the US government.

    Everyone—please sign the petition for amendment to “get money out”:

  51. tnharry

    Trust (which has assumed position of lender), and trust’s counsel, which is the vehicle by which the trust furthers the fraud.


  52. Have we ever gotten a consensus here on who owns these notes, not the payment streams, but the notes? (assuming they made it to the trust) And if we haven’t, don’t ya think this is kind of important?

  53. I needed valium to read this article. Not because it made me angry with
    the banksters – it’s because it’s so poorly written. Sorry, whomever. I don’t know what the collateral source rule is and don’t feel like looking it up just now and can’t rely on the explanation in this post. I do know that if a servicer makes a payment on a note to the guy who is supposed to get the payment, he is generally considered a “volunteer” by the law and has no equitable claim against the borrower, while any payment made on the note reduces the obligation. That’s why all these alleged arrearages on notes are bs. Where FNMA, for instance, has guaranteed payments, FNMA reimburses the servicer for any advances. This isn’t news. It’s at their website and I ref’d it before. Apparently no one wants to go read it or FNMA’s rules for loan modifications, even people who are getting messed over trying to get loan modifications. Go figure.

    The bankster gets reimbursed by FNMA for one ,and two, where the obligation has been reduced by third party (anyone not the obligor and obligee) payments, these criminals are nonetheless presenting, under oath generally, statements which show false balances owed as they do not consider the voluntary payments made by third parties (themselves) which have reduced the borrower’s obligation on the note. The bankster has already been reimbursed at least some of these advances by FNMA and now they want to collect from the borrower/property, as well.
    I can’t swear that when this double-collecting is going on the servicer does not then have to pay FNMA back its reimbursement to the servicers, got me, but as to the borrower, it doesn’t matter because no one has the right to collect payment advances voluntarily (which includes by contractual agreement with parties not the borrower) made on the obligation.

    I posted this earlier this year elsewhere but probably here, too:

    “… If the volunteer guarantor is in fact making the payment to the owner, each payment made reduces the principle of the note appropriately. But then, the servicer or other entity turns in a proof of claim or other form depending on the venue, showing an amount due on the loan which does not include the principle reduction made by the volunteer guarantor and further showing accrual of earned interest and other charges, which accrual and charges are fiction. It’s my understanding these payments made by the volunteer guarantors are to be entered and maintained in a separate ledger.

    If this is true, the note is not in default and false numbers are being submitted on claims, numbers which do not include the voluntary guarantee payments. Further, it’s my understanding that some servicers are actually reimbursed these payments by FNMA, yet they claim these bogus amounts nonetheless.”

    Here is one response:
    “My understanding is that once a loan is delinquent a certain amount of time– spelled out in the PSA– the servicer can foreclose or take other measures to collect.
    The servicer does make advance payments to the investors when the borrower fails to make payments, but it is of course keeping track of how much they have advanced to the investors. In return for the obligation of making this advance, the servicer is given the power to take action to get the amount it has advanced back. When there’s proceeds from a foreclosure or mortgage insurance or whatever, or the borrower brings themselves current, the servicer takes the amount they have advanced off the top, with interest. (Note that this arrangement gives the servicer incentive to collect on delinquent loans and not just let them rot)

    In this arrangement, I do not see where the servicers are ever “stuck” making advance payments indefinitely without the authority to foreclose. The loan is in default; the borrower is in violation of the rules laid out in the agreement they signed when they accepted the loan. The servicer, in compliance with the PSA and whatever laws apply, can initiate foreclosure.”
    If you want to read the entire blog about voluntary payments, it’s at under my name – left column.
    The response to my blog which I quoted above does not address the reimbursements to the servicers by FNMA on FNMA loans.

    I may inadvertantly be talking apples and oranges here if the subject of
    this post is really not about voluntary payments made by guarantors.
    But, now that I think about it some more, these voluntary payments may provide a path to discovery, especially if you haven’t made a payment for a matter of years. You need to know what is really owed, right? These false numbers being submitted need to be exposed.

  54. @DW, who do you maintain has this RICO claim against the trust and the trust’s counsel? the investor or the borrower?

  55. Neil,

    Thank you for responding to my collateral source question. I am not sure I fully understand the response; it seems to contradict itself in a few areas. There are cases where the rule is applied to contracts.

    Here is what I think the post proffers, notwithstanding arguments in re successful transfer of notes to trusts (for another time):

    1. Trust becomes “lender”

    2. Investors are only certificate holders having cash flow rights to the trust loan pool

    3. Servicers make payments to trusts as they are obligated to under terms of PSAs

    4. Trust & certificate holders shift risk of non-performance to servicers and trust swap partners

    5. Non performance by borrower does not damage trust (who is lender)

    6. Since lender is not damaged, no harm no foul, collateral source rule cannot apply

    7. Servicer may have an equitable unsecured claim against borrower

    8. Lender’s claim of damage from default is a fraud on the court, slander of title, etc….

    9. Lender’s claim of default (e.g. borrower does not make payment) may not be a fraud but lender is not damaged because Aunt Tilley (who in this case is servicer) is making payments for borrower.

    What did I miss? Given the above there would appear to be RICO claim against trust and trust’s counsel?


  56. Different topic…

    A very interesting way to redistribute the stolen wealth…

    The bets are open. How long before BofA vanishes…? Leapfrog yesterday mentioned Christmas.

  57. Tnharry,

    I thought I was reading it wrong but I wondered the same thing… Does it or does it not apply?

    I have enought trouble wrapping my mind around actual facts. Now, it becomes really confusing…

  58. @ tnharry, I know what you mean. Part of the problem here is the lack of attribution for articles and opinion pieces. While I appreciate what’s being done by LL to shine a light on the multitude of problems in this totally screwed up system, it would be nice if simple links to original works would be maintained not only for the perusal of visitors, but for proper acknowledgements of the original publication/author. It’s a commonly practiced trait for good reason, it works to everyone’s benefit. Hint?

  59. Started reading this post hoping for an explanation as trace when servicer stopped making payments to security investor trustee. No such luck.

    The continued problem in the above thinking is that security investors never fund a mortgage loan. Security investors fund the bank’s security underwriter — not the mortgage loans. Borrowers have no relationship with security investors.

    Only current cash flows are passed through by securitized trust — and once servicer ceases making payments on default loans — the security investors collect on the paid swap. These security investors many have lost future “income” on the now terminated “investment” — but, they are currently paid as the “security” is terminated. Security investors cannot then go after the borrower

    There is no “collecting” twice by the security investors — someone else is now trying to collect from the borrower on the “loan” itself that was never passed through to security investors since only current cash flows were passed-through. The security investors are never the creditor and do NOT directly fund any mortgage loan.

    Again, there is a distinct difference between an “investor” and a “security investor.”

    What would be helpful here is how to ascertain when servicers stopped advancing current payments to trustee.

  60. Occupy Boston….. the never-ending sequel to Occupy Wall Street.
    Yes Neil you’re in this one and I actually took the mic for a second to tell people to read your journal to begin to fully understand the hows and the whys.


  61. How should I persue my complaint that I sent to the FTC?

  62. Garfield,
    Please comment on your thoughts related to credit insurance or credit default swaps ( assuming a securitization) and the collateral source rule. Obviously, homeowner/defandants would like to argue that swap or insurance payments should reduce the balance due on the loan! Please respond! Thank you!

  63. Wondering who the author of this one is. The posts attributed to Neil in the last few weeks have varied widely in writing styles and content. Somehow this one maintains that the rule does not apply but the explains in a different paragraph how it does actually apply while maintaining it does not.








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