When and What is Consummation of Contract?

Like many other “Black letter law” situations, when it comes to foreclosures the courts are ignoring all precedent, statutes, rules and regulations when they consider a loan contract consummated when one party signs documents — without the other side showing it signed documents and performed its obligations. Without consideration passing both ways, there is no contract to enforce.

The argument that there is nothing for the lender to sign is without merit. The further argument that therefore the only signature that counts in a written contract is the signature of one side is equally ridiculous. It is true that lenders don’t sign the notes and mortgages. But for lenders, their part of the contract only comes alive when they comply with TILA and perform — i.e., they give the loan of money.

To view it any other way would be saying that performance by the “lender” is optional. And that would by all accounts be an executory contract that would be unenforceable until the optional performance was completed. Hence consummation can only be (a) when the money appears (b) from the “lender” identified on the disclosure documents.

The banks craftily spotted the loophole that lenders don’t sign the actual instruments that provide evidence of a written loan contract. But those instruments may not be used to sidestep mutuality and reciprocity that MUST be present in every situation where a party is relying upon paper instruments instead of proving the loan from scratch. If a third party performs the duties promised by the originator there is no enforceable contract even if there is a separate remedy for recovery of money.

Consummation and consideration should be treated as fair game in discovery instead of annoying protests from the homeowner. The Courts have the power to make legal decisions — not political ones.

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Hat tip to Greg (cement boots)

Consummation vs Closing

Seems like various state laws redefine “consummation” as not the actual consummation (the initial fulfillment of promises made by both parties to a contract – think marriage) but instead, make it apply to the moment that a written obligation of a debtor (the wife) is signed at a “closing” in a loan transaction… These definitions do not take into account the duty of the originator or alleged lender (the husband) to timely perform their duties, especially to provide a record of the funding in the purported debtor’s name toward the discharge of the contracted obligation. This occurs most often in “refinance” deals where there is no seller or buyer, simply a rearranging of computer entries between financial institutions. This leaves the alleged debtor (the wife) wanting for proof of fidelity, consideration and performance while operating under the presumed legal disability created by the state’s definition. As you can imagine, and we have seen, this can have a deleterious effect on a judge’s or debtor’s ability to accurately calculate the deadline to timely file a TILA rescission notice within the three year statute of repose.

I think this comment is correct. By defining consummation as the moment when one party signs documents without regard to when or even whether the other party signs and performs contractual duties, the courts are letting originators off the hook for fraud, TILA violations and more. Like the debt itself the obligation is not open ended to anyone who claims it. It is owed to the party that owns the debt or obligation.

In normal contract law there is some fuzziness about consummation and sometimes rules of estoppel apply. But the normal rule is simply that the transaction is consummated and the documents are effective when the documentation is completed and executed by both sides, and consideration has passed both ways.

By considering consummation to be when only one party signs the courts are ignoring a basic legal doctrine that has been solid for centuries — consideration must pass before the documents can be used for enforcement.

This is particularly important in the modern era where “lenders” have been replaced by “originators.” In many cases the originator is not the lender. Hence no enforceable contract can be said to exist unless there is proof that the originator was acting for a third party Lender.

If the third party was not disclosed they would be admitting to a TILA violation. If the third party is not a lender either but rather a conduit, then we have (a) no consideration and (b) nondisclosure at “closing” as to the identity of the lender.

By “no consideration” I don’t mean that the homeowner did not receive money or the benefits of a disbursement.  I mean that nobody in the chain starting with the originator has paid that consideration and thus nobody in that chain of command is party to an enforceable contract. Like the fabricated assignments, allonges and endorsements, the existence of a paper instrument even if signed does not mean that the provisions contained therein are enforceable. Under contract law it is the transaction that must have consummated between the parties to the written contract. THAT is something that does not occur, even in the c leanest of cases, until after the closing and sometimes months or even years after.

By revealing the absence of a payment by the originator, one accomplishes two things. (1) the written loan contract (note and mortgage or Deed of Trust) was never enforceable and thus cannot be enforced by successors. (2) clear violations of TILA disclosure requirements have been violated.

BUT none of this means that there is no debt — assuming that money appeared after closing. The debt exists. The homeowner does owe money. And while the homeowner does not owe just anyone, he/she owes money to the person or parties who are out of pocket for the loan. Their remedy is probably an action in equity seeking to claim the paperwork AFTER they have proven that they are the real parties in interest. Or, their remedy would be simply the equitable action for unjust enrichment. In the first case they MIGHT preserve the mortgage encumbrance. In the second, they have no collateral.

19 Responses

  1. while contemplating consummation… giver yourself a treat and try this (or your own variation)
    Lou Malnati’s Keto Sausage Crust for Pizza (no carbs)

  2. consumerrightsdefenders-

    based upon many of the things you have put forth on this blog’s comments, you make a lot of presumptions shared by the banker and lawyer world which allow them to proceed without proof in front of a victimized homeowner staring into the headlights of a speeding 18-wheeler without qualified legal help.

    If I’m wrong – please opine as to how, where, what. But from my downwind position, it smells like old dead fish.

  3. consumerightsdefenders- regarding “someone did get the money”:
    In the case of a purchase/sale, of course you are correct, for the most part.
    Most subprime “mortgages” were cash-out refinances, via default debt buyers who paid, on average, 2 cents on the dollar to purchase what was publicly referred to as mortgage servicing rights, but in actuality the servicer said have purchased the debt, albeit without a note or mortgage(deed of trust).
    So apart from paying for the charged-off debt, the servicer gives the hapless homeowner a couple grand cash out at closing, and in signing all documentation, the homeowner has now verified the debt and restarted the whole fraud all over again, acknowledging the servicer, either directly or thru some other bogus Trust, as their new mortgagor.
    After 100,000s of cases brought to court, you would think that at least 1 servicer/trust/bank/ REIT/REMIC could have proven that the actually owned the mortgage, the note and the debt, without lying, cheating, stealing, obfuscating, backdating, forging, creating, any and all evidence necessary to do so.

  4. […] via When and What is Consummation of Contract? — Livinglies’s Weblog […]


    Some of the discussions here and elsewhere are not addressing a common concept of buying and selling homes; there is a fundamental notion that consideration [that money bargained for and exchanged based on a promise to pay back] passed from the lender/beneficiary of money to the selling owner , thus giving the duty to pay to the Note back to the bank/beneficiary. If as some opine, no money changed hands, [a difficult concept to prove] this flies in the face of a fact…money went into the hands of the seller caused by the escrow’s close at what is called the consummation. No amount of arm-chair gibberish changes these fundamentals that most judges rely on.

    Few states have CEB [continuing education] programs on foreclosure defense when last we checked…so ignorance runs rampant. Defending the sale attempt can be difficult to impossible if you grab what you think is a rope of help only to discover too late it was the sharp horn of a bull, i.e., an industry with unlimited resources. So, pick your theories and lawyers carefully for in this world, all are definitely NOT created equal.
    Sara Stephens at Consumer Rights Defenders at 818.453.3585

  6. oops… should have said

    [NOTE – Maybe I’m wrong, but I think this might mean that until the named originator and so-called lender in a loan transaction personally performs (in the 1st person) the act of loaning its own funds to the borrower (as stated in the deal – and not by arranging for some unknown undisclosed 3rd party to do it on their behalf – or by merely monetizing/leveraging the borrower’s new Note to create the funds going back to the borrower), that the named borrower can (until hell freezes over or the named originator provides THEIR funds) wait to pay anything – with any pre-payments by the named borrower being considered “good-faith advances” – not “payments” under the terms of the deal…]

  7. According to Black’s Law 5th Edition

    Time is the essence of contract. Means that performance by one party at time or within period specified in contract is essential to enable him to require performance by other party. Hayes Mfg. Corporation v.McCauley, C.C.A.Ohio, 1 40 F.2d 1 87, 1 89. When this phrase is in a contract, it means that a failure to do what is required by the time specified is a breach of the contract.

    [NOTE – Maybe I’m wrong, but I think this might mean that until the named originator and so-called lender in a loan transaction personally performs (in the 1st person) the act of loaning its own funds to the borrower (as stated in the deal – and not by arranging for some unknown undisclosed 3rd party to do it on their behalf), that the named borrower can (until hell freezes over or the named originator provides THEIR funds) wait to pay anything – with any pre-payments by the named borrower being considered “good-faith advances” – not “payments” under the terms of the deal…]

    Equity. Justice administered according to fairness as contrasted with the strictly formulated rules of common law. It is based on a system of rules and principles which originated in England as an alternative to the harsh rules of common law and which were based on what was fair in a particular situation. One sought relief under this system in courts of equity rather than in courts of law. The term “equity” denotes the spirit and habit of fairness, justness, and right dealing which would regulate the intercourseof men with men. Gilles v. Department of Human Resources Development, 1 1 Ca1.3d 3 13, 1 13 Cal.Rptr. 374, 380, 52 1 P.2d 1 1 0. Equity is a body ofjurisprudence, or field of jurisdiction, differing in its origin, theory, and methods from the common law; though procedurally, in the federal courts and most state courts, equitable and legal rights and remedies are administered in the same court.

    (thanks Kurt K!)

  8. Hey Neil –
    we’ve got litigants saying they “hold the note” or “own the mortgage” but none of them seem to ever say “we own the debt”.

    I would love to see that brought up in court. It seems to me that claims on the note and mortgage need to be substantiated by proof that they “own the debt” or that they are the rightful obligee of the obligor (debtor).

    I thought the only party who can foreclose on the security (mortgage/DOT) agreement is the one who owns the debtor’s liability or is their lawful agent?



  9. http://blog.lawdepot.com/what-makes-a-contract-invalid/

    What Makes a Contract Invalid?
    By: Kristy DeSmit – Marketing Specialist at LawDepot
    June 17, 2015

  10. Except that the “beneficiary” is not the trust. Where’s the beef…er…creditor.

  11. Most of the time the “servicers” don’t own the note rights….they only service [collect] on the Note for the beneficiary…..

  12. ConsumerDefenders the banksters and courts will parse that description down to close of escrow which must be challenged

  13. I’m mad as Hell and I’m not going to take this anymore
    famous scene from the movie “Network”

    for you youngsters…
    In this lauded satire, veteran news anchorman Howard Beale (Peter Finch) discovers that he’s being put out to pasture, and he’s none too happy about it. After threatening to shoot himself on live television, instead he launches into an angry televised rant, which turns out to be a huge ratings boost for the UBS network. This stunt allows ambitious producer Diana Christensen (Faye Dunaway) to develop even more outrageous programming, a concept that she takes to unsettling extremes. Release date: November 27, 1976

  14. 90% of the time homeowners tried in good faith to determine if the loan/contract was valid. The 10% where there was fraud by homeowners, brokers thry went to jail. 90% of banksters and their lawyers should be in jail just guessing on pctgs.

  15. Consideration (money)is a very important part of the contract. Servicers just giving away the note to another servicer without paying for it and a receipt with evidence of same. Who is the creditor?

  16. please also see the CFPB’s TILA-RESPA Integrated Disclosure rule


  17. This “hybrid construed” definition of “consummation” vacates common sense and black letter law by placing “form” over “substance”.

    Interestingly, in the most recent Illinois Supreme and Appellate court opinions written to settle similar controversies, the courts have gone out of their way to emphasize that in law and equity, it is their decision to prioritize “substance” over “form”, ignoring the actual wording of documents in favor of what “really happened” and the intent of the parties.

    This was notably present in a recent TILA rescission case where the contract, note and mortgage referred to a personal consumer loan but the facts showed that the couple had taken out the loan for their business to expand their facility. (see PEOPLE’S BANK OF ARLINGTON HEIGHTS v. Atlas, 35 NE 3d 163 – Ill: Appellate Court, 1st Dist., 4th Div. 2015)


    The court correctly determined that although the standard forms used implied one type of transaction, that in fact another type of non-qualifying transaction took place – and thus denied the couple their claim to rescind under TILA.

    Just reverse the fact pattern and demand equal interpretation and emphasis on “substance” and we ought to be heading in the right direction…

  18. “Consummation’ has been defined as the “close of escrow,” the money is paid to the old owner and the new owner takes ownership by title deed and possession subject to the Note and mortgage or deed of trust.
    From Consumer Rights Defenders at 818.453.3585
    Happy New Year to our friends.

  19. Reblogged this on California freelance paralegal and commented:
    Consideration is an essential element to the execution of a contract in California as Civil Code section 1550 which was enacted in 1872, states that, “It is essential to the existence of a contract that there should be:
    1. Parties capable of contracting; 2. Their consent; 3. A lawful object; and, 4. A sufficient cause or consideration.”

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