UCC: The Internet is no substitute for law school

The way that borrowers lose cases is by picking out one thing from a case or statute and treating it as a magic bullet. If the law were that simple a computer would be deciding all cases. The distinctions between possessors of a note, rights to enforce, status as a holder, owning the debt and the status as holder in due course are extremely detailed and they are fairly rigid. That is because the UCC was designed to effectuate the free flow of commerce and protection of both parties under a set of rules that must be rigid to accomplish the goals of free commerce and protection.

To assist foreclosure defense attorneys and pro se litigants I offer my take on application of UCC rules to residential foreclosures. As to my foundation for doing so I offer the following: I was the winner of the American Jurisprudence book award in law school for bills and notes; I was deeply involved on wall street with the actual trading of bills and notes; I was the original drafter of hundreds of deals involving bills and notes; and I have spent 43 years litigating cases involving bills and notes.

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Confusion arises because of references to holder in due course. A holder in due course is one who purchases a note for value in good faith and without knowledge of the borrower’s defenses. If such a transaction actually occurred it would be difficult in this context to say that the buyer was not acting in good faith or knew of the borrower’s defenses.

Here is a key rule to guide all foreclosure litigation: As long as the judge thinks that the sale of the home will be used to pay the down the borrower’s debt to a party who owns the debt the court will find any possible way to rule for the party claiming rights to foreclose.

The converse is equally true — after step by step takedown of the evidence of the claimant — no judge will knowingly allow a claimant to force the sale of a home where the proceeds are more likely than not going to be used for profit rather than paying down the debt.

Most losing attempts are based upon the premise that there is a way to block the remedy. Most winning defenses are based upon the premise that there is no remedy because there is no claim and there is no claimant.

So if good faith and knowledge are off the table that leaves payment of value. As a practical matter payment of value would be translated as purchase of the debt, rather than simply purchase of the note. In today’s context there is an actual question about that but for now just consider the purchase of the note to be the purchase of the debt IF the seller of the note owned the debt.
That is where the analysis gets dicey. In most cases, but not all, the purchase of the note was not actually a purchase of the debt because the seller may have had ownership of the note but had not paid value or otherwise possess ownership of the debt.
You can ONLY acquire the debt by payment of money to the owner of the debt (or an agent authorized to accept payment on behalf of the owner of the debt). The job of defense counsel  is to show that the opposition refuses to disclose the identity of the creditor (owner of the debt) thus blocking the defense and the court from confirming that the authorization is real. That refusal should either be taken as an admission against interest or it should be the basis for a motion in limine (or trial objection) to bar the claimant’s proffer of evidence of authority at trial.
The UCC governs how these paper instruments and their enforcement are governed. In all events the mere delivery of the original note is sufficient under most circumstances to raise the legal presumption that the delivery was intended to convey ownership of the note and the rights to enforce it. Exceptions exist but there is case law that even a thief could sue to enforce the note, although  with any defense the thief would lose at trial. Their possession of the note would be sufficient to establish standing to sue, but not, as some courts have done, establish standing at trial.
Thus almost anything gives a party claiming possession of the note, the right to sue to enforce the note. That doesn’t mean they have the right to enforce the mortgage because in order to do that they must show that they paid value for the debt, that they paid it to the owner of the debt and that the debt was transferred to them.
It also doesn’t mean that they will win at trial because possession is insufficient to establish a prima facie case. They must show the right to enforce and that is where the mythical securitization claims get in the way of truth. The right to enforce means by definition that someone who owns the debt has authorized one or more intermediaries to enforce the note on behalf of the owner of the debt,  and the authorization allows the intermediary to sue in its own name, leaving the question of how to divide the proceeds up to the real parties after the litigation is over.
The problem has been that the courts are presuming that such an owner of the debt exists rather than asking for disclosure as part of the prima facie case. So what foreclosure defense lawyers are all complaining about is that they are stuck with an undisclosed creditor suing through intermediaries who claim they are authorized but whose authority cannot be challenged or tested.
Without that, neither the court nor the borrower has any way of knowing that if the suit is successful the proceeds will actually go towards paying down the debt. In fact, the reverse is true. Another party could emerge afterwards and claim that he had no knowledge of the previous parties claiming authority, and that those parties had no authority and that they didn’t have the real original note. Such a party could also get a judgment against the maker of the note unless the borrower could show some sort of apparent authority of the thieves who first sued him.
So since the debt must be owned and in most instances, but not all, the payment of value for the debt and the delivery of the promissory notes makes the buyer a holder in due course, the shorthand way of referring to that is saying that the enforcer of the mortgage or deed of trust must be a holder in due course, even if that is not completely and always accurate. A holder in due course, by law, takes the note free from borrower’s defenses except where outright fraud is involved and can be proven.
So references to the effect that in order to enforce the note you must be a holder in due course are wrong. You can enforce a note without being the holder in due course.
And while there are presumptions that enforcement of the note is the same as enforcement of the debt, that is ONLY true if the enforcer owns the debt — i.e., has paid value. It is the legal presumption to the contrary that trips up defense lawyers.
And references to the effect that only a holder in due course can enforce the mortgage are mostly true; it remains possible for someone to pay value for a note without becoming a holder in due course because the note was already declared in default, because they were not acting in good faith ro because they had knowledge of the borrower’s defenses. So not being a holder in due course is not a total bar to enforcement of the mortgage or deed of trust.
The wrong turn on the road to justice and truth, was where the courts decided that standing to sue was the same thing as standing in a prima facie case and then the other turn, where they treated the holder of a note under the same rules as a holder in due course. This resulted in discounting or completely ignoring the borrower’s defenses and the judicial recitation echoed across the country that the loan was made, the borrower stopped payment, the rest is bullshit.
Foreclosure defense attorneys all understand that the deck is stacked against them. Yet they still win cases because they cast considerable doubt by undermining the assumption that the case is brought by an injured party (owner of the debt) who will suffer further financial injury of the property is not sold, and whose collection of the proceeds of sale will go to pay down the debt. They are successful when they reveal the gaps in the prima facie case through discovery and cross examination and properly placed timely objections at trial.
As a summary of my premise that has been expounded upon throughout this blog for 12 years, here is the reason why foreclosure defense works if properly applied.
The actual creditors (owners of the debt) change over time. In securitization it starts with the investment banker.
The sale of certificates is not a sale of any right, title or interest to the debt, note or mortgage, all of which is retained by the investment bank. It is in the sale of “contracts” to subsequent investors who are betting one or or another on the success of the certificates that the rights of ownership of the debt have been sold.
So by the time foreclosure comes up, the entire chain is missing the actual creditors. Neither the certificate holders nor the owners of contracts have any rights to enforce the note or mortgage.
So the investment bank controls the paper but cannot enforce the mortgage because it has sold the debt and the investors cannot  enforce the mortgage because they have waived the right, title and interest to enforce the note or mortgage.
Hence in the many successful foreclosures the proceeds are retained by the investment bank legally in accordance with their contracts, and booked as trading profit rather than as payment on a receivable they hold on their books as reported to the public and regulatory authorities. That is because they do not hold the receivable on their books of account.
This is not an indictment of securitization. It is a description of how claims of securitization were false. Borrowers have no role in creating this mess.

14 Responses

  1. @ ANON ,

    You said

    ” Did the BORROWER actually pay off the prior loan? Did the BORROWER payoff actually pay their obligation on the PRIOR loan and “refinance” the debt into a new loan? The answer is NO.

    I know I keep repeating this, but I have to. The loan never went to anyone’s balance sheet. Non bank originators did not fund the loans no matter what they told you at closing. Without a balance sheet, there can be no “trust” – which is is exactly what we have!! This is simple accounting 101. ”


    100% true , the notes/loans were never paid off and refinanced ,, it was just notated that there was a new payee and amount… There is a VERY GOOD reason why it has been the rare exception that a borrower ever gets a satisfaction letter and it is rarely noted in the public record either…

  2. good advice

  3. @ ALL

    October 30, 2008
    Russell G. Golden
    Director of Technical Application & Implementation Activities
    Financial Accounting Standards Board

    “Fannie Mae is not the transferor to the MBS trust as defIned by SFAS 140. Rather. Fannie Mac is an agent for the Iender, as we act for and on behalf of the lender in delivering the mortgage loans into the trust for securitization. Fannie Mae has no control or discretion in its facilitation of the transfer, as upon receiving the mortgage loans. Fannie Mae is only abie to deliver them into the trust as directed by the lender.”

    “Each MBS trust is treated as a “grantor trust” under the Internal Revenue Code. and thus for tax purposes. the beneficial owner of a security will be considered the beneficial owner of a pro rata, undivided interest in each of the mortgage loans in the underlying pool.”


  4. @ ALL

    July 31, 2003
    MP&T Director
    Financial Accounting Standards Board

    “Under no circumstance does either Fannie Mae in its corporate capacity or the lender retain control of the loans within the trust. Fannie Mae serves as both the guarantor and trustee for the trust.”


  5. UKG- you did it all, and gave the criminals a run for their money, which is a lot more than I did. I’m not sure where all this ends, but from a common sense viewpoint it can’t go on forever. It flies in the face of logic.

  6. I don’t know, I did pretty well. Even though I lost, I won. Got my kids grown and married, lived a stressful life, but we made it. Better times now that I don’t care anymore. As to the headline, I tortured Wells Fargo for 12 years, they haven’t gotten a dime out of me for 10 years worth of payments and taxes ($150-190k) and they spent, oh, probably another $100K on lawyers. Now, as the appeal rots, I collect a couple bucks for rent and utilities (which can’t be shut off until title transfers) and continue to stick it in their ass. But, they don’t care. Wells Fargo is too big to penalize. They never feel it. So life goes on.
    Don’t get me wrong, I still try to start a few fires here and there on an occasional comment section. Usually a “deadbeat’ article or some such thing. I find it very therapeutic.
    But other than that, I really am glad to be out of this circle. Just me and my disbarred attorney is pretty much it. I help her, and we laugh a lot. That’s all we can do. Laugh at the 200 years of property law being used to light the barbecue grill.
    So, please, take my advice. Fight as long as you can, get your licks in, but you will probably, most likely, nearly certainly, lose. You will lose your house in the end. It’s been decided. There is no fight to be had with victory being “quiet title”. Courts have seen to it.
    Except all you folks with statutes of limitation after acceleration like New York. Those people are indeed home free if they still occupy their homes. But that’s because New York KNOWS the laws.
    Your cornhole Circuit Court judges everywhere else are beholden to their 401K plans. You are not “important”. Remember that. And love your kids.

  7. And to JohnR — agree with Ian. Excellent. Computers don’t lie. And, John – there are data bases — we just don’t have access to them.

  8. Excellent Neil. But, you just need to take a step further. And, I don’t think most attorneys want to take that extra step. Yet,I know, and feel confident, that you do!!!!

    Your comment – “must show that they paid value for the debt, that they paid it to the owner of the debt and that the debt was transferred to them.” — is right on point. But, lets go back to origination. Did the BORROWER actually pay off the prior loan? Did the BORROWER payoff actually pay their obligation on the PRIOR loan and “refinance” the debt into a new loan? The answer is NO.

    I know I keep repeating this, but I have to. The loan never went to anyone’s balance sheet. Non bank originators did not fund the loans no matter what they told you at closing. Without a balance sheet, there can be no “trust” – which is is exactly what we have!! This is simple accounting 101.

    And Discharges? Typical wording – “Satisfied or “otherwise paid” — or “PAID and satisfied” does NOT necessarily mean paid by the borrower. Check the note. Easily overlooked, but “legally” the wording is a cover up. They tried to cover themselves. Attorneys like to do that. Someone pointed this out to me. Standard note (at least for those non bank loans) likely says:

    ” Any person who is a guarantor, surety or endorser of this Note is ALSO obligated to do these things.” (my emphasis on word ALSO) “Things” being — pay the note. So the question is did your refinance allow YOU to pay off the prior note? Or someone else (endorser, perhaps, in BLANK??) to “Claim” to “satisfy it?” If the latter,then the last origination is BOGUS. This is what happened, and hate to say it, but actually caused the SHUTDOWN of the entire scheme. “Warehouse lending” and all. Do we want to go back to this? If Trump gets his way – we will. But, where were the DEMS when it all happened? Where was the fed reserve and regulators? And why is the truth still concealed? Are we that fragile that it can’t be disclosed?

    I know not satisfied the way it should have been- BY THE BORROWER. But, people have to hound. They have to give attorneys something to work with. No offense to Neil, but attorneys can be difficult (I know). CHECK THE PRIOR TRANSACTION WITH A FINE TOOTH COMB. Where was it before? Verity it. Verify how paid — or NOT paid – and by WHO??? Discharge is worthless verification. .

    Sooner or later this will all come to surface. But, it will take a “village” as Hilary used to say. Where was she? She blamed the homeowners as I recall. DO THE Homework. GO BEYOND THE LAST TRANSACTION. And, I say transaction for a reason. .

    Attorneys make judges focus on LAST transaction. BIG mistake. Of course if new purchase, check the prior owner’s transactions — most were refinances in financial crisis fraud. But, new purchases too. Non Bank – non valid loan. Have found problems ALL the way back.

    I am not in foreclosure – but a victim. Many, many. many years in hell. How long can this be silenced? Where did the money really go? Unanswered.

  9. JohnR- great post, great ideas, and I think you are right on target. I know that people are absolutely disgusted with various facets
    Of all things government, myself included, and I believe that the legal industry is right up there. AI will slice thru the veneer I’d purposely confusing legal jargon in fractions of a second . Literally. Once we get the BS out of the way, we can get back to a peaceful existence.

  10. Neil I do like your comment in it’s whole… and it definitely has it’s worth. But it only has worth because you are educated in the extreme in it’s context. To the majority… they have no context because they have a life dedicated to helping themselves live in this world. Perspective and specific education mean everything. And I believe that’s a part of the industry’s game. Make the process so complicated (monopoly) that the current legal system (Judges & Lawyers) doesn’t, cannot and will not ever understand it (let’s those who created it (Wall Street) look down their noses at the lesser’s) so the money always wins… and that’s not lawful! You also state “If the law were that simple a computer would be deciding all cases.” to which I reply… they should be! FIRST each and every case should be run through a program that guarantees that foreclosing entities possess the legal rights to even envoke the jurisdiction of the court in the first place! Remember… these rights are allegedly all computer recorded somewhere and computers talk to each other very, very quickly. Verification SHOULD happen in a manner of moments. As all that is required is software, a computer and Internet access… this should be mandatory in every court case, done by the court’s themselves (not some lawyer “guaranteeing the authenticity”) BEFORE a Defendant is even firstly notified! Then it should be checked for procedural errors including each and every transfer of the note & mortgage through each and every entity… and on and on and on until the case is “proven” from a technological point of view… again BEFORE the Defendant is even notified. And to this end… A.I. is being created at this very minute to accomplish this very idea and turn it into a reality! On my own blog ( which has been up and running 11 years now and is only about illegal foreclosures and that I have posted over 40,000 publicly published (common knowledge) articles concerning same at: https://www.facebook.com/john.reed.37201) I have included several articles discussing which Law firms have been currently building legal databases for their differing versions of A.I.’s (Artificial Intelligence) and I am currently getting a small plethora of messages stating my name is being researched at sites like academia and ScriptD and others… far to many requests for this to be a human doing the searching… and that’s how A.I. databases are constructed. They search a topic, download what seems pertinent, reads it, categorizes it, then searches it for leads to find more of same. What I envision here is that the legal industry itself has been so full of itself & deplorably lacking in ethical standards for so long now that it has passed the tipping point and we the people, the truth, and the actual real, written law which we the people are held to live our lives by is purposely changing directions and headed into an A.I. legal judicial new operating system that will make things legal again… and the Lawyers and Judges will become the homeless. Oh, we’ll still need a few, but the masses of those needed by the legal industry are about to be exposed and eliminated and Thank You Lord! Of course… I could be wrong. But in the long run… I believe I am not.

  11. That sounds like a well reasoned approach Neil. Although isn’t the judge obligated to nudge the pro as litigant along, or help them in some way?
    I personally would have an experienced, respected attorney in the courtroom. but Inwould be directing the narrative. There are no attorneys who “get it” in my 2 neighboring counties or my home county.
    The local papers, when reporting on foreclosures, have no idea what they are talking about. Just short sales, deeds in lieu, or the occasional modification nonsense.

  12. I do understand that lawyers mostly chicken out. They don’t want to do the work because they think the case is a loser. They think the case is a loser because they don’t understand the case. Vicious circle. None of that takes away from the fact that most pro se litigants get trampled by not at least having a lawyer with whom they consult about procedure. And the pro se litigants that follow my advice often end up with a conversion from a disinterested lawyer to a very interested lawyer who now sees the potential for success and profit.

  13. Javagold- great comment! Your fight for your home, and for what’s right and just, isn’t going to be given even 5% of the effort you and others have put forth, by an attorney for hire. Just isn’t going to happen. So when an attorney takes a fraud closure case, it’s just business. And there seems to be a noticeable increase in information becoming available or unearthed which can only help. You’ve gotten this far pro se, and are no doubt far more knowledgeable than any attorney you can hire. Good outlook-

  14. Neil. The part you keep missing is there are very very very FEW lawyers willing and/or able to fight fraudclosures. It’s as simple as that. At this point In time I much want prefer to be pro se, for more reasons that I could even list here. Mainly none of them will ever fight as hard as I will.

    After all these years. How you or really anyone, has not started a group of defense lawyers that homeowners in each state could go directly to, is beyond comprehension. With all those piles of Federal Reserve Notes just sitting out there waiting to be won in court , it’s INCONCEIVABLE.

    What else do you expect a homeowner to do ???

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