Cal. 3d DCA: WRONGFUL FORECLOSURE — You Can Cancel the Assignment, Notice of Default, Notice of Sale and Reverse the Sale.

This decision “Not for publication” takes one more step toward unravelling the false claims of securitization that resulted in millions of fake foreclosures over at least 15 years. The pure nonsense being peddled by Wall Street investment banks still remains as the underlying basis for assumptions and presumptions that are contrary to fact and contrary to legal and equitable principles.

But the window is now open to include the investment banks as defendants in complaints for damages and disgorgement, because as this decision reveals, the courts may not be willing to take a giant leap of faith that someone must be the lender and that “someone” is part of the chain of players who are pursuing foreclosure. Without that leap of faith, without that bias, their “doctrine” is left dangling in the wind.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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See http://lawzilla.com/blog/rainn-gauna-v-jpmorgan-chase-bank/

YES it does stand for the proposition that at least this court says that cancellation of instruments is the one cause of action that in fact does exist because the assignment was from an assignor that had no interest in the debt. I think that it is important to make it clear that the words “no beneficial interest” means “no ownership of the debt.” But the use of the words “no beneficial interest” implies the validity of the deed of trust by which the property was encumbered in favor of a “lender” (or its agent “MERS”) who was a sales agent and not a lender and from whom the borrower received no funds.

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This twisted concept seems to be saying to the judicial world that we know that table funded loans occur but we are not going to invalidate the enforcement of contracts lacking in consideration because there must be someone in the mix who did provide consideration and who was in some kind of relationship with the sales agent. Hecne the courts are thinking that they are following substance over form and thus preventing a windfall to borrowers. Instead they are stepping over the facts.
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The money came from an investment bank and yes the investment bank knew that the “originator” would be named as lender. The purpose of this arrangement was to shield the investment bank from liability for violations of lending laws of which we all know there were many spanning the categories of appraisal fraud, avoidance of underwriting risk (without which nobody could be considered a lender), to concealment instead of disclosure of terms, compensation etc.
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You can’t pick up one end of the stick without  picking up the other. If we are going to accept the notion that in foreclosure cases we are going to treat a contract as enforceable even though it lacked consideration and nobody else that is named in the chain has ever paid value, then the assumption is that an unnamed party who actually did pay value, is the real party in interest. That is the investment bank. And THAT can ONLY mean that the investment bank was present in underwriting and granting the loan through its naked nominee, the sales agent or “originator.”
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If that is so then the liability for lending violations MUST attach to the investment bank. And if that is so then at least in judicial states, by alleging those lending violations through the affirmative defense of recoupment, the foreclosure can be mitigated or defeated entirely. In nonjudicial states one would need to allege active concealment preventing the borrower from knowing the real party in interest with whom he was dealing.

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This could be the end of nonjudicial foreclosures at least as to LBMT-WAMU-Chase. It should be treated as such. If I had time, I could literally write a book about this decision as it is so instructive as to pleading requirements and common mistakes made by trial and appellate courts like for example, assuming that a legal default exists when nobody who owned the debt declared such a default or even said that payment was delinquent in some way.

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It also shows the lengths that many courts will go to avoid “fraud.” While they will accept the notion that something was wrongful and that the defendants knew it was wrongful, contrary to fact and law, they refuse so see it as fraud. A quick look at any FTC action will reveal that such restrictions do not apply if the same allegations come from a governmental agency.
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The case is also instructive in that it repeats a very common scenario regarding the origination and progression of the loan. This court and other courts will eventually face the day when their assertions come full circle: for now, they are saying that just because there was no consideration between then named lender and the borrower doesn’t mean there was no enforceable contract.

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Yes it does mean that in every context other than foreclosure litigation. But because of the rules in UCC Article 3 the maker of a note takes a risk when they execute the promissory note without having received any consideration because the note represents, under law, the right to enforce it, which if it is acquired for value might mean the enforcement would be free from borrower”s defenses. That liability does not create an enforceable loan contract. Even common sense dictates that for a loan contract to be enforceable there must be a loan between the parties to the contract.

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PRACTICE NOTE: All that said, this case only stands for the proposition that a complaint is sufficient when it pleads that the party on whose behalf an assignment was made had no ownership in the debt. The proof of the pudding will be at trial. How will you prove this basic proposition. The answer is that you have taken the first step which is that you put the matter in issue. The second step is discovery. And the third step, if it ever gets to that, is establishing at trial that the supposed beneficiary under a deed of trust or the mortgagee under a mortgage deed had not satisfied its burden of proof showing an ownership interest in the underlying debt.”

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The opposition to that narrative will be what it has always been. That possession of the “original” note raises the legal presumption that the named beneficiary under the deed of trust in fact was the legal beneficiary under the deed of trust. Possession of the note, they will argue equals ownership of the debt. If the judge accepts that proposition, the burden of proof will then fall on the borrower to rebut that presumption — a leap that most judges have already demonstrated they don’t want to make. So the persuasiveness of then presentation including an unrelenting march toward revelation of the truth is the only thing that carries the day.

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The banks know that what they’re doing is wrong. But history shows that they can get away with it except with the apparently rare homeowner who aggressively and relentlessly defends the foreclosure.

13 Responses

  1. Kali – you are absolutely correct about a “true sale.” Much was written about “true sales” after the financial crisis was first exposed. In a true sale, “on” balance sheet “ASSETS” are removed to an “off balance” sheet conduit. But, those assets MUST be on balance sheet FIRST in order to be THEN removed to off balance sheet conduit.

    Some here, old enough, will recall Enron. Buried “debt” went straight to off-balance sheet conduits. There were no on balance sheet assets. The conduits were therefore bogus. Broadway loved the Enron story years ago – where are they now? .You are right!! No “true sale” occurred with the non bank loan origination – THERE WAS NO ON BALANCE SHEET ASSET TO JUSTIFY A TRUE SALE TO OFF BALANCE SHEET CONDUIT.- BY ANY ENTITY. .

    The bottom line is that borrowers, and courts, should not be concerned with securitization — whether “true” or not. This is because securitization investors are NEVER the “lender.” To state otherwise is a violation of TILA ( i am surprised that no one has brought this to SCOTUS). . Security investors NEVER lend to borrowers. Securitization is simply a vehicle to pass through CASH flows to investors for deals between the security underwriters and investors (Bernanke was first to state this after the crisis was exposed).

    Borrowers only concern should be: Who is successor lender to the original stated (non bank lender), and on WHOSE balance sheet does the loan currently lie – if any? Security trusts/trustees do not have balance sheets. They are NOT successor “lenders” according to TILA.

    By the financial crisis, those “deals” were BAD. Borrowers have been forced to take the fall. There is much more to this then has been disclosed. .Neil is correct, one must show nothing “fits.”

    I find it so odd that given all these cases across the country that show bogus documents, and bogus foreclosures, that the government just does nothing. What real government would allow this continue? Only a government that allowed it to happen.

    On Friday, “GE” settled for over a billion dollars on the same settlement premise of the other bank settlements – bad underwriting. There was NO bad underwriting — there was NO “true” underwriting at all!!!!

  2. @ ANON

    FASB 140 requires that a “TRUE SALE” must apply to a securitization transaction, thereby separating at law the TRANSFEROR (a/k/a “originator”; “lender”) from the financial asset(s) “sold” to … unknown “investors” … who(m) are also contemporaneously unrecorded purchasers of bond certificate securities (& have obviously & unwittingly supplanted the unrecorded warehouse/table-funder as the intended debt purchaser & entire risk holder).

    Thus, EVERYONE must articulate a claim based on the foregoing.

  3. now there’s an “a-ha” moment!

  4. Kali — yes interesting how the LENDER retains much control over the Freddie/Fannie MBS. But, the letters discuss direct loan transfers.

    Freddie/Fannie went beyond their original type of direct loan securitization. They invested in the securities (not direct loans) of the private label securitizations In this respect, they are an “investor,” Thus, the F/F REMICS contained both direct loan securitization, and indirect securities derived from other securities.

    Once the private label (bank) trusts collapsed, under FASB 166 and 167, these trusts (the loans and derived securities) were supposed to be taken back onto the balance sheets of the banks. This never occurred. Instead, the government, in 2008, implemented the bail out, and went and purchased the “toxic” securities themselves. The only party that made these securities “toxic” was the banks themselves. But, the bigger question is why did the government step in, instead of the banks complying with FASB 166 and 167? Likely, because the loans from which securities derived, were never on the banks balance sheet to begin with – so they could not go back.

    The courts confuse “right to enforce” and actual “lender,” holder, and owner, in the standard “title” chain. Securitization should not affect the borrower. Especially, a securitization process that was deeply fraudulent. The lender should remain the party the document was signed with. But, those non bank originators funded nothing and they are gone. So “rules” just seem to have made up along the way as the process unraveled. .

    And, the bank CEOs who did this, just keep getting richer.

  5. @ Brian Tracy

    Please begin by digesting the comment links on the other post:

    https://livinglies.me/2019/04/03/ucc-the-internet-is-no-substitute-for-law-school/#comment-514292

  6. @ Kalifornia ,

    Can’t wait to see the “more” … everything points to what you outlined… in my case I have the name of the actual lender who underwrote and funded my note although they refuse to publicly acknowledge their role and do not appear on the note… would you file the UCC1 on the entity claiming ownership? the Trustee? or the actual underwriter/funder? Add them as an additional party in a FC suit? How? How? How?

  7. Even though this opinion is not published it still provides some very useful information for anyone filing a wrongful foreclosure lawsuit as it discusses the elements of wrongful foreclosure as well as cancellation of written instruments and slander of title and cites to published cases discussing those causes of action.

    Here is the link to this opinion on Google Scholar: https://scholar.google.com/scholar_case?case=11683495200825635496&q=rainn+gauna+v.+jpmorgan&hl=en&as_sdt=4,5

  8. @ ANON

    I encourage you to re-read the entire contents of the Fannie Mae letters on FASB 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” explaining the derecognition by the “TRANSFEROR” (a/k/a originator) and the mandate of divesting of any and all interest and control of the financial instrument(s), e.g., NOTE & MORTGAGE/DEED OF TRUST — PERSONAL PROPERTY!!!!

    FASB 140 is so important to comprehend because it is the evidence and accounting trail of SEPARATION by the TRANSFEROR from the asset(s) in order to be unreachable as an asset that a bankruptcy court would otherwise consolidate upon the insolvency of the TRANSFEROR.

    PEOPLE need to realize that they are the MAKER & OWNER of the financial instruments in an undisclosed bailment where their PROPERTY was used for financial gain, and they must leverage the foregoing OWNERSHIP of the financial instruments they made by filing a UCC1 declaring the bailment of their PROPERTY; then enforce their right to know the paper trail their PROPERTY has traveled, its location, its income generation, and ultimately its return to their possession.

    More to follow.

  9. @ ALL

    The link to the opinion:

    https://www.courts.ca.gov/opinions/nonpub/C078490.PDF

  10. Neil – I hope you don’t block this one.

    Java — that is the trillion dollar question. Because Freddie Fannie invested in the private label scam trusts.

    This case here has many falsities. But, the biggest one is –

    Quote – “LBMC’s loan to Gauna was not funded by LBMC, it was funded by investors who bought certificates to the Long Beach Mortgage Loan Trust 2005-1 (LBM Trust).”

    NO!! Security investors DO NOT FUND loans. Just like Freddie/Fannie with direct (and indirect tranche investment in private trusts) do not fund loans – they never did. This is NOT the process in securitization.

    In this case, LBMC “funded” the loan with a warehouse line of credit from some bank (likely Chase). And, the funding was likely only for cash out. LBMC then had several weeks to sell the loan to secondary market (they do not sell directly to security investors – they would sell the loan to the security underwriters) For LBMC 2005-1 – the security underwriters were – WAMU Capital Corp, RBS Greenwich, Goldman Sachs and Credit Suisse (security underwriters are found in the prospectus not pooling and servicing agreement) and the legal holder would be the trustee to the trust. The loan itself is NEVER sold to, or funded by security investors. Only cash flows are supposed to be “passed through” to security investors. If the warehouse loan is NOT paid back because LBMC cannot sell it to the secondary market, then the loan is not securitized (securitization should never have occurred in the first place as LBMC never had the loan on its balance sheet to securitize) or if lines of credit not paid off, the collateral remains with the warehouse lender. Warehouse lines of credit were abruptly just shut down with most lines of credit never paid off by the non bank originators like LBMC.

    Another problem with the courts is when they fail to determine the actual “lender” in the foreclosure fraud, they fail to determine the “lender” or contract in a loan modification. Who the heck is the Lender then? Are the loan modifications even a contract then?

    The government, by settlements, left all questions unanswered and the courts are simply GUESSING at all. .

  11. How and when are damages being awarded to the homeowner, who still owns the house? In the original case as a victorious Defendant, our in a counter suit?

  12. FYI California Rule 8.1115(b)

    California Rules of Court, Rule 8.1115. Citation of Opinions.

    (a) Unpublished opinion. Except as provided in (b), an opinion of a California Court of Appeal or superior court appellate division that is not certified for publication or ordered published must not be cited or relied on by a court or a party in any other action.

    (b) Exceptions. An unpublished opinion may be cited or relied on:

    (1) When the opinion is relevant under the doctrines of law of the case, res judicata, or collateral estoppel; or

    (2) When the opinion is relevant to a criminal or disciplinary action because it states reasons for a decision affecting the same defendant or respondent in another such action.

    (Subd (b) amended effective January 1, 2007.)

    (c) Citation procedure. A copy of an opinion citable under (b) or of a cited opinion of any court that is available only in a computer-based source of decisional law must be furnished to the court and all parties by attaching it to the document in which it is cited or, if the citation will be made orally, by letter within a reasonable time in advance of citation.

    (d) When a published opinion may be cited. A published California opinion may be cited or relied on as soon as it is certified for publication or ordered published.

    Rule 8.1115 amended and renumbered effective January 1, 2007; repealed and adopted as rule 977 effective January 1, 2005.

  13. Why is it. And How is it. That Fannie and Freddie never are named in the fraudclosures ???? Whether as plaintiff. Whether as Creditor. Whether as owner of Loan. Whether as assignments of mortgage. Whether as some made up agency that do whatever they want !!!!

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