Can you force securitization players to identify the creditor?

The creditor is by definition the party who claims to own the debt. If they own the debt then they are reporting the debt as an asset receivable on their accounting records. Since investors do NOT buy homeowner debts, there is no party anywhere that is a creditor. If there is no creditor, there can be no debt, because there is nobody entitled to receive payment.

Current law is slightly muddy; however common sense combined with common law should do the trick. But Judges, scared of toppling the entire financial system continue to find ways of making it difficult if not impossible to learn the name and address of the party claiming to be entitled to payment on obligations arising from transactions with homeowners.

This has opened the door to widespread fraud. Lawyers can come to court claiming they have a client and only implying that the client is a creditor. The fact that it is untrue neither subjects them or their client to discipline or liability because of something called “litigation immunity.”

Virtually all claims of “securitization of debt” are false. This is certainly true in transactions with residential homeowners. The reason is simple: investors, who are supplying the money for “the scheme”, are NOT buying any right, title or interest in any debt, note or mortgage. AND investors get paid based upon an entirely different formula which is applied regardless of whether or not the homeowner is making payments.

The reason why identification of creditors is consistently stonewalled is also simple: there isn’t one.

So whether it is a demand for a monthly payment or it is a foreclosure proceeding invoked, it is not happening because anyone got hurt or lost money. Everyone still is getting paid because most of the cash flow for their payments comes from the creation, sale and trading in unregulated securities — not “loan” payments. But this is counterintuitive (i.e., not believable in the context of common knowledge). As a result nearly everyone, including the homeowner who is falsely cast as a borrower, believes that here was and remains a loan of money that the homeowner has not repaid.

So thus far, because of the erroneous assumptions in “common knowledge”, everyone comes to court with the wrong idea. The results are not surprising:

  1. Foreclosure mill lawyer makes untrue representations that are assumed to be true as to status of a “loan” and the amount due and the party to whom it is “owed.”
  2. Borrower, even though counsel, admits the “loan,” and thus admits that there is an amount due and owing.
  3. Counsel for borrower has no idea that he/she is admitting that there is no defense except for technical objections in the declaration of default or in accounting.
  4. The judge assumes there was a loan and that the claimant is seeking to collect on it because the uduge must assume that in the absence of a contest by the homeowner. Even if the homeowner does contest, the judge will typically not regard the challenge as credible.
  5. Nobody gets mad because they are thinking that after all there was a loan and it hadn’t been paid. Nobody is thinking injustice because the proceeds of the forced sale and forfeiture of the homestead are being used to pay down the debt.
  6. So the Judge is presented with a “challenge” that starts with an admission of the loan, admission of the debt, admission that it is unpaid, but a technical objection to its enforcement because the debtor does not believe, but cannot prove that the party claimed to be represented by counsel is a real creditor.
  7. The Court adopts, sub silentio, a tacit judicial doctrine that enlarges the requirements for filing and pursuing judicial foreclosures beyond the statutory conditions precedent for filing such an action. The doctrine requires ultra vires judicial action in which the State statute adopting Article 9 §203 of the Uniform Commercial Code is rewritten only for purposes of foreclosure actions.
    1. Specifically, the statute requires that foreclosures be brought only by parties who paid value for the underlying debt; but the doctrine negates that statute and substitutes an unfounded assumption that eventually the proceeds of foreclosure will be used to pay off the underlying debt to an unidentified and unknown creditor. That assumption is factually, legally, ethically and morally wrong. Adherence to it promotes an unjust result.
  8. Unchallenged as such it becomes the law of the case with each new ruling by the court and the final order or final judgment entered by the court.
  9. Even readers of this blog don’t get it. If the loan obligation of the homeowner ever existed in legal terms — i.e., enforceable by laws of contract — and even if it still exists, the fact remains that this was never a loan and that the transaction with the homeowner was part of a larger transaction and a larger contract that is recognized at law as quasi contract or under quantum meruit because of the fact that the larger scheme, and all of its profits, were never disclosed to the homeowner. Until that larger contract is alleged and proven by both sides, there can be no enforcement of any obligation of either party.
  10. The terms, conditions, consideration and obligations of the parties can only be determined when the court has the entire securitization scheme under review. Without the creation, sale and trading of unregulated securities there would be no money to fund transactions with homeowners. Without the transactions with homeowners there would be no securitization scheme. Under  single transaction analysis or step transaction analysis the conclusion is clear. The transaction with homeowners is inextricably entwined with the securitization scheme such that one cannot exist without the other. In that context, attempts at invoking foreclosure are invitations to the court to ignore offsetting obligations owed TO the homeowner and to focus only on obligations owed FROM the homeowner. In courts of equity and law, this is invites error and injustice.

And one of the big problems is a very real conflict between two very real necessities in jurisprudence concerning the behavior of lawyers and their clients. On the one hand lawyers and generally their clients must have litigation immunity to prevent them from being targets every time their client loses a case. This is unalterably true even if you don’t like it.

On the other hand, lawyers and their clients have a duty of performing due diligence inquiries to satisfy themselves that there is at least a shred of truth to the position they are being hired to advocate for their client.

And on the third hand, lawyers must not mislead or misrepresent facts to the court, but it is not a misrepresentation unless the lawyer knows it is a lie. And the lawyer does not know it’s a lie if his due diligence failed to uncover the truth.

In short, there is an abundance of plausible deniability fueling the foreclosure spree that began in 2001.

Lawyers are not required to swear or even assert that the named claimant or plaintiff is actually their client. In situations where securitization is claimed the named claimant is not a client of the law firm invoking the process of forfeiture through foreclosure.

Normally such law firms get an electronic message with electronic information and they are told to utilize the services of a company who will be referred to as a servicer. The law firm is given these instructions from an unknown source commanding that the claim to be initiated in favor of a designated entity.

Here is the rub: nobody from the law firm ever speaks with or is otherwise taking instructions or questions from any living person who works for any entity that has been identified as the claimant or Plaintiff. The law firm is relying upon its receipt of electronic instructions that that have not been tested.

So the way to deal with this and get to the nub of the problem is to ask for the identity of the creditor and the status of the claimed obligation. And in many states you are entitled to get it, but enforcement of that right is troublesome in the context of false claims of securitization of debt.

And that is where we run into litigation immunity and the right to obtain payoff statements. The tendency in the courts now is to require law firms to turn over payoff statements provided by “the client” and definitely from a “servicer” for “the client.” But none of those statements ever contain a representation, guarantee or warranty that the named claimant is a client, that the named claimant is a creditor, or even that the obligation still exists and has not been extinguished off the books of every participating entity as an asset receivable.

The authors of the leading treatise on mortgages in the United States state that even in the absence of statutory law “mortgagees have a duty to respond reasonably and promptly” to inquiries regarding payoff statements. And that “the whole system of mortgage finance would break down if mortgagees refused on any wide scale to provide the needed information.” 1 Real Estate Finance Law §2:4 (6th ed.).
The Restatement (Third) of Property: Mortgages §1.6 imposes a duty on a mortgagee, even in the absence of an applicable statute, to provide information regarding the balance due and status of an obligation to the mortgagor and others, on written request, and that a mortgagee who discloses erroneous information is liable for the damages caused by the failure or error.
Under the New Jersey Home Ownership Security Act of 2002 (HOSA), N.J.S.A. 46:10B-25f, a creditor’s failure to provide payoff balances within seven days after a request is an unlawful practice under the New Jersey Consumer Fraud Act implicating treble damages, N.J.S.A. 56:8-19. And HOEPA, 15 U.S.C. Sec. 1639(t)(2), requires creditors to provide payoff balances within five business days of a request.
With the crush of mortgage foreclosures today in New Jersey and elsewhere, public policy should override the LP to ensure that borrowers, especially homeowners, are guaranteed accurate payoff and reinstatement figures during the foreclosure process.
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Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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4 Responses

  1. I know who bought my loan from Freddie when they said they unsecuritized the loan. How is that even allowed ???

    So now I have a shell game of bad characters BOA NA. Countrywide. BAC HL. Specialized Loan Servicing. Freddie Mac. Rushmore Servicing. Wells Fargo. US Bank. And Truman Trust SC 2016.

  2. Neil ,

    You state there is widespread criminality , fraud , comitted by lawyers .. then you go on to say that lawyers are immune from being prosecuted for their intentional fraud…

    I understand the BAR is a labor union that controls the rules of the game and rule #1 is that their players should be able to steal from anyone at anytime and be immune from sanctions.

    Why can’t the bar be sued out of existence via RICO.

  3. Yes – paper – agree! Neil’s comments on payoff statement is right on. They never contain the information needed. I have questioned this from authorities and I was told — “they don’t have to.”

    Neil is right on for much of this article including –

    “So the way to deal with this and get to the nub of the problem is to ask for the identity of the creditor and the status of the claimed obligation. And in many states you are entitled to get it, but enforcement of that right is troublesome in the context of false claims of securitization of debt.”

    The problem remains — who will unravel the securitization fraud for a judge to comprehend? And, even if the judge comprehends, do they have the guts to put in writing? Is our only answer settlements that we never see in case law?

    We are all here to help ourselves, but – “we are all in this together.”

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