Homeowner debt is never sold to investors. Either you get it or you don’t.

It’s more complicated than just a Ponzi scheme.

In its simplest form the obligation of the homeowner was purchased by the Investment Bank through intermediaries. So the originator never touched the money. It was often masked by something called a warehouse lending agreement.

So the paperwork showing series of sales of the loan starting with the originator is completely fabricated and demonstrably untrue. It can be demonstrated through discovery. The absence of a meaningful response to simple discovery demands can be used to raise the inference that there is no ownership or authority over the loan. 

This also undercuts the false claims of a “boarding process” or “audit.” No such thing exists. Unfortunately the people who argue or testify that such practices exist are protected by litigation immunity doctrines that are far too broad.

But you must be persistent and aggressive in court. Merely demanding discovery is worthless. You must seek orders from the court compelling the response to Discovery. And when you still don’t get the answer you must seek orders of sanctions, including limiting the ability of your opposition to proffer any evidence of ownership or authority over the debt.

Once you know how to do that in litigation and you raised timely proper objections if the case ever gets to trial, the homeowner wins most of the time.


Many paper transactions that are shown as a refinancing of the original home owner transaction are equally fabricated. This is true when the originating Investment Bank is the same in both the original homeowner transaction and the new one. No money exchanges hands. It is all on paper. If the homeowner is getting cash out of the deal, then the Investment Bank advances only that amount of money. 

The Investment Bank in turn maintains the original securitization claims of the original homeowner transaction while at the same time starting a new one. And often there is a third securitizations scheme in which the original scheme is “resecuritized.” This allows the investment bank to make far more money than anything involved in the homeowner transaction. (And by the way I suggest you stop calling it a loan).

Where the Investment Bank for the original homeowner transaction is different from the Investment Bank in the new homeowner transaction that is called a “refinancing” then in most cases money actually changes hands. 

But in no case does the investment bank or the investors ever receive any conveyance of any right, title or interest in any homeowner debt, obligation, note or mortgage. This is intentional. If they did receive such a conveyance then they would be lenders under the lending statutes like TILA, and securities statutes, rules and regulations under the SEC.

The plan calls for evading or avoiding liability for violations of those laws. So they define the originator as a lender even though the originator is not loaning or even paying any money to the homeowner.

When foreclosure Mills come to court they argue the contrary. They’re able to do that because they are protected by litigation immunity.

Possession of a note does not automatically mean that the possessor has the right to enforce. 

And even if the right to enforce the note that exists, that does not mean that the possessor of the note paid value for the debt as required by article 9 §203 of the Uniform Commercial Code. 

That is why a paper transfer of a mortgage or deed of trust is a legal nullity without an actual transfer of the debt. All jurisdictions have case decisions that say exactly that. It’s the law.

The common error by lawyers and judges is that they presume that the note is evidence of ownership of the debt. That presumption does no harm when one is only enforcing the note for a money judgment. But when seeks forfeiture, especially of a homestead, that presumption defeats all the protections that were designed into lending and foreclosure statutes. Unless legal merger has occurred and the court specifically makes that factual conclusion, the execution of the note is not evidence of the debt.

The doctrine of merger is the only things that prevents the homeowner from creating two liabilities for the one payment. But merger only applies if the person paying consideration or value to the homeowner is the same person as the one designated as “payee” on the note. If those two are not the same, then merger cannot occur.

You have two legal events then. One being the payment to the homeowner which gives rise to a liability simply because the homeowner received it, and the other being the execution of the note that under the laws governing negotiable instruments gives rise to a separate liability that can be deadly to the homeowner if someone purchases the note for value (holder in due course), in which case they will be presumed to have acquired the debt. But the debt is not transferred unless the person selling the note owned the debt.

It is possible to enforce a note without the claimant having any actual Financial loss. This is an exception to the usual constitutional rule that in order to get into court you must be able to allege and prove some injury. But in foreclosure, the condition proceeding to filing the action for foreclosure is that the claimant must have paid value for the underlined obligation. In other words the requirement that the claimant has actually suffered Financial injury as a result of some failure on the part of the homeowner is not waived just because someone possesses the note. 

Lawyers who get it win their cases. Most lawyers don’t get it and they lose.
While it’s true that the securitization scheme has many of the elements of a Ponzi scheme, it is not that simple. It’s completely true that the investment Banks would not be paying any money to homeowners in the absence of security sales and that the proceeds of security sales are the main contributor to the revenue of the investment bank and its Affiliates and Co Venturers (see RICO). 

But much of the money that is paid to investors does in fact come from payments from homeowners. Or perhaps that is not the right way of saying it. The money received by investors comes from the Investment Bank who actually does not have much of a liability to the investors or to anyone else as a result of the sale of unregulated securities. The investors who purchase certificates are not purchasing payments from homeowners. They may think they are but they are not. No document says they are.

They purchased a conditional promise within the sole discretion of the Investment Bank. The Investment Bank is acting through a fictitious name of a special purpose vehicle whose only legal existence is technical and not legally real. The certificates are issued in the name of the trust, but the trust has no assets, no business, no liabilities, no income and no expenses.

The Investment Bank maintains the right, in its sole discretion, to continue making payments to investors despite the failure to receive payments from homeowners. Those payments are labelled “servicer advances” even though the money comes from a reserve fund established when investors purchased certificates. This is actually all spelled out in the prospectus and the offering circular to investors. All servicer advances come from investor funds and never from the “the master servicer” which is actually the Investment Bank in disguise. 


So the bottom line is that the money paid to homeowners comes from the Investment Bank at the very beginning. Therefore none of the intermediaries ever touches any money except that which is paid to them as fees. My point is that homeowners are entitled to a bigger piece of the pie than they received only because the Investment banks hid the pie.

*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. If you are talking about a promissory note, then the common law merger doctrine is applicable; however, if you are talking about a negotiable instrument, Sec. 3-310(b)(2) is the black letter law for the merging of the debt obligation in the instrument taken for the debt, and 3-310(b)(3) and (4) is the black letter law for enforcing the debt obligation merged into the Instrument. See also https://casetext.com/case/pk-motors

  2. So how does Freddie Mac say they sold 550 NPL to Truman Capital ??

  3. Here is the link to PennyMac Prospectus (draft ). All very clear, just like Neil said.

    Underwriters are: Citi; Bank of America, Goldman Sachs, Credit Suisse.

    “We have granted the underwriters an option to purchase up to additional shares of Class A common stock.”

    ” The underwriters expect to deliver the shares to purchasers on or about , 2013 through the book-entry facilities of The Depository Trust Company.”

    “The declaration, amount and payment of any dividends on shares of Class A common stock with respect to any remaining excess cash will be at the sole discretion of our board of directors.

    Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

    We may also enter into credit agreements or other borrowing arrangements in the future that restrict or limit our ability to pay cash dividends on our Class A common stock.

    https://www.sec.gov/Archives/edgar/data/1568669/000104746913000729/a2212679zs-1.htm#cw46401_dividend_policy

  4. Being blocked, surprised…I can stay off then.

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