Ice in the Winter: Government backed loan foreclosures suspended through the end of the year. Nice! If only the foreclosures were valid to begin with!


There was time that mainstream reporting was investigating whether the loans were valid and whether their enforcement was valid. Published news reports, court decisions and massive settlements all pointed to huge inconsistencies between the positions that investment banks took with the investors, the courts and with borrowers.

Millions of documents were fabricated for purposes of enforcement of a debt account that did not exist. After foreclosure the debt account again receded into vapor. Reporters were getting close.

Then, all of a sudden, somebody pulled the plug and investigative reporting dried up leaving homeowners and their lawyers without the information they needed to successfully defend against illegal foreclosures based upon nonexistent loan accounts. Litigating against a designee instead of an actual creditor was likened to fighting with a ghost.

And now we have moratoriums and suspensions of enforcement for political and practical reasons. The effect is to bottleneck what will be a torrent of foreclosures and evictions based upon nonexistent claims in many cases by naming nonexistent claimants.

This is the time to start administrative strategy in advance of the end of moratoriums so homeowners and their lawyers have the ammunition and the footprints in the sand to prove that they are entitled to an inference that is in direct conflict with the presumption the banks want the courts to apply — that the possession of the note is all you need to foreclose on a mortgage.

The problem lies in the rules not the substance of the law. In the Uniform Commercial Code adopted by all U.S. jurisdictions, possession of the note is practically all you need to enforce a promissory note — as long as the note is a negotiable instrument. So the note is enforceable even by strangers to the underlying obligation.

But a mortgage is not a note nor any other kind of negotiable instrument. And enforcement of the mortgage or deed of trust falls under a very direct, clear unambiguous statement that in order to foreclose on the security instrument (mortgage) there was must be a creditor who has paid value for the underlying debt — Article 9 §203 UCC.

The problem is in pre-approved p[leading forms from the Supreme Court of each state. They allow for pleading based upon allegation of “holder” status without requiring a plain statement of ultimate facts asserting that the claimant paid value for the underlying debt. Thus mortgages are being enforced on the false standard of enforcement of notes.

This is not mere technical “theory” as some have alleged. I note that none of my critics have advanced the “theory” that anyone in the chain of prospective enforcers of the mortgage has ever paid value or currently possesses a loan account created on their books and records by virtue of an actual transaction in the real world in which the company paid value for the underlying debt and now carries the loan as an asset receivable.

None of those parties ever did pay value in exchange for a legal or equitable ownership of the underlying debt because they were all getting their money from a parallel securitizations scheme that concealed the fact that the “loan” was paid off contemporaneously with origination or acquisition using investor funds from investors who neither wanted nor received equitable or legal ownership of any loan.

A holder is not necessarily a party who padi value for the underlying debt. This is no small matter. Because state law in all jurisdictions requires as a condition precedent to any enforcement action, that the claimant have already apdi value for the underlying debt, and thus claim injury from alleged nonpayment. You can’t claim injury if you didn’t own the loan. That Is a contradiction in terms.

So what is needed is (1) remind the trial court that the pre approved forms are just guidelines and (2) petition the Supreme Court in each state to change the pleading forms such that there must be an express statement of ultimate fact asserting payment for the underlying debt by the claimant who received a conveyance of ownership of that debt.

*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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  • But it is also true that challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 12 years or more. 
  • Yes you DO need a lawyer. 

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19 Responses

  1. The Bablyon Bee had a funny Biden spot: “Man who has been in govt for 47 years claims he will fix govt.”

  2. Poppy — nice to see you back. We are all angry, and that is okay. Anyone can “use it or toss it.” There is no benefit to me for posting anything. Respect everyone’s insight and opinion.

    Don’t know if anyone saw Biden’s new commercial — He claims to have saved us from financial crisis. None of us would be here if that were true.

  3. I agree, Bob …been down a lot of rabbit holes. They are a waste of time, money and emotions. Only thing I got for my lack of “listening”…a huge bill from my gastroenterologist. Regulation AB is a waste of energy and indenture trustee vs fiduciary trustee, is also falling on deaf ears. Footnote: your explanations are insightful and legally acute. Way to much emotion and denial. I have had to eat plenty of humble pie…anyone focusing on their “one case”, IMHO is missing the boat.

    Lots of misinformation being peddled to the detriment of others.

  4. @ ANON…I must respectfully disagree with you. Judges don’t care about your AB arguments, or whether anyone violated them. You have one case, I’ve had a number of them over the past 10 years, and as a consequence I’ve had to read hundreds of cases on the subject matter. It all boils down to you not being a party to the trust agreements, nor an intended 3rd party beneficiary. But you already know this. And the courts don’t give a hoot about indenture trustee vs fiduciary trustee for the same reasons. Servicers can bring an action under any Holder’s name. They get their authority from the Holder of the note. You know that as well.

    Finally, I’ve argued in NY that REMIC trusts are business trusts and that they need to register as such in order to maintain an action. See NY’s General Associations law. Under that law, all that is required to be deemed a business trust is that the trust has an indenture and transferable certificates of interest. No NY appellate court has yet to rule on whether a REMIC trust is a business trust (they appear to be ducking the issue). I suspect that NJ has a similar statute.

  5. No – not conflating indenture trustee with fiduciary trustee. I know the difference. Not going to bore with REMIC structure – but very relevant to me, and could be to others if you do not know which segregated REMIC you were placed into under a title series name. Violation of AB and depending on what happened – you may have not have a fiduciary trustee. Indenture trustee may or may not be disclosed. . And servicers can only bring under trustee name with authority from fiduciary trustee. They cannot bring in under trust name alone – unless a business trust. REMICs are not business trusts.


  6. @ POPPY…I don’t think that you are going to get anywhere with this AB trust stuff.

  7. An exercise in futility is the answer…neither academic nor legal. There are wins, however, not with Regulation AB…or with formation of the trust. Unfortunately!

  8. ANON… also, you are conflating indenture trustees, which the MBS trustees are, with fiduciary trustees which they are not. Bone up on the difference between the two.

  9. ANON. Your questions are all over the board. What exactly is your goal, and how are you proposing to achieve it? Let’s start with that first. And servicers can bring an action in the name of the trustee, just like an executor can bring an action in the name of an estate. so I don’t quite know where you’re going with all this, unless it’s some sort of academic exercise.

  10. Bob G — okay. So the trustee is the legal holder that acquires legal title to the “mortgage” – that follows the note (so they have the note too). And, to comply with many state laws, they should be recorded. And, they should hold the mortgage and note. And only they can grant authority. That authority is very questionable. Security investors (in the trusts) are only beneficial owners of any cash flows. The “trust” itself cannot be represented without a trustee (unless operates as a business trust – and not as a fiduciary traditional trust).

    So here is the big question — should not the “trustee” be separately represented in any litigation apart from the servicer representation of the trust for claimed beneficial investors? This is not happening. Trustees have headed for the hills. But, of course, we also have the secondary “linked in” trusts – that changes the collateral trustee (these are for servicer advances).

    This all goes against the question of the validity of the “Trusts,” which is a valid question because the PLMBS was a pilot program under Regulation AB. And whether they were compliant or not is another issue. But, it is good to understand this because courts perceive all as valid. You cannot attack “invalid” if you don’t know how to first understand their argument. .

    Next we can go to the set up of these PLMBS trusts under Regulation AB pilot programs (for which rules were established in late 2005). Then the question becomes — do you have a traditional pass-through trust regulated by Regulation AB or do you just have a “title” series name? That is for a traditional trust. Business trust — you will find no formation or documents. Just filed as a business trust (or LLC) in Delaware for profit and loss. These are not the same as pass-through trusts which are under Regulation AB . .


  11. @ ANON

    If the UCC conflicts with state laws, each state handles that differently. And remember, the parties governed by the UCC can always by written agreement opt out of the UCC, as long as their opting out does not violate a state’s public policy.
    No, the RMBS deals are structured as a sale of the debt, the note, and the mortgage to the RMBS trustee. The seller of the loans to the trust is not assigning cash flows. The assignment is for the whole ball of wax. There purportedly is a mortgage loan purchase agreement (at least on paper). When the notes are assigned/sold to the trustee, the trustee is acquiring legal title, the certificateholders are allegedly the owners of the beneficial interest in the principal and income cashflows. The trustee would become the covered person, not the certificateholders.

    The certificateholders are not covered persons because they do not have legal title to the loan or note, only the unsecured cashflows in the form of principal and interest that are supposed to flow monthly from the P&I payments.
    I think that I’ve already covered the rest of your questions in my posts below.

  12. Bob G — doesn’t this conflict with state laws of property title? I read that Article 9 conflicts with these laws. Unresolved. Also, they do not sell to a trust — they assign to a fiduciary trustee cash flows only. . Unless, it is a business trust — then they directly sell to the trust. See below – Fed Reg – Fed Res codified opinion to Dodd Frank TILA changes. “Covered person” is a creditor under TILA definition. Is transfer of a note acquired “legal title?” Thanks.

    To become a ‘‘covered person’’ subject
    to § 226.39, a person must become the
    owner of an existing mortgage loan by
    acquiring legal title to the debt
    obligation. Consequently, § 226.39 does
    not apply to persons who acquire only
    a beneficial interest in the loan or a
    security interest in the loan, such as
    when the owner of the debt obligation
    uses the loan as security to obtain
    financing and the party providing the
    financing obtains only a security
    interest in the loan. Section 226.39 also
    does not apply to a party that assumes
    the credit risk without acquiring legal
    title to the loans. Accordingly, an
    investor who purchases an interest in a
    pool of loans (such as mortgage-backed
    securities, pass-through certificates,
    participation interests, or real estate
    mortgage investment conduits) but does
    not directly acquire legal title in the
    underlying mortgage loan, is not
    covered by § 226.3

  13. @Summer.

    Sorry, but you are misconstruing the law. UCC Article 9 applies only to personal property, not real property. A mortgage note is personal property, while the mortgage itself is an interest in real property. You fail to understand this distinction and how it applies to the concept of note ownership and note holdership.

    Let’s say that I lend you $10,000 and take back your promissory note for that amount. I can then go to a bank and borrow against your promissory note. The bank will may perfect a security interest in that note via a UCC-1 financing statement and will also take possession of the note as collateral. It is now secured. That’s the relationship between promissory notes and Article 9. It has nothing to do with real estate mortgages.

    Further, what Carcano is talking about is the situation where a seller of a portfolio of mortgage notes sells the notes to an MBS trust. The trust pays value (allegedly) and perfects its security interest in the notes via possession and/or the filing of a UCC-1 financing statement (although I’ve never seen such a filing for a portfolio of mortgage notes sold to an MBS trustee).

    That’s it in a nutshell, my friend.

  14. To bog G. on Article 9. It IS required in mortgage securitization.

    Maybe Mr. Carcano can help to understand.

    © 2014 National Association of Insurance Commissioners
    ABCs of Legal Analysis of RMBS Securitizations
    Robert Carcano, Senior Counsel, NAIC Investment Analysis Office.

    Acquiring Ownership of the Mortgage Note
    – When the bank sells the mortgage note to the purchaser,
    the purchaser will want to confirm that the seller and other third parties cannot claim they have any right to payment
    on the mortgage note. The process of acquiring an exclusive interest in the mortgage note and communicating this to
    others in a legally effective way is governed by UCC Artic
    le 9 rules. Article 9 requires the purchaser to do three
    related things. The purchaser must: 1) create a security inte
    rest, 2) against a specific kind of seller and then 3) have
    this seller “authenticate” a “security agr
    eement” describing the note. To create a
    security interest, the purchaser must
    give the seller “value”. Giving value involves promising to make payment or making payment for the mortgage note
    in exchange for the mortgage note. The seller must be a
    specific kind of seller – one th
    at either has rights in the
    mortgage note or the power to transfer rights in the
    mortgage note. To “authenti
    cate” a “security agreement”
    describing the note the purchaser must have the seller physically or via electronic equivalent sign an agreement that
    describes the transaction and the note.

  15. Nice.

    GSEs have no idea whom they guarantee loans; they don’t have any idea who is the owner of the loan; they don’t even know who is the Servicer (PennyMac was kicked from Black Knight in October 2019 – but it still appears for VA that PennyMac is “servicing Ginnie Mae who uses exclusively Black Knight systems) plus GSes dumped $900 billion worth of MBS on Federal Reserve – without help from any Trusts who purportedly “own” these MBS or any involvement of any Trustee who suppose to manage these loans (no need to say any Servicers who make “advances” to investors

    And GSEs generously delayed theft of homes by investment banks for the loans GSes never owned

  16. forget about who the real lender is. under the ucc, it doesn’t matter. the only thing that matters is who is the lawful “holder” of the note.

  17. So, does that mean that when my servicer , SLS, claims the lender is Freddie Mac, it’s just another lie to prop up the whole house of cards ?
    Our real lender ? died by way of the WAMU debacle in 07-08.

  18. With all that has gone on, I think apples often get mixed up with oranges.

    First of all, this does not affect non-bank servicers. Those are the financial crisis “loans” that are fake. Not all securitization is bad. And, with valid securitization no borrower should have any business with investors – only business is with stated lender. But, anyone who did not get a qualifying loan from a bank has a real problem. Further, Freddie/Fannie invested in the fake securitization of the banks. These loans will also not be covered by this moratorium.

    I disagree that anything was ever paid off at closing by non-bank debt collectors masquerading as a “Lender.” All you got was a “reinstatement” of already declared default debt with a new non-friendly debt collector.

    I agree with Bob G that holding the note is standard for foreclosure in courts – no questions asked. But, notes are never passed on to securitization “investors.” Only cash flows are passed on, and that should be no business of borrowers. A true Lender should hold the note, as only a true Lender can discharge the mortgage. Freddie/Fannie are never the “lender,.” and neither are security investors. This is codified by the Federal Reserve themselves. If this were not the case, consumer protection laws like TILA would be nonsense. The stated “lenders” of the crisis loans are gone. That is for good reason.

    Since there was no exchange of money for the crisis loans, the question falls on the validity of the note and the “transaction” that occurred – or, more accurately – did not occur.

  19. As I posted within the last week, my research leads me to conclude that UCC Article 9 §203 does not apply to real estate mortgages. The purpose stated in the preamble to UCC Article 9 specifically states that Article 9 applies solely to personal property security interests, and real estate mortgage is not an interest in personal property. Further, one does not need to own the loan or debt in order to enforce the terms of the note. That’s UCC Article 3 Black Letter law. I believe that Neil is conflating the requirements of contract law with the requirements of negotiable instrument law.

    Further, at the closing table the homeowner borrower had the legal right to convey an interest in real property by way of giving a mortgage to the lender (whomever that may have bee). The lender paid value for the note and mortgage at the closing table, and the borrower received consideration from the lender in the form of the loan to purchase he property. So consideration for the mortgage was established at the closing table. And the mortgage, with consideration established and attached, followed the note wherever the note may have gone. Moreover, whenever a bankster makes a mortgage assignment, it always states consideration for the assignment in the documentation. So I don’t think that one should rely on arguments to the contrary. There is plenty of case law supporting my argument: I know of none supporting a contra argument.

    Now if anyone can cite any legal authorities to the contrary, please provide them and I will retract what I have written above.

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