How to Understand the Game of Foreclosure: Baseball and Debt

The debt is like the ball in a baseball game. It is either there or not there. It doesn’t get invented at the end of the game. If it is not there then all you are watching is a video game that portrays a baseball game. If the debt is not there, there is no claim, no lawsuit and no foreclosure.

This is the discussion that Wall Street banks willa void at any cost. Once called upon to produce the debt, they are dead in the water.

It is very challenging for someone like me to find the best words to describe what the Wall Street banks are doing. Back in 2006, I used the food processor analogy. I said if you put the apple, orange, and banana in the food processor it is impossible to bring the apple to court with you because you can’t reinvent it. It’s gone. That was interesting but it didn’t help as many people as I wanted.

Recently I hit upon a new analogy that I think makes the case more succinct. I continue to talk in legal terminology about the debt, which is the point of any effort to administer, collect or enforce any written instrument (note or mortgage) signed by the homeowner.  If there is no debt in play then there is no case to adjudicate regardless of how badly someone wants to get money from a homeowner. Our legal system does not intentionally permit people to use legal processes purely for fun and profit. But there are loopholes that enable people to do so.

So the analogy is a baseball game. Is there a game if there is no baseball? In the courtroom that is an interesting question. If there is no baseball and the players are on the field swinging bats, raising their baseball gloves, and running around the field what would be happening? Anyone who has recently watched a spectator sport knows that the broadcaster uses technology to enhance the viewing experience. So for example in hockey or baseball where it isn’t easy to see the ball anyway, they use graphics to show you the location and direction of the ball or puck.

You see where this is going. Since you probably can’t see the ball or puck, why not just have the players be actors pretending they are hitting or catching the ball or puck? Wouldn’t it be true that virtually nobody would know the difference, since everyone relies now on computer graphics. The players have in large part become actors in a drama, rather than actual competitors.

So the answer to all of the questions is simple: was there an actual baseball or not? That answers the question of whether any of the actions portrayed on your TV were real or not. In court, here is how it plays out.

Imagine that enforcement of gambling debts was legal and that someone (the promoter of the event) was suing you on a bet you made on that baseball game that had no baseball. According to them, you lost the bet and you didn’t pay. They would say that you placed a bet on the outcome of the game and that would be true. They would say that you didn’t pay it which would also be true. They would produce business records showing the broadcast, which would be accurate even though such records would not be true.

Your defense would be that you were betting on the outcome of a competition and not a drama that was scripted by the people who seek to enforce the bet. And you would be right. And now, here is how the promoter of the drama (“game”) would win.

By making the initial allegations about the bet and the failure to pay out, along with a direct allegation of financial loss caused by your failure to pay, the claimant/plaintiff has filed a complaint that states a cause of action and it will survive a motion to dismiss even though there was no baseball and no game in the real world. The event that was the subject of the transaction never occurred. 

That means judgment will be entered against you unless you raise defenses and deny the allegations of the complaint in whole or in part. The promoter of the event will have had their lawyers draft it such that you are unlikely to be able to deny the main allegations. So you would be forced to allege affirmative defenses and prove them. You can’t prove that the game never happened and that it was only a scripted drama without getting discovery from the promoter who has the information that would prove your affirmative defense.

So if you don’t demand discovery and enforce your rights to discovery you will lose at summary judgment or at trial even though there was no baseball and there was no game. The entry of judgment will be regarded by all courts as presumptively valid which means that there was a ball even though there was no baseball. It will also be rewarded and legally treated as presumptively true that there was a game when there was only a drama.

If you do challenge the “contract” starting when you suspect there is no game, and you are aggressive and persistent about it, you win. If you don’t, you lose.

Moral of the story: Either the ball is there or it isn’t. Either debt is there or it isn’t. What you will find is that companies like Caliber come right out and say that ownership of the underlying obligation doesn’t matter until you get to foreclosure. That just isn’t true. You can’t deny ownership or fail to report ownership and then invent it at the end of the drama. Ther est simply act that way and pretend to “sell” ownership or servicing rights to a debt that they do not own, and which does not appear on any accounting record as an asset.

The plain facts are that the presence of securitization means that there is no loan. It might be that the “loan” was extinguished by securitization or it might be that there was no loan in the first place because the transaction with the homeowner was strictly for the purpose of securitization. Either way, there is no debt if there is no accounting record of any company claiming your “debt” as an asset. if they don’t claim it, there is no foundation for alleging the debt exists. If they don’t claim it, there is no allegation of loss (which is why they never make that allegation). And that is why, in the final analysis, you want to see the money trail and the accounting records of the creditor, not the company claiming to be a servicer.

And speaking of morality, there is nothing wrong with allowing the homeowner to break free of an illegal contract. Homeowners were tricked or forced to participate in a business scheme that was entirely focused on the creation, issuance, and sale of securities. Homeowners were given money to execute the documents that made that scheme possible. They were then deceived into thinking it was a loan thus excusing the demand that the homeowner agrees to pay back the fee they received to start the securitization scheme, which is about 8% of total revenue. There was never any debt. there was only the graphic illusion of a debt that virtually everyone believed.

And THAT is why nobody ever lost money from a homeowner’s refusal or failure to make the scheduled payment on an illegal contract. With $12 revenue for each $1 of the homeowner transaction, everyone got paid. Nobody ever receives less money that month, quarter, or year because you finally stopped paying. And nobody who gets the money proceeds of forced sale of your home in foreclosure proceedings ever accounts for that money as reduction of debt — because there is no debt.

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Neil F Garfield, MBA, JD, 74, is a Florida licensed trial and appellate 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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One Response

  1. Excellent analogy – if that story could be told to ‘human’ jurors in a courtroom they would rule for the homeowner – very well thought out!! Thank you!

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