Making the Wrong Objection and Filing the Wrong Defense

The recent Compton Case in Hawaii illustrates the nuances that have been weaponized by the investment banks. It further illustrates basic errors in procedure and objections that continue to result in homeowners inadvertently aiding and abetting an illegal foreclosure against them.

see USB v Compton 6-21-21 HI SupCt


The decision is correct. The failure to contest the existence of the underlying obligation together with the authority to enforce the note forced the court to accept U.S. Bank as a holder with rights to enforce. The delivery to the court together with testimony that t the note was part of some collection of business records is not a proffer of hearsay.

My point is always the same: if you don’t attack the central point of the case, you are admitting the central point. And that means you lose.
Homeowners seem afraid or just ignorant of the fact that they can force the opposition to actually prove the existence of the underlying obligation and that the named plaintiff owns it. But contrary to the belief of lay litigants and some lawyers, denial is not enough. 


The recent Compton Case in Hawaii illustrates the nuances that have been weaponized by the investment banks.


The decision is correct. The failure to contest the existence of the underlying obligation together with the authority to enforce the note forced the court to accept U.S. Bank as a holder with rights to enforce. The delivery to the court together with testimony that the note was part of some collection of business records is not a proffer of hearsay. So the hearsay objection was wrong.

The central point of every foreclosure case is that there is an underlying obligation owed to the plaintiff that has been breached by the homeowner. In virtually all current foreclosure cases this is not what happened. But if you admit it, then for purposes of the case the legal fact is that the plaintiff owns an existing obligation that was breached by the homeowner. It is all downhill from there.
Homeowners seem afraid or just ignorant of the fact that they can force the opposition to actually prove the existence of the underlying obligation and that the named plaintiff owns it.
But contrary to the belief of lay litigants and some lawyers, denial is not enough. Your opposition need only invoke legal presumptions arising from the facial validity of documents (even though they are false, fabricated, and forged) to satisfy their legal burden of proving the prima facie case. And that is why the homeowner must employ aggressive discovery tactics,s strategies and motions that reveal the unwillingness or inability of the opposition to back up the facts that are preliminarily presumed to be true.
My observation is that the most common reason that this is overlooked is that the homeowner and lawyer cannot conceive of a scenario in which the underlying obligation does not exist. They arrive at this conclusion because the homeowner applied for a loan and believed that was what they received. Maybe they did.
But the moment that the transaction was sucked into the securities scheme invented by investment banks, the loan account receivable was extinguished. And for legal purposes that means the obligation is extinguished because without owning the asset you are not allowed to claim a financial loss arising from damage to that asset. This basic pleading, without which there is no claim.

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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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22 Responses

  1. Legi — I just can’t provide the proof to you here on internet – for obvious reasons. I think you can understand. that. Your proof in case law does not address the issues. Simply not addressed. That is not fine. And, please Legi – don’t want anyone to waste their time. Thought maybe you were a notch above, but that did not pan out. Keep digging!! I think you will get there. Trust in it!!!! Keep open mind and keep digging!! Best to you!!!!!

  2. Okay – did not post again – liked better what I wrote before. Saving this – just in case. I did not save last post. Legi — you are not going into documents. You are not getting them. The case you quote is for a borrower that did default. I am not saying borrowers did not default after the crisis explosion. They owed more than house was worth – by fraud. I am telling you that the crisis loans (while funded for cash-out) did not record accounting of any loan, and did not record payoff of prior loan by borrower. Wire transfer is worthless – goes right back to source. And title insurer is not the security underwriter, not the trustee, not the servicer, not the master servicer, and not the default securities administration. All that was done was “liquidation” with zero value reported to prior trust before refinance or purchase, Meaning – not collectible. But no final foreclosure code was ever recorded as none occurred. The result? Massive fees attached that keep borrower in permanent limbo and default. Trustee to trust is never in court. Not ever. And, if you trace will trace to some trustee as “default securities administrator” – nothing more – and before there was ever even any missed payment. I don’t agree that data manipulation is enough. This is a first hand crime. Data manipulation not enough. Many were targeted due to equity, low income, credit cards, and the determination that borrower would not be able to pay. This is a diversion of cash flows, which continues by fee manipulation. It is so simple — I can’t stand it. But not going to bang head against wall anymore — if you don’t get it — nothing I can do to help by disclosing what I know. Now — do others know? In government? YES. Problem is — they don’t know how to fix without egg on face. This is not about me crying despair to you or Neil that nothing can be done to help homeowners. To the contrary. This is about actual realization of what actually happened. And, the CRIME has to emphasized — not the data – the crime. SOL? Maybe. But I don’t think so. ONGOING.

  3. Legi — I am sorry. That is HIGH error what you state. I expect more from you. What you state is a premise that is, unfortunately, relied upon, but never occurred. There is no supporting case evidence, yet, because no one has been astute enough to pick it up. You sound smart – where have you been on this? Nothing is paid off by the borrower (at least for crisis claimed loans) by the borrower at the table. Nothing. And how do we know? Because these loans were never accounted for on any balance sheet, and therefore, there could be no securitization – which is strictly derived from accounting balance sheet – or not valid. That is common knowledge. And, the government, in its approach to crisis could not take “loans” off balance sheets because they were never there. They had to take invalid securities derived from no accounting. Hence, my friend, what then occurred is known as the great financial crisis explosion. Now, what is your proof that the borrower got a loan that paid off the prior loan BY THE BORROWER? Nothing. Extinguished? By who? A county record filed by hired vendors and signed by robo-signers with no authority? Really? That does not equate to math. Yes – I have a math and finance background — and what you state — simply did not happen. I hate to say this — but if you think that – I have a bridge to sell. No accounting is the ONLY reason crisis exploded – NO ACCOUNTING. But if you don’t want to accept this, and continue to focus on last transaction, that is your choice, but I stand firm – destructive. Eventually, all will come forward – just took too long because of the reasoning by many that bought what you state. I cannot explain why some person did not put this forth long ago. Big mistake. But whoever gets forward today – will be known in history. I have been told by very high up — I am correct. The answer to me was — “well how do you know these loans were not really already in default? The reference was to the CRISIS loans – as I call them. And, by crisis loans I refer to a period between, perhaps, 1998 and 2010 (and it continues on). I simply answered — “They were never told. The people were never told. There was no notice. There was no chance to dispute.” And, if you want to check out case law on this — I refer all to a massive docket in New York – filed under Mazzei. Read the transcripts. Look for “codes.” Look for “reinstatement.” It will cost you a small fortune to get — but every transcript for the trial is priceless. Thanks, and on the eve of the 4th of July — let’s hope someone really comes forward soon for the people for what really happened. Best to you!!

  4. Legi – yes you were talking about mental exams. And, I don’t like it., I am not disputing that you cannot do anything to help people. BUT — I see nothing from you as to prior transactions — NOTHING. NOTHING.
    You focus on last transaction and “note” – which is the major fault line. it is wrong. So – until I see it – I see nothing. And that is the CRUX of the problem. This has been a major problem for over a decade. If you are as good as you say – you would know this. If you don’t go into that — it is worthless. Sorry — been there. But have a great weekend.!! And, I respect everyone. Best!!!

  5. And, Legi – no mental exam was ordered. I find that offensive. I am not offensive to you. Not ever. Your implication is uncalled for. I also do not appreciate “pleadings errors” – when nothing was decided on pleadings. I do not appreciate reference to mental exams. I am perfectly competent. I am a step ahead – and it is like hitting your head against the wall. How do I know? I have been there. I have backup. Been there. But can’t get anywhere due to the nature of the HUGE crime. You can’t spin the wheels anymore. This is about the people. Everyone. It has not been focused on – not by anyone. This should have been addressed a long time ago. People need help. And, it is not to pay more money — it is to set things straight. It is too big and can no longer be covered up. Thanks — Have a great 4th of July to all!!!

  6. Legi — I have to agree with you here. Court cases are horrible. But no internal documents are ever produced. And, I do not mean for “the last transaction” – that is worthless in most cases. You don’t stop at the last transaction. That is a major flaw that has been carried on for far too long. I am not going to provide specific information on this website — for good cause. But I have it. And can trace to many more. Does anyone care? You are right – courts don’t care because no one traces beyond the last transaction. NO ONE. I do not see one case that did that. NONE. Judges laugh at borrowers – you are correct – because no one will do the research. They have been brainwashed to look only at last transaction. This mistake has been going on for too long. If you do the research you will shock yourself. NO one does it – and I am baffled on that.

  7. ANON, you’re statement: “I don’t care how many cases you cite — they got it wrong;” is beyond being rational. Whether they got it wrong, or not, you’re stuck with those holdings. Courts rule on facts, not rhetoric. I’m sure you’ve probably heard of res judicata and collateral estoppel, if not educate yourself.

    Furthermore, you keep saying you have proof, but have failed to provide it. You’re entitled to your own opinion, but not entitled to your own facts. Courts holdings are facts, rhetoric is not. Show me one case where anyone has won their foreclosure case arguing the same invented bombast, you and others have posted; you can’t. But there are plenty of cases where the court laughed at them, and then unceremoniously threw them out on their bottoms, and even in some cases ordered mental exams.

  8. Legi, respectfully, you are buying into the fraud. Every single “crisis” “refi” and in many cases, purchases, were just reinstated debt, nothing is paid off by borrower. The fake securiization is just reset – from a “beginning” that MUST be traced. This is massive fraud, and not up to borrowers to plead in court. It is up to the U.S. Government to fix. Loan “originators” for crisis loans are gone — merged, bankrupt, or simply disappeared. There is no Lender left for these borrowers – they never existed. No loan can be discharged by anyone else but the “Lender.” There was no “Lender.” Only a LENDER can foreclose, or discharge upon payoff. Security investors (and trusts) do not lend money to borrowers. NOT EVER. PERIOD. And, these claimed originators are gone. By stating trustee to fake security trust only amplifies the fraudulent situation. The security trusts have no rights against borrower. NOT EVER. You are misreading case law — that was affected by the crisis decisions by the U.S. Government, and bogus documents upon the court. Any person can figure out — security investors -even if a valid security – has NO ACTION against the homeowner. Homeowner never entered into a security investment for profit. Maybe, they were “used” for profit – but no contract states same. This is why no crisis loans cannot be refinanced — they can only be modified – If that is even valid and possible. The standing of a trustee to a trust as “lender” is nonsense in a court. I don’t care how many cases you cite — they got it wrong. And, the government knows. They are trying to fix it – they made mistakes – BIG ONES. But damage has been done. Summer is correct on this, as is Neil. There is no “loan” – nothing paid off by borrower. All relates to reinstatement to reset “non-compliant” securitization. If you check Regulation AB — you will find this. Read it and get back to me. The government knows. Problem is — investors whine – but not really the “investors” – it is the claimed “servicer” — and none of them have any business whining to homeowner. Misrepresentation in courts. BIG TIME. Government does not know what to do. This is not about proof of who owns note — which should be the issue — it is why loans were just “reinstated” at refinance or purchase – and did not pay off prior loan BY THE BORROWER. I am not going to get further here on this. I have sufficient proof. I think that, FINALLY, others are onto this. Been shouting this for a long time. Frankly, borrowers, should have no concern with securitization – not their business. But, they should have a concern if the contract they signed did not do what it was supposed to do — pay off the prior loan – BY THEM. And, it did not. And, — I don’t have to ask “Dottie” — do the research – you will find the same if you research.

  9. I try to keep simple – but this is not simple. Forman’s specifies an “investment contract.” Borrowers have no investment contract — except they were pawns in investment scheme. Read carefully — SEC 17 CFR Parts 210, 228, 229, 230, 232, 239, 240, 242, 245 and 249, (Release NOS. 33-8518 , 34-50905, File No S7-21-04. BIN 3235- AF74 – Asset-Backed Securities. Look particularly at “Nature of Issuing Entity” — no “series trust” allowed. But that is what was done. No separation from “ultimate pool” But that is what was done. No segregation of ultimate pool into separate pools and REMICs – which is all over the place under Prospectus and PSA under “CRISIS” fake trusts – which is not allowed. There is not even any valid stated “REMIC” to borrowers. Just invalid title series name — which is not allowed. For clear reason — investors cannot invest with knowledge – when loans have been secretly segregated into separate ‘pools” and put out back door by segregated REMICS — which were NOT offered for security sale. VIOLATION OF REGULATION AB. Straight MBS fraud — not just against investors, but borrowers because they had no interest in any “investment contract” — and were left without a LENDER. Note fraudulent. Then go to SEC website under UPLOAD for Depositors/Issuers — And see SEC letters. All shut down just before crash. Again, no segregation is allowed — not anywhere – not anyplace, not under ANY circumstances – NOT EVER. . And Forman – a few quotes below. Borrowers do not purchase stock securities. They do not purchase ANY securities related to any home mortgage transaction. There is no SECURITY INVESTMENT relevant to borrower. But, that is what it was turned around to be. Borrowers have no LENDER. NONE. No note – no LENDER – NO VALID DERIVED SECURITY. They have nothing.
    Forman –
    “any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a ‘security,’ or any certificate of interest or participation in, temporary or interim certificate for, receipt [****20] for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.” 12 I BORROWER HAVE NONE OF THAT.
    In providing this definition Congress did not attempt to articulate the relevant economic criteria for distinguishing “securities” from “non-securities.” Rather, it sought to define “the term ‘security’ in sufficiently broad and general terms so as to include within that definition the many types of instruments that in our commercial world [*848] fall within the ordinary concept of a security.” H.R. Rep. No. 85, 73d Cong., 1st Sess., 11 (1933). The task has fallen to the Securities and Exchange Commission (SEC), the body charged with administering the Securities Acts, and ultimately [****21] to the federal courts [***630] to decide which of the myriad financial transactions in our society come within the coverage of these statutes. THE SEC ALREADY DECIDED – CRISIS TRUSTS DO NOT COME WITHIN COVERAGE under REGULATION AB — a pilot program. .
    The primary purpose of the Acts of 1933 and 1934 was to eliminate serious abuses in a largely unregulated securities market. The focus of the Acts is on the capital market of the enterprise system: the sale of securities to raise capital for profit-making purposes, the exchanges on which securities are traded, [****23] and the need for regulation to prevent fraud and to protect the interest of investors. Because securities transactions are economic in character Congress intended the application of these statutes to turn on the economic realities underlying a transaction, and not on the name appended thereto. Thus, in construing these Acts against the background of their purpose, we are guided by a traditional canon of statutory construction: SEC DOES NOT PROTECT BORROWERS – THEY PROTECT INVESTORS. BORROWERS WERE NOT SECURITY INVESTORS.
    The Court of Appeals, as an alternative ground for its decision, concluded that a share in Riverbay was also an “investment contract” as defined by the Securities Acts.

    In holding that there is no federal jurisdiction, we do not address the merits of respondents’ allegations of fraud. Nor do we indicate any view as to whether the type of claims here involved should be protected by federal regulation. 26 We decide only that the type of [*860] transaction before us, in which the purchasers were interested in acquiring housing rather than making an investment for profit, is not within the scope of the federal securities laws.” THIS WAS FOR PURCHASERS OF SHARES IN INVESTMENT CONTRACT — NOT THE RENTERS OR ANY HOMEOWNER BORROWERS.

    Clearly Legi, there was no valid securitization, and, therefore, no note. Courts, and attorneys, are not reading SEC documents. Too tedious –can’t blame them. They have better things to do. But not good. READ. And, borrowers had no part in any “Investment contract” for any non-compliant derived securities. Borrowers were conned. Thanks!! Have a great day!!! NO NOTE!!!!

  10. Correct Charles. And, Legi — read your case — has to do with a short term 9 month Farm loan. Nothing to do with home mortgages. Totally misplaced – with 22 criticisms as not on point. Forman is more on point. Look — people agreed it was okay to sell loan, but they did not agree that “securitzer” would become the loan owner. That is violation of consumer law. Security investors have a beef — go to security underwriter — not the borrower. Borrower has no “contract” for “investment purpose” with security underwriter. None of their business. And, your case points this out. People have no “LENDER,” and, therefore, no “Note.” And SEC has already pointed out — no compliance with Regulation AB — look it up. Thanks again!! Good work — makes our case well!!!

  11. Legisman, what I can add to the loan not actual paid in full is that in the case of Ginnie pooled loans, the Note are the property of Ginnie through UCC3 but Ginnie cannot accept payments or give payout as it not what a party that does not have a financial interest in the loans. So is the payoff received when payout the debt a valid statement from the lender who has transferred the loan.

    What not question is that the large lender are servicing these loans they originated but these loans are required to be separated from other loans as they are being serviced for Ginnie and the lender is actually the custodian of records and works for the owner!

    Its a shell game that they are playing but the Notes tell the story.

  12. Legi, will look up your case. And, to answer your question:

    “I don’t have to see it, Dottie, I lived it.”

  13. When I closed my loan with the bank I worked for as a mortgage loan officer I personally hand carried the check from the bank to the title company on the day of the closing. We funded the loan and a week later sold it WAMU about a two weeks later!

  14. The Note is not destroyed at least in my case some 11yr after the fact as any Wells Fargo Bank provided me with the same blank endorsed Note they send to the OCC back in 2011. The Notes in the case of Ginnie pooled loans are owned by Ginnie and are needed to provide if the loans was placed into what securities.

  15. Did any home buyer see any real, ACTUAL money at the closing table (except cashouts) Nope.

    No one “Lender” never deposited any money on home buyers personal account from which this home buyer pay to home seller on their personal account , so this home seller took these money and paid to their alleged “lender”. NO ONE does it.

    All transactions are done behind the closed curtain. No one ask for a proof of wire transfer at the closing. No one asked IF money are actually involved. Everyone presume they are involved while they not.

    The Seller receives a release of “lien” and believes that someone paid their “debt” to their “mortgage company” from funds borrowed by the buyer. Does the Seller ask for a prove of wire transfer by home buyers lender to their “lender? Nope. And even if they ask – nobody give it to them.

    The Buyer receives the keys from a house and believes that someone paid on their behalf to the Seller. Does the buyer ask for a proof of wire transfer from their alleged “Lender” to the Seller? Nope, and even if they ask nobody give it to them. I asked, but the Title Company refused to give me proof of transfer of money to the Seller by my alleged “Lender”

    No one ever seen any money or IF the Seller was paid from money borrowed by the Buyer.

    All further issues of “securities” which Wall Street call “contracts” are irrelevant.

    If actual MONEY were not involved from the beginning, they securitize thin-air – information about the new transaction resulted in sale of the house, which was fictitiously “financed”

  16. Note in securitization era is a promise to repay for information about someone’s initial transaction which was securitized and destroyed.

    Notes are shredded along with all mortgage documents. WHY?

    Because nobody wanted or needed ownership of the alleged obligation.

    Whey nobody wanted ownership of the debt?

    Only if here is no debt.

    Thus, Notes became a hearsay evidence since after they were intentionally destroyed as confirmed by Florida Bankers Association, nobody owned the debt until Notes were recreated (forged) using data from Black Knight’s records.

    So, WHO was the owner of the debt all this time in question until foreclosure was filed?

    Nobody. Because it was no debt.

    And this is why the SELLER who was the owner the of alleged obligation is always missing in all transaction.

    I think its very clear.

  17. What I been saying all along with the Washington Mutual Bank (WAMU) FHA & VA loans that Wells Fargo Bank was servicing. WAMU created Ginnie Mae MBSs that attached 1.3 million loans and they relinquished the blank endorsed Notes under UCC3 that gave Ginnie ownership of the Notes without a sell of the debt. Once WAMU was seized on Sept 25, 2008, it was declared a “failed bank” and stop existing when not having physical possession of what was needed to ask the court to call the debt due as it did not any longer exist and was not the owner of the Notes.

    Proof of ownership would be the Notes that were originated without a blank endorsed Note that had not been transferred or an endorsed Note to WAMU that not been endorsed with a blank endorsement.

    It recorded with Ginnie who created the MBS and as there never a sell of the debt as Ginnie taken possession in order to create the securities, there can never be a time that the “issuer” has a right to call the debt due, and in the case of WAMU they did not call anything due after Sept 25, 2008, because they stop existing and only the parent company of WAMU filed an emergency bankruptcy on Sept 26, 2008, but did not mention the 1.3 million Fed gov loans as assets or debt because Ginnie Mae was the owner of the Note and had physical possession of!

    Ginnie Mae allowed Wells Fargo to foreclose on these loans as if the purchase the debt which is impossible. Under the scheme of the bank repurchasing the loans in order to foreclose is false and it the debt created by the “issuers” who takes out draws against the loans through the investors of the MBS. This is not a mortgage loan borrower owes, but one the bank owns, whoever you cannot attach this post home loan arrangement to the borrowers creating a dual loan combine with the initial home loan is almost twice the value of the home!

    What is suppose to happen is the requester calling the debt due under UCC9 must provide proof of purchasing the debt as Wells Fargo Bank was not the originator of the loans and could not purchase the debt as Ginnie in possession of the blank endorsed Notes! The debt is extinguished when the transfer of the Notes occurs when creating the MBS!

  18. Okay — quote related to Forman –
    “Whether a security is involved or not depends upon the economic realities of the transaction in light of Congressional intent. United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 848, 849, 95 S. Ct. 2051, 2058, 2059, 44 L. Ed. 2d 621; Canadian Imperial Bank of Commerce Trust Co. v. Fingland, 615 F.2d 465, 469 (7th Cir. 1980).

    I do not believe Congress INTENDED any of this. Been asleep at the wheel — or deliberate. Thanks again. Very helpful

  19. Respectfully Legi, none of the crisis loans were accounted for on any balance sheet. That is why government had to step in. Cannot go from no loan accounted for to derived securities. You quote a 1976 case – long before the SEC regulated a pilot program for PLMBS – which was not compliant for securities under Regulation AB. And, hence all shut down. But the courts still want to make it valid — they are unaware. Or, aware and not addressing. I looked up your case. Have to Shepardize cases — your case very narrow and criticized and distinguished. I have to look up Forman. Anyway — a few below. Thanks — case helped when shepardized. I am not an attorney — only cite for informational purposes only, and nothing more. Thanks again!!

    American Fletcher Mortg. Co. v. U. S. Steel Credit Corp., 635 F.2d 1247
    United States Court of Appeals for the Seventh Circuit
    Heard September 23, 1980 ; November 3, 1980, Decided
    Nos. 80-1485, 80-1719
    This Court recently held that Congress did not intend to regulate commercial loan transactions that would have no impact on the securities markets. Lincoln Nebraska Bank, supra, 604 F.2d at 1042. Thus HN4 in the absence of an investment transaction or impact on the securities market, the term “security” is not applicable to commercial loans including the one in issue here. See Emisco Industries, Inc. v. Pro’s Inc., 543 F.2d 38, 39 (7th Cir. 1976); National Bank of Commerce v. All American Assurance Co., 583 F.2d 1295, 1301 (5th Cir. 1978). The cases that Steel relies on to the contrary are those in which courts in the Second Circuit found securities because of the literal language of the statutes. 8 The literal language approach has been rejected [**22] by the Supreme Court as well as this Court. Forman, supra, 421 U.S. at 848, 849 n. 14, 95 S. Ct. at 2058, 2059 n. 14, C. N. S. Enterprises, supra.

    Futura Dev. Corp. v. Centex Corp., 761 F.2d 33
    United States Court of Appeals for the First Circuit
    April 30, 1985

    The Second Circuit has developed what is referred to as the “literal approach.” It interprets the language of the Securities Acts to require that the court presume that a “note” is a security and only exempts it from the Acts “if the context requires otherwise.” In determining whether the context requires treatment of a note as a nonsecurity, the Second Circuit looks to see if the transaction at issue bears a strong “family resemblance” to transactions that it assumes were not intended to be covered by the securities laws. Transactions which the Second Circuit believes are clearly outside the Acts include: notes given in connection with home mortgages, consumer financing, short-term liens on small businesses, and short-term notes secured by accounts receivable. See Chemical Bank v. Arthur Andersen and Co., 726 F.2d 930 (2d Cir.), cert. denied, 469 U.S. 884, 105 S. Ct. 253, 83 L. Ed. 2d 190 (1984); Exchange National Bank v. Touche Ross and Co., 544 F.2d 1126 (2d Cir. 1976.)

    Equitable Life Assurance Soc. v. Arthur Andersen & Co., 655 F. Supp. 1225
    March 16, 1987, Decided ; March 17, 1987, Filed

    In this case, there is no question that the notes at issue are longer than nine months. Anderson, therefore, had the burden of showing that “the context otherwise requires” the exclusion of the Frigitemp Notes from the definition of security. To prevail on their motion, then, defendants have to prove to the Court that the Notes bear “a strong family resemblance” to the examples given by Judge Friendly in Exchange National Bank or Chemical Bank
    Seagrave Corp. v. Vista Resources, Inc., 534 F. Supp. 378

    United States District Court for the Southern District of New York
    February 25, 1982

    The same economic reality test thus applied to the shares of stock will be applied as well as to the promissory note, despite the language in Exchange Nat’l Bank v. Touche Ross & Co., 544 F.2d 1126 (2d Cir. 1976), which advocated greater reliance on statutory language than on such a test. Id. at 1137. The Second Circuit found in the context of Exchange Bank that the statutory language applied. However, as noted by the Honorable John M. Cannella, the terms and form of the notes in Exchange Bank were remarkably different [**18] than notes occurring in the “mercantile” setting which are cash substitutes. Altman v. Knight, 431 F. Supp. 309, 312 (S.D.N.Y.1977). The Honorable Henry J. Friendly also suggested that HN6 notes similar to those “delivered in consumer financing, … secured by a mortgage, … secured by a lien, … evidencing a “character’ loan to a bank customer, … secured by an assignment of accounts receivable, or … which simply formalizes an open-account debt” would not constitute a security. Exchange Bank, 544 F.2d at 1137-38.

    Hunssinger v. Rockford Business Credits, Inc., 745 F.2d 484
    United States Court of Appeals for the Seventh Circuit
    February 6, 1984, Argued ; October 4, 1984
    No. 83-2169

    See Exchange National Bank v. Touche Ross & Co., 544 F.2d 1126, 1138 (2d Cir. 1976). The [*488] Ninth Circuit [**7] uses the “risk capital approach.” See Great Western Bank & Trust Co. v. Kotz, 532 F.2d 1252 (9th Cir. 1976). This Circuit as well as the Fifth Circuit use the “commercial/investment” test.

    Kansas State Bank v. Citizens Bank of Windsor, 737 F.2d 1490
    United States Court of Appeals for the Eighth Circuit
    December 14, 1983, Submitted ; June 29, 1984, Decided
    No. 83-1315

    The burden is then placed on the party seeking to exclude such instruments to show that they “bear a strong family resemblance” to those commercial transactions which [**11] Congress presumably did not intend to be covered by the securities laws. Exchange National Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1138 (2d Cir. 1976), modified, Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930 (2d Cir. 1984); Commercial Discount Corp. v. Lincoln First Commercial Corp., 445 F. Supp. 1263 (S.D.N.Y. 1978). Exempt transactions under the Second Circuit’s approach, again similar to those identified under the other two tests, include notes evidencing consumer financing, mortgages, and secured short-term loans. Exchange National Bank, 544 F.2d at 1138.

  20. Legi — no the courts do not understand the issues. Look up UCC and defenses (under recoupment). If you are given money by a note you sign, and that money is for particular reason by contract — to pay off prior “note,” and it does not, then that note is signed under duress, and subject to defense. “Notes” did not pay off prior loan “note.” The prior mortgage if anything, is cancelled of record, but the note from the prior mortgage remains and is just reinstated. Nothing is paid off by borrower. There is no new “note.” It is the SAME note as prior and prior before that. And, courts say – mortgage follows the “note.” Well if the same “note” – then the same mortgage despite cancel of record. Look — if you are a bank or non-bank or GSE – (or loan shark or other dubious business) are you really going to just sign away cash flow to someone else? Of course not. Would be stupid business. So the chain never leaves original source. You are missing this. And, so are the courts because that was the name of the game in the crisis. Not asking for case law – worthless. Asking you can you state that the “note” paid off the prior loan note? And if not, are you still saying it is negotiable? In fact, could be criminal. The “Lender” stated on “note” lent nothing (other than any cash-out – which is just added to reinstated debt). And, this is why these loans cannot be refinanced — can only be modified – if lucky (really not so lucky because just continues the fraudulent chain of title). I will look up the case. Thanks.

  21. Java — correct. And, that comes down to the point I have asked for a long time and no one can answer — If the note is fraudulent because the money stated on claimed note did not PAY OFF prior loan by the borrower — is the claimed note even negotiable? UNSECURED is correct Java. Barney Frank was onto this at crisis explosion. His Bankruptcy reform was rejected by Congress. It not about possession or ownership of the “note.” Is about the fraud of the “note.” If I give someone 10K to pay off something for me by what I think is a real “note,” and they do not do it – Who is responsible? The note is as fraudulent as the mortgage. UNSECURED.

  22. I really don’t care if Neil Garfield is correct. Or Storm Legisman is correct.

    Either way , It’s UNSECURED Debt. And unsecured debt cannot be Fraudclosed against !!!!!

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