The Constitutional Problem: Wall Street Fundamentally Altered the “Lending” Transaction from Legal to Illegal

The bottom line of a successful defense to Foreclosure Defense is that those who are successful understand that Wall Street changed the conventional home loan equation from legal to illegal. This is not a technical point. If nobody is getting hurt by the refusal or failure of the homeowner to make a scheduled payment, then there is nothing to sue about.

As to the reasons why nobody is hurt, that is something is better left undisturbed because it involved complexity in investment banking and auditing that few people can or will ever master. Suffice it to say that everyone is getting paid regardless of whether or not the homeowner is making a payment. I know it’s hard to believe and that is precisely why the Wall Street banks are winning in court without ever appearing in foreclosure actions.

When a homeowner or prospective homeowner is solicited to apply for a home loan they have certain reasonable expectations that are incorporated into every transaction, as a matter of law and common sense. If you are told this is a loan transaction then your reasonable expectations are that the following is true:

  • The party named on your note and mortgage is a lender, to wit: it has a risk of loss on the loan transaction is not merely acting for a fee on behalf of an undisclosed third-party source.
  • The party to whom you submit your loan application has the intention of underwriting the loan in compliance with lending and servicing laws, to wit: it has an interest in establishing a viable transaction based upon a viable plan for the homeowner which in turn is secured by property that has been honestly appraised.
  • A responsible natural person is in charge of the loan transaction with the authority to respond to inquiries, and settle any disputes with money or modification.
  • All profits, compensation, revenue, commissions, and fees have been disclosed as required by the Truth in Lending Act.
  • The Good  Faith Estimate delivered to the prospective borrower fairly summarizes the entirety of the transaction.
  • The homeowner will not be subjected to declarations of default, claims of right to administration, collection, or enforcement of the debt except on behalf of an owner of the underlying obligation who paid value for ownership of the underlying obligation, debt, note, and mortgage — all as set forth in Article 9 §203 of the Uniform Commerical Code which has been adopted verbatim in all U.S. jurisdictions and represents centuries of precedent and statutes. 

If the transaction is in any way related to claims of sale into the secondary market and thence into some securitized pool of loans, none of the above conditions are true. This is the fundamental fact that is so challenging for homeowners and their lawyers to understand and therefore the fact that prevents most homeowners from mounting or succeeding in a challenge to foreclosure.

So the change has been one in which a real loan account is created to one in which a virtual loan account is promoted. Since it does not exist, there is no creditor who can in good faith claim that they suffered an injury because they were denied a payment that was due to them — a payment that would reduce the underlying obligation. This is precisely what the framers of both the U.S. Constitution and the UCC explicitly decided to make impossible.

There is no case in controversy merely upon the recital of a presumed obligation and nonpayment of that obligation. The payment must have been due to the claimant because they had paid value to receive the homeowner’s payment. There are no exceptions. Without that there is no actual injury. There is only conjecture about an injury that is never backed up by fact.

Ask any company claiming to be a servicer or any company claiming to be a trustee about the “asset” that they claim to be a loan account and they won’t answer you because they have retired or never established the loan account — because none of them wanted to be liable for lending law violations.

The law (UCC) expressly excludes the possibility of a virtual creditor invoking a foreclosure process instead of a real one. The U.S. Constitution prohibits courts from hearing claims brought by uninjured people. And yet the courts end up rubber-stamping the right of virtual creditors to force the sale of homestead property without any allegation of injury or any proof. Having ownership or possession of a note does not necessarily mean that you p[aid value and therefore could suffer some financial loss from nonperformance.

If claimants were required to plead that they had satisfied the condition precedent in the UCC, and required to plead that they had suffered financial injury as a result of some behavior of the homeowner — i.e., not the loss of future expected revenue or profit but the loss associated with the failure to receive scheduled payment of interest and principal — there would be no foreclosures if they were in any way connected to some securitization process because no securitization process sold or securitized any loans.

So the constitutional problem is that the legislature, along with the executive who signed the bill into law, has set forth very specific conditions for anyone to claim the right to foreclose. But the courts are allowing other conditions to be used that are directly in conflict with the express condition set forth by the legislature.

Part of this is due to bias, but the rest is due to the unwillingness of homeowners to fight, and the unwillingness of lawyers to accept these cases and fight them on their most fundamental level — i.e., as to whether the underlying obligation exists and whether it is owned by the claimant who paid value. I can assure you they didn’t. Giving up — something that 96%+ of all homeowners do — is the giving of a gift to someone who does not deserve it. And it may be giving up equity you did not realize you had.

PRACTICE NOTE: Enforce the UCC and the constitutional prerequisites. Do not attempt to prove that securitization was a sham — just establish the unwillingness and inability of foreclosure counsel to respond to the most basic inquiries in discovery regarding the core issues of every foreclosure case — existence and ownership of the underlying obligation through payment of value in a real transaction in the real world. They can’t answer that and that is how most fighting homeowners win, whether they realize it or not.


Nobody paid me to write this. I am self-funded, supported only by donations. My mission is to stop foreclosures and other collection efforts against homeowners and consumers without proof of loss. If you want to support this effort please click on this link and donate as much as you feel you can afford.
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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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2 Responses

  1. The bottom line: JUDGES who rebelled against the Constitution to enable Wall Street’s Ponzi Scheme converted American Courts and housing market into a criminal mess.

    Almost ALL foreclosures during last 25 years are a blatant theft of homes from people who performed unpaid financial services for Wall Street Banks’ owners – plus delivered them their wealth as tax-free revenue. (“Mortgage” payments are merely involuntary gifts from homeowners who were fooled to believe that someone “loaned” them some money.

    JUDGES decided to make an extra tax free gift to Wall Street bankers by stealing homes from families.

  2. All truth. However, (I always have an however), the crisis loan “trusts” were set up in violation of Regulation AB — pilot program for private label RMBS. The violation included separation of the “ultimate” pool into separate pools and separate REMICs ( a no- no). Some of the those segregated REMICs were never offered for securitization sale. Instead, they were sold to unknown third parties. Thus, the claimed name of the claimed “trust” is nothing more than a “series” name and NOT a REMIC itself — and that is why these crisis trusts exploded. You cannot have information conveyed to “security” investors – and then SEPARATE the loans into separate REMICs. This would be biased and a violation of securities law. There is a word for this that escapes me but I am sure Neil knows that word. Hence – the collapse. So — while not questioning the securitization itself may be a strategy, and questioning risks a court stating – “you have no right to challenge” — asking what particular REMIC is claimed in the securitization may be important. Just because they say — “Trustee for ABC Trust” does not mean ABC Trust is a REMIC. And, what happens to loans with even one missing payment – even when that missed payment is false? It gets subordinated to the un-securitized “Pool” and “REMIC” and removed to a third party. REMOVED means removed, but servicer continues to claim service rights. So we have no accounting from beginning, and then, we have violation of Regulation AB. Thanks.

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