The Promise: Examinations of Initial Foreclosure Claims

The current foreclosure marketplace consists almost entirely of “next claimants”  without successors.
the task of the legal practitioner or pro se homeowner is to attack the facial validity at the earliest possible time if for no other reason than to layout for the judge the defense narrative and then to test and reject the documents of transfer, i.e., the assignment of mortgage.
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The biggest reasons that foreclosure claims are enforced is because of one simple premise: contracts need to be enforced in order to have a stable marketplace where people have confidence in those contracts and the means by which such contracts are enforced. Contracts consist of reciprocal promises made by each side on a subject that is mutually agreed. In the context of a loan the borrower makes a promise to repay it on the terms that have been agreed as set forth in the promissory note. The lender promises to fund the loan. Both sides have a stake in whether or not the terms will be fully performed. And both sides must conform to statutory requirements.
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So the borrower may not promise to pay interest beyond the legal lending rate for instance. And the lender must makes loans that are viable. And the presumptions behind all loans is that the borrower will in good faith make every effort to live up to his/her promise. The lender is saying that it will loan $200,000 to the borrower, for example, and that the lender will lose that amount of money if the borrower fails to pay. So it is both the interests of the borrower and the lender to make certain that the deal is a success:  that the initial terms of the loan and the way it works out in the context of continuing changes in the marketplace meet the reasonable expectations of each other.
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Reasonable expectations are defined by market conditions and law. Every borrower reasonably assumes that they would not get a loan unless the lender was taking a risk and therefore had an interest to assure compliance with lending statutes — especially those that deal with assuring the viability of the loan as contained in the Federal Truth in lending Act.
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Most borrowers would not accept a deal where the lender had no risk of loss. But that is exactly what happens in nearly all residential transactions with consumer homeowners. Most homeowners, if they knew there was no risk of loss would ask why they were required to pay the money back. Even the most unsophisticated homeowner knows that they don’t want to pay something for nothing. If the money that was paid to them was not a loan then why should they repay it — and why was it paid at all?
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The expectations of the homeowner are formed by reasonable assumptions about the transaction. First that he/she is dealing with a company that is in fact the source of capital for the transaction. Without that, there is no reason to execute a note and mortgage in favor of that entity. Second, he/she has a reasonable expectation that if there is a question or circumstance that needs to be discussed or renegotiated, the lender or a proper successor with a similar risk of loss will be there to engage in such discussions. This is not mere idealism. It is the law.
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The absence of such a lender or successor breaches the original contract, breaches servicing and collection laws, and breaches the rules of court and direct orders from judges when the parties go to mediation.
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There is nobody there to negotiate the terms of any settlement because there is nobody there who has any risk of loss. (This is why the only thing presented at mediation is an offer for the homeowner to submit an application for modification — an application which by signing it, further engulfs the homeowner in the fantasy that either the company is a servicer or that there is any representative of the named claimant present.
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Such an absence of a lender or successor lender also leads to a breach of basic rules of evidence. Since the named claimant is not present and since the accounting records of the named claimant are not present there is no possible way to establish the existence of the obligation, its ownership, or authority over it without lying to the court or misleading it. The so-called “payment history” produced after fictitious “boarding” along with a fictitious in-depth audit is merely a report printout from a third party source neither controlled by or contractually related to the servicer. In a word: Hearsay that is inadmissible in court.
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The concept of some fiduciary duty existing between borrower and lender has been rejected by the court. But that does not mean that there are no statutory and common law duties that apply to the relationship.
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These duties are now universally ignored producing wild gyrations of musical chairs and the investment banks rotate the names of fictitious servicers and claimants in order to literally produce a pile of paper that symbolically represents the greater weight of the evidence. But each of those documents is a fabrication containing false information about the core issues supposedly memorialized in the documents.
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And each of those documents can be successfully tested and rejected if the homeowner does so in the manner prescribed by law. And the main document that needs to be tested and rejected is the assignment of mortgage because without that there is no successor with the right to foreclose. This includes assignments of beneficial interests in a deed of trust.
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And one should always remember that a successor is not the next person or entity that makes a claim. It is only someone who acquires the interest that the assignor had, owned, possessed, and purchased for value. The current foreclosure marketplace consists almost entirely of “next claimants”  without successors.
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There was a time when various terms were used interchangeably to refer to residential mortgage loans. Mortgage, note, debt, underlying obligation, loan account, loan account receivable, deed of trust, all were used interchangeably to refer to a transaction between a borrower and a lender secured by a security instrument that was either a mortgage or deed of trust. They were used interchangeably because there was no harm in doing so. But as any legal analysis will tell you, those terms each have specific and different meanings and do not equal each other.
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It makes a difference now. The reason it makes a difference is that Wall Street, in its various schemes and innovations to sell securities, has invaded the lending marketplace with transactions that transform the transaction from a lender-borrower deal to a homeowner — investment banker deal — but without disclosing the presence of the investment banker.
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The resulting transaction reduces the risk of loss to zero. And reducing the risk of loss removes the incentive to comply with the provisions of TILA, RESPA, and FDCPA (to name a few) that specifically require that the underwriting of a loan must seek a viable loan based upon reasonable economic factors including appraisal. That has gone to the wind.
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In fact, the reverse is now true: the investment banks underwrite loans (indirectly of course, so they leave no fingerprints or footprints) with the purpose of betting against the transactions they are underwriting including what they are labeling as loans and unregulated securities that since the repeal of Glass-Steagall are now redefined as private investment contracts, not securities. So the transactions were neither loans nor securities. And of course, betting against the transactions means that since they were underwriting the transactions, they had every reason to structure those transactions so that a high percentage would fail and that is exactly what has happened.
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Everyone accepts the fact that the certificates were unsecured IOUs due from investment banks but not securities. Nobody seems to accept the corresponding and inevitable conclusion that the other side of this deal was not a loan. As far as I know (and according to every legal treatise and every accounting treatise) the transaction is not a loan just because the borrower thinks it is a loan. The counterparty must intend and agree that it is a loan and must act like it.
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A transaction in which the counterparty has no risk of loss and no intent to comply with the lending statute is not a loan. And since the objective of the counterparties was purely to sell securities, it was a business plan into which the homeowner was lured into believing was a loan simply because the main part of the transaction, the investment contract, was concealed.
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And a transaction without any company or person establishing or maintaining a loan account receivable as an asset that serves as evidence of their profit or loss from the homeowner transaction is also not a loan. The payment to or on behalf of the homeowner is a payment for services rendered and the issuance of the note by the homeowner is an investment into the investment contract.
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The borrower does not define the contract any more than the lender does. they must both agree to the same terms about the same thing. They don’t in most instances for the last 25 years. This “innovation” has led to wild profits and revenues shared amongst all the players in the scheme except the homeowner and, to a large extent, the investors who supply the initial capital.
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The benefits all flow to the broker (investment bank) who replaces, de facto, the principals in the context of only control but not ownership of anything.  Consent to this arrangement comes from investors (including homeowners) purely as a result of misleading statements by the investment bank. No informed consent was ever given by securities investors or homeowner investors because neither of them knew the true nature of the deal.
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So within the above context, we examine the premises and documents required for foreclosure. In a word, they are nearly always false. The legal system has been weaponized by investment banks to create a nearly insurmountable burden for homeowners and their lawyers. BY fabricating false documentation that appears to be facially valid, they force homeowners into the position of litigating, at great expense of time and money, against a false claim.
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Thus the task of the legal practitioner or pro se homeowner is to attack the facial validity at the earliest possible time if for no other reason than to layout for the judge the defense narrative and then to test and reject the documents of transfer, i.e., the assignment of mortgage.
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It is in that context we examine the initiation of foreclosure cases. Because those of us who understand accounting and double-entry bookkeeping know for sure that if the risk is zero there simply is no asset. If there is no asset it is obvious that no loss can be recorded. If there is no asset it is because there is no account.
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If there is no account then there can be no claim of financial loss. And then the legal analysts step in and say that if there is not financial loss there is no present case in controversy, which means the court lacks jurisdiction to hear a claim in which injury is implied but not suffered by the named claimant.
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So the first thing to do is what is most often overlooked in legal analysis. All U.S. jurisdictions have adopted verbatim the provisions of Article 9 §203 of the Uniform Commercial Code which says expressly that a condition precedent to bringing the action is that the claimant has paid value for the underlying obligation.
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This is different from what is allowed under Article 3 where derivative plaintiffs are permissible. you only need to possess the original note, or claim to possess it, or claim to have the right to possess it in order for presumptions to carry you through to a judgment.
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Foreclosures are different. Possession or ownership of the note might imply that value was paid for the underlying obligation but they don’t act as proof of payment for the underlying obligation unless the homeowner/consumer fails to make a challenge, in which case the foreclosure mill lawyer could say the Plaintiff is Donald Duck and the proof is Quack Quack! Without opposition, you can win anything!
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It is supremely ironic that in a profession that professes to rely so heavily on precedent that trial courts have been allowed to run amok inventing all sorts of excuses to avoid the simple premise that foreclosure statutes ban participation by anyone who has not paid value for the underlying obligation.
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45 years ago when I first started practicing law, I became the lawyer for hundreds of lien holders who filed foreclosure lawsuits — banks, private lenders, homeowner associations, contractors etc. If I walked into court without the accounting ledger and a witness who would testify that he was the records custodian and that the entries on the ledger were reflections of everything that ever happened to a loan made to the homeowner, I was thrown out of court unceremoniously — with or without opposition. Courts were the gatekeepers. Now they’re the enablers.
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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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5 Responses

  1. You are clearly a shill for the banks. In the future you will be blocked from making comments. You assert that I have not won cases defending foreclosure defendants. That is patently untrue and I have published the orders and transcripts of that. The quote you are attempting to use to discredit me is taken out of context. The sale of promissory notes has never been governed by Article 9 and has always been governed by Article 3. Article 9 requires sale of the underlying obligation for value paid. Sale of the note is presumed to mean that the underlying obligation has been sold but not unless value was paid.

  2. Yes, Charles. And why do you think Hank was on bended knee to do the bail out? And, we the suckers keep buying the trustee to trust bs garbage. And, the courts buy it – because no one told them the truth. The government was in disarray over the crisis, I recall one attorney – quite while ago answering my question – “Can loans reported internally in default be refinanced?” “Oh yes,” she said -“they are simply reinstated, but liquidated to the prior trust.” That is what occurred – and without the loans ever even being in default. FEES did it. Illegal fees. And reinstated means – nothing lent – nothing paid off. PERIOD. THAT would not happen today as to reinstatement. But, back then – it did. And, we the suckers thought we were getting a real loan that paid off the prior loan by us. That is what we paid FEES for. NOT – it did not happen. We bought ourselves a non-friendly debt collector.

  3. And… they were all “contracts of adhesion” … but I digress …

  4. We know that “loans” were not accounted for because the off-balance sheet conduits could not be taken back onto anyone’s balance sheet (as required under GAAP) because they were never there to begin with. The government had to step in and bail out. So — what did homeowner actually get? A “loan” that paid off WHAT? Nothing. This would be TILA violation – for which the SOL does not escape fraud. And, fraud also negates a claimed negotiable note. Why did servicing go directly to admitted debt collectors? Because nothing was lent. Reinstatement of charged off debt. And, what did this allow? FEES FEES FEES – which permanently keep you under control. Further, this is why modifications were pushed. You can’t refinance a “loan” for which no money was ever lent.

  5. Yes, the Courts are the main reason why this Scheme today is in the size of Armageddon.

    Here are millions ILLEGAL foreclosures; thousands of foreclosures-related suicides and those who are factually responsible for these crimes – JUDGES – always walk away from all liabilities.

    And continue their business of mass destruction.

    Foreclosure disrupts lives and families. Credit is ruined, families often split and years of hard work is lost with just one rap of a gavel. Beyond the dollars and cents, there is another cost of foreclosure, the loss of one’s physical and emotional health. Some folks rebound quickly while others can never get back up on their feet. Worse, some people take their own life.

    Obviously Wall Street and banks share much of the blame. Corrupt mortgage brokers, regulators and appraisers share responsibility too.

    But never Judges.

    Without judicial approval of forged documents and false statements no single foreclosure mill would be able to steal anyone’s home.

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