The current custom and practice is to substitute a partial report that is entirely hearsay (usually titled “Payment History”) for the expected and legally required loan account receivable. Such a report when revealed as such is not admissible into evidence if the homeowner raises an objection.*In the alternative the homeowner can get such reports out of the evidence record by revealing that the report is (a) not based on financial transctions completed with the company offering the report and/or (b) that the report is not the loan account receivable of any creditor.
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The basic premise is as I have stated it — there is no loan account receivable in most cases. The reason for that is that from the finance side, they were not intending to make a loan, take a risk on lending, or become a lender subject to laws, rules and regulations governing lending practices or the creation, sale, and trading of securities (regulated or unregulated).
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While that statement is undoubtedly true in most instances, it cannot be proven without access to information controlled by third parties who are not even related to the parties bringing the foreclosure claim. And revealing that the foreclosure players are refusing to comply with basic discovery rules and even court orders will, as a practical matter, only serve to partially persuade the judge who hears the case.
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The homeowner must make every possible effort to keep evidence out and if it’s admitted, then to get it out or knock it down. That job is a lot easier if the lawyer understands the basic principles of double-entry bookkeeping and the reporting principles in generally accepted accounting principles. This is not rocket science.
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The current custom and practice is to substitute a partial hearsay report (usually titled “Payment History”) for the expected and legally required loan account receivable. The result is a gaggle of false statements supporting the smoke and mirrors that characterizes the PONZI scheme currently referred to (erroneously) as “securitization.” Keeping this report out of evidence is one of the ways homeowners win.
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And the basic strategy is to avoid as much of the burden of proof as is possible by focusing the strategy on revealing the unwillingness of the presumed “creditor(s)” to produce proof that a loan account receivable due from you is on their accounting ledger. Do not accept the “Payment History” as a substitute for the loan account receivable, which is an asset of the party who owns it. A true loan account receivable from a real accounting ledger would show the following:
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- Debit to cash or increase in liability for funding the homeowner transaction
- Corresponding Credit to Loan Account receivable establishing the loan account
- Debits to the loan account receivable (reducing the balance) for all payments received and allocated to the loan account by the creditor (not just the servicer, because the servicer does not keep track of all possible activity on the account — only scheduled payments from the homeowner, regardless of whether they are due or not.
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- Even that is most likely not true in most cases. The apparent servicer usually does not handle the payments from homeowners even when checks are made out in the name of the “servicer.” That is all handled by lockbox arrangements and FINTECH that is unrelated to the named servicer.
- Corresponding Credits to the cash account for such payments. This means that the cash value of the payments received is deposited and held in a depository account in a financial institution where such an account is named, owned and controlled by the creditor (or servicer, if the claim is that the Payment History is a business record exception to hearsay). If no such depository account exists then the “Payment History” from the servicer is a hearsay report of data received from third parties and not made by servicer employees at or near the time of a transaction with the servicer.
- If there is a claimed “servicer involvement” then there is a corresponding debit to cash reflecting payment to a creditor — something every homeowner should demand since it shows who the “servicer” is working for
- and corresponding credit to accounts payable liability owed to the creditor
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Note that without all of such information, the report being shown to the court or to the homeowner is NOT a loan account receivable. Most likely there is no showing on the report of the “servicer” of the establishment of the loan account receivable, nor are there any notations of payments to creditors. By definition, that means that report is not a full report of the account receivable or, more likely, that it is not an admissible report of the status of any loan account receivable.
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But legally unless the lawyer understands the basic accounting principles of double-entry bookkeeping, he or she will usually not raise any objections nor conduct discovery on the above issues — in which case they are most likely waived.
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The way to start thinking about these issues is by thinking about the difference between your bank account, your check register that you keep, and any record you might keep in a journal (general ledger) that keeps track of what you owe or what is owed to you. If what is presented as “proof” of the existence of a loan account receivable and its current status does not line up with that simple analogy, then you are being steamrolled.
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And if you’re looking for a local accounting firm with clout to testify on these issues I would strongly recommend the employment of an established CPA firm to serve as an expert witness on the fundamentals of bookkeeping and accounting. I had conversations with some of them and I was very impressed how well and how quickly they grasped the issues discussed in this email. They are not inexpensive but their testimony could be very persuasive in keeping out evidence and forcing the foreclosure mill to withdraw the claim.
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In my experience as lead trial attorney and as a legal consultant to other attorneys and pro se homeowners, this is a primary reason that homeowners have won their cases at trial —even after they tried to bar evidence before trial — and even when they did not realize why they won.
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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, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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You know — you guys have to go deeper. Only touching first base – MAYBE — been too long to just get to first base. No where near getting home. Crap shoot in courts. And – start off with bad odds.
Leo — WHAT BANK???? These are non -bank debt collectors who call themselves servicers (likely servicer themselves).
Keep in mind that the bank maintains double bookkeeping system, and that when they credit the customer account they debit the banks account and vice versa.