The Fiction of Deceleration Violates Separation of Powers

The State of New York, along with many other states is struggling with problems arising from an array of legal fictions created by the courts to justify claims for administration, collection, and enforcement of virtual debts (instead of actual debts in the real world).

These attempts violate the constitutional separation of powers under the Federal and State constitution. Besides legislating the terms of transactions, state and federal courts are writing a “get out of jail free” pass to every actor who claims to have some right, title, or interest to administer, collect or enforce a debt that turns out to be missing a creditor.

The fact that there is no law permitting such action and that such doctrines violate due process requirements of every state constitution and the federal constitution has not stopped the wholesale legislation from the bench because the Wall Street securities firms were unable to get the laws changed the normal way.

A recent article illustrates the problem and the prior assumptions that are false and wrong in every sense.
Exactly how a lender may “de-accelerate” a loan in New York has largely been left to courts to decide.[e.s.] In 2021, the New York Court of Appeals (New York’s highest court) held that a lender’s decision to voluntarily dismiss a foreclosure action constituted a revocation of the lender’s decision to accelerate. In that case, the lender brought a foreclosure action against the borrower within six years of accelerating the borrower’s loan. However, the lender had previously accelerated the loan in 2008 and brought a foreclosure action, which it voluntarily dismissed in 2013. The lender later accelerated the loan for a second time and brought a subsequent foreclosure action in 2015. Thus, had the six-year statute of limitations continued to run from the date of the original acceleration in 2008, the lender’s second foreclosure suit would have been time-barred. The Court of Appeals, however, agreed with the lender that the lender’s voluntary dismissal of the first foreclosure suit constituted a revocation of the lender’s option to accelerate, thus re-setting the statute of limitations to bring a suit on the entire debt. Because the lender’s dismissal of the foreclosure action revoked the earlier acceleration, restoring the parties to where they were prior to acceleration, the court held that the lender only needed to bring the current foreclosure suit within six years of any subsequent acceleration—which the lender had.
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Thus without any assertion, announcement, or notice from the parties to the documents that supposedly memorialize the terms of a transaction — requiring full disclosure of the material elements of the transaction — the courts have created a brand new provision about something called “deceleration.”
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So if the actors claiming rights to administer, collect or enforce an alleged debt (i.e., a virtual debt) lose and get their foreclosure action dismissed “without prejudice” or they dismiss the foreclosure case on their own, a new term — deceleration — becomes written into the documents and thus subject to “interpretation” by the court.
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Let me be clear. Such a proclamation from any court forces both parties to accept terms that were never in the subject documents. The event happens without consent or due process. Yet such “Doctrines” are widely in use around the country.
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I have one case where we have a final judgment incorporating findings by the court that the “trust” never proved it had any ownership of the subject alleged debt, that the documents used to prove the foundation for the claim were fabricated and that the actor whose name was used in the foreclosure had failed to prove it had any ownership, possession or right to enforce the promissory note and that possession was only proffered after the commencement of the case.
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The declaration of default occurred during the time when there was no evidence of possession of the note. The assertion was that Ocwen was a servicer based solely on a Power of Attorney that was mistakenly fabricated to reflect a signature from  Chase Bank, who was not in the case, instead of U.S> Bank who was in the case.
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The findings of fact and conclusions of law were incorporated into a Final Judgment that dismissed the foreclosure claim without prejudice because that is what current doctrine holds. The old doctrine of finality that basically said “You had your chance” has been replaced by “Take another whack at it.” In any other type of case, the failure to prove the essential elements of the case would end the case forever regardless of who was “right” or what was “just.”
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The quote from the article is that this concept has largely been left to the courts. And then it goes on to discuss other issues. But deceleration is not found in the note or mortgage. And no legislative enactment exists that defines or allows deceleration.
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I don’t think that deceleration can be legally incorporated into the transaction documents except as an offer of settlement. Deceleration is an act, not a magical event.  Current doctrine allows and even requires courts to hold that even if the act of deceleration did not occur, the court will impose that view on the transaction thus allowing a second bite of a rotten apple.
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The Bartram rule in Florida which is somewhat mirrored in NY law creates a fictitious event allowing the foreclosure players to sidestep statutes of limitation. Such an interpretation before securitization would have been laughable. The only thing that changed is the advent of virtual debts instead of real ones. The problem is that while the debts are only virtual the enforcement is very real.
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Deceleration is spun out of thin air. It is an unconstitutional grab and violation of the separation of powers. No court has the authority to make new laws. That is strictly a legislative function. The false equivalent would be a legislature passing a law that says John Smith is guilty of some crime or other violation of a statute. That can only happen in the courts and nowhere else.
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The problem, like most violations, is how do you challenge it? Constitutional litigation is very expensive. This would be no exception.
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On the first level of litigation, the trial courts would feel bound by precedent in which the “new law” (asserted by the Courts) inserts deceleration into the transaction documents.
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On the second level the appellate courts would no doubt rule the same way and for the same reasons. This is an example of “we did it and therefore it must be right.” Federal appellate courts might allow for discussion but in the end, they would most likely defer to “state law” which would add insult to injury.
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Then you have SCOTUS which has already shown its stripes. Even though they smacked down the lower court objections unanimously, rescission has become an unavailable remedy because the Supreme Court refuses to hear any additional case in which violation of rescission under TILA is the issue. So while Scalia was even sarcastic about the lower courts’ attempt to ignore the law, the Supreme Court is allowing that to continue.
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The real problem, in my opinion, is that we continue to be dominated by false labels. The ONLY path left is what I said 15 years ago — a direct attack on the nature of the transaction. But even that is at least partially blocked by the fact that nearly all lawyers who could litigate the issue, believe the transaction was and remains a loan even if there is no lender or successor lender. Once you accept the label of “loan” (asserted or implied) the rest falls like dominoes.
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This requires lawyers to attack the transaction without saying they are challenging the label. This leads to confusion in the courts and mixed results at the trial and appellate levels. The CFPB is creeping up on this. Current invitations to propose rule changes, combined with the recent announcement of changes and definitions (particularly as to the definition of a servicer) are moving toward the goal of establishing that there is no unpaid loan account receivable that is being enforced. There is only an expectancy based upon a virtual debt that is not allowed by law.
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Neil F Garfield, MBA, JD, 75, 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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One Response

  1. Complicated – but true Neil. I think it goes further as many claimed refinances (during crisis hey-day) halted false acceleration, and were, in fact, Deceleration without notice that acceleration was already in process just prior to claimed refinance transaction (No notice provided). Thus, claimed refinance (and in many cases purchases) were nothing more than reinstatement by deceleration – after acceleration, by which, homeowner was never even notified.

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