This dispute is governed by Article 9 of the Vermont UCC, which covers secured transactions. Article 9 provides that a creditor has a secured interest in collateral when the interest attaches, meaning “when it becomes enforceable against the debtor with respect to the collateral.” 9A V.S.A. § 9-203(a). In general, a security interest becomes enforceable against the debtor when “value has been given,” “the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party,” and one of four specified evidentiary conditions is satisfied. Id. § 9-203(b). “These minimal prerequisites lessen the probability of future misunderstandings, prevent collusion and misrepresentation and provide information to third parties who may be bound by the existence of a security interest.” Finley v. Williams,142 Vt. 153, 155, 453 A.2d 85, 86 (1982). [e.s.]
Berkshire Bank v. Kelly, 2023 Vt. 2, 4 (Vt. 2023)
Berkshire Bank v. Kelly, 2023 Vt. 2, 9 (Vt. 2023) (“Because defendant’s Merrill Lynch account was never within plaintiff’s control, it did not fall within the description of collateral contained in the parties’ pledge agreement, and no security interest ever attached to the account. The civil division therefore correctly granted summary judgment in favor of defendant.”)[e.s.]
So that is three Supreme Court decisions so far. Faking the security interest, the collateral, or the interest in the described collateral is not a substitute for an enforceable lien — equitable or legal.
It is no secret why the big banks are laying off a lot of people. The game may be coming to an end wherein they enter the lending marketplace without being a lender or creating a loan account, much less transferring it. For a while, everyone was willing to accept the argument that it MUST be real. No more!
Homeowners who are properly represented by attorneys willing to go “to the mats” will find themselves in the driver’s seat fielding offers to reform the traction they thought was a loan and forgive the fact that none of the legal prerequisites for a loan were present including (in refi’s) payment.
But it will always remain true that if the right defense is not raised and litigated at the right time, the lawyers will win and divide the spoils amongst the fake foreclosure players.
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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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Hi Neil,
I very much enjoyed your writeup. I was counsel for the Defendant/Appellee on this one. While this wasn’t a foreclosure action, the creditor was certainly a “fake” secured party, as you may put it. This case went far beyond a debtor wiggling out of a secured transaction by relying on obscure UCC technicalities. This was a blatant and easily curable error by the creditor in how it complies with the plain language of its own security agreements. In this appeal, it was undisputed that the creditor’s internal policy was to obtain possession or control over collateral *before* issuing a secured loan. Yet, this creditor mistakenly and prematurely issued the loan to the borrower without doing so. It chose to include that “possession or control” language in the security agreement, even though UCC (9-203) attachment can occur with possession or control *regardless* of the description of the collateral! One may then ask, why did the creditor include that language anyways? So that the creditor didn’t have to go to court to collect on the collateral, which, in this case, was an investment account. Had there been an attached security interest via actual possession or control over the account, the creditor would have simply issued an entitlement order to the securities intermediary to collect on the borrower’s default without judicial process. The securities intermediary here never signed off on divesting possession or control over the encumbrance–I’ve found that this “consent provision” tends to be a boilerplate provision in most account agreements for investment/securities accounts, and now we know for good reason. This issue is readily solvable by banks: either wait for the the go-ahead from the investment institution that controls the collateral, find another piece of collateral, or don’t issue the loan at all. This is a point I raised during oral argument: https://www.youtube.com/watch?v=8vdg8ae4ZXU
I may write a more formal commentary on this issue of the “description of the collateral” under UCC tit. 9, which has not been not litigated as much as one may think. Despite this issue seeming at first-glance to be relevant to myriad security agreements, as you note, only a few appellate courts have *really* dug their heels into this question.
Cheers for running a great, regularly updated blog on top of fighting the good fight.
Yes, they have the legal system going along with their illusion and I’m grateful that you have been detailing those fallacies that have been going on for years. Thanks for your excellent articles.
Thanks Neil – here’s the case Berkshire v Kelly
https://scholar.google.com/scholar_case?case=16965959599321286&q=Berkshire+Bank+v.+Kelly&hl=en&as_sdt=6,39
Charles Reed – great points.
What I got is Wells regulator looking the Assignment of DOT which was done over a year after Washington Mutual Bank (WAMU) stopped existing and no sale of the debt ever occurred to another when WAMU existed. Wells first claimed it had paid value for the loan in the assignment, but changed it story to Ginnie Mae was the “Investor”, which in terms of foreclosure rules in the State of Nebraska means entity that purchased the debt! However, Ginnie Mae does not buy or sell any mortgage loans!
MERS list in their system that Ginnie is the investor of all Ginnie pooled loans, but Ginnie who is involved in this ruse claim the reason for the investor title is that it save MERS from creating another data category. However, this investor language act to allow a non-judicial foreclosure where Wells is put into tile on the lien claiming they are acting for the debt holder while being the mortgage servicer.
My challenge also is how does a mortgage servicer act for a lender that no longer exist. I get there was a mortgage servicing rights sale between the two, however, once the bank no longer exist and is not due a payment, then there is no servicing. This is a situation that WAMU cannot come back from the dead and call the loan due, so if there not a sale of the debt before they stop existing there not an entity that can come forward as the owner and call the debt due!
Wells has made up some stupid logic that they as servicer can place itself as the named owner of the debt, while hiring attorneys to represent Wells not represent WAMU. Wells sells the property at the foreclosure sale and proceeds don’t go to WAMU because it is dead, and instead goes to Ginnie Mae who not invested a single cent in the loan!