Applying Common Sense and Law to Assignments of Mortgage

Posted on April 24, 2019 by Neil Garfield

Every time a homeowner wins in foreclosure the investors are actually protected. It’s the sale of the property and/or entry of the foreclosure judgment that cuts investors off from their investment. Weird, right?

An article in the recently published Florida Bar Journal illustrates perfectly the confusion that occurs within the courts and by lawyers when they stray from the simple pronouncement of accepted law in all jurisdictions.

Here is one simple proposition declared by the Florida Supreme Court which is a mirror of similar pronouncements from the Highest courts in all other U.S. Jurisdictions: The case is Johns v Gillian 134 Fla. 575, 184 So. 140 (1938).

“the mere delivery of the note and mortgage, with intention to pass title, upon proper consideration, will vest the equitable interest in the person to whom it is so delivered.”

The obvious implication is that such a person can enforce the mortgage. The other obvious implication is that a claimant who claims to have received possession by delivery of the note and mortgage cannot enforce the mortgage if there was no intent to transfer title to the mortgage, or if there was no payment of consideration.

The obvious takeaways from this simple, basic and completely accepted point of law are

  • delivery of note and mortgage is important and potentially dispositive BUT
  • defects in the instrument of assignment of mortgage are not fatal IF
  • intention to pass title is present AND
  • payment of proper consideration is present
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The jumble occurs when anyone of those points is taken out of order or entirely out of consideration which is what the courts and even some foreclosure defense lawyers are missing.

Delivery of the original note and the recorded mortgage document is important and potentially dispositive. This is true if proper consideration was paid and there was an intent to pass title.

But the banks would have us believe that only the intent to pass title is important, even if the transferor has no title. There is no law and no case decision that agrees with that proposition. And the banks would have us believe that the intent to pass title is the only thing that matters even if no proper consideration was paid. There is no law and no case decision that supports that proposition.

By law, as adopted in the statutes of all 50 states when they adopted the Uniform Commercial Code, consideration must be paid for an effective transfer of the mortgage.  UCC Article 9 section 203. All the case law agrees and there is no case law contrary to that proposition.

BUT there is plenty of case law where the courts ignore it mostly because the pro se homeowners or foreclosure defense attorney didn’t present the issue clearly.

The money proves the intent and the intent justifies the money.  Without the money the transfer is a complete nullity which legally means it never happened.

While there are presumptions about transfer of the debt when the “original” note is supposedly delivered (as though transfer of the note was title to the debt), the only thing that actually transfers the debt under law is payment of money with intent to purchase and sell the debt and the mortgage.

Where’s the money?

In virtually all cases the money is absent, which leads directly to the point of the law to begin with — foreclosure should only be granted in circumstances where the proceeds of foreclosure will go to the party claiming that equitable remedy. Here is the plain truth. Those proceeds are not going to anyone who has value/consideration in the deal.

The investment bank’s legal strategy of claiming that it once paid consideration is defeated entirely by its sale of the “risk of loss” (i.e., the debt) several times over in the shadow banking market.

Dubious? Check the proposed and actual regulations concerning the retention of a share of the risk of loss by investment banks. That is the big dispute. For loans that were created up until around 2010, there was zero retention of risk.

The meaning  of that eludes most people unfamiliar with the terminology of Wall Street. So here it is: if you have no risk you own no debt.

My sources say that is still true and the regulators are powerless to stop it because of the right to enter into contracts that are disguised sales of the risk of loss, which is to say disguised sales of the debt by the one party who is always the one controlling events on the ground in foreclosures — the investment bank.

Do you need to prove all that? Nope. Just demand proof of consideration. And don’t stop demanding it no matter what the opposing lawyer says and even regardless of what the judge says. In the end, you’ll be right. Every time a homeowner wins in foreclosure the investors are actually protected. It’s the sale of the property and/or entry of the foreclosure judgment that cuts investors off from their investment.

Filed under: burden of persuasion, burden of pleading, BURDEN OF PROOF, discovery, Discovery -Subpoena, evidence, Fabrication of documents, foreclosure, foreclosure defenses, forensic investigation, legal standing, Pleading, prima facie case, standing | Tagged: , , , , , | 6 Comments »

TONIGHT! How to distinguish between legal presumptions of facts and the facts themselves

Posted on August 16, 2018 by Neil Garfield

A client of our internet services store asked a simple question. He had asked the opposing side if they were a holder in due course. What he received was evasive and misleading and essentially never answered the question. Now what? Below is my answer to his question and what we will be discussing tonight on the The Neil Garfield Show

How the banks confuse judges, foreclosure defense lawyers and homeowners by wrongfully inoking legal presumptions.

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You have already achieved the intermediate goal. At this point you can argue that you asked for the identity of the holder in due course and they were unable or unwilling to provide the information. The confusion emanates from the fact that a holder can sue on the note if it has the right to enforce the note, which right must come from the creditor.
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But the apparent rebuttable legal presumptions run against you. In every case the success of the foreclosure is entirely dependent upon the success of the foreclosure mill attorneys in invoking legal presumptions of fact because the actual facts differ from what is presumed by the Judge.
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But the one legal presumption that would wipe out virtually all borrower defenses is NEVER invoked — the status of holder in due course. Because that would mean proving that a purchase of the debt, note and mortgage occurred in which the foreclosing party is or was the purchaser in good faith and without knowledge of the borrower’s defenses. Instead the crafty lawyers get judges to presume that the foreclosing party should be treated as a holder in due course, thereby evading their true burden of proof.
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It’s no mystery why they don’t use the holder in due course allegation. But the absence of such an allegation simply and logically leads to a conclusion. One or more of the elements is missing. Which part? Is it the purchase, the good faith or knowledge?

Filed under: foreclosure | Tagged: , , , , , , , | 36 Comments »

Is a Neg-AM Note a Negotiable Instrument?

Posted on July 9, 2018 by Neil Garfield

The UCC is not ambivalent about protecting both the maker of a negotiable instrument and the party seeking to enforce it. The maker does not assume the risk of double liability except for instances where the note is purchased for value in good faith and without knowledge of the borrower’s defenses. In all other circumstances the object is to prevent the maker from being exposed to double liability.

The fact that a note is not a negotiable instrument does not mean that it cannot be enforced, or that it is void or whatever else people are saying on the internet. If the note does not meet the definition of a negotiable instrument then it is simply not entitled to the legal presumptions that are given to a negotiable instrument to ease its trading and enforcement. Any other approach would be equivalent to propelling parties who seek to enforce a note being vaulted into the elevated class of holder in due course.

In other words, if the note is not a negotiable instrument then enforcement can only be achieved by pleading and proving the facts needed to enforce without the benefit of legal presumptions that each State adopted as a a statute when the Uniform Commercial Code was made law.

In cases where a negative amortization is involved, the courts have blurred the issues. Such a loan has many extrinsic factors that should disqualify the note from being treated as a negotiable instrument.

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We must always remember that the purpose of the UCC is not to provide a vehicle for tricking anyone. The purpose is to allow for free flow of commerce and enabling the passing of paper instruments is essential to that function. Like many statutes creating legal presumptions, perhaps all of them, the point is simply to take what is almost always true in fact and simply create a legal presumption that the matter asserted is in fact true, until proven otherwise. Lest the use of such presumptions tip the due process scales, the definitions and rules regarding the use of legal presumptions must be strictly construed.

The issue of negative amortization is highly relevant on many levels including the one frequently mentioned — negotiability. The courts are probably confusing the ability to negotiate an instrument with BEING a negotiable instrument. The words of art are important. A marketable instrument is not the same as a negotiable one. The fact that someone is willing to buy a note does not make the note negotiable. A note featuring negative amortization should not be considered a negotiable instrument even though it might be marketable.

One of the problems with consumer loans is that they are subject to TILA Rescission. That means that they are potentially enforceable if no notice of rescission has been mailed. Certainty is gone from that scenario. You cannot determine whether the note is an asset or a liability. It is practically the opposite of a negotiable instrument since it might well be worthless, and the even the purchaser of the note might suffer a total loss unless the purchaser had paid value for the debt in a transaction in which the seller owned the debt.

Most Neg-AM loans allow the borrower (or can’t stop the borrower) from switching from one payment plan to another, e.g. paying full amortization none of which changes are reflected on the face of the note. This creates relevant events that occur off the face of the note, making the actual amount of principal due (and interest on the changing principal) at any time subject to calculation, not just from the face of the note but from the face of extrinsic or parole records.

An interesting characteristic of most Neg-AM notes is that they contain provisions that require conversion or reset when the accrued interest is added to principal in such amount as to require the reset — i.e., usually at 115% of the original loan amount. But none of these features necessarily extrinsically change the terms on the face of the note. Modifications do that, but not Neg-AM loans. It is in the calculation of the principal and interest thereon that one must go to “business records.”

If Neg-AM notes can be negotiable instruments then buyers of the notes are expected to rely upon the legal presumptions that the note is what it appears to be. Such buyers, much like the borrowers, are in for a surprise when the loan resets, based upon an extrinsic calculation of when 115% of principal has been exceeded, and if exceeded, by how much. Certainty is gone. If certainty is gone then facts are necessary. No legal presumptions should apply.

There are very simple elements required in order to gain the legal presumptions that would apply to a negotiable instrument.

The main one is that the instrument must be payable in an amount that can be computed based upon the information on the face of the note. On the face of a Neg-AM note, there are terms and conditions that can easily be used to compute the total indebtedness, assuming that extrinsic factors have not come into play. All notes change every day in terms of the amount of interest due and, in the case of Neg-AM notes, the amount of principal, which goes up automatically by underpayment of interest.

It is generally agreed that a note on which there is a known or declared default is NOT a negotiable instrument for purposes of Article 3. You can’t know with certainty the amount due because you don’t know when the borrower defaulted. A DOT or Mortgage is not a negotiable instrument, and to enforce a DOT/Mortgage you must have paid value for the mortgage (Article 9), regardless of whether the note that is secured is a negotiable instrument or not. These are protections to be sure, but they are also insurance that the legal presumptions lead correctly to the truth of the matter.

A second element is that the payment must be due as of a date certain. A mortgage/DOT can’t be a negotiable instrument and cannot invoke the presumptions that a “holder” of a note can invoke, based upon possession and endorsement.

With Neg-AM notes the problem comes into high relief — when the “lender” knows that the reset will be in excess of the entire household income thus creating a virtual guarantee that the alleged loan contract will terminate in 3 years rather than 30 years. Hence the supposed indorsee of such a note is buying into a foreclosure situation, if he/she/it has done due diligence. If not, then here is a second situation where the note might be worthless and the buyer loses, unless the buyer bought the debt from a seller who owned the debt.

A third element is that the original note must either be made out to bearer or to a defined party. But it is possible for a note made payable to a non-lender or a fictitious party might be construed as bearer paper — if there was an actual transaction in which someone gave the borrower money, even if the identity of the funding source was concealed. The obviously violations of disclosure requirements are separate matters.

In all the elements the point is that in order for an instrument to be called “Negotiable” under Article 3 you must not need to inquire into parol or extrinsic evidence. All presumptions arise when the note is facially valid and there are no circumstances that the indorsee knows about that would undermine enforcement. With a DOT/mortgage, by definition on the face of the instrument, you must go to extrinsic evidence as to the presumed default on another instrument (the note) and you can only enforce upon proof of value paid for the mortgage/DOT.

A note might be facially valid and enforceable, which means that a party who pleads and proves they are entitled to enforce is entitled to a money judgment but not foreclosure unless they plead and prove they are a holder in due course, which by definition means that value was paid and hence the mortgage or DOT is also enforceable by them.

Other than an HDC, all the other categories of potential enforcement by a party should enable them only to enforce the note. Of course if the owner of the debt shows up, there would be no problems with enforcement of either the note or the mortgage because the owner of the debt is entitled to enforce the obligation to pay the debt.

Under securitization schemes in practice it is possible to own the mortgage but not be able to enforce it without having paid value. Courts that decide cases based upon the “mortgage follows the note” are missing the point of LAW that resides in their State’s adoption of the UCC, to wit: under no circumstances may a party force the sale of homestead property without being the owner of the debt. That is not a proposal. It is the law in all 50 states.

While the encumbrance may not be enforced, this does not invalidate the mortgage or deed of trust. When it comes time to sell or refi the property you will learn that you still must deal with the holder of the mortgage. An action in equity might be decided in your favor or you might have to pay a sum of money to the owner of the mortgage encumbrance even though they paid nothing for it.

People forget that there are three items here, not two. In addition to the note and mortgage, which serve only as evidence as the debt, there is the actual debt. Back before claims of securitization, all three were used interchangeably. Now it is different. If the funding source is not the payee on the note, then the doctrine of merger does not apply, to wit: the note becomes separate from the debt that arises to the person or party who advanced the money. If the Payee is in privity with the funding source then merger does apply. But most Payees were not in privity with the source of funds. The banks boast of how they created remote vehicles and relationships.

The very fact that there are terms allowing the payment to be less than PI for the month suggests that the borrower might very well have made some payments more than the minimum due. In other words, inquiry must be made to determine the debt balance with certainty. There is certainly an argument here that reference is to the payment history rather than just the note. If that is true then the face of the note is inadequate to determine the “certain sum” currently due. This can become an issue in any installment note.

A finding that all these questions are irrelevant would have dire consequences in the marketplace where certain types of predefined paper can be received in the free flow of commerce without uncertainty as to whether the paper can be enforced. This is a two edged sword. Opening the door beyond the strict definitions of the UCC is opening the door for more mischief involving fabrication of documents, forgery and robosigning.

The UCC is not ambivalent about protecting both the maker of a negotiable instrument and the party seeking to enforce it. The maker does not assume the risk of double liability except for instances where the note is purchased for value in good faith and without knowledge of the borrower’s defenses. And the purchaser should not bear the risk of a total loss immediately upon paying for the note — unless the purchaser knew there were problems and was willing to take his chances.

The final point I would make is that the question should be asked: Given the fact that so-called REMIC Trusts are supposedly buying the loan pools aggregated by the likes of Countrywide and its progeny, why do lawyers firmly announce that their clients are “holders” and not “holders in due course”.

The latter designation (HDC) would allow the possessor of the note to enforce both note and mortgage despite lending violations when the alleged loan was “originated.” Being an HDC might also avoid defenses that current abound — that there are breaks in the chain of title. If the would-be enforcers simply included the allegation (and proof) that they were the owners of the debt or a holder in due course it would be game over for borrowers. That they don’t assert that position is a tacit admission that the reason why they don’t is that they can’t.

Thus we continue to be mired in litigation with phantoms, ghosts,  smoke and mirrors.

Filed under: BURDEN OF PROOF, evidence, foreclosure, Mortgage, Pleading | Tagged: , , , , , | 3 Comments »

BIAS IN THE COURTS: UCC and TILA REVIEW

Posted on October 2, 2015 by Neil Garfield
Our legal history has many examples of enormous errors committed by the Courts that were obvious to some but justified by many. The result is usually mayhem. The cause is a bias toward some underlying fact that was untrue at the time. Some examples include
  1.  the infamous Dred Scott decision where the Supreme Court ruled that a black man is not a person within the meaning of the constitution and therefore could not sue to protect his rights because he was not a citizen by virtue of the FACT that his ancestors had been brought to America as slaves. The underlying bias was considered axiomatically true: that “negroes” were fundamentally subhuman. It took a civil war that took 500,000 casualties and a constitutional amendment to change the results of that decision. We are still dealing with lingering thoughts about whether the color of one’s skin is in any way related to our status as humans, persons and citizens.
  2. the internment of Japanese Americans during World War II. The Supreme Court upheld that decision on the basis of national security. The underlying bias was considered axiomatically true: that people of Japanese descent would have loyalty to the Empire of Japan and not the United States. People of German descent were not interred, probably because they looked more like other Americans. As the war progressed and the military realized that people of Japanese descent were resources rather than enemies, the government came to realize that acknowledging these people as citizens with civil rights was more important than the perception of a nonexistent threat to national security. Americans of Japanese descent proved invaluable in the war effort against Japan.
  3. the Citizens United decision in which the Supreme Court gave the management of corporations a “Second vote” in the court of public opinion. The underlying bias was considered axiomatically true: that entities created on paper were no less important than the rights of real people as citizens. The additional underlying bias was that corporations are better than people.
  4. the hundreds of thousands of decisions from thousands of courts that relied on the fictitious power of the court to rewrite legislation that Judge(s) didn’t like. A current perfect example was reading common law (inferior, legally speaking) precedent to override express statutory procedures for the exercise and effect of statutory rescission under the Federal Truth in Lending Act. Over many years and many courts at the trial and appellate level the Judges didn’t like TILA rescission so they changed the wording of the statute to mean that common law procedures and principles apply — thus requiring the homeowner to file suit in order to make rescission effective, and requiring the tender of money or property to even have standing to rescind. This was contrary to the express provisions of the TILA rescission statute. Approximately 8 million+ people were displaced from their homes because of those decisions and the property records of thousands of counties have been forever debauched, likely requiring some legislative action to clear title on some 80+ million transactions involving tens of trillions of dollars. The underlying bias was considered axiomatically true: that the legislature could not have meant that individuals have as much power as big corporation and they should not have such power. Then the short Supreme Court decision from a unanimous court in Jesinoski v Countrywide made the correction, effectively overturning hundreds of thousands of incorrect decisions. A court may not interpret a statute that is clear on its face. A court may not MAKE the law.
  5. the millions of foreclosures that have been allowed on the premise that the “holder” of a note should get the same treatment as a “holder in due course.” More than 16 million people have been displaced from their homes as a result of an underlying bias that was and often remains axiomatically true: decisions in favor of homeowners would give them a free house and decisions that allow foreclosure protect legitimate creditors. Both “axioms” are as completely wrong as the decisions about TILA Rescission.
It is the last item that I address in this article. A holder in due course is allowed to both plead and prove only the elements of Article 3 of the UCC. Article 3 of the UCC states that a party who purchases negotiable paper in good faith without knowledge of the maker’s defenses and before the terms are breached is presumed to be entitled to relief upon making their prima facie case — which are the elements already listed here. Even if there were irregularities or even fraud at the time of the origination of the loan or at a later time but before the HDC purchased the paper, the HDC will get judgment for the relief demanded. A “holder” (on the other hand) comes in many flavors under Article 3 but they all have one thing in common: they are not holders in due course.
The fundamental error of the courts has been to treat the “holder” as a “holder in due course” at the time of trial. It is true that the holder may survive a motion to dismiss merely by alleging that it is a holder — but fundamental error is being committed at trial where the holder must prove its underlying prima facie case. It should be noted that the requirement of consideration is repeated in Article 9 where it states that a security instrument must be purchased by a successor not merely transferred. So regardless of whether one is proceeding under Article 3 or Article 9, no foreclosure can be allowed without paying real money to a party who actually owned the mortgage. The Courts universally have ignored these provisions under the bias that it is axiomatically true that the party seeking to enforce the paper is so sophisticated and trustworthy that their mere request for relief should result in the relief demanded. This bias is “supported” by an additional bias: that failure to enforce such documents would undermine the entire economy of the country — a policy decision that is not within the province of the courts. And deeper still the bias is that it is axiomatically true that the paper would not exist without the actual existence of monetary transactions for origination and transfer of the paper. These “axioms” are not true.
As a result, courts have regularly rubber-stamped the extreme equitable remedy of foreclosure in favor of a party who has no financial interest in the alleged paper, nor any risk of loss or actual loss. The foreclosures are part of a scheme to make money at the expense of the actual people who are losing money. If this was not true, there would have been thousands of instances in which the “holder” presented the money trail that supposedly was the foundation for the paper that was executed and delivered, destroyed or lost. They never do. If they did, the volume of litigated foreclosure cases would drop to a drizzle. And these parties fight successfully to avoid not only the burden of proof but even the ability of the homeowner to inquire (discovery) about the “transactions” about which the paper is referring — either at origination or in purported transfers. Backdating assignments and endorsements would be unnecessary. “Robo-signing” would also be unnecessary. And the constant flux of new servicer and new trustees would also be unnecessary. Many of these events consist of illegal acts that are routinely ignored by the courts for reasons of bias rather than judicial interpretation.
A holder in due course proves their prima facie case by
a) proffering a witness with personal knowledge
b) proffering testimony that allows the commercial paper to be admitted as evidence (the note). This evidence need only be to the effect that the witness, or his company, physically has possession of the original note and presents it in court.
c) proffering testimony and records showing that the paper (the note) was purchased for good and valuable consideration by the party seeking to enforce it. This means showing proof of payment for the paper like a wire transfer receipt or a cancelled check.
d) proffering testimony and records showing that the mortgage, which is not a negotiable instrument, was purchased withe the note.
e) proffering testimony and records that the transactions were real and in good faith
f) proffering testimony that the purchaser of the paper had no knowledge of the maker’s defenses
g) proffering testimony that no default existed at the time of purchase of the paper.
Because of bias, the Courts, just as they did with TILA rescission, have mostly committed fundamental error by allowing to alleged “holders” a lesser standard of proof than the party who is legitimately in a superior position of being a holder in due course. It starts with a correct decision denying the homeowner’s motion to dismiss but ends up in fundamental error when the court “forgets” that the enforcing party has a factual case to prove beyond mere possession of an instrument they say is the original note.
The holder, in contrast to the holder in due course, is not entitled to any such presumptions at trial, except that they hold with rights to enforce. They don’t hold with automatic rights to win the case however.
A holder proves its prima facie case by
a) proffering a witness with personal knowledge
b) proffering testimony and records that allow the commercial paper to be admitted as evidence (the note). This evidence need only be to the effect that the witness, or his company, physically has possession of the original note and presents it in court.
c) proffering testimony and evidence as to the chain of custody of the paper the party seeks to enforce.
d) proffering testimony and records together with proof of payment of the original transaction (a requirement generally ignored by the courts). This means proof that the original party in the “chain” relied upon by the party seeking to enforce actually funded the alleged “loan” with funds of its own or for which it is responsible (e.g., a real warehouse credit arrangements where the originator bears the risk of loss).
e) proffering testimony and records showing that the paper (note) was purchased for good and valuable consideration by the creditor on whose behalf the party is seeking to enforce it. This means showing proof of payment for the paper like a wire transfer receipt or a cancelled check.
f) proffering testimony and records showing that the mortgage was also purchased by the creditor for good and valuable consideration. This means showing proof of payment for the paper like a wire transfer receipt or a cancelled check.
g) proffering testimony and records that the transactions was real and in good faith
h) proffering testimony that no default existed at the time of purchase of the paper. Otherwise, it wouldn’t be commercial paper and the party seeking to enforce would need to allege and prove  its standing and its prima facie case without benefit of the note or mortgage.
It should be added here that the non-judicial foreclosure states essentially make it even easier for an unrelated party to force the sale of property. Those statutory procedures are wrongly applied leaving the burden of proof as to UCC rights to enforce squarely on the homeowner who in most cases is not even a “borrower” in the technical sense. Such states are allowing parties to obtain a forced sale of property in cases where they would not or should not prevail in a judicial foreclosure. The reason is simple: the procedure for realignment of the parties has been ignored. When a homeowner files an action against the “new trustee” (substituted by virtue of the self proclaimed and unverified status of a third party beneficiary under the note and mortgage), the homeowner is somehow seen as the party who must prove that the prima facie case is untrue (giving the holder the rights of a holder in due course); the homeowner is being required to defend a case that was never filed or alleged. Instead of immediately shifting the burden of proof to the only party that says it has the rights and paperwork to justify the forced sale. This is an unconstitutional aberration of the rights of due process. The analogy would be that a defendant accused of murder must prove he did not commit the crime before the State had any burden to accuse the defendant or put on evidence. Realignment of the parties would comply with the constitution without changing the non-judicial statutes. It would require the challenged party to prove it should be allowed to enforce the forced sale of the property. Any other interpretation requires the the homeowner to disprove a case not yet alleged, much less proven in a prima facie case.

Filed under: foreclosure | Tagged: , , , , , , , , , | 179 Comments »

When an assignment of a mortgage is invalid, does it require a foreclosure case to be dismissed?

Posted on September 23, 2014 by Neil Garfield

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There seems to be confusion about what is necessary to file a foreclosure. To start with the basics, the debt is created when the borrower receives the funds or when the funds are disbursed for the benefit of the borrower. This requires no documentation. The receipt of funds presumptively implies a loan that is a demand loan. The source of funding is the creditor and the borrower is the debtor. The promissory note is EVIDENCE of the debt and contains the terms of repayment. In residential loan transactions it changes the terms from a demand loan to a term loan with periodic payments.

But without the debt, the note is worthless — unless the note gets into the hands of a party who claims status as a holder in due course. In that case the debt doesn’t exist but the liability to pay under the terms of the note can be enforced anyway. In foreclosure litigation based upon paper where there are claims or evidence of securitization, there are virtually all cases in which the “holder” of the note seeks enforcement, it does NOT allege the status of holder in due course. To the contrary, many cases contain an admission that the note doesn’t exist because it was lost or destroyed.

The lender is the party who loans the money to the borrower.  The lender can bring suit against the borrower for failure to pay and receive a money judgment that can be enforced against income or non-exempt property of the borrower by writ of garnishment or attachment. There is no limit to the borrower’s defenses and counterclaims against the lender, assuming they are based on facts that show improper conduct by the lender. The contest does NOT require anything in writing. If the party seeking to enforce the debt wishes to rely on a note as evidence of the debt, their claim about the validity of the note as evidence or as information containing the terms of repayment may be contested by the borrower.

If the note is transferred by endorsement and delivery, the transferee can enforce the note under most circumstances. But the transferee of the note takes the note subject to all defenses of the borrower. So if the borrower says that the loan never happened or denies it in his answer the lender and its successors must prove the loan actually took place. This is true in all cases EXCEPT situations where the transferee purchases the note for value, gets delivery and endorsement, and is acting in good faith without knowledge of the borrower’s defenses (UCC refers to this as a holder in due course). The borrower who signs a note without receiving the consideration of the loan is taking the risk that he or she has created a debt or liability if the eventual transferee claims to be a holder in due course. Further information on the creation and transfer of notes as negotiable paper is contained in Article 3 of the Uniform Commercial Code (UCC).

Thus the questions about enforceability of the note or recovery on the debt are fairly well settled. The question is what happens in the case where collateral for the loan secures the performance required under the note. This is done with a security instrument which in real property transactions is a mortgage or deed of trust. This is a separate contract between the lender and the borrower. It says that if the borrower does not pay or fails to pay taxes, maintain the property, insure the property etc., the lender may foreclose and the borrower will forfeit the collateral. This suit is an action to enforce the security instrument (mortgage, deed of trust etc.) seeking to foreclose all claims inferior to the rights of the lender established when the mortgage or deed of trust was recorded.

The mortgage is a contract that does not qualify as a negotiable instrument and so is not covered by Article 3 of the UCC. It is covered by Article 9 of the UCC (Secured Transactions). The general rule is that a party who purchases the mortgage instrument for value in good faith and without knowledge of the  borrower’s defenses may enforce the mortgage if the contract is breached by the borrower. This coincides with the requirement that the holder of the mortgage must also be a holder in due course of the note — if the breach consists of failure to pay under the terms of the note. Any party may assign their rights under a contract unless the contract itself says that it is not assignable or assignment is barred by statute or administrative rules.

The “assignment” of the mortgage or deed of trust is generally taken to be an instrument of conveyance. But forfeiture of collateral, particularly one’s home, is considered to be a much more severe remedy against the borrower than a money judgment for economic loss caused by breach of the borrower in making payments on a legitimate debt. So the statute (Article 9, UCC)  requires that the assignment be the result of an actual transaction in which the mortgage is purchased for value. The confusion that erupts here is that no reasonable person would merely purchase a mortgage which is not really an asset deriving its value from a borrower’s promise to pay. That asset is the note.

So if the note is purchased for value, and assuming the purchaser receives delivery and endorsement of the note, as a holder in due course there is no question that the mortgage assignment is valid and enforceable by the assignee. The problems that have emerged is when, if ever, any value was paid to anyone in the “chain” on either the note or the mortgage. If no value was paid then the note might be enforceable subject to borrower’s defenses but the mortgage cannot be enforced. Additional issues emerge where the “proof” (often fabricated robo-signed documents) imply through hearsay that the note was the subject of a transaction at a different time than the date on the assignment. Denial and/or discovery would reveal the fraud upon the Court here — assuming you can persuasively argue that the production of evidence is required.

Another interesting question comes up when you seen the language of endorsement on the mortgage. This might be seen as splitting hairs, but I think it is more than that. To assign a mortgage in form that would ordinarily be accepted in general commerce — and in particular by banks — the assignment would be in the form that recites the ownership of the mortgage and the intention to convey it and on what terms. Instead, many cases show that there is an additional page stapled to the mortgage which contains only the endorsement to a particular party or blank endorsement. The endorsement is not recordable whereas a facially valid assignment is recordable.

The attachment of the last page could mean nothing was conveyed or that it was accidentally done in addition to a proper assignment. But I have seen several cases where the only evidence of assignment was a stamped endorsement, undated, in which there was no assignment. This appears to be designed to confuse the Judge who might be encouraged to apply the rules of transfer of the note to the circumstances of transfer of the mortgage. This smoke and mirrors approach often results in a foreclosure judgment in favor of a party who has paid nothing for the debt, note or mortgage. It leaves the actual lender out in the cold without a note or mortgage which they should have received.

It is these and other factors which have resulted in trial and appellate decisions that appear to be in conflict with each other. Currently in Florida the Supreme Court is deciding whether to issue an opinion on whether the assignment after the lawsuit has begun cures jurisdictional standing. The standing rule in Florida is that if you don’t own the mortgage at the time you declare a default, acceleration and sue, then those actions are essentially void.

————————————–

Valid assignment is necessary for the plaintiff to have standing in a foreclosure case. (David E. Peterson, Cracking the Mortgage Assignment Shell Game, The Florida Bar Journal, Volume 85, No. 9, November, 2011, page 18).

In BAC Funding Consortium v. Jean-Jeans and US Bank National Association, the Second District of Florida reversed summary judgment for a foreclosure for bank because there was no evidence that the bank validly held the note and mortgage. BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean-Jacques 28 So.2d, 936.

BAC has been negatively distinguished by two cases:

  • Riggs v. Aurora Loan Services, LLC, 36 So.3d 932, (Fla.App. 4 Dist.,2010) was distinguished from BAC, because in BAC the bank did not file an affidavits that the mortgage was properly assigned; in Riggs they did. The 4th District held that the “company’s possession of original note, indorsed in blank, established company’s status as lawful holder of note, entitled to enforce its terms.” [Editor’s note: The appellate court might have erred here. The enforcement of the note and the enforcement of the mortgage are two different things as described above].
  • Dage v. Deutsche Bank Nat. Trust Co., 95 So.3d 1021, (Fla.App. 2 Dist.,2012) was distinguished from BAC, because in Dage, the homeowners waited two years to challenge the foreclosure judgment on the grounds that the bank lacked standing due to invalid assignment of mortgage. The court held that a lack of standing is merely voidable, not void, and the homeowners had to challenge the ruling in a timely manner. [Editor’s note: Jurisdiction is normally construed as something that cannot be invoked at a later time. It can even be invoked for the first time on appeal.]

In his article, “Cracking the Mortgage Assignment Shell Game,” Peterson in on the side of the banks and plaintiffs in foreclosure cases, but his section “Who Has Standing to Foreclosure the Mortgage?” is full of valuable insights about when a case can be dismissed based on invalid assignment. Instead of reinventing the wheel, I’ve copied and pasted the section below:

It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.34 Further, an agent for the holder can sue to foreclose.35 The holder of a collateral assignment has sufficient standing to foreclose.36 [Editor’s note: Here again we see the leap of faith that just because someone might have standing to sue on the note, they automatically have standing to sue on the mortgage, even if no value was paid for either the note or the mortgage].

Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.37 Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.38 [e.s.]

In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.39

When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.40 [e.s.] 34  Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).

35                  Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”). [Editor’s note: This is an example of judicial ignorance of what is really happening. MERS is a conduit, a naked nominee, whose existence is meaningless, as is its records of transfer or ownership of the the debt, the note or the mortgage]

36                  Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).

37                  See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).

38                  BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But see Lizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership). [Editor’s note: this is the nub of the problems in foreclosure litigation. The law requires purchase for value for ownership, along with other criteria described above. This court’s conclusion places an unfair burden of proof on the borrower. The party with the sole care, custody and control of the actual evidence and information about the transfer or sale of the ndebt, note or mortgage is the Plaintiff. The plaintiff should therefore be required to show the details of the transaction in which the debt, note or mortgage was acquired. To me, that means showing a cancelled check or wire transfer receipt in which the reference was to the loan in dispute. Anything less than that raises questions about whether the loan implied by the note and mortgage ever existed. See my previous articles regarding securitization where the actual loan was actually applied from third party funds. hence the originator, who did not loan any money, was never paid for note or mortgage because consideration from a third party had already passed.]

39                  See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after). [Editor’s note: if the note and mortgage were in fact transfered for actual value (with proof of payment) then a “late” assignment might properly be categorized as a clerical issue rather than a legal one — because the substance of the transaction actually took place long before the assignment was executed and recorded. But the cautionary remark here is that in all probability, nobody who relies upon the “Chain” ever paid anything but fees to their predecessor. Why would they? If the consideration already passed from third party — i.e., pension fund money — why would the originator or any successor be entitled to demand the value of the note and mortgage? The originator in that scenario is neither the lender nor the owner of the debt and therefore should be given no rights under the note and mortgage, where title was diverted from the third party who DID the the loan to the originator who did NOT fund the loan. 40 Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).-David E. Peterson, “Cracking the Mortgage Assignment Shell Game”, The Florida Bar Journal, Volume 85, No. 9, November, 2011.

I also came across a blog post from another attorney on how to argue Florida assignments of judges. I don’t know how reliable this is, but it does cite several cases, and may be a useful resource to you: http://discoverytactics.wordpress.com/tactics-strategies/how-to-argue-florida-assignments-to-judges/. Someone also posted the content of the above link verbatim in a comment on my blog at http://livinglies.me/foreclosure-defense-forms/people-players-and-resources/state-laws/florida-laws/.

 

Filed under: AMGAR, CASES, CORRUPTION, escrow agent, evidence, expert witness, foreclosure, foreclosure defenses, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Neil Garfield Show, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , | 48 Comments »

Glaski Court refuses to “depublish” decision, two judges recuse themselves.

Posted on February 27, 2014 by Neil Garfield

Corroborating what I have been saying for years on this blog, the Supreme Court of the state of California is reasserting its position that if entity ABC wants to collect on a debt in California, then that particular entity must own the debt. This is basic common sense and simply follows article 9 of the Uniform Commercial Code. If a court were to adopt the position of the banks, then a new industry would be born, to wit: spying on people to determine whether or not they are behind on any payment to anyone and then beating the real creditor to court, filing a complaint and getting a judgment without the real creditor even knowing about it. The Supreme Court of the state of California obviously understands this.

This is not really complicated although the words used are complicated. If you find out that your neighbor is behind in payments on their credit cards, it is obvious that you cannot serve your neighbor and collect. You don’t own the debt because you never loaned any money and because you never purchased the debt. If you are allowed to sue and collect on the credit card debt, you and the court would be committing a fraud on the actual creditor. This is why it is absurd for lawyers or judges to say “what difference does it make who they owe the debt to?  They stopped making payments and they are clearly in default.”  Any lawyer or judge makes that statement is wrong. It lacks the foundation of the factual determinations required to establish the existence of the debt, the current balance of the debt after deductions for all payments received from all parties on this account, and the ownership of the debt.

In the first year of law school, we learned that the note is not the debt.  The note is evidence of the debt and the terms of repayment but it is not a substitute for the actual transaction documents. Those transaction documents would have to include proof of transfer of consideration, which in this case would mean wire transfer receipts and wire transfer instructions. The banks don’t want to show the court this because it will show that the originator in most cases never made any loan at all and was merely serving as a sham nominee for an undisclosed lender. The banks are attempting to use this confusion to make themselves real parties in interest when in fact they were never more than intermediaries. And as intermediaries that misused their positions of trust to misrepresent and create fraudulent “mortgage bond” transactions with investors that led to fraudulent loans being made to borrowers.

The banks diverted or stole money from investors on several different levels through multiple channels of conduit sham entities that they called “bankruptcy remote vehicles.” The argument of “too big to fail” is now being rejected by the courts. That is a policy argument for the legislative branch of government. While the bank succeeded in scaring the executive and legislative branches into believing the risk of “too big to fail” most of the people in the legislative and executive branches of government on the federal and state level no longer subscribe to this myth.

There are dozens of other courts on the trial and appellate level across the country that are also grasping this issue. The position of the banks, which is been rejected by Congress and the state legislatures for good reason, would mean  the end of negotiable paper. The banks are desperate because they know they are not the owner of the debt, they are not the creditor, they have no authority to represent the creditor, and their actions are contrary to the interests of the creditor. They are pushing millions of homeowners into foreclosure, or luring them into an apparent default and foreclosure with false promises of modification and settlement.

The reason is simple. Without a foreclosure sale at auction, the banks are exposed to an enormous liability for all the money they collected on the alleged defaulted loans. The amount of the liability is vastly in excess of the entire principal of the loans, which is why I say that the major banks are publishing financial statements that are based on fictitious assets and fictitious income. Nobody can ignore the fact that the broker-dealers (investment banks) are getting sued by investors, insurers, counterparties on credit default swaps, government agencies who have already paid for alleged “losses”, and government agencies that have paid on guarantees for mortgages that did not conform to the required industry-standard underwriting practice.

This latest decision in which the Glaski court, at the request of the banks, revisited its prior decision and then reaffirmed it as a law of the land in the state of California, is evidence that the courts are turning the corner in favor of the real creditors and the real debtors. The recusal by two judges on the California Supreme Court is interesting but at this point there are no conclusions that can be drawn from that.

This opens the door in the state of California for people to regain title to their property or damages for the loss of title. It also serves to open the door to discovery of the actual money trail in order to trace real transactions as opposed to fictitious ones based upon fabricated documentation which often contain forgery, backdating, and are signed by people without authority or people claiming authority through a fictitious power of attorney.

Glaski Court Reaffirms Law of the Land In California: If you don’t own the debt, you cannot collect on it.

Filed under: CASES, CDO, CORRUPTION, escrow agent, Eviction, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , | 317 Comments »

GAME OVER? VEAL CASE VINDICATES EVERY POINT REPORTED ON LIVINGLIES

Posted on June 13, 2011 by Neil Garfield

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NEIL GARFIELD, GARFIELD CONTINUUM SEMINARS, LIVINGLIES VINDICATED IN FULL

NO MERIT TO FORECLOSURE ACTIONS, PAST PRESENT OR FUTURE UNLESS THE REAL CREDITOR IS PRESENT.

BURDEN OF PROOF SHIFTS TO PRETENDERS

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  1. “IN THIS CASE, ONE COMPONENT OF PRUDENTIAL STANDING IS PARTICULARLY APPLICABLE. IT IS THE DOCTRINE THAT A PLAINTIFF MUST ASSERT ITS OWN LEGAL RIGHTS AND MAY NOT ASSERT THE LEGAL RIGHTS OF OTHERS. SPRINT, 554 U.S. AT 589; WARTH, 422 AT 499; OREGON V LEGAL SERVS. CORP, 552 F. 3D 965, 971 (9TH CIR., 2009).

  2. “Civil Rule 17(a)(1) starts simply: “An action must be prosecuted in the name of the real party in interest… The modern function  of the rule… is simply to protect the defendant against a subsequent action by the party actually entitled to recover, and to insure generally that the Judgement will have its proper effect as res judicata.”

  3. “The party asserting it has standing bears the burden of proof to establish standing. Sumers v Earth Island Inst., 555 U.S. 488 (2009)

  4. “Real party in interest analysis requires a determination of the applicable substantive law, since it is that law which defines and specifies the wrong, those aggrieved, and the redress they may receive. 6A Federal practice and Procedure sec 1543 at 480-481

ILLUSION OF SECURITIZATION IS FALLING APART

COLLATERAL BENEFIT TO HOMEOWNER

RESULTING FROM DEFECTS IN PRETENDER LENDER CASE

IS NOT A REASON TO RULE AGAINST THE HOMEOWNER-BORROWER

In a decision filed June 10, 2011 — one year after oral argument — the BAP carefully analyzed the position of the borrower and the alleged creditor and came up with nothing to support the allegations that there was a creditor in the room. Standing being a jurisdictional issue wiped out AHMSI and Wells Fargo.

This one is for publication, which means it is controlling precedent for all bankruptcy Judges in the Ninth Circuit. In a nutshells, the claim of “holder” is not enough, even for a motion to lift stay where the burden is extremely light. Thanks to a growing number of bankruptcy lawyers who understand these issues and thanks to their skill in presenting it, Bankruptcy Judges are realizing two things (1) lifting the stay is misused by the movant by creating the appearance that the merits of the case have already been heard and decided and therefore are engraved in stone under the doctrine of collateral estoppel and the Rooker-Feldman doctrine and (2) nipping abuse of process in the bud is the proper way for the courts to handle the pretender lenders.

It is very clear that this represents a sea change in the judicial attitude toward the pretender lenders. The documents don’t add up. So if anyone wants to come in to a court alleging that they can foreclose on the property or collect on the debt, they need to have real evidence which means live witnesses testifying under oath that they have personal knowledge and can authenticate the documents and other evidence proffered by the pretenders. These people don’t exist.

The bottom line is that there is no claim, an objection to the proof of claim will obviously be upheld in view of this ruling, and the homeowner is going to get their home free and clear of any encumbrances or debts unless the real creditor shows up — which is unlikely since the investors are busy suing the investment banks that sold them the bogus mortgage bonds.

LAWYERS ARE SHARPENING UP THEIR PENCILS GETTING READY TO FILE MOTIONS FOR REHEARING AND RECONSIDERATION IN AND OUT OF BANKRUPTCY COURT.

QUOTES FROM THE CASE:

“We hold that that a party has standing to seek relief from stay if it has a property interest in, or is entitled to enforce or pursue remedies related thereto, teh secured obligation that forms the basis of its motion.”

“We hold that a party has standing to prosecute a proof of claim involving a negotiable promissory note secured by real property if, under applicable law, it is a “person entitled to enforce the note” as defined by the Uniform Commercial Code.”

“The Dorchuck letter is just that; a letter, and nothing more. Mr. Dorchuck does not declare that his statements are made under penalty of perjury, nor does the document bear any other traditional elements of admissible evidence.”

“No basis was laid for authenticating or otherwise admitting the Dorchuck letter into evidence at any of the hearings in this matter.”

“Wells Fargo presented no evidence as to who possessed the note and no evidence regarding any property interest it held in the Note.”

“the purported assignment from Option One to Wells Fargo does not contain language affecting the assignment of the note. While the Note is referred to, that reference serves only to identify the mortgage. Moreover, the record is devoid of any indorsement of the Note from Option One to Wells Fargo. As a consequence, even had the second assignment been considered as evidence, it would not have provided any proof of the transfer of the note to Wells Fargo. At most, it would have been proof that only the mortgage, and all associated rights arising from it, had been assigned.”

“given the carve out of the Note at the beginning… the relative pronouns “therein”, “thereto” and thereon” more naturally refer back to the obligations contained in the mortgage, such as the the obligation to insure the property, and not to an external obligation such as the Note…. Although the clauses might be sufficiently vague to permit parol evidence to clarify their intended meaning, no such evidence was offered or requested.”
“STANDING  is a threshold question in every federal case, determining the power of the court to entertain the suit.”

“Prudential standing ” ’embodies judicially self-imposed limits on the exercise of federal jurisdiction.'” Spring, 554 U.S. at 289 (quoting Elk Grove, 542 U.S. at 11); County of Kern F. 3d at 845.

“IN THIS CASE, ONE COMPONENT OF PRUDENTIAL STANDING IS PARTICULARLY APPLICABLE. IT IS THE DOCTRINE THAT A PLAINTIFF MUST ASSERT ITS OWN LEGAL RIGHTS AND MAY NOT ASSERT THE LEGAL RIGHTS OF OTHERS. SPRINT, 554 U.S. AT 589; WARTH, 422 AT 499; OREGON V LEGAL SERVS. CORP, 552 F. 3D 965, 971 (9TH CIR., 2009).

“Civil Rule 17(a)(1) starts simply: “An action must be prosecuted in the name of the real party in interest… The modern function  of the rule… is simply to protect the defendant against a subsequent action by the party actually entitled to recover, and to insure generally that the Judgement will have its proper effect as res judicata.”

“The party asserting it has standing bears the burden of proof to establish standing. Sumers v Earth Island Inst., 555 U.S. 488 (2009)

“Real party in interest analysis requires a determination of the applicable substantive law, since it is that law which defines and specifies the wrong, those aggrieved, and the redress they may receive. 6A Federal practice and Procedure sec 1543 at 480-481

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 77 Comments »

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