No. Carolina Appeals Court Approves Dismissal of Foreclosure With Prejudice

Posted on December 2, 2014 by Neil Garfield

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see 13-450 N Carolina Appellate Decision on Holder, PETE, HDC and Owner of the Debt 2013 Decision

There are several interesting features to this appellate case, not the least of which is that it comes from North Carolina which has not been particularly friendly to borrowers. What is interesting is that the court was looking at the substance of the transaction and finding that the the bank was playing games and now wanted to play more. The trial court said no, and then the appellate court said no. The decision is one year old but was recently brought to my attention of a litigant who is confronting the “bank” that claims rights to collect, enforce and foreclose.

This was a case in which the foreclosing party never established any of the conditions under which it was (a) the owner of the debt, (b) the payee on the note or (c) the PETE — party entitled to enforce the note. The Court considered the situation and dismissed the foreclosure WITH PREJUDICE —a trial court decision that is highly unusual looking back 7 years but not so unusual looking back 12 months.

The appellate decision looks first where I said to look — the payee on the note. If the foreclosing party IS the payee on the note then it need not allege how it became the “holder” but it probably has some burden of proving the loan. We will see about that. SO if you are the Payee most of the case is presumed. The problem is that most courts having been applying that universally accepted presumption to cases in which the foreclosing party is NOT the payee on the note. And, as pointed out by this court, that is wrong.

The trial court correctly dismissed the case with prejudice because dismissal was mandatory and in the absence of any action by the bank, the dismissal must be with prejudice. The bank can’t come back later and assert a right to amend when they could have voluntarily dismissed, moved to amend, or taken some action that would put the issue of amendment before the court. As this court states, it is not up to the trial judge, sua sponte, to provide a path to amendment. Hence the same rules that have cooked borrowers for years because they admitted or waived defenses unintentionally now comes back and bite the bank.

And most importantly, when you look to the DEBT, it is the substance of the claim that counts not just the paperwork.

Neither the trial court nor the appellate court liked the fact that the affidavit submitted was so vague that it said nothing — particularly about the acquisition of the DEBT, and nothing about how it was a PETE. This simple statement in the body of the opinion, might represent a sea change in judicial attitude. After all, the point of commercial paper, negotiable instruments, foreclosures etc is that they are all about the same thing — MONEY. The laws (UCC etc) were never meant to facilitate theft from innocent parties (investors, borrowers etc.).

The bank argued that it should not have been dismissed with prejudice and that it should have been given an opportunity to amend, citing to laws, cases and rules that permit liberal amendment. But here the court turned the same indifference to consequences that has plagued borrowers and used it against the bank. You might call it blind justice in practice. The court found that the failure of the bank to do anything to protect its right to amend was sufficient to uphold the trial court’s dismissal with prejudice. The bank argued that this was an extreme remedy implying a windfall fro the borrower. But the appellate court said, quite correctly, how do we know that?

The court was clearly implying that a subsequent action by a real party in interest could theoretically be brought against the homeowner either on the debt, the note the mortgage or all of those. They clearly thought that the party who was bringing the action in this case was a sham party filing a sham action. And they obviously wanted to stop that practice.

It remains to be seen how many cases we will see that discuss the foreclosure the way this court did. I am hopeful and ever optimistic that the courts will follow the money trail and not allow shuffling of paper to replace actual transactions. Every time we enforce an APPARENT transaction we take the risk of ignoring the real transaction. Each time foreclosure judgments are entered raises the probability that a second debt is being created.

Filed under: foreclosure | Tagged: , , , , , , , , | 10 Comments »

WHY JOIN ORIGINATOR AND THE PARTY WHO PARTICIPATED IN THE ILLEGAL TABLE FUNDED LOAN

Posted on June 11, 2013 by Neil Garfield

Amongst the cases I review and manage, the question was raised by one of the homeowners as to why I insisted on holding both the originator and subsequent intermediaries in the alleged securitization chain and/or table-funded loan where both the party alleging having (1) the capacity to sue see SEC Corroborates Livinglies Position on Third Party Payment While Texas BKR Judge Disallows Assignments After Cut-Off Date, (2) the standing to sue and/or the authority to initiate foreclosures and (3) financial injury where they allege sale or assignment of the note. The reason is simple from a tactical and legal point of view. I wish to close out their options to keep moving the goal posts.

Here is the answer I wrote to the customer, whose property is located in a judicial state. This particular person is being pro-active — always a wise choice — in that he has been making his payments, was told to to stop making payments if he wanted a modification which he did initially and then changed his mind and reinstated, and remains convinced he was the victim of various forms of fraud and crimes including false Appraisals of the supposedly fair market value of the property at the time of the loan closing or the alleged loan closing. His goal is not a free house. His goal is to pursue any rights you might have for modification or settlement of his claims with respect to the illusion of a loan closing and the office of a closing agent. As any reader of this blog knows, it is my opinion that any such loan closing was in fact an illusion and that all the parties participating in that illusion were paid actors pretending to be something they were not —  less creating plausible deniability for any of the improper actions of the intermediaries at the “loan closing.”

There is a reason why I insist on continuing the joinder of those two defendants. Embrace wants to be dismissed out with prejudice because it says that sold the loan to Wells. I want to say that they didn’t sell the loan to Wells.  If I prevail on that point then Wells Fargo is out as a plaintiff in any foreclosure they might file, and potentially out as a servicer since they might not be able to show any authority.  If that is the case then they owe you an accounting for all of the money they collected from you and a statement of what they did with the money that they collected from you. You might well have a cause of action against Wells Fargo for taking money under false pretenses.

 If I don’t Prevail on that point and somehow they are able to show that Wells Fargo paid for the loan and owns the loan by virtue of that payment, then Embrace is still a proper party in the action because they are the owner of record of a mortgage based on a note that was never funded by Embrace.  The issue here is whether or not the mortgage was transferred with the debt and that issue is tied closely with the issue of securitization, which both of them deny. I believe that I will be able to show that the loan is subject to claims of securitization on behalf of a loan pool that may never have existed or which might not exist now.  and if I am able to show that the loan pool was never funded and therefore could never have paid for the loan then the apparent authority of both defendants is eviscerated.

  Either way, I don’t want to let either of them out of the litigation quite yet.  If we prevail on the question of whether or not there was an actual sale and the sale was authorized (see my blog article from yesterday) then Embrace is the only party left on record in the recording office. At that point I would drill down on them to see whether or not they can show that they fulfill their part of the bargain with you, to wit: that you sign a note and they give you adequate disclosure under the law and they fund a loan to you. It is my position that they did not give adequate disclosure and that they did not fund a loan to you even if the loan was not securitized. The best they can say is that this was a table funded loan which is according to Reg Z of the Federal Reserve a predatory loan  per se if it was part of a pattern of conduct.

 Given the statistics and information we have about both defendants it is my opinion that the chances are 96% that the loan was allegedly sold into the secondary market where it is the subject of a potential claim from an asset pool. The problem I wish to reveal here is that the entire chain of ownership collapses on itself. The other problem that I want to addressed is who actually received the money that you pay every month and what did they do with it (who did they pay).  the strategy here is to show that regardless of whether or not a claim of securitization exists, there were co-obligors (Wells Fargo),  insurance payments and proceeds of credit default swaps and multiple resales all of which should be applied against the amount owed to the real creditor, whoever that might be, thus reducing the loan receivable.

 If I can tie the loan receivable to one which derives its value from the alleged loan made to you, even if the originator paid for it, then there is a strong argument for agency and allocation of receipts under which the payment of monthly payments and the receipt of insurance proceeds and the proceeds from other obligors (including but not limited to counterparties on credit default swaps) were received and kept, like in the Credit Suisse case. 

From that point forward it is a simple accounting task to allocate third-party receipts of insurance and hedge money to the benefit of the investors whether they received it or not. The auditing standards under the rules of the financial accounting standards Board would require a further analysis and allocation of the money received —  specifically the reduction of the loan receivable or bond receivable held by the investors (directly if the REMIC trust was ignored or indirectly if the agents for the trust purchased insurance and hedge products, the proceeds of which should have been credited to the investors.

 If the investors are the real creditors than the amount that they are entitled to have repaid to them does not exceed the amount they advanced. It practically goes without saying that if the money advanced from investors was based on their reasonable belief that they were acquiring title to the loans funded by the money advanced by the investors, they should recover part or all of their investment to the extent that the other players (see the SEC order against Credit Suisse) paid for insurance and hedge products using the money of the investors and kept the proceeds for themselves —-  thus explaining rising reports of profits in the banks who are supposedly merely intermediaries in the conduct of commerce which was in sharp decline.

 In the end, under a series of unjust enrichment and other common-law actions, as well as the requirements of statute and the terms of the promissory note executed by the borrower, all money received in that manner should reduce the principal balance due from the borrower because the creditor has already been paid either directly or indirectly through its agents who were either authorized or possessed of apparent authority.

In fact , the great likelihood is that the banks received substantial overpayments amounting to multiples of the original principal amount of the loan.  According to both law and the terms of the proposed agreement between the borrower and the apparent lender, subject to the terms of the documents themselves as well as state and federal law, the borrower is entitled to recover all such undisclosed payments and receipts which are defined under the truth in lending act as “compensation.”

 Thus while the creditors not entitled to any more recovery than the amount advanced under an alleged loan, the borrower is entitled to full recovery of all money paid in connection with or related to the loan received by the borrower, regardless of the original source of the loan and any agreements between the intermediaries in the alleged securitization chain that do not have the signature of the borrower on them. The reason is public policy. While securitization was not considered in the original passage of laws  it was the overreaching by banks to the disadvantage of consumers and borrowers that was sought to be discouraged by penalties that would be so great as to prevent the practice altogether.

 Usually it is money that is taken under false pretenses and the illusion of securitization claims is no exception. But in the case of the borrower it is the signature of the borrower that was obtained under the false pretenses that  the party obtaining the borrower’s signature. The consideration was the money advanced by an unrelated party tot he transaction (investor) who thought their money was first going through a REMIC trust that would give them certain tax advantages.

Regards

Neil

 Garfield, Gwaltney, Kelley & White

4832 Kerry Forest Parkway, Suite B

Tallahassee, Florida 32309

(850) 765-1236

Filed under: CDO, CORRUPTION, Eviction, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , | 82 Comments »

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