The issue is what are the elements of the loan contract? Who are the parties? And who can enforce it?
I would agree that an overpayment at closing from the source of funds is rare. What is not rare and in fact common is that the wire transfer instructions that accompany the wire transfer receipt often instructs the closing agent to refund any overpayment to the party who wired the money — not the originator. This leads to questions. If it is a true warehouse lender, such instructions could be explained without affecting the validity of the note or mortgage.
In truth, the procedures used usually prevent the originator from ever touching the flow of funds. Wall Street banks were afraid of fraud — that if the originators could touch the money, they might have faked a number of closings and taken the money. In short, the investment banks were afraid that the originators would not use the money the way it was intended. So instead of doing that, they created relationships by having the originators sign Assignment and Assumption agreements before they started lending. This agreement says the loan belongs to an “aggregator” that is merely a controlled entity of the broker dealer. But the money doesn’t come from either the originator or the aggregator. Thus they have an agreement that controls the loan closings but no consideration for that either.
But this is a lot like the insurance payments, proceeds of credit default swaps etc. The contracts almost always specifically waive subrogation or any other right of action against the borrowers or any other enforcement of the notes or mortgages. It has been presumed that these contracts were for the mitigation of losses and that is true. But they are payable to the broker dealers and not the trust or trust beneficiaries. The investment banks committed fraud when they represented to the insurers, FDIC, Fannie, Freddie and CDS counterparties that they had an insurable interest. Those parties presumed that the investment banks were creating these hedge products for the benefit of the owner of the mortgage bonds or the owner of the loans. But it was paid to the investment banks. That is why all those parties are claiming losses that resulted from fraud — all of which have resulted in settlements (except the Countrywide verdict for fraud).
The similarity is this: in both the closing with borrowers and the closings with investors the same fraud occurred. When dealing with the closing agent they interposed their nominee in the closing which resulted in no note and no mortgage in favor of the investors or the trust. Whether the closing agent is liable is another issue. The point is that the money came from a third party which was a controlled entity of the broker dealer. Thus the investor gets a promise from a trust that is not funded while their money is used to pay fees, create the illusion of trading profits for the broker dealer and funding mortgages.
The wire transfer is not a wire transfer from the originator, nor from the bank at which the originator maintains any account. The wire transfer instructions and the wire transfer receipt fail to identify the actual source of funds and fail to refer to the originator as a real party. If they did, there would not be a problem for the banks to enforce the note and mortgage. If they did, the banks would simply show the transaction record and there would be nothing to fight about.
The only occasion in which the banks appeared to be willing to provide adequate documentation for consideration appears to be in a merger or acquisition with the party that was named as the mortgagee in the mortgage document or the beneficiary in the deed of trust. And all the other transactions, the banks say that consideration is irrelevant or they quote the law that says that courts cannot question the adequacy of consideration. They are dodging the issue. We are not saying that consideration was not adequate; what we are saying is that there was no consideration at all. The banks are fighting this issue because when it comes out that there really was no consideration the entire house of cards could fall.
The issue is counterintuitive because everyone knows that there was money on the closing table. Unless the issue is argued and presented with clarity, it will appear to the judge that you are trying to say that there was no money on the closing table. And when a judge hears that, or thinks that he heard that, he or she will not take you seriously. There are three parts to every contract — offer, acceptance, and consideration. A few courts have started to deal with this question. In the context of foreclosure litigation all three elements are in question. If the lenders are investors who believed that their money was being put into a trust that they were beneficiaries of a trust, they are unaware of the fact that their money is being offered to borrowers on terms that are contrary to their instructions. And the loan is not made on behalf of the investors or the trust. It is made on behalf of some sham entity controlled by the broker dealer. Sometimes the origination is made by an actual bank that is acting in the capacity of a sham lender. Either way the money came from the investors.
So the issue is not whether there was money on the table but rather whether there was a meeting of the minds between the investors and lenders in the homeowners as borrowers. The lender documents (trust documents) reveal far different terms of repayment than the borrower documents. Each of them signed on to a deal that actually didn’t exist because neither of them had agreed to the same terms.
The fact that money was on the table at the time of the alleged closing of the loan can only mean that the homeowner owed money to repay the source of the money. This duty to repay arises by operation of law and extends from the homeowner to the investor despite the lack of any documentation that explicitly states that. The result is false documentation in which the homeowner was induced to sign under the mistaken belief that the payee on the note and the mortgagee on the mortgage was the source of funds.
If you receive funds from John Smith and the note and mortgage are drafted for the benefit of Nancy Jones as “lender” would that bother you? What would you do as closing agent? Why?
Filed under: CORRUPTION, evidence, expert witness, foreclosure, foreclosure defenses, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Pleading, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: acceptance, borrowers, closing table, consideration, contract law, debt, documentation, homeowners, investors, lenders, Mortgage, note, offer | 67 Comments »