Bringing in the Clowns Through Breach of Fiduciary Duties


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Editor’s Comment: In my many conversations with both attorneys and pro se litigants they frequently express intense frustration about those invisible relationships and entities that permeate the entire mortgage model starting in the 1990’s and continuing to the present day, every day court is in session.

I think they are right. This article takes it as given, whether the courts wish to recognize it or not, that the parties at the closing table with the homeowner were all fiduciaries and included all those who were getting fees paid out of the closing proceeds — in other words paid out either the homeowner’s hapless down payment (worthless the moment it was tendered) or the proceeds of a loan (undocumented as to the source of the loan and documented falsely as to the creditor and the terms of repayment.

This article also takes it as a given, whether the courts are ready to recognize it or not, that the parties at the closing table with the investors who were the source of funds pooled or not were all fiduciaries and included all those who were getting fees paid out of the closing proceeds — in other words paid out either the hopeless plunge into an abyss with no loans purchased or funded until long after the money was in “escrow” with the investment banker in exchange for a completely worthless mortgage backed security without any mortgages backing the security.

But the interesting fact is that while some of the parties were known to the investor, and some of the parties were known to the homeowners, the investor did not know the parties at the closing table with the homeowner; and the borrower did not know the parties at the closing table with the investor.

In point of fact, the borrower did not even know there was a table or an investor or a table funded loan until long after closing, if ever. Remember that for years MERS, the  servicers and others brought foreclosures that are still final (but subject to challenge) while they vigorously denied the very existence of a pool or any investors.

While this is interesting from the perspective of Reg Z that states that a pattern of table-funded loans is to be regarded as “predatory” per se, which the courts have refused to enforce or even recognize, I have a larger target — all the participants in the securitization chain, each of whom actually claims to have been some sort of escrow agent giving rise to a fiduciary relationship per se — meaning that the cause of action is simple and cannot be barred by the economic loss rule because they had no contract with the homeowners and probably had no contracts with the investors.

Again, I warn about the magic bullet. there isn’t one. But this one comes close because by including these fiduciaries by name from your combo title and securitization report and by description where the fake securitization was dubbed “private label” they are all brought into the courtroom and they are all subject to a simple action for accounting which can be amended later to allege damages, or if you think you have enough information already, state your damages.

Based upon my research of the fiduciary relationship there are no limits anywhere if the action is not based upon a direct contract, and some states and culled that down to a “no limit’ doctrine (see Florida cases) except in product liability or similar cases.

The allegation is simply that the homeowner bought a loan product that was known to be defective, poorly documented, if at all, and subject to a shell game (MERS) in which the homeowner would never know the identity of the chosen creditor until the homeowner was maneuvered into foreclosure. There are several potential channels of damages that can be alleged.

Lawyers are encouraged to do about 30 minutes of research into fiduciary liability in your state and match up the elements of the cause of action for breach of fiduciary duty with the securitization documents that either has already been admitted or that has been discovered.

Go through the PSA and look at it from the point of view of assumed agency and escrowing or holding documents, receivables, notes, money and mortgages. Each one of those is low hanging fruit for a breach of fiduciary duty lawsuit.

And of course any party specifically named as a “trustee” whether a trust exists or not raises the issue of trust duties which are fiduciary as well, whether it is the trustee of a “pool” or the trustee on the deed of trust (or more likely the alleged substitution trustee on the DOT).

The Trustee Has a Duty to Cancel the Underlying Note After Sale!!

From Sal Danna

Kerivan v. Title Ins. & Trust Co., 147 Cal. App. 3d 225 – Cal: Court of Appeals, 2nd Dist., Div. 4 1983

How this document has been cited

—stating that a trustee ” `is the agent of all the parties to the escrow… and bears a fiduciary relationship to each of them.'”- in Hatch v. Collins, 1990 and one similar citation
—we note that decisions concerning secured promissory notes have evidenced a policy favoring the enforceability of choice-of-law provisions- in Guardian Sav. & Loan Assn. v. MD ASSOCIATES, 1998 and one similar citation
Cotton Lane contends that this statute does not apply to this case, however, because “[t] he `judgment’referred to in Code of Civil Procedure sections 580b and 580d refers only to a judgment rendered in [California] and not to a judgment pursued in a state allowing deficiencies following foreclosure sales. “- in Cardon v. Cotton Lane Holdings, Inc., 1992 and one similar citation
The court distinguished this situation from cases such as ours where both instruments are executed in the same state, finding that where the laws of California apply to both the promissory note and the deed of trust,” the trustee under a deed of trust has a duty to cancel the note following a nonjudicial foreclosure– in Ballengee v. Sadlier, 1986 and one similar citation
It is well established that under Civil Code section 1642, several agreements concerning the same subject matter and made as part of the same transaction must be construed together- in ANSWAR, LTD. v. BOLD ENTERTAINMENT, LLC, 2007 and one similar citation
However, the trustee need not cancel the note when the beneficiary may seek a deficiency judgment in another jurisdiction.
– in California Title Insurance Practice: June 1990 Supplement and one similar citation
Kerivan explained its analysis by quoting from the Restatement Second of Conflict of Laws section 229, comment e: ” `Issues which do not affect any interest in the land, although they do relate to the foreclosure, are determined… by the law which governs the debt for which the mortgage was given. Examples of such latter issues are the mortgagee’s rights to hold the …- in Consolidated Capital Income Trust v. Khaloghli, 1986 and one similar citation
He is the agent of all parties to the deed of trust and owes duties to the trustor as well as to the beneficiary- in Ballengee v. Sadlier, 1986 and one similar citation
Both the note and the guaranty contain a California choice of law clause, and a suit on the deficiency is a suit on the note without regard to the deed or the location of the property- in Consolidated Capital Income Trust v. Khaloghli, 1986 and one similar citation
Moreover, the Kerivan court stated in dicta that no deficiency judgment would be appropriate “if the trial court ascertained that [the] note and the deed of trust were to be construed under the laws of [California]….”- in Cardon v. Cotton Lane Holdings, Inc., 1992 and one similar citation

IE Associates v. Safeco Title Ins. Co.

How cited
702 P. 2d 596, 39 Cal. 3d 281, 216 Cal. Rptr. … – Cal: Supreme …, 1985 – Google Scholar
In April 1977, Associates, a general partnership, purchased certain real property from the Bishops for $105,000. As part of the purchase price, Associates gave the Bishops a promissory note for $8,250, secured by a deed of trust in favor of the Bishops, naming Safeco as trustee. The
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[CITATION] California mortgage and deed of trust practice

R Bernhardt – 1990 – Continuing Education of the Bar– …
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Cardon v. Cotton Lane Holdings, Inc.

How cited
841 P. 2d 198, 173 Ariz. 203 – Ariz: Supreme Court, 1992 – Google Scholar
In 1984 and 1985, Petitioner Wilford A. Cardon (Mr. Cardon) made several trips to Los
Angeles, California to negotiate a loan for Cardon Oil Co. from Imperial Bank of Commerce (Imperial
Bank), a bank chartered in Canada. On these occasions, Mr. Cardon negotiated with the
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Hatch v. Collins

How cited
225 Cal. App. 3d 1104, 275 Cal. Rptr. … – … of Appeals, 1st Dist., Div. 2, 1990 – Google Scholar In this action to set aside a foreclosure sale of three parcels of real property which occurred more than seven years ago, plaintiffs and appellants Noel Hatch and Nola Hatch appeal from summary judgments entered in favor of the defendants and respondents, who are the beneficiaries
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Consolidated Capital Income Trust v. Khaloghli

How cited
183 Cal. App. 3d 107, 227 Cal. Rptr. … – … of Appeals, 4th Dist., Div. 3, 1986 – Google Scholar
(1a) On cross motions for summary judgment, the superior court ruled for Khosro Khaloghli, an individual guarantor of a multimillion-dollar note and deed of trust on an apartment complex located in Texas, and against Consolidated Capital Income Trust, the lender, who brought this
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Ballengee v. Sadlier

How cited
179 Cal. App. 3d 1, 224 Cal. Rptr. … – Cal: Court of Appeals, 6th …, 1986 – Google Scholar
Ballengee loaned money to Timothy and Judy Sadlier (Sadlier). Sadlier executed a promissory note for $70,000 secured by a second deed of trust on real property in Santa Cruz County. The existing first deed of trust was in favor of Crocker National Bank (Crocker). Sadlier
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In Re Crystal Properties, Ltd., LP

How cited
268 F. 3d 743 – Court of Appeals, 9th Circuit, 2001 – Google Scholar
Beal Bank (“Beal”) appeals the district court’s order affirming the bankruptcy court’s grant of summary judgment in favor of the debtor, Crystal Properties (“Crystal”). Beal asserts that the bankruptcy and district courts incorrectly concluded that Crystal was not required to pay interest at the
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In re Bisbee

How cited
754 P. 2d 1135, 157 Ariz. 31 – Ariz: Supreme Court, 1988 – Google Scholar
On February 10, 1986, Mr. and Mrs. Bisbee, as debtors in possession, filed an adversary complaint against Security National Bank seeking to invalidate the Bank’s security interests. Rule 7001(2), F.Bk.R. Under federal bankruptcy law, a Chapter 11 debtor in possession has
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Romo v. Stewart Title of California

How cited
35 Cal. App. 4th 1609, 42 Cal. Rptr. 2d … – Cal: Court of Appeals, 1st …, 1995 – Google Scholar
This is the second appeal before us in this action by a home seller against an escrow agent for various misdeeds which allegedly occurred in connection with the sale of plaintiff’s house. In the first appeal we held that the trial court properly concluded that plaintiff’s claims for
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Guardian Sav. & Loan Assn. v. MD ASSOCIATES

How cited
75 Cal. Rptr. 2d 151, 64 Cal. App. 4th … – … of Appeal, 1st Dist., Div. 1, 1998 – Google Scholar
In 1983, Michael D. Barker was recruited by the chairman of Guardian Savings and Loan Association (hereafter Guardian) to act as a development partner for office building projects in a territory that included San Francisco. The parties’ first investment was in 100 First Street in San
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Equating California Foreclosure Sales with Ordinary Residential Sales

R Breitman – S. Cal. L. Rev., 1994 –
Commentators on state foreclosure practices have set forth pro- posals designed to equate the foreclosure sale with the ordinary sale of residential real property in an arm’s length transaction.’ This Note will discuss the feasibility of making the foreclosure sale similar to
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In re Rossi

How cited
86 BR 220 – Bankruptcy Appellate Panel, 9th Circuit, 1988 – Google Scholar
In re Robert Anthony ROSSI, Debtor. In re Patricia Ann ROSSI, Debtor. In re Eugene
HESTER; Claudette Hester, Debtors. Lawrence A. DIAMANT, Trustee, Appellant, v. BANK OF
A. LEVY, Appellee. Richard J. TEJEDA and Louie W. Tejeda, Appellants, v. Lawrence A.
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2090 I. The Relevance of Constitutional Review to International Conflict of Laws 2099 II.
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Application of California’s Antideficiency Statutes in Conflict of Laws Contexts

JH Shadduck – Cal. L. Rev., 1985 –
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105-12. 19. In Hersch, the litigants conceded that Younker v. Reseda Manor, 255 Cal. App. 2d
431, 63 Cal. Rptr. 197 (1967), a case seemingly decided under the traditional theory,
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[CITATION] California Title Insurance Practice: June 1990 Supplement

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On Fri, Jan 29, 2010 at 6:53 AM, Walter Hackett <> wrote:

My understanding, developed during my years in banking, has always been that once an election of remedies is made by the obligee of the Note to non-judicially foreclose the Note ceases to have any existence as evidence of an obligation.  The only time I ever delivered a Note to a Trustee was when submitting a request for a full reconveyance.  I read this case to mean the Trustee must make demand on the holder of the Note upon conclusion of a non-judicial foreclosure sale but not as a condition to conducting one.  In 27 years I never provided a Note to a Trustee before a non-judicial foreclosure was concluded (and don’t remember doing so afterwards).

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