Coming this fall! A new wave of illegal foreclosure claims. Will we get it right this time?

Posted on July 1, 2020 by Neil Garfield

Some have pointed to some articles indicating that the securitization ponzi scheme collapsed already.

It might be more accurate to say that the scheme was reorganized rather than collapsed. But even if it collapsed the Wall Street banks will continue sending servicers and foreclosure mills into the field to file foreclosures. After, all, it’s free money if they win, and there is so far, a statistical certainty that in nearly all cases they will win simply because of the erroneous belief by homeowners that they have done something wrong and that they have a moral obligation to leave the house, once they stop paying.

So homeowner will give their precious house to people who have no right to receive it.

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We are a long way from when homeowners realize that they were flim flammed from the very start and that taking the substance of the homeowner transaction in total and in perspective, the homeowner (a) did not owe any money to anyone claiming it and (b) the homeowner was probably owed more money from the investment bank than he/she could possibly owe under the note and mortgage that was issued.
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It wasn’t a loan and we should stop calling it that. The “lender” side had no lending intent. At the conclusion of the process there was no creditor holding the homeowner obligation as an asset. Therefore they were not lenders or even creditors and accordingly not liable or accountable to act in accordance with lending and servicing statutes.
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The confusion emanates from the fact that all homeowners entered into the transaction with borrower intent. But there was no lending intent from the other side. The other side masked the real transaction as a loan to deceive the homeowner into accepting the label “borrower”.
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The real transaction was payment to the homeowner for issuance of note and mortgage to start the securitization processes. It was in reality a simple commercial transaction, to wit: the investment bank, through intermediaries agrees to pay money to the homeowner in exchange for the homeowner issuing a note and mortgage and putting up their home as collateral for an obligation that offsets the payment received. It could have been a loan, but it wasn’t.
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Because the banks lied about the transaction to the homeowner and to further make it look like a loan, they got the homeowner to issue a note and mortgage in most cases to an entity that never paid any money. This might negate the consideration for the transaction altogether because they were making a payment  but also getting a promise to pay even more to unknown creditors who would be illegally designated later. That part is a close question.
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But in quantum meruit, quasi contract and reformation, the only legal way that their designation system could be made legal is by getting consent from the homeowner to that system of designation of a creditor to act as a lawful creditor even though it wasn’t. That was the real reason for MERS, the use of Originators and the offering of “modifications.” The players on paper are designees or nominees — not real players. They are using the language of the notes and mortgages to imply consent to a “no creditor” transaction.
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But that is not informed consent or real consent, nor is it legal without other language of contract. A binding contract must have offer, acceptance, clear terms and consideration between the parties to the contract. In most cases the homeowner transactions were therefore not binding contracts. The Payee on the note was not a creditor. The doctrine of merger cannot apply when the payee is different from the source of funds unless there is a specific express contractual provision stating that. The mortgagee is usually a nominee which I think is a tacit admission that there is no creditor.
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In order to foreclose, the party asking for foreclosure remedy must be a creditor. A creditor is only one who either (a) owns the debt or (b) represents someone who owns the debt. Ownership of the debt is only accomplished in one way — payment of value in exchange for an instrument conveying title to the debt from an owner of the debt to a new owner of the debt.
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The ONLY time any value was paid was by investors. But they did not get any instrument of conveyance of the debt. Quite the contrary. The intent was to make certain that they would never be considered lenders. What they received was a discretionary promise from the investment bank dba REMIC trust to make payments that were partially indexed on but not dependent upon receipt of payments from homeowners.
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It is therefore impossible for any transaction to have occurred wherein value was paid for ownership of the debt after the investors paid the investment bank. Even if someone wanted to pay value in exchange for an instrument of conveyance of ownership of the debt, there was nobody to pay.
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The only party who paid value was the group of investors or arguably the investment bank. But neither of those entities had ever received any instrument of conveyance of ownership of the debt and in fact they disclaimed any such ownership because it would have made them lenders subject to TILA and other lending and servicing laws.
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BUT in order to foreclose, the papers filed by the foreclosure mill would need to show that a creditor was applying for the remedy of forfeiture. See Article 9 §203 UCC. So that required assignments of mortgage to be prepared, executed and recorded even though there was no financial transaction between the parties. In short, the scheme required the preparation, execution and recording of false utterances in false documents that were forged and illegally recorded.
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Since the homeowner has always assumed the homeowner transaction was a loan agreement, almost nobody has thought to credibly and properly challenge these assignments as legal nullities.
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The credible challenge would be not only that there was no consideration paid for the assignment, but that the payment of consideration was not a commercially reasonable basis for the execution and recording of the instrument, since the only consideration came from parties who did not and do not want ownership of the debt.
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The absence of any valid assignment is not just a fact; it is legally impossible under current securitizations schemes to have a valid legal assignment. The investment banks as intermediaries between investors and homeowners have structured the cash flow such that the investment banks get most of the benefits from the securitization process at the cost to and detriment of investors and homeowners — the only two real parties in interest in the homeowner transaction which is mistakenly called a “loan.”
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The note, payable to a party with whom the homeowner unknowingly conducted no actual business, creates a liability under Article 3 of the Uniform Commercial Code regardless of the lack of consideration. The maker of the note has defenses to be sure, but if someone buys the note for value, without knowledge of the maker’s defenses, and in good faith, then the maker must pay the note and the only remedy available to the maker is by making a claim against the Payee on the note and anyone else that induced him to execute a note in favor of someone who gave him/her nothing.
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The foreclosure mills for claimants in foreclosure do not plead status as a holder in due course because they can’t prove the elements: payment, good faith and lack of knowledge of borrower’s defenses. But they induce both homeowners, their attorneys and the courts to treat the claimant as a holder in due course because of the complexity of legal analysis in distinguishing between an HDC, holder, possessor and anyone with rights to enforce.
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As a result, because the position is not properly challenged, the court then often reduces or even eliminates discovery on the central issue — whether the claimant is a creditor of the homeowner.
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The “rights to enforce” argument almost always leaves out the presumed component that is a condition precedent to any such analysis, to wit: that the creditor has authorized the enforcement. But if there is no creditor — i.e., anyone holding the debt as an asset — then such authority cannot legally exist.
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This explains the appearance of false, fabricated, forged, backdated and robo signed documents that are still regularly used. Since there is no creditor the pursuit of foreclosure is a pursuit of profit rather than restitution for an unpaid debt. It is not recovery on a loan.
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And if the transaction was unraveled from its complex appearance, it is plain as day that the homeowner is entitled to credits and probably payments from the investment bank under quantum meruit and quasi contract for being drafted into a highly profitable securitizations scheme that gave the homeowner nothing for initiating the scheme.
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We are about to be besieged with new foreclosure claims. Let’s get it right this time. The “flood of litigation” argument for rocket dockets is not valid because it presumes that the claimant does have status as a creditor and that the foreclosure is for restitution of an unpaid debt.
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Aggressive and persistent demands for identification of the claimant and for evidence of proof payment for value — along with thoughtful, credible and persuasive presentation might well result in prevention of a flood of foreclosures because there is no entity that actually stands to lose any money arising from the action or inaction of any homeowner.
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They won’t plead injury because there is no injury. They can’t prove any injury. They can only induce the court to presume it based upon erroneous application of legal presumptions arising from the apparent facial validity of documents that are neither facially valid nor true representations of any transaction in the real world. 

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Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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Filed under: bankruptcy, burden of pleading, BURDEN OF PROOF, discovery, Discovery -Subpoena, evidence, Fabrication of documents, foreclosure, foreclosure defenses, forensic investigation, investment banking, Investor, jurisdiction, legal standing, originator, Pleading, Presumptions, prima facie case, securities fraud, sham transactions, standing | Tagged: , , , | 5 Comments »

Jurisdictional Defense —- Certificate Holders vs Trust

Posted on August 28, 2019 by Neil Garfield

Litigators often miss the point that the foreclosure is brought on behalf of certificate holders who have no right, title or interest in the debt, note or mortgage — and there is no assertion, allegation or exhibit that says otherwise.

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Here is an excerpt from one of my recent drafts on this subject:

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LACK OF SUBJECT MATTER JURISDICTION: the complaint attempts to state a cause of action on behalf of the certificate holders of an apparent trust, although the trust is not identified as to the jurisdiction in which it was created or the jurisdiction in which it operates.
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Even assuming that such a trust exists and that it issued certificates, there is no allegation or attachment of an exhibit demonstrating that the certificates contain a conveyance enabling the holder of the certificate to enforce the alleged debt, note or mortgage upon which the complaint relies. In fact, independent investigation shows the exact opposite.
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Nor is there any allegation that any money is due to the certificate holders or any allegation that the certificate holders possess the promissory note or have the right to enforce either the promissory note or the mortgage. Even if the indenture for the certificates were produced before this court, it would only show a contract for payment from a party other than the homeowner in this action. Accordingly, no justiciable controversy has been presented to the court. In the absence of an amendment curing the above defects, the complaint must be dismissed for lack of subject matter jurisdiction.
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STANDING:
  1. As to Bank of New York Mellon there is no allegation or attachment to the complaint that alleges or demonstrates an agency relationship between Bank of New York Mellon and the certificate holders, on whose behalf the complaint is allegedly filed. If Bank of New York Mellon is the trustee of an existing trust and the trust is alleged to own the debt note and mortgage along with the rights to enforce, then the agency or representative capacity of Bank of New York Mellon is with the trust, and not with the certificate holders. Based upon the allegations of the complaint and independent research defendant asserts that there is no representative capacity between Bank of New York Mellon and the certificate holders.
  2. As to the alleged trust which has not been properly identified there is no allegation that the action is brought on behalf of the trust; but the implied allegation is that the trust is the plaintiff. The complaint states that the action is brought on behalf of the certificate holders who merely hold securities or instruments apparently issued in the name of the alleged trust. There is no allegation or exhibit attached to the complaint that would support any implication that Bank of New York Mellon possesses a power of attorney for the certificate holders or the trust. In fact, in litigation between Bank of New York Mellon and investors who have purchased such certificates, Bank of New York Mellon has denied any duty owed to the certificate holders.
  3. As to the certificate holders, there is no allegation or exhibit demonstrating that the certificate holders have any right, title or interest to the debt, note or mortgage nor any right to enforce the debt, note or mortgage. Based upon independent research, the certificate holders do not possess any right, title or interest to the debt, note or mortgage nor any right to enforce. In fact, in Tax Court litigation the certificate holders are deemed to be holding an unsecured obligation, to wit: a promise to pay issued in the name of a trust which may simply be the fictitious name of an investment bank. There is no contractual relationship between the defendant and the certificate holders. Further, no such relationship has been alleged or implied by the complaint or anything contained in the attachments to the complaint.
  4. As to the certificate holders, they are neither named nor identified. Yet the complaint states that the lawsuit is based upon a claim for restitution to the certificate holders. The reference to the trust may be identification of the certificates but not the certificate holders. In fact, based upon independent investigation, the holders of such certificates never received any payments from the borrower nor from any servicer who collected payments from the borrower nor from the proceeds of any foreclosure. In the case at bar. the complaint is framed to obscure the fact that the forced sale of the property will not be used to satisfy the debt, note or mortgage in whole or in part.
  5. As to any of the parties listed in the complaint as being a plaintiff or part of the plaintiff there is no allegation or exhibit demonstrating that any of them paid value for the debt, or received a conveyance of an interest in the debt, note or mortgage from a party who has paid value for the debt as required by article 9 § 203 of the Uniform Commercial Code as adopted by state law, which states that a condition precedent to the enforcement of a mortgage is the payment of value for the debt. Hence regardless of who is identified as being the actual plaintiff none of the parties listed can demonstrate financial injury arising from nonpayment or any other act by the defendant.
  6. In the absence of any amendment to cure the above defects, the entire complaint and exhibits must be dismissed with prejudice for lack of subject matter jurisdiction and lack of a plaintiff who has legal standing to bring a claim against the defendant.
The only thing I would add to the existing second affirmative defense is the affirmative statement that based upon independent investigation, such signatures were neither authorized nor proper, to wit: they consist of forgeries or the product of robosigned in which the signature of a person is affixed without knowledge of the contents of the instrument to which it is affixed.
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In my opinion, the specificity that I have employed in the above comments not only provides a basis for dismissal, but also the foundation to support Discovery requests that might otherwise be denied, to wit: who, if anyone, ever paid money for the debt?

Filed under: burden of persuasion, burden of pleading, BURDEN OF PROOF, discovery, Discovery -Subpoena, evidence, expert witness, Fabrication of documents, foreclosure, foreclosure defenses, forensic investigation, investment banking, Investor, jurisdiction, legal standing, Pleading, prima facie case, sham transactions, standing, TRIAL OBJECTIONS, trial strategy | Tagged: , , , , , , | 5 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 »

Tonight! How to Defend Against a Claim of “Holder” Status to Discredit Standing

Posted on June 28, 2018 by Neil Garfield

“Holder” vs “Agency”

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Tonight I will discuss the central point of of false claims of authority to enforce the note, and inferentially the authority to enforce the mortgage.

In 2008, I called to confront a lawyer about the false claim of being authorized to enforce the note and mortgage, his reply to all my questions was “We’re a holder.”

No matter what I said or asked, that was his answer. He was relying upon a carefully thought out strategy of taking the term “holder” and stretching it to unimaginable lengths. And in that conversation it became clear that he — and the rest of the investment banking industry — were essentially “banking” on a single fact, to wit: that Judges are lawyers who went to law school and for the most part slept through classes on negotiable instruments. He was right.

Filed under: burden of persuasion, burden of pleading, BURDEN OF PROOF, discovery, Discovery -Subpoena, evidence, Fabrication of documents, foreclosure | Tagged: , , , | 3 Comments »

NJ Court: Possession of note + mortgage assignment is prerequisite to foreclosure

Posted on June 21, 2018 by Neil Garfield

Pretender lenders are going to cite this case as support for the idea that the note and mortgage can be separated and that either one can be the basis of a successful foreclosure. They will rely on the “exception” implied in the court decision wherein the owner of the note has an agency relationship with the servicer who is the foreclosing party.

In this case Freddie Mac clearly possessed the note, although there was no evidence cited that Freddie Mac had actually purchased it. That was presumed in this case. The purchase of the note was not an issue on appeal.

Freddie Mac had made it clear in public announcements that foreclosures should be in the name of servicers. So the possession of one part of the paperwork by the agent and the other by the principal are joined as a single unit.

This decision was correct in ruling against the homeowner, given the issues before it. The homeowner was attempting to make a technical distinction contrary to the facts and contrary to law. The issue brought on appeal was whether Freddie Mac was the only party with standing to foreclose. I would say that shouldn’t have been the issue. Both Freddie Mac and Capital One had standing depending upon who asserted it. Either one could have foreclosed.

Any party may foreclose in its own name or through an agent with authority to do so — if they otherwise plead and prove their status as holder in due course, or holder, or non-holder with rights to enforce. The issue on appeal was a non-starter.

Despite the article, there is no exception here. This New Jersey court simply followed the law.

see Court-says-note-and-mortgage-assignment-both-prerequisites-to-foreclosure-but-makes-an-exception/

see case decision: Peck adv Capital One

The difference between this case and most other cases is that in this case there appears to be a tacit admission that Freddie Mac, as possessor of the note, was a holder or non-holder with rights to enforce because they had purchased the note. It is assumed in this case that Freddie was the actual owner of the debt.

The key differences between this case and most other cases are as follows:

  1. The “principal” in this case has been identified and assumed to be the owner of the debt.
  2. The “agent” in this case, Capital One, is a servicer whose authority to act as agent was not contested.

What is missing is whether Freddie Mac actually purchased the debt or the note and whether Freddie Mac still owned anything at all. Purchase of the note does not mean purchase of the debt if the debt is owned by someone other than the seller of the note. It is well settled law that only the owner of the debt can foreclose. But even if a purchase transaction did in fact take place, the question remains as to whether the interest of Freddie Mac was sold back to some private label REMIC Trust or some other third party such as the seller who may have given warranties as tot he performance of loans.

But if the note was purchased in good faith and without knowledge of the borrower’s defenses, if any, then the purchaser of the note increases their status to holder in due course where there are no defenses even if the preceding origination or transfers had defects.

On the other hand, if the seller of the note did not own the note, then the purchase by Freddie would be nullity. This is also well settled law. A seller of an interest that is nonexistent or in which the seller has no interest, cannot create the interest by selling it. This is the basic problem with “originations” and most “transfers” by endorsement or assignment. In such circumstances the buyer would be a possessor without rights to enforce unless the owner of the debt was in privity with the buyer of the note. The buyer would have a potential claim against the seller, but not the maker of the note.

In such circumstances, the owner of the debt or the true owner of the note would be able to file a claim against the maker and the buyer of the note, explaining how the possession of the note was lost and pleading (and proving) ownership of the debt.

NOTE THAT THERE IS A DEEPER ISSUE PRESENT. But it probably won’t get you any traction despite the clear basis in law and fact. Freddie Mac may or may not have actually made a purchase of the subject loan. If they didn’t then asserting them as the owner of the note might be OK for pleading, but the case ought to fail at trial — if the homeowner denies that they are the owner of the note.  

If it paid in money, then to whom was payment sent? This is different than who claimed ownership of the note and mortgage. More often than not the money trail is NOT the same as the paper trail.

Note that many transactions occurred in which the “Mortgage Loan Schedule” was incomplete or nonexistent at the time of the purported sale. The identity of the seller in such purported transactions is also obscured by clever wording.

If they paid using RMBS certificates, then things get more interesting. Because the RMBS certificates were in all probability worthless. Hence there would a failure of consideration and Freddie Mac could not claim to be a purchaser for value. The vast majority of RMBS were sold under the false pretense that they were “backed” my residential mortgages. The issuer of the certificates is asserted to be a named trust. But if the trust never came into ownership of the alleged mortgage loans, then the RMBS certificates were backed by nothing at all.

Not to draw too fine a point here, it is still possible that Freddie could be considered a purchaser for value even if the RMBS certificates appeared to be worthless. That is because in the  shadow banking marketplace, such certificates and the synthetic derivatives deriving their purported value from the purported value of the certificates nevertheless take on a life of their own. Even if they have no fundamental value they may well have a trading value that far exceeds anything that is fundamental to the certificates (i.e.m, zero).

Filed under: boarding process, burden of persuasion, burden of pleading, BURDEN OF PROOF, Fabrication of documents, Fannie MAe, foreclosure, forensic investigation, legal standing | Tagged: , , , , , | 12 Comments »

Expert Testimony and Expert Reports

Posted on February 22, 2017 by Neil Garfield
Homeowners are dismayed and even claim court bias when the report of a self-proclaimed expert is barred from evidence. Or they become equally incensed when the court allows the report into evidence but gives it zero weight in rendering a decision. But the court is, to that extent, merely following the rules that govern what Judges should or should not do.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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It goes without saying that any report that has not been read and any testimony that has not been heard will be disregarded as a practical matter and in many cases as a legal matter. The Internet has been awash in offers of “magic bullet” analyses and reports that either directly or indirectly make the false promise of relief from foreclosure. Nearly all of the forensic analysts are self-proclaimed, unlicensed in any field requiring a license, inexperienced and untrained. What they are seem to share in common is the hope or belief that once a Judge lays eyes on the report, the decision will be rendered swiftly in favor of the homeowner.
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Forensic analysis can theoretically be performed by anyone, which of course means that they are predominantly worthless even in their inception. Most analysts are looking for the wrong things and/or looking for things that are irrelevant and/or looking for things that will not be admitted into court record as evidence. Even an unopposed expert declaration or affidavit will either not be admitted into evidence by written report or oral testimony if it is delivered by such analysts. Homeowners are dismayed and even claim court bias when the report of a self-proclaimed expert is barred from evidence. Or they become equally incensed when the court allows the report into evidence but gives it zero weight in rendering a decision. But the court is, to that extent, merely following the rules that govern what Judges should or should not do.
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The one thing in which most “successful” forensic analysts excel is selling. They tell homeowners what they want to hear when they need to hear it. It’s akin to imbibing a libation or drug to take the edge off for the moment but it doesn’t change a thing.
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So let’s go to the other end of the spectrum. Does it matter if the analyst is unlicensed? NO. But if the analyst is unlicensed he or she will need to spend a lot more time giving testimony about how they acquired their expertise and how their work is based upon established frameworks of prior work in teases and other sources — and not merely a theory in their own head.
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But the interesting thing is that when such experts do survive the challenges under Daubert or Frye (see below) the seemingly less qualified analyst frequently is able to explain to the court how he or she arrived at an opinion and then explains both the opinion and the basis of the opinion in clearer language than most “qualified” experts with far superior credentials.
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Further the Banks’ Ostrich Strategy appears to have been working for the last 10 years. After tens of thousands of reports and expert declarations have been filed or served on behalf of homeowners, there are no reported instances in which an expert from the banks or servicers ever filed an affidavit or declaration in opposition to the experts who execute expert declarations for the homeowners. In fact, there are few instances in which the “expert” is even deposed, which thus removes the ability of the banks to challenge the expert. The end result has been that expert testimony is nearly always discounted or completely ignored. If the banks ignore it in litigation then so does the court.
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But the unwillingness to make an issue of the expert declarations filed by homeowners may well have a downside, especially as more and more Motions for Summary Judgment are filed. As the courts are gradually changing course to consider the possibility that homeowners should win and that banks should lose, the time has come to file a motion for partial summary judgment on issues specifically raised and supported in a properly drafted expert declaration.
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In the absence of an opposing affidavit, the court has little choice but to take the assertions as true as stated in the expert declaration for the homeowner. That leaves only the legal argument of whether the homeowner is entitled to the entry of summary judgment on the issues raised, inasmuch as the homeowner has effectively eliminated the issue or issues to be heard at trial.
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For example suppose the expert’s opinion is that the trust was never funded, that the trust has no legal authority to administer the alleged loan because the loan was not in the trust, and that the trust therefore could never have purchased the debt or the note or the mortgage, and that the “servicer” appointed as servicer in the trust instrument (PSA) has no authority because the property (i.e., the loan) was never transferred into the trust and that the Trustee named in the trust instrument (PSA) also has no power over the subject loan because the trust never purchased the loan, the debt, the note or the mortgage, and perhaps also that the foreclosure is a grand illusion in which the banks and servicers are completing a scheme of civil theft of the investors’ money, and perhaps that the debtor-creditor relationship consists of the homeowner and the investors whose identities have been withheld by the banks.
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In order to take those conclusions seriously, the court must hear that those conclusions are supported by understandable evidence that is based upon widespread axioms; since the conclusion is counterintuitive, it is important that the declaration be credible.
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Hence the expert must bring in corroboration as part of the explanation of the reasoning in the expert declaration. Corroboration could be direct evidence (by the way, hearsay is allowed in expert testimony) or clear deductive reasoning that eliminates anything else as an alternative explanation; (e.g., if the trust had actually entered into a transaction in which it purchased the alleged loan or some part of it, then it would not assert that it was a holder but rather, as is custom and practice in the industry the trust would declare itself to be a holder in due course or the actual owner of the debt (not just the note and mortgage) and would gleefully have proven the purchase by offering a canceled check or wire transfer receipt into evidence).
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By elimination of the elements of “good faith” and lack of knowledge of the borrower’s defenses (e.g. lack of consideration, non-merger of debt and note etc.) the only missing element would be that the Trust was not a successor to the original creditor regardless of whether the original creditor(s) was or were victims of theft or the actual payee on the note. Thus the conclusion that the Trust is not a holder in due course and should not be treated as one. And if it was the agent for an actual creditor, the Trust had failed to identify the creditors fro whom it was acting as agent. Note that such an admission would crash the entire trust and its beneficiaries under the weight of several violations of the Internal revenue Code turning all money handled by the “REMIC” into ordinary revenue and income.
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One trick often used to bar such expert testimony is the 11th hour challenge either the day before or during trial. One New Jersey appellate court correctly assessed the situation has revealed in the following article:
Appeals Court Reverses Grant of “11th Hour” Motion to Strike Expert

Parties will frequently seek to strike the opinions offered by their adversaries’ experts as legally insufficient. While there are a variety of bases for such motions—including that the report does not set forth the “whys and wherefores” of the expert’s opinion, or that it does not satisfy other evidentiary rules for its admissibility—the strategic purpose is clearly to weaken or even destroy the opposing party’s case by barring key testimony. These limiting, or in limine, motions typically will be brought just before trial after the expert’s opinions have been discovered and often after the expert has given deposition testimony about the support for the opinion. A recent New Jersey Appellate Division case now seems to suggest that due process requires that (1) such a limiting motion must be made with enough time for the opponent to respond adequately, and (2) the trial judge must conduct a hearing prior to deciding to exclude the challenged expert’s opinions.

The issues arose in a lawsuit over a failed real estate deal, Berman, Sauter, Record & Jardim, P.C. v. Robinson, Dkt. No. A-5650-11T3 (App. Div., Nov. 17, 2016). The plaintiff law firm sued a seller claiming that it wrongfully breached a purchase agreement and caused the law firm’s loss of fees from the deal. The defendant seller then counterclaimed and filed a third-party claim alleging that the plaintiff and third-party defendant law firms had committed legal malpractice by failing to include an express termination clause in the purchase agreement, a claim supported by the opinion of a legal malpractice expert. The plaintiff law firm filed a pre-trial motion to strike the expert’s testimony because the expert did not explain the bases for his legal malpractice conclusion and his testimony was therefore an inadmissible “net opinion.” One week before trial, the pre-trial judge denied that motion “so that the trial judge can hear the testimony and determine whether the expert’s opinions—which seem to set forth the whys and wherefores at least in their reports—were [legally] sufficient[ ] . . .” Because the pretrial judge was not going to be available for the entire trial, a different judge presided over the trial. After jury selection, the trial judge decided to revisit the court’s prior in limine ruling on the expert. Without taking testimony, he concluded the expert had rendered a net opinion and thus excluded the testimony. Because the defendant was left without an expert to support its case, the trial judge also entered an order dismissing the legal malpractice claim and the remainder of the lawsuit quickly settled.

The Appellate Division reversed. The appeals court first noted that the motion to strike the expert was “nothing more than a thinly veiled summary judgment motion” because it essentially was dispositive of the defendant’s claims. The court recognized that the notice provisions for summary judgment motions were meant to satisfy due process by giving parties an opportunity to be heard at a meaningful time and in a meaningful matter. In addition to failing to provide the 28-day notice required for summary judgment motions, the motion did not give the “one week in advance of trial” notice required for an in limine motion, leaving the defendant with no opportunity to present written opposition. And, because the trial judge had not ruled on the earlier summary judgment motions in the case, he did not have the defendants’ opposition to that motion.

The appeals court held that the trial court should not have granted a motion that was dispositive of the plaintiff’s claim without holding a hearing under Rule 104 of the New Jersey Rules of Evidence. The trial court had decided the motion in a way that was “fundamentally unfair” to the defendant. Fairness required the trial court have conducted a hearing before “barring an expert’s testimony based upon a report, particularly if doing so will be dispositive of a case, when the expert has not had the opportunity to explain his opinions through testimony.” Slip op. at 10. The court left it to the trial court’s discretion whether to conduct the hearing before or during the trial.

The importance of the Berman, Sauter decision is that trial counsel can no longer leave to the last minute in limine motions that seek to exclude expert testimony or any other evidence that could be dispositive of the lawsuit. If trial counsel believes that expert’s opinions are inadmissible, it must give sufficient notice to the court and its adversary—and the Appellate Division suggested that it might not be enough just to comply with the one week notice provision if the in limine motion would have the same effect as a summary judgment motion. Berman, Sauter will make trial judges more likely to order pre-trial hearings when an in limine motion seeks to preclude the expert’s opinions and virtually a certainty if such a motion is made without the expert having given deposition testimony explaining his or her opinions.

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The difference between paper instruments and real money

Posted on January 4, 2017 by Neil Garfield

There is a difference between the note contract and the mortgage contract. They each have different terms. And there is a difference between those two contracts and the “loan contract,” which is made up of the note, mortgage and required disclosures.Yet both lawyers and judges overlook those differences and come up with bad decisions or arguments that are not quite clever.

There is a difference between what a paper document says and the truth. To bridge that difference federal and state statutes simply define terms to be used in the resolution of any controversy in which a paper instrument is involved. These statutes, which are quite clear, specifically define various terms as they must be used in a court of law.

The history of the law of “Bills and Notes” or “Negotiable Instruments” is rather easy to follow as centuries of common law experience developed an understanding of the problems and solutions.

The terms have been defined and they are the law not only statewide, but throughout the country, with the governing elements clearly set forth in each state’s adoption of the UCC (Uniform Commercial Code) as the template for laws passed in their state.

The problem now is that most judges and lawyers are using those terms that have their own legal meaning without differentiating them; thus the meaning of those “terms of art” are being used interchangeably. This reverses centuries of common law and statutory laws designed to prevent conflicting results. Those laws constrain a judge to follow them, not re-write them. Ignoring the true meaning of those terms results in an effective policy of straying further and further from the truth.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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So an interesting case came up in which it is obvious that neither the judge nor the bank attorneys are paying any attention to the law and instead devoting their attention to making sure the bank wins — even at the cost of overturning hundreds of years of precedent.
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The case involves a husband who “signed the note,” and a wife who didn’t sign the note. However the wife signed the mortgage. The Husband died and a probate estate was opened and closed, in which the Wife received full title to the property from the estate of her Husband in addition to her own title on the deed as Husband and Wife (tenancy by the entireties).
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Under state law claims against the estate are barred when the probate case ends; however state law also provides that the lien (from a mortgage or otherwise) survives the probate. That means there is no claim to receive money in existence. Neither the debt nor the note can be enforced. The aim of being a nation of laws is to create a path toward finality, whether the result be just or unjust.
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There is an interesting point here. Husband owed the money and Wife did not and still doesn’t. If foreclosure of the mortgage lien is triggered by nonpayment on the note, it would appear that the mortgage lien is presently unenforceable by foreclosure except as to OTHER duties to maintain, pay taxes, insurance etc. (as stated in the mortgage).

*

The “bank” could have entered the probate action as a claimant or it could have opened up the estate on their own and preserved their right to claim damages on the debt or the note (assuming they could allege AND prove legal standing). Notice my use of the terms “Debt” (which arises without any documentation) and “note,” which is a document that makes several statements that may or may not be true. The debt is one thing. The note is quite a different animal.
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It does not seem logical to sue the Wife for a default on an obligation she never had (i.e., the debt or the note). This is the quintessential circumstance where the Plaintiff has no standing because the Plaintiff has no claim against the Wife. She has no obligation on the promissory note because she never signed it.
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She might have a liability for the debt (not the obligation stated on the promissory note which is now barred by (a) she never signed it and (b) the closing of probate. The relief, if available, would probably come from causes of action lying in equity rather than “at law.” In any event she did not get the “loan” money and she was already vested with title ownership to the house, which is why demand was made for her signature on the mortgage.
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She should neither be sued for a nonexistent default on a nonexistent obligation nor should she logically be subject to losing money or property based upon such a suit. But the lien survives. What does that mean? The lien is one thing whereas the right to foreclose is another. The right to foreclose for nonpayment of the debt or the note has vanished.

*

Since title is now entirely vested in the Wife by the deed and by operation of law in Probate it would seem logical that the “bank” should have either sued the Husband’s estate on the note or brought claims within the Probate action. If they wanted to sue for foreclosure then they should have done so when the estate was open and claims were not barred, which leads me to the next thought.

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The law and concurrent rules plainly state that claims are barred but perfected liens survive the Probate action. In this case they left off the legal description which means they never perfected their lien. The probate action does not eliminate the lien. But the claims for enforcement of the lien are effected, if the enforcement is based upon default in payment alone. The action on the note became barred with the closing of probate, but that left the lien intact, by operation of law.

*

Hence when the house is sold and someone wants clear title for the sale or refinance of the home the “creditor” can demand payment of anything they want — probably up to the amount of the “loan ” plus contractual or statutory interest plus fees and costs (if there was an actual loan contract). The only catch is that whoever is making the claim must actually be either the “person” entitled to enforce the mortgage, to wit: the creditor who could prove payment for either the origination or purchase of the loan.
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The “free house” mythology has polluted judicial thinking. The mortgage remains as a valid encumbrance upon the land.

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This is akin to an IRS income tax lien on property that is protected by homestead. They can’t foreclose on the lien because it is homestead, BUT they do have a valid lien.

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In this case the mortgage remains a valid lien BUT the Wife cannot be sued for a default UNLESS she defaults in one or more of the terms of the mortgage (not the note and not the debt). She did not become a co-borrower when she signed the mortgage. But she did sign the mortgage and so SOME of the terms of the mortgage contract, other than payment of the loan contract, are enforceable by foreclosure.

*

So if she fails to comply with zoning, or fails to maintain the property, or fails to comply with the provisions requiring her to pay property taxes and insurance, THEN they could foreclose on the mortgage against her. The promissory note contained no such provisions for those extra duties. The only obligation under the note was a clear statement as to the amounts due and when they were due.  There are no duties imposed by the Note other than payment of the debt. And THAT duty does not apply to the Wife.

The thing that most judges and most lawyers screw up is that there is a difference between each legal term, and those differences are important or they would not be used. Looking back at AMJUR (I still have the book award on Bills and Notes) the following rules are true in every state:

  1. The debt arises from the circumstances — e.g., a loan of money from A to B.
  2. The liability to pay the debt arises as a matter of law. So the debt becomes, by operation of law, a demand obligation. No documentation is necessary.
  3. The note is not the debt. Execution of the note creates an independent obligation. Thus a borrower may have two liabilities based upon (a) the loan of money in real life and (b) the execution of ANY promissory note.
  4. MERGER DOCTRINE: Under state law, if the borrower executes a promissory note to the party who gave him the loan then the debt becomes merged into the note and the note is evidence of the obligation. This shuts off the possibility that a borrower could be successfully attacked both for payment of the loan of money in real life AND for the independent obligation under the promissory note.
  5. Two liabilities, both of which can be enforced for the same loan. If the borrower executes a note to a third person who was not the party who loaned him/her money, then it is possible for the same borrower to be required, under law, to pay twice. First on the original obligation arising from the loan, (which can be defended with a valid defense such as that the obligation was paid) and second in the event that a third party purchased the note while it was not in default, in good faith and without knowledge of the borrower’s defenses. The borrower cannot defend against the latter because the state statute says that a holder in due course can enforce the note even if the borrower has valid defenses against the original parties who arranged the loan. In the first case (obligation arising from an actual loan of money) a failure to defend will result in a judgment and in the second case the defenses cannot be raised and a judgment will issue. Bottom Line: Signing a promissory note does not mean the maker actual received value or a loan of money, but if that note gets into the hands of a holder in due course, the maker is liable even if there was no actual transaction in real life.
  6. The obligor under the note (i.e., the maker) is not necessarily the same as the debtor. It depends upon who signed the note as the “maker” of the instrument. An obligor would include a guarantor who merely signed either the note or a separate instrument guaranteeing payment.
  7. The obligee under the note (i.e., the payee) is not necessarily the lender. It depends upon who made the loan.
  8. The note is evidence of the debt  — but that doesn’t “foreclose” the issue of whether someone might also sue on the debt — if the Payee on the note is different from the party who loaned the money, if any.
  9. In most instances with nearly all loans over the past 20 years, the payee on the note is not the same as the lender who originated the actual loan.

In no foreclosure case ever reviewed (2004-present era) by my office has anyone ever claimed that they were a holder in due course — thus corroborating the suspicion that they neither paid for the loan origination nor did they pay for the purchase of the loan.

If they had paid for it they would have asserted they were either the “lender” (i.e., the party who loaned money to the party from whom they are seeking collection) or the holder in due course i.e., a  third party who purchased the original note and mortgage for good value, in good faith and without any knowledge of the maker’s defenses). Notice I didn’t use the word “borrower” for that. The maker is liable to a party with HDC status regardless fo whether or not the maker was or was not a borrower.

“Banks” don’t claim to be the lender because that would entitle the “borrower” to raise defenses. They don’t claim HDC status because they would need to prove payment for the purchase of the paper instrument (i.e., the note). But the banks have succeeded in getting most courts to ERRONEOUSLY treat the “banks” as having HDC status, thus blocking the borrower’s defenses entirely. Thus the maker is left liable to non-creditors even if the same person as borrower also remains liable to whoever actually gave him/her the loan of money. And in the course of those actions most homeowners lose their home to imposters.

All of this is true, as I said, in every state including Florida. It is true not because I say it is true or even that it is entirely logical. It is true because of current state statutes in which the UCC was used as a template. And it is true because of centuries of common law in which the current law was refined and molded for an efficient marketplace. But what is also true is that law judges are the product of law school, in which they either skipped or slept through the class on Bills and Notes.

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ABSENCE OF CREDITOR: Breaking Down the Language Of The “Trust”

Posted on September 26, 2016 by Neil Garfield

The problem with all this is that the REMIC Trust never received the proceeds of sale of the MBS and therefore could not have paid for or purchased any loans. It had no assets. And THAT is why the Trust never shows up as a Holder in Due Course (HDC).  HDC is a very strong status that changes the risk of loss on a note. Under state law (UCC) of every state alleging and proving HDC status means that the entire risk shifts to the maker of the note (the person who signed it) even if there were fraudulent or other circumstances when the note was signed.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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A reader pointed to the following language, asking what it meant:

The certificates represent obligations of the issuing entity only and do not represent an interest in or obligation of CWMBS, Inc., Countrywide Home Loans, Inc. or any of their affiliates.   (See left side under the 1st table –  https://www.sec.gov/Archives/edgar/data/906410/000114420407029824/v077075_424b5.htm)

If an “investor” pays money to the underwriter of the issuance of MBS from a “REMIC Trust” they are getting a hybrid security that (a) creates a liability of the REMIC Trust to them and (2) an indirect ownership of the loans acquired by the trust.

The wording presented means that only the REMIC Trust owes the investors any money and the ownership interest of the investors is only as beneficiaries of the trust with the trust assets being subject to the beneficiaries’ claim of an ownership interest in the loans. But if the Trust is and remains empty the investors own nothing and will never see a nickle except by (a) the generosity of the underwriter (who is appointed “Master Servicer” in the false REMIC Trust, (b) PONZI and Pyramid scheme payments (I.e., receipt fo their own money or the money of other “investors) or (c) settlement when the investors catch the investment bank with its hand in the cookie jar.

The wording of the paperwork in the false securitization scheme reads very innocently because the underwriting and selling institutions should not be the obligor for payback of the investor’s money nor should the investors be allocated any ownership interest in the underwriting or selling institutions.

The problem with all this is that the REMIC Trust never received the proceeds of sale of the MBS and therefore could not have paid for or purchased any loans. It had no assets. And THAT is why the Trust never shows up as a Holder in Due Course (HDC).  HDC is a very strong status that changes the risk of loss on a note. Under state law (UCC) of every state alleging and proving HDC status means that the entire risk shifts to the maker of the note (the person who signed it) even if there were fraudulent or other circumstances when the note was signed.

By contrast, the allegation and proof that a Trust was a holder before suit was filed or before notice of default and notice of sale in a deed of trust state, means that the holder must overcome the defenses of the maker. If one of the defenses is that the holder received a void assignment, then the holder must prove up the basis of its stated or apparent claim that it is a holder with rights to enforce. The rights to enforce can only come from the creditor, directly or indirectly.

And THAT brings us to the issue of the identity of the creditor. This is something the banks are claiming is “proprietary” information — a claim that has been accepted by most courts, but I think we are nearing the end of the silly notion that a party can claim the right to enforce on behalf of a creditor who is never identified.

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Why The Investors Are Not Screaming “Securities Fraud!”

Posted on September 20, 2016 by Neil Garfield

Everyone is reporting balance sheets with assets that derive their value on one single false premise: that the trusts that issued the original mortgage bonds owned the loans. They didn’t.

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This article is not a substitute for an opinion and advice from competent legal counsel — but the opinion of an attorney who has done no research into securitization and who has not mastered the basics, is no substitute for an opinion of a securitization expert.

Mortgage backed securities were excluded from securities regulation back in 1998 when Congress passed changes in the laws. The problem is that the “certificates” issued were (a) not certificates, (b) not backed by mortgages because the entity that issued the MBS (mortgage bonds) — i.e. the REMIC Trusts — never acquired the mortgage loans and (c) not issued by an actual “entity” in the legal sense [HINT: Trust does not exist in the absence of any property in it]. And so the Real Estate Mortgage Investment Conduit (REMIC) was a conduit for nothing. [HINT: It can only be a “conduit” if something went through it] Hence the MBS were essentially bogus securities subject to regulation and none of the participants in this dance was entitled to preferred tax treatment. Yet the SEC still pretends that bogus certificates masquerading as mortgage backed securities are excluded from regulation.

So people keep asking why the investors are suing and making public claims about bad underwriting when the real problem is that there were no acquisition of loans by the alleged trust because the money from the sale of the mortgage bonds never made it into the trust. And everyone knows it because if the trust had purchased the loans, the Trustee would represent itself as a holder in course rather than a mere holder. Instead you find the “Trustee” hiding behind a facade of multiple “servicers” and “attorneys in fact”. That statement — alleging holder in due course (HDC) — if proven would defeat virtuality any defense by the maker of the instrument even if there was fraud and theft. There would be no such thing as foreclosure defense if the trusts were holders in due course — unless of course the maker’s signature was forged.

So far the investors won’t take any action because they don’t want to — they are getting paid off or replaced with RE-REMIC without anyone admitting that the original mortgage bonds were and remain worthless. THAT is because the managers of those funds are trying to save their jobs and their bonuses. The government is complicit. Everyone with power has been convinced that such an admission — that at the base of all “securitization” chains there wasn’t anything there — would cause Armageddon. THAT scares everyone sh–less. Because it would mean that NONE of the up-road securities and hedge products were worth anything either. Everyone is reporting balance sheets with assets that derive their value on one single false premise: that the trusts that issued the original mortgage bonds owned the loans. They didn’t.

Banks are essentially arguing in court that the legal presumptions attendant to an assignment creates value. Eventually this will collapse because legal presumptions are not meant to replace the true facts with false representations. But it will only happen when we reach a critical mass of trial court decisions that conclude the trusts never owned the loans, which in turn will trigger the question “then who did own the loan” and the answer will eventually be NOBODY because there never was a loan contract — which by definition means that the transaction cannot be called a loan. The homeowner still owes money and the debt is not secured by a mortgage, but it isn’t a loan.

You can’t force the investors into a deal they explicitly rejected in the offering of the mortgage bonds — that the trusts would be ACQUIRING loans not originating them. Yet all of the money from investors who bought the bogus MBS went to the “players” and then to originating loans, not acquiring them.

And you can’t call it a contract between the investors and the borrowers when neither of them knew of the existence of the other. There was no “loan.” Money exchanged hands and there is a liability of the borrower to repay it — to the party who gave them the money or that party’s successor. What we know for sure is that the Trust was never in that chain.

The mortgage secured the performance under the note. But the note was itself part of the fraud in which the “borrower” was prevented from knowing the identity of the lender, the compensation of the parties, and the actual impact on his title. The merger of the debt into the note never happened because the party named on the note was not the party giving the money. Hence the mortgage should never have been released from the closing table much less recorded.

So if the fund managers admit they were duped as I have described, then they can kiss their jobs goodbye. There were plenty of fund managers who DID look into these MBS and concluded they were just BS.

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Holder or PETE?

Posted on June 17, 2016 by Neil Garfield

You can prove your point thus rebutting the legal presumptions that attach to facially valid paper by starting at the top of the paper trail, the bottom or anywhere in between. You won’t find a single transaction in which money exchanged hands. That means whoever transferred this “valuable” note received no payment. The transportation of a note that never should have been signed in the first place is almost irrelevant — except as to the issue of delivery which in turn goes to the issue of possession. Absent some purchase of the “loan”, such a PETE or holder may not enforce.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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See http://4closurefraud.org/2016/06/14/north-carolina-court-of-appeals-u-s-bank-n-a-v-pinkney-a-party-seeking-foreclosure-must-establish-holder-status-of-note/

Ever so slowly and carefully, with the dread of dismantling the entire financial system, the courts are looking more closely at what the banks and servicers are doing in foreclosures. In this case US Bank says in its foreclosure complaint that it is the holder of the note and then argued that it was either the holder or the possessor with rights to enforce. What’s the difference?

A possessor is someone who physically has possession of the original note. You might liken this to a courier who is entrusted with picking up the note from one place and carrying it to another place. The courier cannot, as some have claimed, enforce the note because it merely possesses the note. In order to be a possessor with rights to enforce (PETE) it must (1) have the actual original and not a mechanical reproduction of it, (2) plead that it is a PETE and (3) prove that it has the right to enforce.

Proving the right to enforce was simple before the current era. The creditor executes the necessary paperwork and comes into court if necessary to verify that it has given the possessor the right to enforce the note. What happens to the money after the possessor gets it and what happens to the Judgment (it could be assigned) afterwards is nobody’s business. But the banks have steadfastly insisted that they should not be required to produce or even identify the creditor. That falls under the legal theory of “NUTS.” But it has been allowed in millions of foreclosures so far. A party comes into court and says I am here to enforce this “original note” on behalf of someone, but I can’t tell you who that is because it’s private.

I’ve tried a few things in courtroom in my 40 years of doing this but if I had ever tried to do that I think most judges would have literally thrown a book at me.

We are expected to presume that since the possessor has the original note it MUST have the the authority to enforce it. And THAT is where the trial judges and many appellate court have it wrong. In fact those courts have complicated the matter further by treating the possessor as a holder in due course who paid value for the note in good faith and without knowledge of the borrower’s defenses. This in the old days would have been sufficient to cause enforcement to issue even if the borrower/maker had meritorious defenses against the payee.

The court in this case looked at the complaint for foreclosure and presumed nothing except what was in the pleading. The pleading said the Plaintiff was a holder. There was no mention of being a holder, much less a holder in due course. Since there was no argument about whether the Plaintiff was a holder nor any assertion that such proof existed, the trial judge dismissed it and the bank foolishly appealed revealing its soft underbelly.

A holder is distinguished from a PETE and distinguished from a holder in due course. The banks revel in the fact that they were able to misuse the status of “holder” thus accomplishing their goal of foreclosure where in yesteryear, they would have kicked out of court probably with sanctions.

A holder must not only have possession, but also have an endorsement from the prior owner of the debt and note where the endorsement actually identifies the party receiving physical possession of the note or endorsed in blank which means it payable to the “bearer” — i.e., possessor — of the note. Thus the facts to be proven are expanded: (1) possession of an actual original (prove delivery) and (2) endorsement by an authorized signatory on behalf of a new possessor either in blank or to the new possessor. The difference between PETE and holder is that the right to enforce is right on the note. But if the endorsement is robosigned, which is to say fabricated and forged by an unauthorized person sitting in the back of LPS or a law office, the endorsement is a nullity (it is void).

If there is no objection to the authenticity of the note (i.e., whether the note is the actual original) and no objection as to whether it was properly endorsed, then the only other question is whether the party for whom the endorsement was made was the actual owner of the debt and note. And there’s the rub again.

A party comes into court and says I have the original note right here and it has been endorsed in blank so I can enforce it. What the banks never say because they don’t like jail cells is that the person who executed the endorsement was authorized and did so on behalf of a party who did own the debt and note at the time of the endorsement. They don’t say that because it isn’t true. The endorser is either MERS or some other conduit or intermediary who never had any interest in the subject debt, note or mortgage. And when the borrower tries to drill down in discovery on the truth of whether the prior endorser/possessor actually had possession or actually had the right to enforce or actually owned the debt or note, the banks run to the presumptions as if they were at trial. The problem is that trial judges have been buying that strategy for 10 years. Thus the homeowner is hit with the idea that it doesn’t matter whether any of this is real, it is still happening.

This also is something banks assiduously avoid since they are essentially throwing layers of fictitious ownership at the Judge such that the Judge assumes that it is not credible to assume that all the signatures, endorsements and assignments are void when issued by so many upstanding members of the community. And THAT is why discovery is so important because unless you are extraordinarily gifted at cross examination, the “robo-witness” is not likely to blurt out that he has no idea what happened or who owns it. If you assume nothing and deny everything and you aggressively pursue discovery, you are much more likely to come out on top.

As long as you go down the rabbit hole that the banks have prepared for you, the focus will be on the paper trail which they have created, recreated, fabricated and forged. BUT if you pursue discovery along the money trail you will find that all of the paper was signed by parties who never had a penny in the deal and probably never received delivery of the “loan” documents. That means that whoever started off the paper trail was not party of the money trail — i.e., they were never involved in any actual transaction relating to the subject loan.

You can prove your point thus rebutting the legal presumptions that attach to facially valid paper by starting at the top of the paper trail, the bottom or anywhere in between. You won’t find a single transaction in which money exchanged hands. That means whoever transferred this “valuable” note received no payment. Hence there was no purchase of the debt or note or mortgage. The transportation of a note that never should have been signed in the first place is almost irrelevant — except as to the issue of delivery which in turn goes to the issue of possession. Absent some purchase of the “loan”, such a PETE or holder may not enforce. Who would do that unless they already knew that they were entitled to nothing except fees?

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Patrick Giunta Wins The Argument in 4th DCA: Down to the Nitty Gritty: Holder vs Owner of the Note

Posted on February 10, 2016 by Neil Garfield
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THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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Patrick Giunta, Esq. chalks up another win that is right on the money. He also won attorney fees and costs. Although Patrick and I co-counsel certain cases he did this on his own. Patrick is a lawyer who gets it. His number is 954-928-0100.
This is an important case as it shows the shifting judicial attitude toward foreclosure defense. Originally thought to be mostly frivolous, defenses are taken far more seriously because of the kind of lawyering that was done in this case. The courts are now actually applying the law. This case shows that if you really break the issues down to their bare elements, you can win on appeal.
Two things important about this case are that (1) the trial court was reversed for treating an “owner” of the note as the same thing as a “holder” at the time the suit was filed and (2) the recognition that there is a difference between holder, owner and non-holder with rights of a holder (i.e., rights to enforce).
Lastly the court is following the progression of cases where instead of remanding for further proceedings (like substitution of Plaintiff) the Court ordered entry of involuntary dismissal.
And finally my comment is that there is still room for litigation in these cases, since the involuntary dismissal is against only one of what I call co-conspirators. BUT the deeper we drill the easier it is to force them into a corner. The plain fact is that they have been successfully fighting against revealing the money trail. If that was actually revealed from one end to the other on each of multiple chains used by the banks, it would be apparent that what went on here was more sinister than what has thus far been revealed — and the reason why Bush and Obama were scared into preserving the status quo rather than holding the banks’ feet to the fire.
I will explain more at a later time. But here is a teaser: the fractional reserve banking system with the Federal Reserve as the Central Bank was replaced with a virtual fractional reserve system in which non-banks acted as though they were banks.
This was tied to a virtual central bank controlled by the banks. It enabled them to act as though they were commercial banks acting within the Federal Reserve system when in fact they were operating a rogue system wherein the sale of each loan created “capital” to create more loans. The MERS model was in fact used throughout the vast universe of finance as to law firms, servicers, banks, conduits, and even the central bank.
This explains why the banks begged for and received commercial bank status effectively ratifying their prior illegal behavior but putting the real Federal Reserve in the position of having no choice but to do “quantitative easing” to make up for the shortfalls.
And it explains why the original documentation on so many loans was intentionally destroyed. The numbers didn’t add up. The amount of money invested by managed funds into dead REMIC Trusts was NOT enough to account for the number of loans given out. They were both skimming the real money and then using the proceeds of “sale” of the “loan contracts” to create both assets and income that the Banks say belong to them. So the pile-up of original notes with an inventory would have revealed that somehow the investment banks were acting as commercial banks with impunity without charters or licenses. The physical presence of the notes were an embarrassment.  Do the math.
So the notes being represented in court have a high likelihood of being fabricated through mechanical means and the “borrower” doesn’t know the difference. All of this means that on any given loan there are multiple claimants. LPS and MERS were used to siphon the cases such that one specific player was chosen for each foreclosure — when in fact none of them had any actual right to collect, enforce or foreclose.
THE DISTINCTION BETWEEN OWNER, HOLDER, HOLDER IN DUE COURSE, NON-HOLDER WITH RIGHTS TO ENFORCE AND POSSESSOR IS CHIPPING AWAY AT THE VENEER. IN DISCOVERY, THESE INCONSISTENT CLAIMS SHOULD BE USED TO DRILL DOWN TO THE MONEY TRAIL. AND FOR TRIAL THESE INCONSISTENT  CLAIMS SHOULD BE USED TO STRIP THE BANKS OF THE BENEFIT OF LEGAL PRESUMPTIONS ATTENDANT TO BEING A “HOLDER.” But note that we are still talking about the PAPER that talks about a transaction that was never consummated — as it relates to the party seeking collection or enforcement or any of its predecessors.

Filed under: foreclosure | Tagged: , , , , , , , , | 32 Comments »

Fla 4th DCA: The Starting Point is Standing — If You Don’t Have It, There is no Jurisdicition

Posted on October 20, 2015 by Neil Garfield

For further information please call 954-495-9867 or 520-405-1688

This is not a legal opinion on any case. Consult with an attorney.

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see Rodriguez v. Wells Fargo

“The core element concerning to whom the note was payable on the date suit was filed was not proven.”

Bottom Line: You can’t file a lawsuit without standing. Judgment reversed with instructions to enter Judgment for the homeowner. And you can’t cure standing by getting it later. That would be like filing suit for a slip and fall in front of a super market, and once the suit was filed, you then go to the supermarket, get out of your car and proceed to slip and fall. And the second story is that the BURDEN OF PROOF is on the foreclosing party, not the homeowner.

Many courts are now leaning away from the legal fantasies being promoted by “servicers”, “trustees’ and other parties attempting to “foreclose” on debts that very often are (a) not owned by them (b) they have no authority to represent the owner of the debt (c) the alleged creditor is not showing a default on its books (d) on behalf of a Trust that (1) never operated (b) exists only on paper (c) with no bank account (d) no financial statements (no assets (e) no liabilities (f) no income (g) no expenses.

All this is becoming abundantly clear. The prior assumptions that allowed for some crossover between a holder and a holder in due course are giving way to another look, starting from the beginning. In this case there was no endorsement on the note at all. The Appellate court said that ended the inquiry. There was no lawsuit, it should have been dismissed and now judgment, entered by the Judge in West Palm beach is reversed with instructions to enter judgment for the Defendant homeowner.

In my opinion the courts are now being presented with the correct arguments and facts that leave them in a position where if they allowed these kinds of action they would be setting a precedent making it legal to steal.

And my question remains: IF THERE REALLY WAS A REAL TRANSACTION WHERE SOMEONE FUNDED THE LOAN AND SOMEONE ELSE BOUGHT THE NOTE THEN WHY DON’T THEY ALLEGE THAT THEY ARE HOLDERS IN DUE COURSE? If they alleged HDC status all they would need to prove is payment. No “borrower” defenses would apply. If they don’t have HDC status then on whose behalf is the foreclosure actually being filed, since the investors are getting paid anyway? I think the answer is that the servicer is converting a tenuous claim for volunteer payments on behalf of the borrower to investors who don’t know what loans they own; the real claim is that the servicer wants to “recover” servicer advances that it paid out of third party funds. These servicers are reaping windfalls every time they get a foreclosure sale.

This Court quotes approvingly from the UCC: “… the transferee cannot acquire the right of a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.” And goes on to quote the statute “a person who is party to fraud or illegality affecting the instrument is not permitted to wash the instrument clean by passing into the hands of a holder in due course and then repurchasing it.” see § 673.2031

The court concludes that there is no negotiation of the note until an endorsement appears — which read in conjunction with the rest of the opinion means that the endorsement must be by someone who is either a holder in due course or a party representing a party who is a holder in due course. If no holder in due course exists, then there is no way to construe the instrument as a negotiable instrument and there is no way to construe the instrument as having been negotiated under the UCC. And THAT means they must prove every aspect of the transaction (starting with origination) without relying on the suspect instruments.

See also 4th DCA — Standing is “Foreclosure 101” Peoples v. SAMI II Trust

Filed under: foreclosure | Tagged: , , , , , | 40 Comments »

Assignee stands in the shoes of the assignor: It must prove the loan

Posted on June 5, 2015 by Neil Garfield

For further information please call 954-495-9867 or 520-405-1688

This article ( and any other article on this blog) is no substitute for getting advice from an attorney licensed to practice in the jurisdiction in which the subject property or transaction is located.

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see http://www.lowndes-law.com/news-center/1797-two-layers-protection-lenders-need-know-about-floridas-holder-due

There is a difference between alleging you are the holder with rights to enforce and proving it. If the bank, trustee or servicer alleges that it has the right to enforce then they will survive a motion to dismiss. But if the borrower denies that allegation is true, the burden of proof falls on the party making the allegation — the bank, trustee, servicer etc. The mistake made by Judges and lawyers is that they don’t make the distinction between pleading and proof. As a result you get decisions that include multiple rulings that prevent the borrower from conducting adequate discovery and allow the party bringing the foreclosure action to skate by because “it has already been established” that they are a holder with rights to enforce. That being the case the courts further compromise the verdict and judgment by over-ruling objections from the borrower on grounds of relevance.

One of the key points I have been making for 8 years is that the party bringing the foreclosure essentially never says that it is a holder in due course. In fact, we have had cases where opposing counsel expressly denies that the Plaintiff is a holder in due course. That is particularly remarkable where the Plaintiff is, for example, Citimortgage, which maintains an ambiguous status, admitting that it is a servicer but not revealing the creditor or the basis on which they rely in alleging that they are the servicer.

The importance of holder vs holder in due course cannot be over-stated. And if the loan was alleged to have been transferred while the loan was already declared in default, there can’t be a holder or holder in due course because the UCC does not apply those terms to anything but a negotiable instrument which by definition must not be in default at the time of transfer. Otherwise it is not a negotiable instrument and the allegations and proof go the the issue of ownership of the debt.

It is interesting that the banks and servicers, etc. do not allege status as holder in due course. In many cases they have back-dated the assignment or endorsement to before the alleged default. Where the Plaintiff is a trust, all they would need to show is what is in the trust instrument (PSA): purchase in good faith without knowledge of borrower’s defenses. That would be the end of almost every case — the borrower is liable to a holder in due course and may bring claims only against the intermediaries or originator in damages. The foreclosure would be completed in record time and that would be the end of it, except for borrower’s claims for damages against parties other than the Plaintiff who proved they were a holder in due course — i.e., proof of purchase for valuable consideration without knowledge of the borrower’s defenses and in good faith.

The problem with court decisions over the last 10 years is that they treat the alleged “holder” as though they were a holder in due course without any allegation or proof that the foreclosing party purchased the loan, in good faith, without knowledge of borrower’s defenses. A holder is not better than the party before they were an alleged holder. And THAT party is no better than the party before and so on.The only exception to this is where the FDIC involved in certain types of take-overs.

Eventually you get to the origination of the loan. THAT loan contract must be proven by a holder in order to prevail in foreclosure. And as every first year law student knows there is no contract without offer, acceptance and consideration. If the originator did not fund the loan there is no contract and the closing violated Reg Z, which calls such transactions predatory per se (which in turn means that the foreclosing party presumptively has unclean hands and is not entitled to any equitable remedy much less foreclosure).

If an alleged holder did not actually purchase the loan, then they don’t own it. It really is that simple. If they don’t own it then they must allege and prove the basis of their allegation that they possess the right to enforce. That also requires a contract with offer, acceptance and consideration. The existence of assignment does not prove that such a transaction took place but it might be admitted in evidence as evidence that such a transaction took place. On the other hand it might not be admitted in evidence if there are defects relating the instrument to the proof of the matter asserted.

Even if admitted, the assignment is not dispositive. Upon cross examination, the witness will probably know nothing about any transaction in which ownership or the rights to enforce were transferred or conveyed. And it is at that point where Judges and lawyers commit error.  The assignment may then be struck from the record as lacking any foundation. This is not just a matter of hearsay. It is a question of how can the trier of fact rely upon an instrument (assignment) when there is nobody to testify that the transaction actually occurred? It is the same problem with the note executed at “closing.” How can the loan contract be completed if the payee on the note didn’t loan any money?

In the article cited above, the author makes the point easily:

As an assignee typically “stands in the shoes” of his assignor,7 without  the holder in due course doctrine and its federal counterpart, these allegations may defeat the purchaser’s action or make it much more difficult  and costly to pursue, especially given that the purchaser took no part in the these “bad acts,” and that the people who did take part (the  management and employees of the failed bank) may be difficult to reach and may have little incentive to cooperate with the purchaser. [e.s.]

most of these difficulties are eliminated by the powerful effect of the holder in due course doctrine as it can clear the way for the  purchaser to recover, even if there may have been prior “bad acts” of the failed bank, as the purchaser will acquire the loan free and clear of  most defenses—the so-called “personal defenses”— that the borrower could have asserted against the failed bank.8 The holder in due course  doctrine, when applicable, enables the purchaser to avoid liability for many of these “personal defenses” which may have been valid defenses to  an action brought by the failed bank, but do not impede the ability of a holder in due course to enforce the borrower’s obligation to repay the  loan.9 Generally speaking, these defenses are all defenses that would be available in a breach of contract action10 except for the “real defenses,” all of which involve either the original execution of the promissory note or its subsequent discharge in bankruptcy.11 These defenses  cannot be avoided, even by a holder in due course. Fortunately, any “bad acts” of the failed bank which may have occurred during the course of  the loan will hardly ever form the basis for a “real defense,” and thus can likely be avoided by a holder in due course.

THE RULE IN FLORIDA
In Florida, the holder in due course doctrine is now codified in statute,12 although it first began to develop in the English common-law as early  as the late 1600s and early 1700s and was codified in that country by the Bills of Exchange Act in 1882.13 The doctrine first became codified in  the United States in the early 1900s as states adopted the Uniform Negotiable Instruments Law, which was later supplanted by the Uniform  Commercial Code, which governs today.14

In order to be a holder in due course under current Florida law, a purchaser of a negotiable  instrument must generally satisfy three conditions. Specifically, the purchaser must have: (i) acquired an instrument that does not bear any  apparent evidence of forgery, alteration, or any other reason to call its authenticity into question;15 (ii) paid value for the instrument;16 and (iii)  acquired the instrument in good faith, without notice that it is overdue, dishonored, contains an unauthorized or altered signature, and without  notice of any claim to the instrument.17 If these three conditions are met, the purchaser will generally qualify as a holder in due course and  take the instrument free all “personal defenses” that the borrower could have asserted against the prior lender.

Filed under: foreclosure | Tagged: , , , , | 94 Comments »

No. Carolina Appeals Court Approves Dismissal of Foreclosure With Prejudice

Posted on December 2, 2014 by Neil Garfield

For Further information or assistance please call 954-495-9867 or 520-405-1688

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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 »

Banks Use Trial Modifications as a Pathway to Foreclosure — Neil Garfield Show 6 P.M. EDT Thursdays

Posted on September 18, 2014 by Neil Garfield

Banks Use Modifications Against Homeowners

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Or call in at (347) 850-1260, 6pm EDT Thursdays

It is bad enough that they outright lie to homeowners and tell them they MUST be 90 days behind in payments to get a modification. That isn’t true and it is a ruse to get the homeowner to stop paying and get into a default situation. But the reports from across the country show that the banks are using a variety of tricks and scams to dishonor modification agreements. First they say that just because they did the underwriting and approved the trial modification doesn’t mean that they are bound to make the modification permanent. Most courts disagree. If you make a deal with offer, acceptance and consideration, and one side performs (the homeowner made the trial payments) then the other side must perform (the Bank).

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What is really happening is that the bank is converting the loan from a loan funded by investors to a loan NOT funded by the bank. They are steering people into “in house” loans. The hubris of these people is incredible. Why are the investors sitting on their hands? Do they STILL not get it?
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Regardless of whether the modification is enforced or forced into foreclosure or converted to an in house loan, the investor loses with the stamp of approval from the court. And the borrower is now paying a party that already collected his loan principal several times over while the real lender is getting birdseed. The investors lose no matter how the case is decided. And the Courts are failing to realize that the fate of the money from a Pension Fund is being decided without any opportunity for the investors to have notice, much less be heard.
Why is this important? Because the banks converted one debt from the borrower into many debts — all secured by the same mortgage. It doesn’t work that way in real life — except now, when courts still refuse to educate themselves on the theory and reality of securitization of debt.
http://www.occupy.com/article/when-fighting-your-home-becomes-biggest-fight-your-life
——————————-FROM RECENTSHOWHOW DO YOU KNOW THAT? — Introducing two upcomingCLE Seminars from the Garfield Continuum onVoir Dire of corporate representatives in foreclosure litigation. The first is atwo hour telephone conference devoted exclusively tovoir dire examination and the second is a full day on onlyvoir dire pluscross examination. The show is free. Topreregister for the mini seminar onvoir dire or the full seminar onvoir dire andcross examination (at a discount) call 954-495-9867.

  • Overview of Foreclosure Litigation in Florida and Other States
  • The need for copies of actual case law and even memoranda supporting your line of questioning
  • The Three Rules for Questioning
  • —– (1) Know why you want to inquire
  • —– (2) Listen to the Answer
  • —– (3) Follow up and comment
  • What to ask, and when to ask it
  • The difference between voir dire and cross examination
  • Getting traction with the presiding Judge
  • Developing your goals and strategies
  • Developing a narrative
  • Impeaching the witness before he or she gets started
  • Preparing your own witnesses for voir dire questions

 

IF YOU MISSED IT: Go to blog radio link and click on the Neil Garfield Show — past shows include—-

News abounds as we hear of purchases of loans and bonds. Some of these are repurchases. Some are in litigation, like $1.1 Billion worth in suit brought by Trustees against the broker dealer Merrill Lynch, which was purchased by Bank of America. What do these purchases mean for people in litigation. If the loan was repurchased or all the loan claims were settled, does the trust still exist? Did it ever exist? Was it ever funded? Did it ever own the loans? Why are lawyers unwilling to make representations that the Trust is a holder in due course? Wouldn’t that settle everything? And what is the significance of the $3 trillion in bonds purchased by the Federal Reserve, mostly mortgage backed bonds? This and more tonight with questions and answers:

Adding the list of questions I posted last week (see below), I put these questions ahead of all others:

  1. If the party on the note and mortgage is NOT REALLY the lender, why should they be allowed to have their name on the note or mortgage, why are those documents distributed instead of returned to the borrower because he signed in anticipation of receiving a loan from the party disclosed, as per Federal and state law. Hint: think of your loan as a used car. Where is the contract (offer, acceptance and consideration).
  2. If the party receiving an assignment from the false payee on the note does NOT pay for it, why are we treating the assignment as a cure for documents that were worthless in the first place. Hint: Paper Chase — the more paper you throw at a worthless transaction the more real it appears in the eyes of others.
  3. If the party receiving the assignment from the false payee has no relationship with the real lender, and neither does the false payee on the note, why are we allowing their successors to force people out of their homes on a debt the “bank” never owned? Hint: POLITICS: What is the position of the Federal reserve that has now purchased trillions of dollars of the “mortgage bonds” from banks who never owned the bonds that were issued by REMIC trusts that never received the proceeds of sale of the bonds.
  4. If the lenders (investors) are receiving payments from settlements with the institutions that created this mess, why is the balance owed by the borrower the same after the settlement, when the lender’s balance has been reduced? Hint: Arithmetic. John owes Sally 5 bananas. Hank gives Sally 3 bananas and says this is for John. How many bananas does John owe Sally now?
  5. And for extra credit: are the broker dealers who said they were brokering and underwriting the issuance of mortgage bonds from REMIC trusts guilty of anything when they don’t give the proceeds from the sale of the bonds to the Trusts that issued those bonds? What is the effect on the contractual relationship between the lenders and the borrowers? Hint: VANISHING MONEY replaced by volumes of paper — the same at both ends of the transaction, to wit: the borrower and the investor/lender.

1. What is a holder in due course? When can an HDC enforce a note even when there are problems with the original loan? What does it mean to be a purchaser for value, in good faith, without notice of borrower’s defenses?

2. What is a holder and how is that different from a holder with rights to enforce? What does it mean to be a holder subject to all the maker’s defenses including lack of consideration (i.e. no loan from the Payee).

3. What is a possessor of a note?

4. What is a bailee of a note?

5. If the note cannot be enforced, can the mortgage still be foreclosed? It seems that many people don’t know the answer to this question.

6. The question confronting us is FORECLOSURE (ENFORCEMENT) OF A MORTGAGE. If the status of a holder of a note is in Article III of the UCC, why are we even discussing “holder” when enforcement of mortgages is governed by Article IV of the UCC?

7. Does the question of “holder” or holder in due course or any of that even apply in the original loan transaction? Hint: NO.

8. Homework assignment: Google “Infinite rehypothecation”

For more information call 954-495-9867 or 520-405-1688.

 

Filed under: CORRUPTION, discovery, evidence, expert witness, foreclosure, foreclosure defenses, foreclosure mill, GTC | Honor, MBS TRUSTEE, Mortgage, Motions, Pleading, Servicer, Title | Tagged: , , , , , , , , , , , | 25 Comments »

Securitization for Lawyers

Posted on September 2, 2014 by Neil Garfield

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

The CONCEPT of securitization does not contemplate an increase in violations of lending laws passed by States or the Federal government. Far from it. The CONCEPT anticipated a decrease in risk, loss and liability for violations of TILA, RESPA or state deceptive lending laws. The assumption was that the strictly regulated stable managed funds (like pensions), insurers, and guarantors would ADD to the protections to investors as lenders and homeowners as borrowers. That it didn’t work that way is the elephant in the living room. It shows that the concept was not followed, the written instruments reveal a sneaky intent to undermine the concept. The practices of the industry violated everything — the lending laws, investment restrictions, and the securitization documents themselves. — Neil F Garfield, Livinglies.me

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“Securitization” is a word that provokes many emotional reactions ranging from hatred to frustration. Beliefs run the range from the idea that securitization is evil to the idea that it is irrelevant. Taking the “irrelevant” reaction first, I would say that comes from ignorance and frustration. To look at a stack of Documents, each executed with varying formalities, and each being facially valid and then call them all irrelevant is simply burying your head in the sand. On the other hand, calling securitization evil is equivalent to rejecting capitalism. So let’s look at securitization dispassionately.

First of all “securitization” merely refers to a concept that has been in operation for hundreds of years, perhaps thousands of years if you look into the details of commerce and investment. In our recent history it started with “joint stock companies” that financed sailing expeditions for goods and services. Instead of one person or one company taking all the risk that one ship might not come back, or come back with nothing, investors could spread their investment dollars by buying shares in a “joint stock company” that invested their money in multiple sailing ventures. So if some ship came in loaded with goods it would more than offset the ships that sunk, were pirated, or that lost their cargo. Diversifying risk produced more reliable profits and virtually eliminated the possibility of financial ruin because of the tragedies the befell a single cargo ship.

Every stock certificate or corporate or even government bond is the product of securitization. In our capitalist society, securitization is essential to attract investment capital and therefore growth. For investors it is a way of participating in the risk and rewards of companies run by officers and directors who present a believable vision of success. Investors can invest in one company alone, but most, thanks to capitalism and securitization, are able to invest in many companies and many government issued bonds. In all cases, each stock certificate or bond certificate is a “derivative” — i.e., it DERIVES ITS VALUE from the economic value of the company or government that issued that stock certificate or bond certificate.

In other words, securitization is a vehicle for diversification of investment. Instead of one “all or nothing” investment, the investors gets to spread the risk over multiple companies and governments. The investor can do this in one of two ways — either manage his own investments buying and selling stocks and bonds, or investing in one or more managed funds run by professional managers buying and selling stocks and bonds. Securitization of debt has all the elements of diversification and is essential to the free flow of commerce in a capitalistic economy.

Preview Questions:

  • What happens if the money from investors is NOT put in the company or given to the government?
  • What happens if the certificates are NOT delivered back to investors?
  • What happens if the company that issued the stock never existed or were not used as an investment vehicle as promised to investors?
  • What happens to “profits” that are reported by brokers who used investor money in ways never contemplated, expected or accepted by investors?
  • Who is accountable under laws governing the business of the IPO entity (i.e., the REMIC Trust in our context).
  • Who are the victims of misbehavior of intermediaries?
  • Who bears the risk of loss caused by misbehavior of intermediaries?
  • What are the legal questions and issues that arise when the joint stock company is essentially an instrument of fraud? (See Madoff, Drier etc. where the “business” was actually collecting money from lenders and investors which was used to pay prior investors the expected return).

In order to purchase a security deriving its value from mortgage loans, you could diversify by buying fractional shares of specific loans you like (a new and interesting business that is internet driven) or you could go the traditional route — buying fractional shares in multiple companies who are buying loans in bulk. The share certificates you get derive their value from the value of the IPO issuer of the shares (a REMIC Trust, usually). Like any company, the REMIC Trust derives its value from the value of its business. And the REMIC business derives its value from the quality of the loan originations and loan acquisitions. Fulfillment of the perceived value is derived from effective servicing and enforcement of the loans.

All investments in all companies and all government issued bonds or other securities are derivatives simply because they derive their value from something described on the certificate. With a stock certificate, the value is derived from a company whose name appears on the certificate. That tells you which company you invested your money. The number of shares tells you how many shares you get. The indenture to the stock certificate or bond certificate describes the voting rights, rights to  distributions of income, and rights to distribution of the company is sold or liquidated. But this assumes that the company or government entity actually exists and is actually doing business as described in the IPO prospectus and subscription agreement.

The basic element of value and legal rights in such instruments is that there must be a company doing business in the name of the company who is shown on the share certificates — i.e., there must be actual financial transactions by the named parties that produce value for shareholders in the IPO entity, and the holders of certificates must have a right to receive those benefits. The securitization of a company through an IPO that offers securities to investors offer one additional legal fiction that is universally enforced — limited liability. Limited liability refers to the fact that the investment is at risk (if the company or REMIC fails) but the investor can’t lose more than he or she invested.

Translated to securitization of debt, there must be a transaction that is an actual loan of money that is not merely presumed, but which is real. That loan, like a stock certificate, must describe the actual debtor and the actual creditor. An investor does not intentionally buy a share of loans that were purchased from people who did not make any loans or conduct any lending business in which they were the source of lending.

While there are provisions in the law that can make a promissory note payable to anyone who is holding it, there is no allowance for enforcing a non-existent loan except in the event that the purchaser is a “Holder in Due Course.” The HDC can enforce both the note and mortgage because he has satisfied both Article 3 and Article 9 of the Uniform Commercial Code. The Pooling and Servicing Agreements of REMIC Trusts require compliance with the UCC, and other state and federal laws regarding originating or acquiring residential mortgage loans.

In short, the PSA requires that the Trust become a Holder in Due Course in order for the Trustee of the Trust to accept the loan as part of the pool owned by the Trust on behalf of the Trust Beneficiaries who have received a “certificate” of fractional ownership in the Trust. Anything less than HDC status is unacceptable. And if you were the investor you would want nothing less. You would want loans that cannot be defended on the basis of violation of lending laws and practices.

The loan, as described in the origination documents, must actually exist. A stock certificate names the company that is doing business. The loan describes the debtor and creditor. Any failure to describe the the debtor or creditor with precision, results in a failure of the loan contract, and the documents emerging from such a “closing” are worthless. If you want to buy a share of IBM you don’t buy a share of Itty Bitty Machines, Inc., which was just recently incorporated with its assets consisting of a desk and a chair. The name on the certificate or other legal document is extremely important.

In loan documents, the only exception to the “value” proposition in the event of the absence of an actual loan is another legal fiction designed to promote the free flow of commerce. It is called “Holder in Due Course.” The loan IS enforceable in the absence of an actual loan between the parties on the loan documents, if a third party innocent purchases the loan documents for value in good faith and without knowledge of the borrower’s defense of failure of consideration (he didn’t get the loan from the creditor named on the note and mortgage).  This is a legislative decision made by virtually all states — if you sign papers, you are taking the risk that your promises will be enforced against you even if your counterpart breached the loan contract from the start. The risk falls on the maker of the note who can sue the loan originator for misusing his signature but cannot bring all potential defenses to enforcement by the Holder in Due Course.

Florida Example:

673.3021 Holder in due course.—

(1) Subject to subsection (3) and s. 673.1061(4), the term “holder in due course” means the holder of an instrument if:

(a) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
(b) The holder took the instrument:

1. For value;
2. In good faith;
3. Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series;
4. Without notice that the instrument contains an unauthorized signature or has been altered;
5. Without notice of any claim to the instrument described in s. 673.3061; and
6. Without notice that any party has a defense or claim in recoupment described in s. 673.3051(1).
673.3061 Claims to an instrument.—A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.
This means that Except for HDC status, the maker of the note has a right to reclaim possession of the note or to rescind the transaction against any party who has no rights to claim it is a creditor or has rights to represent a creditor. The absence of a claim of HDC status tells a long story of fraud and intrigue.
673.3051 Defenses and claims in recoupment.—

(1) Except as stated in subsection (2), the right to enforce the obligation of a party to pay an instrument is subject to:

(a) A defense of the obligor based on:

1. Infancy of the obligor to the extent it is a defense to a simple contract;
2. Duress, lack of legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor;
3. Fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms;
This means that if the “originator” did not loan the money and/or failed to perform underwriting tests for the viability of the loan, and gave the borrower false impressions about the viability of the loan, there is a Florida statutory right of rescission as well as a claim to reclaim the closing documents before they get into the hands of an innocent purchaser for value in good faith with no knowledge of the borrower’s defenses.

 

In the securitization of loans, the object has been to create entities with preferred tax status that are remote from the origination or purchase of the loan transactions. In other words, the REMIC Trusts are intended to be Holders in Due Course. The business of the REMIC Trust is to originate or acquire loans by payment of value, in good faith and without knowledge of the borrower’s defenses. Done correctly, appropriate market forces will apply, risks are reduced for both borrower and lenders, and benefits emerge for both sides of the single transaction between the investors who put up the money and the homeowners who received the benefit of the loan.

It is referred to as a single transaction using doctrines developed in tax law and other commercial cases. Every transaction, when you think about it, is composed of numerous actions, reactions and documents. If we treated each part as a separate transaction with no relationship to the other transactions there would be no connection between even the original lender and the borrower, much less where multiple assignments were involved. In simple terms, the single transaction doctrine basically asks one essential question — if it wasn’t for the investors putting up the money (directly or through an entity that issued an IPO) would the transaction have occurred? And the corollary is but for the borrower, would the investors have been putting up that money?  The answer is obvious in connection with mortgage loans. No business would have been conducted but for the investors advancing money and the homeowners taking it.

So neither “derivative” nor “securitization” is a dirty word. Nor is it some nefarious scheme from people from the dark side — in theory. Every REMIC Trust is the issuer in an initial public offering known as an “IPO” in investment circles. A company can do an IPO on its own where it takes the money and issues the shares or it can go through a broker who solicits investors, takes the money, delivers the money to the REMIC Trust and then delivers the Trust certificates to the investors.

Done properly, there are great benefits to everyone involved — lenders, borrowers, brokers, mortgage brokers, etc. And if “securitization” of mortgage debt had been done as described above, there would not have been a flood of money that increased prices of real property to more than twice the value of the land and buildings. Securitization of debt is meant to provide greater liquidity and lower risk to lenders based upon appropriate underwriting of each loan. Much of the investment came from stable managed funds which are strictly regulated on the risks they are allowed in managing the funds of pensioners, retirement accounts, etc.

By reducing the risk, the cost of the loans could be reduced to borrowers and the profits in creating loans would be higher. If that was what had been written in the securitization plan written by the major brokers on Wall Street, the mortgage crisis could not have happened. And if the actual practices on Wall Street had conformed at least to what they had written, the impact would have been vastly reduced. Instead, in most cases, securitization was used as the sizzle on a steak that did not exist. Investors advanced money, rating companies offered Triple AAA ratings, insurers offered insurance, guarantors guarantees loans and shares in REMIC trusts that had no possibility of achieving any value.

Today’s article was about the way the IPO securitization of residential loans was conceived and should have worked. Tomorrow we will look at the way the REMIC IPO was actually written and how the concept of securitization necessarily included layers of different companies.

Filed under: AMGAR, CORRUPTION, discovery, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , , , , , , , , | 33 Comments »

Holder in Due Course and Due Process

Posted on August 29, 2014 by Neil Garfield

The first thing I want to do is add to my previous comments. I believe there is an implicit admission of failure of consideration in any case where a holder in due course is not identified. In addition, where a REMIC trust not alleged or asserted to be a holder in due course it means by definition that they did not purchase the loan for value in good faith without knowledge of the defense of the “borrower” (maker of the note).

 

I believe that what this means is that any court that enters an order or judgment against the homeowner, who was the maker of the note, is implicitly entering an order or judgment against the trust beneficiaries and the trust, resulting in a loss of favorable tax status and just as importantly an economic loss directly resulting from being forced to accept a loan that is presumed to be in default. The failure of the trust to pay for the loan and receive delivery of the loan documents to the depositor leaves one with the question of “what is the relationship of the Trust to the subject loan?”

 

The same logic would apply regardless of whether the citizens trust is in dispute or not. There is circular logic in the argument of the bank. On the one hand they want to be seen as a holder with rights to enforce but on the other hand they don’t want to disclose, alleged, assert, or prove the foundation or source of the right to enforce.

 

Based upon the provisions and restrictions of the pooling and servicing agreement, the investors who purchased mortgage backed securities issued by the Trust were intended to be the collective creditor for loans that were accepted into the Trust. The acceptance is stated in the pooling and servicing agreement and the exhibits to the pooling and servicing agreement should have the loans that were accepted. After the cutoff period, the only way a loan could be accepted was by acceptance by the Trustee. And the only way there could be acceptance by the trustee would be upon receipt of an opinion letter from counsel for the trust stating that they would be no adverse effect on the beneficiaries. The adverse effects are clear. One is the loss of advantageous tax treatment and the other is the economic loss from accepting a loan does not conform to the types of loans that are acceptable to the trust, as per the terms of the pooling and servicing agreement.

 

Pooling and servicing agreement is the trust instrument. Since the pooling and servicing agreement is governed under the laws of the state of New York, a violation of the restrictions and provisions of the trust is void, not voidable. The acceptance of a loan that is in default is not possible. The acceptance of any transaction that would violate the terms of the Internal Revenue Code sections on REMIC Trusts is not possible.

 

Thus the hidden issue here is that the real parties in interest who will be affected by the outcome of the litigation have not been given any notice of the pendency of the action. And the provisions of the pooling and servicing agreement prevent the trust beneficiaries from knowing or even inquiring about the status of any particular loan.

 

The confusion comes from the fact that the investors are indeed the creditors in practice. But because the trust was actually not utilized in the transaction they are direct creditors whose money was used to fund origination or acquisition of loans, contrary to the subscription agreement which promised that their money would be given to the issuer of the mortgage-backed securities that were being issued and purchased by the investors.

 

It seems obvious that the trust cannot be held to have acted in bad faith. It is equally obvious that the trust would have no knowledge of the borrower’s defenses. As the only element left for a holder in due course is the purchase for value. Since there is no allegation that the trust is a holder in due course, the bank is admitting that the trust never purchased the loan. It may be presumed that the trust might have originated or purchased the loan if it had received the proceeds of sale of the mortgage-backed securities issued by the trust. The logical assumption is that the trust never received those proceeds. The logical assumption is that the underwriter used the funds in ways that were never contemplated by the investors.

 

A further logical assumption would be that the underwriter kept the funds in its own name or in the accounts of entities controlled by the underwriter and is operating contrary to the interests of the investors.

 

The logical conclusion would be that the underwriter conducted a series of disguised sales of the same loan to multiple parties. Since the mortgage-backed securities were issued in the name of the underwriter as nominee (“street name”) they were able to trade on the loan and securities in their own name and receive the benefits without accounting to the investors or the borrower. The allocation of third-party funds (servicers, insurers, guarantors etc.) cannot be determined except by reference to books and records in the exclusive care, custody and control of the parties involved in the claims of securitization. It may be fairly concluded that such claims are false.

 

Now I will address the issues presented as to constitutional disposition of the case. It has long been judicial doctrine to avoid constitutional issues if the case can otherwise be decided on other grounds. It is also true that equal protection has proved more difficult than due process as the basis of any relief.

 

The problem in foreclosure litigation is that it must in my opinion include a claim for both due process and equal protection. The claim for lack of due process is not technically true. The true claim, in my opinion, would be lack of sufficient due process.

 

In actuality due process varies from state to state and even from county to county. If a party has been heard in court and presented arguments, then it may be fairly concluded that some due process was provided to that party. If presumptions arise against that party that give rise to orders and judgments that are contrary to the actual facts, a claim for denial of due process could be present. But the better claim, in my opinion, is to look at the state appellate decisions to show that more due process is allowed to debtors who are not involved in foreclosure litigation. I think this is a more accurate description of the actual situation.

 

The due process argument is simple: presumptions are used as shorthand for the facts. In this case the facts don’t match up with the presumptions. The only question is whose burden of proof is it. If the allegation was that a holder in due course was known and identified there is no doubt that anything the borrower had to say would be an affirmative defense, and thus after a prima facie case was made showing payment in good faith without knowledge of borrower’s defenses, the burden would shift to the alleged borrower who definitely was the maker of the note even if they were not the borrower in a loan transaction with the designated “lender.”

 

But, this is not the case at bar. The foreclosing party is asserting “holder” status, with dubious rights to enforce that are denied by the maker/homeowner. Absent is any allegation of status of a holder in due course, and of course noticeably absent is any allegation of the expenditure of funds or other consideration in exchange for delivery of the loan to the Depository designated in the PSA to receive the delivery. Thus neither the purchase nor the delivery are alleged. While being a holder might raise the presumption of being a holder with rights to enforce, it does not remove the burden of proving that said rights to enforce have been delivered from a party who definitely had the right to enforce — i.e., the holder in due course or “owner” of the loan.

 

The absence of the HDC allegation is an admission that the Trust did not buy the loan. The fact that the Trust did not buy the loan means that it is not and cannot be in the pool owned by the trust, with fractional shares owned by the investors who bought the MBS issued by the Trust. And that can ONLY mean that the right to enforce cannot be delivered or conveyed by the Trust because the Trust never received delivery and never had a right to receive delivery because they didn’t pay for the loan.

 

Thus on the face of the pleading it is up to the foreclosing party to prove its right to enforce the note by showing the identity of the party for whom the loan is being enforced, the fact that the party for whom it is being enforced owned the loan at the time the right to enforce was granted, the current balance ON THE BOOKS OF THE CREDITOR, the presence of a default ON THE BOOKS OF THE CREDITOR, and that the loan is still owned by the party who owns the loan (i.e., the HDC). Hence the burden is on the foreclosing party to reach the point where the borrower assumes the burden of refuting the case against him or her. The maker of the note is in an exclusive position of being shut out of the facts that would either corroborate or refute this narrative.

 

If the burden is placed on the borrower, it would be the equivalent of a murder on video in possession of the murderer but the State and the heirs of the victim are charged with proving the case without the video. The facts suggest here that the Trust paid nothing because it had no money to pay for a loan. The facts suggest that if it were otherwise, the Trust would have paid for the loan and be most anxious to plead HDC status. And thus the facts show that the foreclosing party cannot claim the right to enforce based upon a presumption without violating the due process rights of the homeowners here. Only the foreclosing party and its co-venturers have in their care, custody and control, the necessary information to refute or prove the facts behind the presumptions they are attempting to raise.

#foreclosureissues

 

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Filed under: AMGAR, CASES, CORRUPTION, escrow agent, evidence, foreclosure, foreclosure defenses, GTC | Honor, investment banking, Investor, MBS TRUSTEE, Mortgage, Motions, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , | 9 Comments »

Confronting the Ridicule of Counsel for the Bank

Posted on August 20, 2014 by Neil Garfield

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

See also these articles:

The Right to Foreclose & the UCC

Weinstein Article NJ Law Journal

SearchforNegotiability Ronald Mann (1)

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If you file a claim or affirmative defenses along with your answer denying everything, you will often be met with a motion to strike the affirmative defenses or claim. The reason is simple, once the court agrees that the matters you alleged in your pleading are in issue, you are automatically entitled to discovery on those issues. And that is why I continue to say that the more aggressive you are in the beginning of litigation the more likely you are to get win or get a settlement early in the process. Pleading lack of consideration raises the issue of what happened with the money? Once that is in issue, your discovery questions and requests can be directed at that. Once the foreclosers are forced to open up their books and records, my experience is that they will fold. They generally don’t have a cancelled check or wire transfer receipt from anyone in their “chain.”

Here is what was submitted in one case in opposition to the motion to strike the affirmative defenses of the homeowner:

 

  1. Counsel for the Plaintiff wants this court to ignore the defenses of the Defendants on the basis that the theory of the case advanced by said defendants is “Absurd.”
  2. Defendants agree that there are patent absurdities and unexplained mysteries in this case.
  3. Plaintiff has alleged that it is a “holder” and has not alleged that it is a “holder in due course.” And it has not alleged the source of its authority to claim “rights to enforce.” By definition this means they admit that Plaintiff is not a purchaser for value, in good faith without knowledge of the Borrower’s defenses.
  4. If Plaintiff (or anyone whom Plaintiff represents) actually purchased the loan for value, in good faith and without knowledge of the borrower’s defenses, they would say so. That would make them a Holder in Due Course. Florida statutes protect the Holder in Due Course allocating the risk of signing documents without receiving consideration to the borrower. It would end the debate — eliminating nearly all of the borrower’s defenses by definition. So where is a holder in due course in this court proceeding?
  5. Defendants concede that anyone who signs a document assumes the risk of liability (even if they didn’t get the loan) that it might be used as a negotiable commercial instrument (cash equivalent) and that if an innocent buyer of the loan documents who was acting in good faith without the knowledge of the borrower’s defenses acquires such loan documents those documents can be enforced and that the borrower is limited in potential remedies to pursue satisfaction from the loan originators, mortgage broker etc.
  6. But Plaintiff is not alleging it is an innocent buyer. It is not even disclosing for whom the  the loan documents are being enforced. By trick of logic, Plaintiff wants this court to “assume” or “presume” that some actual creditor or owner of the loan has given the Plaintiff the right to enforce. But Plaintiff is not providing any allegation or proof, despite numerous requests as detailed in the affirmative defenses, as to the identity of the real creditor nor any facts or documents that how show the “real creditor” is imbued with the status of holder in due course,, creditor or “owner” of the loan.
  7. Instead they allege status of “holder” without any clarity of how they acquired the loan documents nor the basis of their authority to enforce the loan documents.
  8. Counsel for the Plaintiff wants to be treated as a holder in due course where the defenses of the homeowner are ignored regardless of whether they have merit. Counsel is attempting to elevate the status of the Plaintiff to treatment as a holder in due course, while the only allegation is the the Plaintiff is a “holder.”
  9. Being a holder does not automatically entitle anyone to enforce a document. If it were otherwise any delivery service would be able to stop by the courthouse and file a lawsuit on the papers they are carrying. A “holder” must have “rights to enforce.” And these rights come from the actual owner of the loan, whom they refuse to disclose.
  10. The “absurd” conclusion that there was no consideration at the “closing” of the “loan” arises from the the perfectly logical progression of reasoning stemming from the lack of consideration at every step in the chain, upon which Plaintiff relies. If there does exist a transaction in which the loan was (a) funded by the designated lender and (b) transferred for value at each step of the “assignment” process, then it is impossible for SOMEONE not to be a holder in due course. But the Plaintiff refuses to disclose in its pleading the identity of the holder in due course or anyone else designated as the creditor or owner of the loan.
  11. If the Plaintiff wants this court to enforce the loan documents, by its own pleadings it does so as a mere “holder.” That means that Plaintiff is subject to the defenses of the borrower arising from the closing. Plaintiff stands in no better shoes than the “originator” of the loan whom Defendants allege was not the actual lender.
  12. If the Plaintiff wants this court to to enforce the loan documents, it must prove that it has the actual loan documents, and it must prove that it has the right to enforce those documents not by presumption but with facts. And Defendants are permitted to raise the issue of consideration and inquire in discovery as to the reality of the transaction at the time of the loan.
  13. If Plaintiff wishes to state that it has the right to enforce the loan documents, even though it is a mere holder, then it must have been given those rights to enforce from the actual creditor. That is a step that Plaintiff seeks to avoid for reasons that will be flushed out in discovery and at trial. Defendants take the position that the their is no real creditor or real owner of the loan in any sense of the words, in the entire chain of “ownership” relied upon by the Plaintiff. If that is untrue, then Plaintiff can simply provide proof of payment at each step of the original transaction and each step in which there was an alleged transfer.
  14. Plaintiff is attempting to rely upon presumptions which would lead to a conclusion that is contrary to the actual facts.
  15. The presumptions upon which Plaintiff intends to rely, as is obvious from their complaint, would lead the court to conclude that there was consideration at the “closing” and each “transfer” of the loan. Such presumptions are rebuttable for the precise reason that they exist for the sake of expediency. Ordinarily, before the era of “securitization” such presumptions reflected the actual facts. In this case, they do not.
  16. Defendants need not prove their case at this stage of litigation. They have raised bona fide issues. If the issues raised as defenses are completely devoid of any basis, then the court has remedies available. Defendants have requested proof of payment to support the closing documents and each “transfer” of the loan. Such requests are found in the fact pattern described in the affirmative defenses. Plaintiff refuses to show such proof, betting on this Court’s need for an expeditious result.
  17. The defensive pleading of the Defendants are sound and sustainable, as pled, because they must be taken as true for purposes of the hearing on the Plaintiff’s Motion to Strike.

Filed under: foreclosure | Tagged: , , , , | 6 Comments »

Loan Without Money

Posted on August 18, 2014 by Neil Garfield

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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If you went to the loan closing, signed the papers and then gave them to the closing agent and then the “lender” didn’t fund the loan, what would you do? If you ask an attorney he or she would probably demand the return of the closing papers. If the mortgage got recorded the attorney would threaten a variety of consequences unless the filing with the county recorder was nullified (because it can never be physically removed).

If you were then contacted by a mysterious stranger who said forget the loan papers, I’ll loan you the money, you might have accepted. This mysterious person sends the money to the closing agent who disperses it to the Seller of the property or pay off the prior mortgage etc.

Now imagine that the first “lender” ( the one who DIDN’T make the loan) has “assigned” the documents you executed to another party who also didn’t loan any money to you and who didn’t pay for the assignment because they knew full well that the loan papers were worthless. And the “lender” designated on the note and mortgage doesn’t ask for money because they know they didn’t loan a dime to you. But they gladly accept fees for “acting” as though they were the lender and renting their name out to be used as “lender.”

And finally imagine that the assignee of the worthless documentation you executed again assigns and endorses the note and mortgage to still another party, like a REMIC Trust. What did the REMIC Trust get? Nothing, right? Not so fast.

If this last transfer of the “loan” PAPERS (described as “documents” to make them sound more important) was purchased for value in good faith without knowledge of your defense that you never received the loan, you might still be liable on that note you executed even though you never received the loan. Yes you owe the holder in due course in addition to owing the money to the mystery stranger who wired the money to the closing agent. The Trust COULD enforce the loan or at least try to do so and it would be legal because they would be a HOLDER IN DUE COURSE (HDC). An HDC can enforce free from borrower’s defenses. That is the risk of signing documents and letting them get out of your hands before you receive what you expected as part of the deal.

Why then is there no evidence or allegation by any forecloser in the securitization schemes that they have HDC status? I represented hundreds of banks, lenders, and associations in foreclosures. If anyone was holding the paper as an HDC that is what I would have said in the pleading and then I would have proven it. end of story. The borrower might have a lawsuit against the third parties who tricked him but the HDC still has a good chance of prevailing despite grievous violations of lending laws and procedures at closing — including lack of consideration (they didn’t fund the loan for which you executed the closing documents).

The ILLUSION of a loan closing has been created because both “loan” scenarios in fact occurred AT THE SAME TIME at most “loan” closings. Two different deals — one where you didn’t get the money and the other where you did. One where you signed the closing documents but didn’t get the loan and the other where you signed nothing and got the money from the loan.  In other words, you signed documents, you delivered them to the closing agent and they were delivered and recorded. But the “lender” didn’t give you any money. Ground zero for the confusion and illusion is the receipt of money by the closing agent fro the mysterious stranger instead of the party in whose favor you executed the note and mortgage.

And here is the good news. The banks know full well they can’t win if they allege they have HDC status or even that the Trust has HDC status. So they allege that they are “holders” or they allege they are “holders with rights to enforce.” More often than not they simply allege either that they are simply a “holder” or that they have the “rights to enforce.” They let the court make the rest of the assumptions and essentially treated as though the party foreclosing on you had HDC status. That is ground zero for judicial error.

The Trust never issued payment to the assignor of the loan because the assignor didn’t ask for any money except for fees in “acting” its part in the scheme. The assignments and endorsements, the more powers of attorney, the higher the stack of paper. And the higher the stack of paper the more it looks like the the loan MUST be valid and enforceable, that you did stop paying on it, and that therefore you MUST be in default.

Meanwhile the mysterious stranger is getting paid by the people who entered into an agreement — a pooling and servicing agreement — under which the investors get paid from the Trust, Trustee or Master Servicer that issued bonds to the mysterious stranger. The terms of payment are very different than the terms of your note but that doesn’t matter because they never loaned you money anyway. The real basis of the ability of the servicer and trustee to see to it that you receive your expected payment is the ability of these brokers, conduits and sham corporate entities and trusts to get their hands on your money, and the money of investors in the Trust.

Why did the mysterious stranger send money for you? Was it a gift? Of course not. But without documentation the mysterious has exactly one legal right — to demand payment at any time for the entire balance of the loan plus reasonable interest. No foreclosure, because there is no mortgage. No acceleration necessary because you already owe the entire amount. Your homestead property is NOT at risk in Florida and many other states, because the mysterious stranger has no mortgage recorded. And the full balance of the loan to the mysterious stranger is completely dischargeable in a chapter 7 bankruptcy or can be reduced substantially in a Chapter 13 or chapter 11 Bankruptcy.

Why did the mysterious stranger make the loan? Because the stranger was tricked by the same people who tricked you — under several layers of complicated relationships such that it is difficult to pin the blame on anyone. But this isn’t about blame. It is about money. Either they made a loan or they didn’t. And the answer is that nobody in their chain of “title” to the loan PAPERS ever paid one dime to loan you money or buy your loan. They are hiding that from both investors and you.

The mysterious stranger gave a broker money because he thought the broker was the intermediary between the mysterious stranger and a REMIC Trust that was issuing a semi-public offering of Mortgage Banked Securities (MBS). The stranger thinks he is an investor buying securities when in fact he has just opened the door for the broker to use his money in anyway the broker wanted, including lining the broker’s own pocket with the principal that should have loaned on good solid viable loans. The illusion is enhanced by the broker when the broker makes certain that the mysterious stranger is addressed as an “investor” or “trust beneficiary” of the REMIC trust.

The mysterious stranger who made the actual lender is tricked into believing that he has purchased a fractional ownership of thousands of mortgages including yours. That what the Prospectus and PSA seem to be saying. In reality the money that the mysterious stranger gave to the broker, stayed with the broker and that satisfied the feeding frenzy of sharks circulating around each dump of money from mysterious strangers.

“Bonuses” that were incomprehensible to the rest of the world were lavished upon the people who actually made this trick work. The  bonuses came from “profits” that were declared by the brokers from some incredibly lucky “trades” that never existed in which the Trust “bought” the loans at a price far higher than the principal balance of the loans, including yours.

AND THAT IS THE REASON FOR THE LOST, DESTROYED, FABRICATED LOAN AND TRANSFER DOCUMENTS. THE BANKS ARE CREATING THE APPEARANCE OF NEGLIGENCE THAT OVERRIDES THE TRUTH — IT WAS FRAUD. The only reason you would destroy a cash equivalent document is because you told someone it promised payment of $100, when in fact it promised only $60. The Banks can’t reveal the real money trail without revealing their vulnerability to criminal prosecution.

Of course the problem was that the broker didn’t loan you any money and either did the trust, the trustee, the servicer or any of the conduits or other intermediaries. And so none of them were entitled to have or do anything with the PAPER that had your signature on them — which contained one key term that they didn’t want anyone to see — the principal balance stated on the note.

If the mysterious stranger found out that for every dollar he paid the broker for a mortgage bond, only 60% was being used for loans, then the mysterious stranger would stop giving the broker money and would have demanded the return of all funds. But the mysterious strangers who in reality had given naked undocumented demand loans to homeowners had no idea that anything was wrong because the payments they were receiving were exactly what they expected.

So when the “borrower” is asked “did you get the loan.” His answer is “which one are you asking about?” Because no loan was ever made, directly or indirectly by the “lender” on the note and mortgage. Did you stop paying? Of course, why should I pay someone who I thought was my lender but isn’t.

All of that is the exact reason why the investor “mysterious stranger” lawsuits have all been settled for hundreds of billions of dollars. But in the end this is about the mysterious stranger and the lender designated on the note and mortgage. The fact that either way the mysterious stranger’s money was to be used for loans is not the point under our system of law. If anyone wants to enforce commercial paper based upon a loan that was never made, they lose if they are merely a “holder,” and “holder” status is all that the foreclosers have ever alleged. Their “right to enforce”comes from cyberspace rather than the owner of the loan. The owner of the loan, is in the final analysis a mysterious stranger to any of their PAPER.

The solution to our economic crisis that simply won;t end until this wrong is addressed is to stop rewarding bad behavior and let the mysterious strangers and the borrowers meet each other in the market place. Under threat of a demand loan due in full right now, nearly all homeowners would execute enforceable, clean notes and mortgages in favor of the mysterious strangers and then they could BOTH sue the intermediaries that corrupted the title and investments of the “mysterious strangers.”

Presented correctly by counsel for the homeowner, the men and women sitting on the bench will accept the truth as long as you exercise your rights to object to the use of presumptions instead of facts and demand your right to receive discovery that would disprove all the presumptions upon which the brokers and their nominees rely. Stop admitting things you know nothing about. Presume that there is a shady reason why the foreclosing party never asserts itself as an HDC. That is your clue to the truth.

 

Filed under: AMGAR, CORRUPTION, discovery, escrow agent, evidence, expert witness, foreclosure, foreclosure defenses, forms, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, originator, Pleading, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , | 14 Comments »

Quiet Title and Statute of Limitations

Posted on July 7, 2014 by Neil Garfield

In the search for a magic bullet, many pro se litigants and even attorneys have ended up perplexed by laws and rules regarding an action to Quiet Title (frequently misspelled by pro se litigants as “Quite Title”). The purpose of this article is to add some context to the discussion and some reasons for my conclusion — that as more decisions emerge the action for Quiet Title will fade unless the mortgage of record is first nullified or canceled.

For context, let’s remember that the purpose of recording documents in the Public Records is to give certainty and notice to the world of transactions that can be recorded. If courts were to issue decisions to quiet title on recorded documents that are facially valid, the result would be chaos — nobody would know if they were really getting permanent title and title insurance companies would, for obvious business reasons, refuse to issue a title commitment or policy unless EVERYONE brought a quiet title action after every transaction and received a court order, suitable for recording that stated the rights of the stakeholders. This is precisely what the recording statutes are meant to avoid.

Now to the issue of the statute of limitations. Some states hold that even if there is an act of acceleration, the statute of limitations only applies to the monthly payments that were due during the statutory period that are now time-barred. Florida does not appear to be one of those states, and despite some decisions to the contrary, it doesn’t look to me like Florida will become one of them. In Florida it is generally accepted that the statute of limitations time bars any action after 5 years to collect a debt. You should check your state statutes because each state is different and don’t make any decisions without consulting a qualified attorney licensed in the jurisdiction in which your property is located.

So the thinking has gone in the direction of merely stating that the claim is time-barred if there was an acceleration of the debt, and five years as passed. But the Romero v SunTrust decision (see below) from last year, raises the real issues. While the Bank had no right to bring a claim on the note, and presumably had no right to bring an action on the mortgage, the mortgage remains on record. Alleging that the statute of limitations bars any action on the note or mortgage does not invalidate the mortgage. If it is facially valid and properly recorded, it is there in the County records for all to see.

So the question arises “What happens at a subsequent closing on the sale of the property or refinance, and the Mortgagee (or party claiming to be the successor of the mortgagee) refuses to execute a satisfaction of mortgage without receiving payment?” Is THAT a claim that is time-barred? The answer is I don’t know, but I suspect that the refusal to execute a satisfaction of mortgage is an act that is separate from bringing an action to collect on a time-barred debt.

I suspect that an action for equitable relief demanding a Court order to force the Bank into executing a satisfaction of mortgage would fail. That is essentially the same as asking the Court to issue a quiet title order stating that the mortgage is invalid — a precedent that raises numerous hazards in the marketplace. Essentially you are saying that you did have the debt, the bank is time barred from enforcing it, so you want the mortgage nullified or canceled. Several Courts have issued ruling consistent with this ruling so I don’t want to give the impression that what I am saying is the general rule — what I am saying is that I think my theory of the action will become the general rule.

My theory, supported by case law in other states, is that you must have grounds to attack the validity of the instrument and win your case before you can then ask for a decision on Quiet Title. Fortunately, in the context of loans and title subject to claims of securitization, such an attack is eminently possible and likely to succeed on an increasing basis. But in order to do so, one must be very conversant in the claims of securitization generally and especially knowledgeable as to claims of succession or securitization in your specific case. Alleging that this particular defendant has been repeatedly found in court to lack the indicia of ownership or authority to enforce a note and mortgage may not do you any good. You are still left with the question of what to do with a facially valid mortgage encumbrance recorded against the property. If the person you sued doesn’t own it, who does?

After years of avoiding the right strategies, lawyers are coming around to the idea that in order to be truly successful in an action to remove the mortgage encumbrance, you need to have an allege facts to support the claim that the mortgage deed (or Deed of Trust) was invalid in the first instance or that it could not be enforced even if the statute of limitations was not applicable. THEN alleging the statute of limitations is a good idea as corroboration for your logic that the mortgage is invalid because it is unenforceable and without merit in all instances.

There are two such attacks that are promising:

1. Attack the initial closing as lacking consideration or giving rise to common law or statutory rescission. If statutory rescission applies, the law states that the encumbrance is terminated by operation of law. (TILA). The allegation that the opposing bank is a “holder” (according to them) is insufficient to bar your attack on the initial closing. The problem of course is that the banks regularly confuse judges into applying the rules of a holder in due course when the Bank itself makes no such assertion. Hence, being able to remind or educate the judge on the differences between holders, holders with rights to enforce and holder in due course is essential and must be presented with clarity. If you don’t understand the differences you are not prepared for the hearing.

2. Attack the subsequent acquisition of the “loan”, debt, note and/or mortgage also as being a sham lacking in consideration AND of course in violation of the PSA. The point to remember here is that the “assignment” or “endorsement” (almost always fabricated, forged or unauthorized) is only an OFFER in which case the Trustee of the REMIC trust must accept the offer and then pay for it. In fact most PSA’s require a letter of opinion from counsel for the Trust indicating that no negative tax impact will result on the Trust’s REMIC status. Three things we know to be true in most cases: (a) the Trustee never accepted the transfer and (b) The trust never paid for the loan and (c) a loan already declared in default is not susceptible to acceptance by the trust. Keep in mind that most trusts are governed by New York Law which says that such transactions are void, not voidable.

So let us assume that you have a receptive Judge who agrees that the transfer to the trust never occurred or even that the original loan documents lack consideration from the named Payee on the note (and of course the named Mortgagee/beneficiary under the Mortgage). In my opinion you are still only half way to home base. No home run yet, although I think the law will evolve where that IS sufficient to remove the mortgage encumbrance.

So now what? You have still sued parties whom you have proven have no interest in the mortgage. The question is whether you have eliminated the possibility of ANY party (who has no notice of the action) having an interest in the debt, note or mortgage. And many judges will reply that you have put on a pretty good case but you still have not identified the creditor — an odd twist on the defensive actions in foreclosure cases.

My opinion is that you need to allege a fact pattern, where appropriate, that states that Wall Street investors advanced the money to the borrower without knowing that their money was not going through the trust. Hence a direct relationship arose by operation of law between the borrower, as debtor and the investors as creditors. Those investors are creditors not as Trust beneficiaries but rather personally, because the money never went through the trust. The allegation is that they were cheated by intervening fraudulent behavior or negligent behavior on the part of the broker dealer who sold them the securities of an empty REMIC Trust that never received the proceeds of sale of the REMIC RMBS.

At this point you can properly argue that  the investors were entitled to a note and mortgage by virtue of the securitization documents that were used to fraudulently induce them to part with their money. The allegation should be that they didn’t get it and that putting the name of sham “nominees” did not accrue to the benefit of the investors but rather inured to the benefit of intermediaries who were not lending money in your transaction.

Either way, you say that as to the debt between the mortgagor homeowner and whoever else might be making a claim, the initial mortgage encumbrance is now and/or has always been invalid and unenforceable because they recite facts based upon a non-existent transaction, that the mortgage has been split from the note, that the note has been split from the debt, and through no fault of the homeowner, there is no note or mortgage inuring to the benefit of the actual creditors. The cherry on top is that there is no such thing as an equitable mortgage — for the same reasons that courts are reluctant to grant quiet title actions — it would cause chaos in the market place and raise uncertainty that the recording statutes are intended to avoid.

See Romero v SunTrust Statute of Limitations 9-3-2013

See also “a new and different breach” Singleton v Greymar Fla S Ct 882 So2d 1004 9-15-2004

And on collateral estoppel Kaan v Wells fargo Bank NA Case 13-80828-CIV 11-5-13

For further information, call 954-495-9867 or 520-405-1688.

Are you a candidate for Florida’s Hardest Hit Fund relief for Foreclosure Victims? See Florida Hardest Hit Fund

 

 

Filed under: AMGAR, CASES, CORRUPTION, discovery, evidence, expert witness, foreclosure defenses, GTC | Honor, Investor, MBS TRUSTEE, Mortgage, Motions, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , | 5 Comments »

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