What Difference Does It Make?

It is in court that the “loan contract” is actually created even though it is a defective illusion. In truth and at law, placing the name of the originator on the note and/or mortgage was an act of deceit.

In a singular sweep of making public policy as opposed to following it, the Courts have been hell bent on letting strangers achieve massive windfalls through the illegal and improper use of state laws on foreclosure while ignoring Federal laws on TILA rescission, FDCPA and RESPA. The courts have a clear bias based upon the policy of allowing the financial industry to prosper while at the same time deeming individual consumers and homeowners worthy of sacrifice for the greater good.

This is evident in the ever popular questions from the bench — “what difference does it make, you got the loan, didn’t you.”

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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In response to the question posed above most lawyers and pro se litigants readily admit they received “the loan.” The admission is wrong in most cases, but it gives the judge great clarity on what he/she must do next.

 

Having established that there was a loan and that the homeowner received it as admitted by the the lawyer or pro se litigant, there is no longer any question that the note and mortgage are void instruments as are the assignments, endorsements and powers of attorney that are proffered in evidence by complete strangers to the transaction.

 

The purpose of this article is to suggest that a different answer than “Yes, but” should be employed. In discussions with our senior forensic analyst, Dan Edstrom, he suggested an alternative answer that I think has merit and which avoids the deadly “Yes, but” answer.
 

 

We start from the presumption that the originator did not fund any transaction with the homeowner and in most cases didn’t have anything to with underwriting. The originator’s job was to sell financial products that were dubbed “loans.” “The loan” does not exist. Period.

 

Then we can assume that the first defect in the documents of the purported loan is that the the originator who unfortunately appears on the note as payee and on the mortgage (or deed of trust) as mortgagee or beneficiary was NOT the “lender.”

 

Hence placement of the name of the originator had no more foundation to it than placing the name of a closing agent or title agent or an attorney.

 

None of them are lenders or creditors. They are all vendors paid a fee for doing what they did.  And neither is the “originator” (a term with various inconsistent meanings).

 

Admission to the existence of “the loan” contract is an admission contrary to (a) the truth and (b) your defense. Once you have admitted that you received the loan you are implicitly admitting that you were party to a valid loan contract, consisting of the defective note and mortgage.

 

As a matter of law that means that you have admitted the note and mortgage were not void or even voidable but instead you have presented a closed cage in which the Judge has no choice but to proceed on “the law of the case,” to wit: the assumption that there was a valid loan, that the originator made the loan, and that the note and mortgage are valid instruments that are both evidence of the loan and instruments that set forth the duties of the homeowner who has admitted to being a borrower under that “loan contract.”

 

So it is in court that the “loan contract” is actually created even though it is a defective illusion. In truth and at law, placing the name of the originator on the note and/or mortgage was an act of deceit.

 

In MERS cases, being the “nominee” of the “lender”(who was incorrectly described as the lender), means nothing. And THAT is why when my deposition was taken in Phoenix AZ for 6 straight days by 16 banks (9am-5pm) I told them what I have consistently maintained for the past 10 years: “You might just as well have placed the name of Donald Duck or some other fictional character on the note and mortgage.”

 

ALL of the named players were in fact fictional characters for purposes of being represented in a nonexistent transaction (between the originator/”lender” and the homeowner/”borrower.”) Hence the term “pretender lender.” And the actions undertaken after the homeowner was induced (a) to avoid lawyers and (b) to sign the note and mortgage as though the originator had in fact loaned them money were all lies. Hence the title of this blog “Livinglies.”

Bottom Line: WATCH YOUR LANGUAGE! Don’t admit anything. Don’t admit that the loan was assigned (say instead that a party executed a document entitled “assignment” which contained no warranties of title or interest.

Here is what Dan Edstrom wrote:
=====================================

What difference does it make?

By Daniel Edstrom
DTC Systems, Inc.

What difference does it make, you got the loan didn’t you?

No, I did not get a loan, no I did not authorize “the loan,” no I did not mean to enter into a contract with anyone other than the party who was lending me money and no I did not receive money from the party claiming to be a lender. [Editor’s note: fraud in the inducement and fraud in the execution — or best, a mistake].

Yvanova v. New Century Mortgage Corp., 365 P.3d 845, 62 Cal. 4th 919, 199 Cal. Rptr. 3d 66 (2016). laid this out (without an in depth review) when the court said (emphasis added):

Nor is it correct that the borrower has no cognizable interest in the identity of the party enforcing his or her debt. Though the borrower is not entitled to 938*938 object to an assignment of the promissory note, he or she is obligated to pay the debt, or suffer loss of the security, only to a person or entity that has actually been assigned the debt. (See Cockerell v. Title Ins. & Trust Co., supra, 42 Cal.2d at p. 292 [party claiming under an assignment must prove fact of assignment].) The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.

Here is more, much more:

Identification of Parties

The following is from: Jackson v. Grant, 890 F.2d 118 (9th Cir. 1989).

If an essential element of the contract is reserved for the future agreement of both parties, there is generally no legal obligation created until such an agreement is entered into. Transamerica Equip. Leasing Corp. v. Union Bank, 426 F.2d 273, 274 (9th Cir.1970); Ablett v. Clauson, 43 Cal.2d 280, 272 P.2d 753, 756 (1954); 1 Witkin Summary of California Law, Contracts §§ 142, 156 (9th ed. 1987). It is essential not only that the parties to the contract exist, but that it is possible to identify them. Cal.Civ.Code § 1558. See San Francisco Hotel Co. v. Baior, 189 Cal.App.2d 206, 11 Cal.Rptr. 32, 36 (1961) (names of seller and buyer are essential factors in considering whether contract is sufficiently certain to be specifically enforced); Cisco v. Van Lew, 60 Cal.App.2d 575, 141 P.2d 433, 437 (1943) (contract for sale of land must identify the parties to the transaction); Losson v. Blodgett, 1 Cal.App.2d 13, 36 P.2d 147, 149 (1934) (valid real property lease must contain names of parties).

And looking further at what Cisco v. Van Lew, 60 Cal. App. 2d 575, 141 P.2d 433 (Ct. App. 1943) actually says:

“There is a settled rule of law that a note or memorandum of a contract for a sale of land must identify by name or description the parties to the transaction, a seller and a buyer.” (Citing cases.)9

The statute of frauds, section 1624 of the Civil Code, provides that the following contracts are invalid unless the same or some note or memorandum thereof is in writing and subscribed by the party to be charged or by his agent:

“… 4. An agreement … for the sale of real property, or of an interest therein; …” In 23 Cal.Jur. page 433, section 13, it is said: “Matters as to Which Certainty Required.–The requirement of certainty as to the agreement made in order that it may be specifically enforced extends not only to its subject matter and purpose, but to the parties, to the consideration and even to the place and time of performance, where these are essential.” (Citing Breckenridge v. Crocker, 78 Cal. 529 [21 P. 179].) In that case it was held that when a contract of sale of real estate is evidenced by three telegrams, one from the agent of the owner of the property communicating a verbal offer, without naming the proposed purchaser; and second, from the owner to his agent, telling him to accept the offer; and a third from the agent addressed to the proposed purchaser by name, simply notifying him of the contents of the telegram from the owner, but not otherwise indicating who the purchaser was, the contract is too uncertain as to the purchaser to be enforced, or to sustain an action for damages for its breach. In that case it was held that the judgment granting a nonsuit was proper.(e.s.)

[2] The general rule stated in 25 Cal.Jur. page 506, section 34, is that

“a contract for the purchase and sale of real property must be mutual and reciprocal in its obligations. Otherwise, it is not obligatory upon either party. Hence, an agreement to convey property to another upon his making payment at a certain time of a named amount, without a reciprocal agreement of the latter to purchase and pay the amount specified, is unenforceable.” (See, also, 25 Cal.Jur. p. 503, sec. 32, and cases cited.)

This brings up many issues between a so called promissory note, which may or may not be a negotiable instrument, and a security instrument, which appears to be a transfer of an interest in real property.

The first question is: how can an endorsement in blank without an assignment EVER transfer an interest in real property? How can the security interest be enforced from a party that has not been identified?

– We know what the Supreme Court said in Carpenter v. Longan, 83 U.S. 271, 21 L. Ed. 313, 1873 U.S.L.E.X.I.S. 1157 (1873), but does that take the above into account? Does it need to? Does it conflict?

And then we have the issues of who advanced the money to fund the alleged loan closing, who are the parties to table funding, and what security interests or encumbrances were authorized by the homeowner PRIOR to delivery of the signed note and security instrument?

And further, the parties must exist and be identifiable. It is NOT ok if they existed in the past but do not exist now (at the time of the agreement or contract or assignment).

So the originator goes into bankruptcy and is dissolved, and then a year or more later they (somehow) record an assignment to another entity.

And in many cases the assignment from the originator comes after the originator already executed an assignment to one or more parties previously.

What really happens to a security interest when a company is dissolved or shutdown and they haven’t assigned it to another party or released the security interest? (and this is an interest in real property where the release or assignment has to be in writing).

What really happens if it is a person and they die? And then a year later the deceased assigns the security interest to somebody else?

In CA. the procedure for real property transactions is to comply with CA. Civ. Code 1096, which provides the following:

  1. Civ. Code 1096

Any person in whom the title of real estate is vested, who shall afterwards, from any cause, have his or her name changed, must, in any conveyance of said real estate so held, set forth the name in which he or she derived title to said real estate. Any conveyance, though recorded as provided by law, which does not comply with the foregoing provision shall not impart constructive notice of the contents thereof to subsequent purchasers and encumbrancers, but such conveyance is valid as between the parties thereto and those who have notice thereof.

See: Puccetti v. Girola, 20 Cal. 2d 574, 128 P.2d 13 (1942).

All of Prince’s property (real and personal) went into probate after he died. When they finally sell his real property, it won’t (or shouldn’t) be from Prince to John Doe, it should be something like Jerry Brown, executor of the estate of Prince to John Doe.

Fannie and Freddie Unloading Bogus “Mortgage” Bonds

Standard Operating Procedure: Create more bogus paper on top of piles of old bogus paper and you contribute to the illusion that any of it is real. The “business model” still leaves out the basic fallacy: that most loans were never actually securitized into the trusts that are claiming them. Hence the at the base of this pyramid, is an MBS issued by an entity without any assets in cash, property or loans.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://blogs.barrons.com/incomeinvesting/2014/06/30/government-support-for-gse-mortgage-transfer-securities-unrealistic-fitch/

The actual goal here is to spread the risk so wide that the impact is reduced when it is finally conceded that the original MBS had no value and every successor synthetic derivative is just as worthless as the one before it.

At ground level, this creates a dichotomy. First the act of a Government Sponsored Entity (GSE) engaging in a “re-REMIC” transfer adds to the illusion that the issuing trust ever acquired the loan in the first place. But second, it corroborates the finding by me, Adam Levitin and others who know and have studied the situation: the foreclosure based upon claims from alleged REMIC Trusts are false claims.

If the original MBS had real value because it was issued by a real REMIC Trust, the process described as “re-REMIC” would not be necessary. Hedge products would be sufficient to cover the changing risk from alleged defaults on loans that were legitimately made by originators. The fact is that the “loans” did not produce loan contracts because one party was owed the debt while another party was named on the bogus note.

And THAT corroborates the experience of millions of homeowners who attempted to learn about the fictitious financial transaction in which “successors” to the “originator” paid nothing for the “transfer” of the loan because it could not be sold by the preceding party who had no ownership.

Why The Investors Are Not Screaming “Securities Fraud!”

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.

SUPPORT LIVINGLIES!

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
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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.

Was There a Loan Contract?

In addition to defrauding the borrower whose signature will be copied and fabricated for dozens of “sales” of loans and securities deriving their value from a nonexistent loan contract, this distorted practice does two things: (a) it cheats investors out of their assumed and expected interest in nonexistent mortgage loan contracts and  (b) it leaves “borrowers” in a parallel universe where they can never know the identity of their actual creditor — a phenomenon created when the proceeds of sales of MBS were never paid into trust for a defined set of investors.  The absence of the defined set of investors is the reason why bank lawyers fight so hard to make such disclosures “irrelevant” in courts of law.

The important fact that is often missed is that the “warehouse” lender was neither a warehouse nor a lender. Like the originator it is a layer of anonymity in the lending process that is used as a conduit for the funding received by the “borrower.”

None of the real parties who funded the transaction had any knowledge about the transaction to which their funds were committed. The nexus between the investors and/or REMIC Trust and the original loan SHOULD have been accomplished by the Trust purchasing the loan — an event that never occurred. And this is why fabricated, forged documents are used in foreclosures — to cover over the fact that there was no purchase and sale of the loan by the Trust and to cover up the fact that investors’ money was used in ways directly contrary to their interests and their agreement with the bogus REMIC Trusts whose bogus securities were purchased by investors.

In the end the investors were left to rely on the unscrupulous investment bank that issued the bogus MBS to somehow create a nexus between the investors and the alleged loans that were funded, if at all, by the direct infusion of investors’ capital and NOT by the REMIC Trust.

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

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also see comments below from Dan Edstrom, senior securitization analyst for LivingLies
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David Belanger recently sent out an email explaining in his words the failed securitization process that sent our economy into a toxic spiral that continues, unabated, to weaken our ability to recover from the removal of capital from the most important source of spending and purchasing in our economy. This was an epic redistribution of wealth from the regular guy to a handful of “bankers” who were not really acting as bankers.

His email article is excellent and well worth reading a few times. He nails the use of remote conduits that have nothing to do with any loan transaction, much less a loan contract. The only thing I would add is the legal issue of the relationship between this information and the ability to rescind.

Rescission is available ONLY if there is something to rescind — and that has traditionally been regarded as a loan contract. If there is no loan contract, as Belanger asserts (and I agree) then there is nothing to rescind. But if the “transaction” can be rescinded because it is an implied contract between the source of funds and the alleged borrower, then rescission presumably applies.

Second, there is the question of what constitutes a “warehouse” lender. By definition if there is a warehouse lending contract in which the originator has liabilities or risk exposure to losses on the loans originated, then the transaction would appear to be properly represented by the loan documents executed by the borrower, although the absence of a signature from the originator presents a problem for “consummation” of the loan contract.

But, as suggested by the article if the “warehouse lender” was merely a conduit for funds from an undisclosed third party, then it is merely a sham entity in the chain. And if the originator has no exposure to risk of loss then it merely acted as sham conduit also, or paid originator or broker. This scenario is described in detail in Belanger’s article (see below) and we can see that in practice, securitization was distorted at several points — one of which was the presumption that an unauthroized party (contrary to disclosure and representations during the loan “approval” and loan  “closing”) was inserted as “lender” when it loaned no money. Yet the originator’s name was inserted as payee on the note or mortgagee on the mortgage.

All of this brings us to the question of whether judges are right — that the contract is consummated at the time that the borrower affixes his or her signature. It is my opinion that this view is erroneous and presents moral hazard and roadblock to enforcing the rights of disclosure of the parties, terms and compensation of the people and entities arising out of the “origination” of the loan.

If judges are right, then the borrower can only claim breach of contract for failure to loan money in accordance with the disclosures required by TILA. And the “borrower’s” ability to rescind within 3 days has been virtually eliminated as many of the loans were at least treated as though they had been “sold” to third parties who posed as warehouse lenders who in turn “sold” the loan to even more remote parties, none of which were the purported REMIC Trusts. Those alleged REMIC Trusts were a smokescreen — sham entities that didn’t even serve as conduits — left without any capital, contrary to the terms of the Trust agreement and the representations of the seller of mortgage backed securities by these Trusts who had no business, assets, liabilities, income, expenses or even a bank account.

If judges are right that the contract is consummated even without a loan from from the party identified as “lender” then they are ruling contrary to the  Federal requirements of lending disclosures and in many states in violation of fair lending laws.

There is an outcome of erroneous rulings from the bench in which the basic elements of contract are ignored in order to give banks a favorable result, to wit: the marketplace for business is now functioning under a rule of people instead of the rule of law. It is now an apparently legal business plan where the object is to capture the signature of a consumer and use that signature for profit is dozens of ways contrary to every representation and disclosure made at the time of application and “closing” of the transaction.

As Belanger points out, without consideration it is black letter law backed by centuries of common law that for a contract to be formed and therefore enforceable it must fit the four legs of a stool — offer, acceptance of the terms offered, consideration from the first party to the alleged loan transaction and consideration from the second party. The consideration from the “lender”can ONLY be payment to fund the loan. If the originator does it with their own funds or credit, then they have probably satisfied the requirement of consideration.

But if a third party supplied the consideration for the “loan” AND that third party has no contractual nexus with the “originator” or alleged “warehouse lender”then the requirement of consideration from the “originator” is not and cannot be met. In addition to defrauding the borrower whose signature will be copied and fabricated for dozens of “sales” of loans and securities deriving their value from a nonexistent loan contract, this distorted practice does two things: (a) it cheats investors out of their assumed and expected interest in nonexistent mortgage loan contracts and  (b) it leaves “borrowers” in a parallel universe where they can never know the identity of their actual creditor — a phenomenon created when the proceeds of sales of MBS were never paid into trust for a defined set of investors.

David Belanger’s Email article follows, unabridged:

AND AS I SAID, WITH NO CONSUMMATION AT CLOSING, BELANGER NEVER CONSUMMATED ANY MORTGAGE CONTRACT/ NOTE.

BECAUSE THEY ARE THE ONLY PARTY TO THE FAKE CONTRACT THAT FOLLOWED THROUGH WITH THERE CONSIDERATION, WITH SIGNING THE MORTGAGE AND NOTE,

AS REQUIRED, TO PERFORM. BUT GMAC MORTGAGE CORP. DID NOT PERFORM , I.E. LEND ANY MONEY AT CLOSING, AS WE HAVE THE WIRE TRANSFER SHOWING THEY DID NOT FUND THE MORTGAGE AND NOTE AT CLOSING. CANT HAVE A LEGAL CONTRACT IF ONLY ONE OF THE PARTY’S. PERFORMS HIS OBLIGATIONS.

THIS MAKE , AS I SAID. RESCISSION IS VALID. AND THEY HAVE NOT FOLLOWED THRU, THERE PART.

AND IT DOES GIVE ME THE RIGHT TO

RESCIND THE CONTRACT BASED ON ALL NEWLY DISCOVERED EVIDENCE, THAT THE PARTY TO THE MORTGAGE /NOTE CONTRACT, DID NOT

FULFILL THERE DUTY AND DID NOT PREFORM IN ANY WAY AS REQUIRED TO HAVE A VALID BINDING CONTRACT.

Tonight we have a rebroadcast of a segment from Episode 15 with a guest who is a recent ex-patriot from 17 years in the mortgage banking industry… Scot started out as a escrow agent doing closings, then advanced to mortgage loan officer, processor, underwriter, branch manager, mortgage broker and loss mitigator for the banks. Interestingly, he says,

“Looking back on my career I don’t believe any mortgage closing that I was involved in was ever consummated.”
Tonight Scot will be covering areas relating to:

1 lack of disclosure and consideration
2 substitution of true mortgage contracting partner
3 unfunded loan agreements
4 non-existent trusts
5 securitization of your note and bifurcation of the security interest and
6 how to identify and prove the non-existence of the so-called trust named in an assignment which may be coming after you to foreclose

: http://recordings.talkshoe.com/TC-139335/TS-1093904.mp3

so lets look at what happen a the closing of the mortgage CONTRACT SHELL WE.

1/ MORTGAGE AND NOTES, SAYS A ( SPECIFIC LENDER) GAVE YOU MONEY, ( AS WE KNOW THAT DIDN’T HAPPEN. )

2/ HOME OWNER WAS TOLD AT CLOSING AND BEFORE CLOSING THAT THE NAMED LENDER WOULD SUPPLY THE FUNDS AT CLOSING, AND WAS ALSO TOLD BY THE CLOSING AGENT , THE SAME LIE.

3/ THERE ARE 2 PARTIES TO A CLOSING OF A MORTGAGE AND NOTE, 1/ HOMEOWNER, 2/ LENDER.

3/ Offer and acceptance , Consideration,= SO HOMEOWNERS SIGN A MORTGAGE AND NOTE, IN CONSIDERATION of the said lender’s promises to pay the homeowner for said signing of the mortgage and note.

4/ but the lender does not, follow thru with his CONSIDERATION. I.E TO FUND THE CONTRACT. AND THE LENDER NAMED ON THE CONTRACT, KNEW ALL ALONG THAT HE WOULD NOT BE THE FUNDING SOURCE. FRAUD AT CONCEPTION. KNOWINGLY OUT RIGHT FRAUD ON THE HOMEOWNERS.

5/ THERE ARE NO STATUES OF LIMITATIONS ON FRAUD IN THE INDUCEMENT, OR ANY OTHER FRAUD.

6/ SO AS NEIL AND AND LENDING TEAM, AND OTHERS HAVE POINTED OUT, SO SO MANY TIMES HERE AND OTHER PLACES,

THERE COULD NOT BE ANY CONSUMMATION OF THE CONTRACT AT CLOSING,BY THE TWO PARTY’S TO THE CONTRACT, IF ONLY ONE PERSON TO THE CONTRACT ACTED IN GOOD FAITH,

AND THE OTHER PARTY DID NOT ACT IN GOOD FAITH OR EVEN SUPPLIED ANY ( CONSIDERATION WHAT SO EVER AT CLOSING OF THE CONTRACT.) A MORTGAGE AND NOTE IS A CONTRACT PEOPLE.

7/ SO THIS WOULD GIVE RISE TO THE LAW OF ( RESCISSION).

. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

AND THE BANKS CAN SCREAM ALL THEY WANT, IF THE PRETENDER LENDER THAT IS ON YOUR MORTGAGE AND NOTE, DID NOT SUPPLY THE FUNDS AT CLOSING, AS WE ALL KNOW DID HAPPEN, THEN THE MORTGAGE CONTRACT IS VOID. AND THERE WAS NO CONSUMMATION AT THE CLOSING TABLE, BY THE PARTY THAT SAID IT WAS FUNDING THE CONTRACT.

CANT GET MORE SIMPLE THAT THAT. and this supports all of the above. that the fake lender did not PERFORM AT CLOSING, DID NOT FUND ANY MONEY OR LOAN ANY MONEY AT CLOSING WITH ANY BORROWER, SO ONLY ONE ( THE BORROWER ) DID PERFORM AT CLOSING. BOTH PARTY’S MUST PERFORM TO HAVE A LEGAL BINDING CONTRACT.

SEE RODGERS V U.S.BANK HOME MORTGAGE ET, AL

THE WAREHOUSE LENDER NATIONAL CITY BANK OF KENTUCKY HELD THE NOTE THEN DELIVERED TO THIRD PARTY INVESTORS UNKNOWN

SECURITY NATIONAL FINANCIAL CORPORATION

5300 South 360 West, Suite 250

Salt Lake City, Utah 84123

Telephone (801) 264-1060

February 20, 2009

VIA EDGAR

U. S. Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N. E., Mail Stop 4561

Washington, D. C. 20549

Attn: Sharon M. Blume

Assistant Chief Accountant

Re: Security National Financial Corporation

Form 10-K for the Fiscal Year Ended December 31, 2007

Form 10-Q for Fiscal Quarter Ended June 30, 2008

File No. 0-9341

Dear Ms. Blume:

Security National Financial Corporation (the “Company”) hereby supplements its responses to its previous response letters dated January 15, 2009, November 6, 2008 and October 9, 2008. These supplemental responses are provided as additional information concerning the Company’s mortgage loan operations and the appropriate accounting that the Company follows in connection with such operations.

The Company operates its mortgage loan operations through its wholly owned subsidiary, Security National Mortgage Company (“SNMC”). SNMC currently has 29 branch offices across

the continental United States and Hawaii. Each office has personnel who are qualified to solicit and underwrite loans that are submitted to SNMC by a network of mortgage brokers. Loan files submitted to SNMC are underwritten pursuant to third-party investor guidelines and are approved to fund after all documentation and other investor-established requirements are determined to meet the criteria for a saleable loans. (e.s.) Loan documents are prepared in the name of SNMC and then sent to the title company handling the loan transactions for signatures from the borrowers. Upon signing the documents, requests are then sent to the warehouse bank involved in the transaction to submit funds to the title company to pay for the settlement. All loans funded by warehouse banks are committed to be purchased (settled) by third-party investors under pre-established loan purchase commitments. The initial recordings of the deeds of trust (the mortgages) are made in the name of SNMC. (e.s.)

Soon after the loan funding, the deeds of trust are assigned, using the Mortgage Electronic Registration System (“MERS”), which is the standard in the industry for recording subsequent transfers in title, and the promissory notes are endorsed in blank to the warehouse bank that funded the loan. The promissory notes and the deeds of trust are then forwarded to the warehouse bank. The warehouse bank funds approximately 96% of the mortgage loans to the title company and the remainder (known in the industry as the “haircut”) is funded by the Company. The Company records a receivable from the third-party investor for the portion of the mortgage loans the Company has funded and for mortgage fee income earned by SNMC. The receivable from the third-party investor is unsecured inasmuch as neither the Company nor its subsidiaries retain any interest in the mortgage loans. (e.s.)

Conditions for Revenue Recognition

Pursuant to paragraph 9 of SFAS 140, a transfer of financial assets (or a portion of a financial asset) in which the transferor surrenders control over those financial assets shall be accounted as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. The transferor has surrendered control over transferred assets if and only if all of the following conditions are met:

1

(a) The transferred assets have been isolated from the transferor―placed presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership.

SNMC endorses the promissory notes in blank, assigns the deeds of trust through MERS and forwards these documents to the warehouse bank that funded the loan. Therefore, the transferred mortgage loans are isolated from the Company. The Company’s management is confident that the transferred mortgage loans are beyond the reach of the Company and its creditors. (e.s.)

(b) Each transferee (or, if the transferee is a qualified SPE, each holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received, and no

condition restricts the transferee (or holder) from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the transferor.

The Company does not have any interest in the promissory notes or the underlying deeds of trust because of the steps taken in item (a) above. The Master Purchase and Repurchase Agreements (the “Purchase Agreements”) with the warehouse banks allow them to pledge the promissory notes as collateral for borrowings by them and their entities. Under the Purchase Agreements, the warehouse banks have agreed to sell the loans to the third-party investors; however, the warehouse banks hold title to the mortgage notes and can sell, exchange or pledge the mortgage loans as they choose. The Purchase Agreements clearly indicate that the purchaser, the warehouse bank, and seller confirm that the transactions contemplated herein are intended to be sales of the mortgage loans by seller to purchaser rather than borrowings secured by the mortgage loans. In the event that the third-party investors do not purchase or settle the loans from the warehouse banks, the warehouse banks have the right to sell or exchange the mortgage loans to the Company or to any other entity. Accordingly, the Company believes this requirement is met.

(c) The transferor does not maintain effective control over the transferred asset through either an agreement that entitles both entities and obligates the transferor to repurchase or redeem them before their maturity or the ability to unilaterally cause the holder to return the specific assets, other than through a cleanup call.

The Company maintains no control over the mortgage loans sold to the warehouse banks, and, as stated in the Purchase Agreements, the Company is not entitled to repurchase the mortgage loans. In addition, the Company cannot unilaterally cause a warehouse bank to return a specific loan. The warehouse bank can require the Company to repurchase mortgage loans not settled by the third-party investors, but this conditional obligation does not provide effective control over the mortgage loans sold. Should the Company want a warehouse bank to sell a mortgage loan to a different third-party investor, the warehouse bank would impose its own conditions prior to agreeing to the change, including, for instance, that the original intended third-party investor return the promissory note to the warehouse bank. Accordingly, the Company believes that it does not maintain effective control over the transferred mortgage loans and that it meets this transfer of control criteria.

The warehouse bank and not the Company transfers the loan to the third-party investor at the date it is settled. The Company does not have an unconditional obligation to repurchase the loan from the warehouse bank nor does the Company have any rights to purchase the loan. Only in the situation where the third-party investor does not settle and purchase the loan from the warehouse bank does the Company have a conditional obligation to repurchase the loan. Accordingly, the Company believes that it meets the criteria for recognition of mortgage fee income under SFAS 140 when the loan is funded by the warehouse bank and, at that date, the Company records an unsecured receivable from the investor for the portion of the loan funded by the Company, which is typically 4% of the face amount of the loan, together with the broker and origination fee income.

2

Loans Repurchased from Warehouse Banks

Historically, 99% of all mortgage loans are settled with investors. In the process of settling a loan, the Company may take up to six months to pursue remediation of an unsettled loan. There are situations when the Company determines that it is unable to enforce the settlement of a loan by the third-party investor and that it is in the Company’s best interest to repurchase the loan from the warehouse bank. Any previously recorded mortgage fee income is reversed in the period the loan was repurchased.

When the Company repurchases a loan, it is recorded at the lower of cost or market. Cost is equal to the amount paid to the warehouse bank and the amount originally funded by the Company. Market value is often difficult to determine for this type of loan and is estimated by the Company. The Company never estimates market value to exceed the unpaid principal balance on the loan. The market value is also supported by the initial loan underwriting documentation and collateral. The Company does not hold the loan as available for sale but as held to maturity and carries the loan at amortized cost. Any loan that subsequently becomes delinquent is evaluated by the Company at that time and any allowances for impairment are adjusted accordingly.

This will supplement our earlier responses to clarify that the Company repurchased the $36,291,000 of loans during 2007 and 2008 from the warehouse banks and not from third-party investors. The amounts paid to the warehouse banks and the amounts originally funded by the Company, exclusive of the mortgage fee income that was reversed, were classified as the cost of the investment in the mortgage loans held for investment.

The Company uses two allowance accounts to offset the reversal of mortgage fee income and for the impairment of loans. The allowance for reversal of mortgage fee income is carried on the balance sheet as a liability and the allowance for impairment of loans is carried as a contra account net of our investment in mortgage loans. Management believes the allowance for reversal of mortgage fee income is sufficient to absorb any losses of income from loans that are not settled by third-party investors. The Company is currently accruing 17.5 basis points of the principal amount of mortgage loans sold, which increased by 5.0 basis points during the latter part of 2007 and remained at that level during 2008.

The Company reviewed its estimates of collectability of receivables from broker and origination fee income during the fourth quarter of 2007, in view of the market turmoil discussed in the following paragraph and the fact that several third-party investors were attempting to back out of their commitments to buy (settle) loans, and the Company determined that it could still reasonably estimate the collectability of the mortgage fee income. However, the Company determined that it needed to increase its allowance for reversal of mortgage fee income as stated in the preceding paragraph.

Effect of Market Turmoil on Sales and Settlement of Mortgage Loans

As explained in previous response letters, the Company and the warehouse banks typically settle mortgage loans with third-party investors within 16 days of the closing and funding of the loans. However, beginning in the first quarter of 2007, there was a lot of market turmoil for mortgage backed securities. Initially, the market turmoil was primarily isolated to sub-prime mortgage loan originations. The Company originated less than 0.5% of its mortgage loans using this product during 2006 and the associated market turmoil did not have a material effect on the Company.

As 2007 progressed, however, the market turmoil began to expand into mortgage loans that were classified by the industry as Alt A and Expanded Criteria. The Company’s third-party investors, including Lehman Brothers (Aurora Loan Services) and Bear Stearns (EMC Mortgage Corp.), began to have difficulty marketing Alt A and Expanded Criteria loans to the secondary markets. Without notice, these investors changed their criteria for loan products and refused to settle loans underwritten by the Company that met these investor’s previous specifications. As stipulated in the agreements with the warehouse banks, the Company was conditionally required to repurchase loans from the warehouse banks that were not settled by the third-party investors.

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Beginning in early 2007, without prior notice, these investors discontinued purchasing Alt A and Expanded Criteria loans. Over the period from April 2007 through May 2008, the warehouse banks had purchased approximately $36.2 million of loans that had met the investor’s previous criteria but were rejected by the investor in complete disregard of their contractual commitments. Although the Company pursued its rights under the investor contracts, the Company was unsuccessful due to the investors’ financial problems and could not enforce the loan purchase contracts. As a result of its conditional repurchase obligation, the Company repurchased these loans from the warehouse banks and reversed the mortgage fee income associated with the loans on the date of repurchase from the warehouse banks. The loans were classified to the long-term mortgage loan portfolio beginning in the second quarter of 2008.

Relationship with Warehouse Banks

As previously stated, the Company is not unconditionally obligated to repurchase mortgage loans from the warehouse banks. The warehouse banks purchase the loans with the commitment from the third-party investors to settle the loans from the warehouse banks. Accordingly, the Company does not make an entry to reflect the amount paid by the warehouse bank when the mortgage loans are funded. Upon sale of the loans to the warehouse bank, the Company only records the receivables for the brokerage and origination fees and the amount the Company paid at the time of funding.

Interest in Repurchased Loans

Once a mortgage loan is repurchased, it is immediately transferred to mortgage loans held for investment (or should have been) as the Company makes no attempts to sell these loans

to other investors at this time. Any efforts to find a replacement investor are made prior to repurchasing the loan from the warehouse bank. The Company makes no effort to remarket the loan after it is repurchased.

Acknowledgements

In connection with the Company’s responses to the comments, the Company hereby acknowledges as follows:

· The Company is responsible for the adequacy and accuracy of the disclosure in the filing;

· The staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

· The Company may not assert staff comments as defense in any proceeding initiated by the Commission or any person under the Federal Securities Laws of the United States.

If you have any questions, please do not hesitate to call me at (801) 264-1060 or (801) 287-8171.

Very truly yours,

/s/ Stephen M. Sill

Stephen M. Sill, CPA

Vice President, Treasurer and

Chief Financial Officer

Contract law

Part of the common law series

Contract formation

Offer and acceptance Posting rule Mirror image rule Invitation to treat Firm offer Consideration Implication-in-fact

Defenses against formation

Lack of capacity Duress Undue influence Illusory promise Statute of frauds Non est factum

Contract interpretation

Parol evidence rule Contract of adhesion Integration clause Contra proferentem

Excuses for non-performance

Mistake Misrepresentation Frustration of purpose Impossibility Impracticability Illegality Unclean hands Unconscionability Accord and satisfaction

Rights of third parties

Privity of contract Assignment Delegation Novation Third-party beneficiary

Breach of contract

Anticipatory repudiation Cover Exclusion clause Efficient breach Deviation Fundamental breach

Remedies

Specific performance Liquidated damages Penal damages Rescission

Quasi-contractual obligations

Promissory estoppel Quantum meruit

Related areas of law

Conflict of laws Commercial law

Other common law areas

Tort law Property law Wills, trusts, and estates Criminal law Evidence

Such defenses operate to determine whether a purported contract is either (1) void or (2) voidable. Void contracts cannot be ratified by either party. Voidable contracts can be ratified.

Misrepresentation[edit]

Main article: Misrepresentation

Misrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

There are two types of misrepresentation: fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party alleging misrepresentation knew they were creating a contract. If the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void. Fraud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Misrepresentation of a material fact (if the party knew the truth, that party would not have entered into the contract) makes a contract voidable.

According to Gordon v Selico [1986] it is possible to misrepresent either by words or conduct. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation.[68] If one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact.[69]

Such defenses operate to determine whether a purported contract is either (1) void or (2) voidable. Void contracts cannot be ratified by either party. Voidable contracts can be ratified.

Misrepresentation[edit]

Main article: Misrepresentation
Misrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

There are two types of misrepresentation: fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party alleging misrepresentation knew they were creating a contract. If the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void. Fraud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Misrepresentation of a material fact (if the party knew the truth, that party would not have entered into the contract) makes a contract voidable.
According to Gordon v Selico [1986] it is possible to misrepresent either by words or conduct. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation.[68] If one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact.[69]

=======================

Comments from Dan Edstrom:

My understanding in California (and probably most other states) is the signature(s) were put on the note and security instrument and passed to the (escrow) agent for delivery only upon the performance of the specific instructions included in the closing instructions. The homeowner(s) did not manifest a present intent to transfer the documents or title….   Delivery was not possible until the agent followed instructions 100% (specific performance).  Their appears to be a presumption of delivery that should be rebutted. In California the test for an effective delivery is the writing passed with the deed (but only if delivery is put at issue).
Here is a quote from an appeal in CA:
We first examine the legal effectiveness of the Greggs deed. Legal delivery of a deed revolves around the intent of the grantor. (Osborn v. Osborn (1954) 42 Cal.2d 358, 363-364.) Where the grantor’s only instructions concerning the transaction are in writing, “`the effect of the transaction depends upon the true construction of the writing. It is in other words a pure question of law whether there was an absolute delivery or not.’ [Citation.]” (Id. at p. at p. 364.) As explained by the Supreme Court, “Where a deed is placed in the hands of a third person, as an escrow, with an agreement between the grantor and grantee that it shall not be delivered to the grantee until he has complied with certain conditions, the grantee does not acquire any title to the land, nor is he entitled to a delivery of the deed until he has strictly complied with the conditions. If he does not comply with the conditions when required, or refuses to comply, the escrow-holder cannot make a valid delivery of the deed to him. [Citations.]” (Promis v. Duke (1929) 208 Cal. 420, 425.) Thus, if the escrow holder does deliver the deed before the buyer complies with the seller’s instructions to the escrow, such purported delivery conveys no title to the buyer. (Montgomery v. Bank of America (1948) 85 Cal.App.2d 559, 563; see also Borgonovo v. Henderson (1960) 182 Cal.App.2d 220, 226-228 [purported assignment of note deposited into escrow held invalid, where maker instructed escrow holder to release note only upon deposit of certain sum of money by payee].)
LAOLAGI v. FIRST AMERICAN TITLE INSURANCE COMPANY, H032523 (Cal. Ct. App. July 31, 2009).
In most cases I have seen the closing instructions state there can be no encumbrances except the new note and security instrument in favor of {the payee of the note}…
Some of the issues with this (encumbrances) would be who provided the actual escrow funding, topre-existing agreements, the step transaction and single transaction doctrines, MERS, payoffs of previous mortgages (to a lender of record), reconveyance (to a lender of record), etc…
Thx,
Dan Edstrom

Schedule A Consult Now!

RESCISSION: If no lender disclosed, then there was no consummation, no loan contract

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

RESCISSION IS NOT A GIMMICK. IT IS PUBLIC POLICY! TILA is designed to punish banks who play outside the rules. It is designed to put all the power into the hands of the borrower. AND it has worked up until it stopped working with hundreds of erroneous decisions by trial and appellate courts that only got corrected by a unanimous Supreme Court opinion written by Justice Scalia. The playing field is level again. Let the chips fall where they may.

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I received an email from one of my most knowledgeable anonymous contributors. It raises an interesting question. If the lender was not disclosed at closing, then is a TILA rescission effective? My first answer is that if the rescission notice is sent, then the mortgage and note are nullified by operation of law unless the “lender” files a lawsuit within 20 days contesting the notice of rescission. So whether you were right or wrong, it would be my opinion that if the “lender” does not respond, the matter is closed and that is the end of the note and mortgage. And if there is no note and mortgage then anything that happens afterwards is void because you can’t get a foreclosure on a mortgage that legally does not exist even if a copy of the mortgage is sitting in county records. And a sale would also be void. That is the way I see it.

But the interesting direct answer already found in the court system is that if the lender is not disclosed there can be no consummation because there is no loan contract unless you have at least two identified parties. If there is no loan contract there is nothing to rescind. But an admission from the “lender” or a finding by the court that TILA rescission is not available because the loan contract was never consummated or did not exist leads inexorably to one conclusion: the borrower still wins. The borrower can then sue to nullify the note, mortgage, debt, foreclosure and even auction on the basis that they are void by operation of law because there was no deal. And the borrower could then, in my opinion, sue to have the banks and servicers return the monthly payments and other payments they collected on the nonexistent contract for all the money they collected. This too is supported by some case decisions where Bank of America and others have been required to disgorge money they received when they had no right to collect it in the first place.

So while there is a specific legal theory on how to deal with this issue there is also a hidden issue that probably puts the pretender lenders in the corner. In order to challenge the rescission they must file a lawsuit within 20 days asking for declaratory relief that the rescission is not effective. If their grounds are that TILA rescission is not available because there was no contract, then they are essentially arguing that the borrower can’t rescind because there was no contract. Either way they lose the deal, the mortgage, the note etc.

But that is not the only problem for pretender lenders. In order to establish standing to challenge the rescission they must allege that they or their predecessors were the real lenders and were the actual source of funding. Those allegations puts the burden of proof on the pretender lenders. They must prove the original loan and the acquisition of the loan not just by paperwork that says it happened by by showing that money exchanged hands both at origination and acquisition of the loan.

Here are the thoughts of anonymous:

“Just of interest in regards to getting into TILA rescission attempts past the 3 year mark of when loan was supposedly “consummated”, and trying to use lack of such as an argument. I came across the following case of Weintraub in 4th circuit saying, “No consummation, No TILA rescission.”  http://www.bankersonline.com/infovault/weintraub.pdf

Then you have the following theory, no consummation, TILA never tolled, good for a past 3 year-er:
(1) Ramsey v. Vista Mortgage Corp, 176 BR 183 (TILA RESCISSION IN BANKRUPTCY CHAPTER 13 CASE).  In this case, the court laid down the test of when the three year right to rescind begins to run and specifically tackles the concept of when a loan is “consummated.”  Several internal citations also help clarify this point.  Here is what the Ramsey Court said:

“When Ramsey signed the loan documents on September 13, 1989, he knew who was going to provide the financing. Courts recognize the date of signing a binding loan contract as the date of consummation when the lender is identifiable.”   The Court also cited to the Jackson v. Grant, 890 F.2d case (9th Circuit 1989), a NON-BANKRUPTCY CASE, and said: “the Ninth Circuit held that under California law a loan contract was not consummated when the borrower signed the promissory note and deed of trust because the actual lender was not known at that time. Under these circumstances, the loan is not “consummated” until the actual lender is identified, because until that point there is no legally enforceable contract.”

Now, I have to say I am more in the camp of the 4th saying that if you have no contract, there is nothing to rescind, but I guess you could say that it’s merely a discovery point and the rescission is conditionally effective until discovery is complete as to what actually occurred and can be put together by the court from the evidence (Then maybe a TILA rescission will be effective, maybe not; if not because there is no contract, what does the homeowner care? Nearly same result, plus he gets to sue for fraud and other damages suffered I guess….?), but what’s a past 3 year-er to do when arguing TILA?

……. if it turns out that consummation did not occur because the bank willingly withheld the table funded partners identity, or alternatively was acting as straw-man for undisclosed investors, and was using their money directly instead of funneling through the REMIC to purchase the home loan (therefore it really was not a buy-sell transaction, it was a disguised buy using duped investors money who expected a legitimate buy-sell to occur, but REMIC was not properly funded), then what angle do you think is best for TILA- Leave consummation out of the initial argument, and hang your hat on equitable tolling if past 3 year mark, or keep it in and argue both points”

And here is an article I found that describes the process of rescission. I think some of the issues presented might not be entirely correct, but it is definitely one point of view that deserves consideration.

The procedural question of whether a notice of rescission can be challenged outside the 20 day period provided in the Federal Truth in Lending Act is something that lawyers need to consider before they tell a client they cannot rescind. If there is an arguable basis for sending the notice on the belief that it is proper, then the defenses to the rescission can only be raised by operation of a legal proceeding — in a court room.

Hence, it is my opinion, that while there are risks in doing so, the sending of a notice of rescission that is based upon incorrect assumptions does not mean the rescission is void. Quite the contrary, in my opinion.

The receipt of that rescission means there is no more mortgage and there is no more note until a court says otherwise. And the court can’t say otherwise unless the “lender” brings a lawsuit to challenge the rescission within 20 days of receipt. Since there have been no such lawsuits filed to my knowledge it therefore appears to me that all notices of rescission that were ignored or “rejected by letter” had the effect of making the mortgage and note permanently void by operation of law without any lawsuit needed to enforce that presumption (see US Supreme Court decision written by Justice Scalia).

Some people or perhaps most people regards this strategy as a gimmick. But Congress passed it to avoid a super size regulation system with thousands of agents. It was designed to punish banks who screwed with the system so they would essentially police themselves. Obviously that premise didn’t work until now. It is national public policy not a gimmick.  They gave the “lenders” a very short window to undo the damage if they thought the borrower was wrong but if we read the plain words of the statute and the plain words of the Supreme Court, if they don’t do it within the 20 day window, they have lost the loan. They might still theoretically be able to collect on the loan but only if they can prove they loaned the money or paid for the debt. Their action would essentially be for unjust enrichment. And it would be unsecured.

Right of rescission lets you back out of some loans

Federal law gives you a cooling-off period when you get a home equity loan or line of credit, or when you refinance with another lender.

It is called the right of rescission. It allows you to rescind, or cancel, some types of home loans and walk away without losing money.

The right of rescission provides a three-day period when you can back out of the loan before you get the borrowed money, no questions asked. Within 20 days, the lender must give up its claim to your property as collateral and must refund any fees you paid.

A law called the Truth in Lending Act, which is designed to shield borrowers from unscrupulous lenders, grants the right of rescission. The law is intended to thwart smooth-talking loan officers who try to fleece elderly or unsophisticated borrowers out of their money and even their homes.

The law also protects consumers from themselves. The homeowner who takes out a home equity line of credit to buy a car, then thinks it over for a couple of days and decides that such financing would be a bad move, can rescind the loan. Likewise for the homeowner who takes out a home equity loan, then finds a better deal a day or two later. The homeowner can rescind the first deal within three business days and take the second.

Right doesn’t apply to all loans
The right of rescission is not available for all mortgages. Most importantly, there is no right of rescission for a mortgage made to buy a house. Borrowers and lenders can get tangled up in whether a mortgage is a purchase loan. Take, for example, the way financing is set up for many built-to-order houses. You get a short-term construction loan while the house is being built; then, after the house is finished, you pay off the construction loan with a permanent mortgage. You don’t have a right of rescission with either loan because both are considered purchase money.

The right of rescission also is not available when you refinance your loan with the same lender, when the house in question is not your primary residence (in other words, if it’s your vacation home or an investment property), if you borrow the money for your business, or if you’re borrowing from a state agency.

That leaves a lot of situations where you do have the right of rescission: when you refinance your mortgage with another lender and when you take out a home equity loan or line of credit (unless it’s part of a “piggyback loan” designed to avoid paying mortgage insurance).

Cash-out refi rules
Things get complicated if you do a “cash-out refi” — refinancing for more than you owe on your current mortgage, and taking the difference in cash. If you do a cash-out refi with the same lender, you have the right to rescind only the cash-out portion; if you do a cash-out refi with a different lender, the entire amount can be rescinded.

It doesn’t matter what kind of home you have: if it’s a single-family house, a condominium, a floating home or a manufactured home permanently anchored to land you own, you have the right of rescission.

A borrower must exercise the right of rescission within three business days of signing the loan papers, receiving all the loan disclosures, and getting a copy of the notice that there is a right of rescission. Usually, all three of those requirements are met on the same day; if they aren’t, the clock starts ticking only after all three conditions have been satisfied.

When the clock ticks …
That clock ticks only on business days. Much has been written by federal regulators about what counts as a business day. In general, every day is a business day except Sundays and federal holidays. Saturday counts as a business day, even if the lender’s office is closed on Saturdays. The right of rescission expires at midnight concluding the third full business day after the papers are signed and all other conditions are met. So, for example, if you close a home equity loan on Thursday, the clock starts ticking Friday, continues to tick on Saturday, stops on Sunday and resumes on Monday. The right of rescission ends Monday at midnight.

To exercise your right of rescission, you must inform the lender in writing — a phone call won’t do. The letter doesn’t have to be postmarked by the deadline — you merely have to drop it in a mailbox by the deadline. That means that if your right of rescission ends at midnight Saturday night, and you mail the letter just before the deadline, and Monday is a federal holiday so the letter isn’t postmarked until Tuesday, you still have rescinded the loan.

Not surprisingly, the loan officer might call after the rescission period has ended, just to ask if you’re still going ahead with the loan.

It is possible to waive the right of rescission so you can get the money immediately, but only in emergencies. To stay out of trouble with regulators, your lender is unlikely to let you waive the right of rescission unless the loan officer is convinced that you truly have an emergency and you’re not simply impatient. Examples of acceptable emergencies: your roof has blown off in a storm and you need a home equity loan right now to pay for a repair, or you need the money immediately to pay for a medical procedure.

 

Two Different Worlds — Note and Mortgage

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

No radio show tonight because of birthday celebration — I’m 68 and still doing this

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The enforcement of promissory notes lies within the context of the marketplace for currency and currency equivalents. The enforcement of mortgages on real property lies within the the context of the marketplace for real estate transactions. While certainty is the aim of public policy in those two markets, the rules are different and should not be ignored.

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see http://www.uniformlaws.org/Shared/Committees_Materials/PEBUCC/PEB_Report_111411.pdf

This article is not a substitute for getting advice from an attorney licensed to practice in the jurisdiction in which your property is or was located.

Back in 2008 I had some correspondence and telephone conversations with an attorney in Chicago, Robert Wutscher when I was writing about the reality of the way in which banks were doing  what they called “securitization of mortgages.” Of course then they were denying that there were any trusts, denying that any transfers occurred and were suing in the name of the originator or MERS or anyone but the party who actually had their money used in loan transactions.  It wasn’t done the right way because the obvious intent was to play a shell game in which the banks would emerge as the apparent principal party in interest under the illusion created by certain presumptions attendant to being the “holder” of a note. For each question I asked him he replied that Aurora in that case was the “holder.” No matter what the question was, he replied “we’re the holder.” I still have the letter he sent which also ignored the rescission from the homeowner whose case I was inquiring about for this blog.

He was right that the banks would be able to bend the law on rescission at the level of the trial courts because Judges just didn’t like TILA rescission. I knew that in the end he would lose on that proposition eventually and he did when Justice Scalia, in a terse opinion, simply told us that Judges and Justices were wrong in all those trial court decisions and even appellate court decisions that applied common law theories to modify the language of the Federal Law (TILA) on rescission. And now bank lawyers are facing the potential consequences of receiving notices of TILA rescission where the bank simply ignored them instead of preserving the rights of the “lender” by filing a declaratory action within 20 days of the rescission. By operation of law, the note and mortgage were nullified, ab initio. Which means that any further activity based upon the note and mortgage was void. And THAT means that the foreclosures were void.

Is discussing the issue of the “holder” with lawyers and even doing a tour of seminars I found that the confusion that was apparent for lay people was also apparent in lawyers. They looked at the transaction and the rights to enforce as one single instrument that everyone called “the mortgage.” They looked at me like I had three heads when I said, no, there are three parts to every one of these illusory transactions and the banks fail outright on two of them.

The three parts are the debt, the note and the mortgage. The debt arises when the borrower receives money. The presumption is that it is a loan and that the borrower owes the money back. it isn’t a gift. There should be no “free house” discussion here because we are talking about money, not what was done with the money. Only a purchase money mortgage loan involves the house and TILA recognizes that. Some of the rules are different for those loans. But most of the loans were not purchase money mortgages in that they were either refinancing, or combined loans of 1st mortgage plus HELOC. In fact it appears that ultimately nearly all the outstanding loans fall into the category of refinancing or the combined loan and HELOC (Home Equity Line of Credit that exactly matches the total loan requirements of the transaction (including the purchase of the home).

The debt arises by operation of law in favor of the party who loaned the money. The banks diverged from the obvious and well-established practice of the lender being the same party as the party named on the note as payee and on the mortgage as mortgagee (or beneficiary under a Deed of Trust). The banks did this through a process known as “Table Funded Loans” in which the real lender is concealed from the borrower. And they did this through agreements frequently called “Assignment and Assumption” Agreements, which by contract called for both parties (the originator and the aggregator to violate the laws governing disclosure (TILA and frequently state law) which means by definition that the contract called for an illegal act that is by definition a contract in contravention of public policy.

A loan contract is created by operation of law in which the borrower is obligated to pay back the loan to the source of the funds with or without a written instrument. If the loan contract (comprised of offer, acceptance and consideration) does not exist, then there is nothing to enforce at law although it is possible to still force the borrower to repay the money to the actual source of funds through a suit in equity — mainly unjust enrichment. The banks, through their lawyers, argue that the Federal disclosure requirements should be ignored. I think it is pretty clear that Justice Scalia and a unanimous United States Supreme Court think that argument stinks. It is the bank’s argument that should be ignored, not the law.

Congress passed TILA specifically to protect consumers of financial products (loans) from the overly burdensome and overly complex nature of loan documents. This argument about what is important and what isn’t has already been addressed in Congress and signed into law against the banks’ position that it doesn’t matter whether they really follow the law and disclose all the parties involved in the transaction, the true identity of the lender, the compensation of all the parties that made money as a result of the origination of the loan transaction. Regulation Z states that a pattern of behavior (more than 5) in which loans are table funded (disclosure of real lender withheld from borrower) is PREDATORY PER SE.

If it is predatory per se then there are remedies available to the borrower which potentially include treble damages, attorneys fees etc. Equally important if not more so is that a transaction, whether illusory or real, that is predatory per se, is therefore against public policy and the party seeking to enforce an otherwise enforceable document cannot do so because of the doctrine of unclean hands. In fact, if the transaction is predatory per se, it is dirty hands per se. And this is where Judges get stuck and so do many lawyers. The outcome of that unavoidable analysis is, they say, a free house. And their remedy is to give the party with unclean hands a free house (because they paid nothing for the origination or acquisition of the loan). I think the Supreme Court will not look kindly upon this “legislating from the bench.” And I think the Court has already signaled its intent to hold everyone to the strict construction of TILA and Regulation Z.

So there are two reason the debt can’t be enforced the way the banks want. (1) There is no loan contract because the source of the money and the borrower never agreed to anything and neither one knew about the other. (2) the mortgage cannot be enforced because it is an action in equity and the shell game of parties tossing the paperwork around all have unclean hands. And there is a third reason as well — while the note might be enforceable based merely on an endorsement, the mortgage is not enforceable unless the enforcer paid for it (Article 9, UCC).

And THAT is where the confusion really starts — which bank lawyers depend on every time they go to court. Bank lawyers add to the confusion by using the tired phrase of “the note follows the mortgage and the mortgage follows the note.” At one time this was a completely true presumption backed up by real facts. But now the banks are asking the courts to apply the presumption even when the courts actually know that the facts presumed by the legal presumption are untrue.

Notes and mortgages exist in two different marketplaces or different worlds, if you like. Public policy insists that notes that are intended to be negotiable remain negotiable and raise certain presumptions. The holder of a note might very well be able to sue and win a judgment ON THE NOTE. And the judgment holder might be able to record a judgment lien and foreclose on it subject to homestead exemptions.

But it isn’t as simple as the banks make it out to be.

If someone pays for the note in good faith and without knowledge of the borrower’s defenses when the note is not in default, THAT holder can enforce the note against the signor or maker of the note regardless of lack of consideration or anything else unless there is a provable defense of fraud and perhaps conspiracy. But any other holder steps into the shoes of the original lender. And if there was no consummated loan contract between the payee on the note and the borrower because the payee never loaned any money to the borrower, then the holder might have standing to sue but they don’t have the evidence to win the suit. The borrower still owes the money to whoever was the source, but the “holder” of the note doesn’t get a judgment. There is a difference between standing to sue and a prima facie case needed to win. Otherwise everyone would get one of those mechanical forging machines and sign the name of someone with money and sue them on a note they never signed. Or they would promise to loan money, get the signed note and then not complete the loan contract by making the loan.

So public policy demands that there be reasonable certainty in the negotiation of unqualified promises to pay. BUT public policy expressed in the UCC Article 9 says that if you want to enforce a mortgage you must not only have some indication that it was transferred to you, you must also have paid valuable consideration for the mortgage.

Without proof of payment, there is no prima facie case for enforcement of the mortgage, but it does curiously remain on the chain of title of the property (public records) unless nullified by the fact that the mortgage was executed as collateral for the note which was NOT a true representation of the loan contract based upon the real debt that arose by operation of law. The public policy is preserve the integrity of public records in the real estate marketplace. That is the only way to have reasonable certainty of title and encumbrances.

Forfeiture, an equitable remedy, must be done with clean hands based upon a real interest in the alleged default — not just a pile of paper that grows each year as banks try to convert an assignment of mortgage into a substitute for consideration.

Hence being the “holder” might mean you have the right to sue on the note but without being a holder in due course or otherwise paying fro the mortgage, there is no automatic basis for enforcing the mortgage in favor of a party with no economic interest in the mortgage.

see also http://knowltonlaw.com/james-knowlton-blog/ucc-article-3-and-mortgage-backed-securities.html

Wells Fargo Manual Serves as Basis for Deeper Discovery

Every lawyer defending Foreclosures has heard the same thing from the bench just before a ruling in favor of the pretender lender — the homeowner did not meet its burden of proof and therefore judgment is entered in favor of the “bank.” The fact that the pretender lender is a bank makes the judge more comfortable with his assumption that the loan is real, the default is real, the financial injury to the pretender lender is presumed, and that the family should be kicked out of their home me because they stopped paying on “the loan.”

More and more Judges are now questioning the assumption of viability of the forecloser’s position and are now entertaining the issue of whether the loan exists as an enforceable contract act and whether it has been already paid off or sold to third parties leaving the currently foreclosing party with a patently false claim.

Those of us who have been analyzing these “securitized” mortgages recognize the situation for what it is — a magic trick in a smoke and mirrors environment using the holographic image of an empty paper bag. The reasons Wells Fargo fought the introduction of its manual into Federal Court is simple — it is an open door in discovery that will most likely lead to definite proof that the money trail does not support the paper trail. That means the actual transactions were different than the events shown on the fabricated assignments, endorsements, allonges and other instruments of transfer.

But it also opens the door to the initial transaction in which “the loan” was created. It turns out that in most cases there were two transactions at the “origination” of each loan. One of those “transactions” is what we are all looking at — an apparently closed loop of offer, acceptance and consideration with most of the required disclosures under TILA.

So, as we shall see, there was a fake loan and a real loan. The fake one was fully and overly documented, whereas the real one is sparsely documented consisting of wire transfer receipt, wire transfer instructions and perhaps some correspondence. Neither was ever delivered to the fake lender or the real lender which is part of the problem that the Wells Fargo manual was intended to address. Discovery should proceed with the other banks where you find similar manuals.

This is the one everybody has their eye on, while the real transaction takes place right under the eye of the borrower who doesn’t catch the magic trick. So the fake transaction is the subject of a note where the lender is identified as such. Then the “lender” and perhaps some other strawman like MERS is also identified. MERS doesn’t make any claims to ownership of the loan (in fact it disclaims any such ownership on its website). The question is whether the “originator” was also a strawman, even if it was a commercial bank whose business included making loans.

Back to basics. The loan closing is described by most courts as a quasi contract because there is no written loan contract prior to the “closing.” But it must be interpreted under Federal and State lending and contract laws because there is no other viable classification for an alleged loan transaction.

The basics of a loan contract, like any other contract, are offer, acceptance and consideration. Federal and state law are also inserted into the inferred loan contract by operation of law. So the basic contractual question is whether there was an offer, whether there was acceptance and whether there was consideration. If any of those things are absent, there is no contract— or to be more specific there is no enforceable contract.

And that applies to mortgages more than anything because it is universally accepted that there is no such thing as an “equitable mortgage.” The short reason is that title and regular commerce would be forever undermined — no buyer would buy, except at a high discount, anything where it might turn out he wasn’t getting the title she or he expected.

So the loan contract must be real, and it must be in writing because the statute of frauds and other state laws require that any interest in land must be conveyed by a written instrument — and recorded in the Public Records (but the recording requirements are frequently a rabbit hole down which homeowners go at their peril).

This is where the magic trick begins and where Wells Fargo and the other major banks are holding their collective breath. The offer is communicated through a mortgage broker or”originator” and consists of the offer of the originator to loan a certain sum of money, in exchange for the promise by the borrower to repay it under certain terms.

It is inferred that the originator is making the offer on its own behalf but this is not the case. The truth is that investors have already advanced the money that will be used in the loan. So the offer is coming not from a “lender” but rather from a nominee or agent. The transaction at best is identified under RegZ and TILA as a table funded loan which is not only illegal, it is by definition “predatory.”

What is an”offer” to loan somebody else’s money? The answer is nothing unless the other party has consented to that loan or has executed a document that gives the “originator” a written authorization that is recordable and recorded. Where do we find such authorization? Theoretically one might refer to the Pooling and Servicing Agreement — but the problem is that any violation of the PSA results in a void transaction by operation of New York law, which is the governing law of most PSA’s.

Were the investors or the Trustee of the REMIC trust advised of the terms of the loan transaction proposed by the originator. No, and there is no way the originator can even fabricate that without disclosing the names of the investors, the trustee, and specific person at the “trustee” etc. So the question becomes whether the investors or trust beneficiaries conveyed written authority to enter into a transaction in which a loan was originated or acquired. In virtually all cases the answer is no.

One of the simpler reasons is that the investors money was never used to fund the trust, so the investors lost their tax benefit from using a REMIC trust in direct violation of their contract or quasi contract with the broker dealer who “sold mortgage bonds” allegedly issued by the empty, unfunded trust.

Another more complicated reason is that the loans probably do not and could never qualify as a minimum risk investment as the law requires for management of “Stable funds.” Those are fund units managed under strict restrictions because they hold pension money and other types of liabilities where capital preservation is far more important than growth or even income.

And the third aspect is the presence in virtually all cases of an Assignment and Assumption Agreement (see Neil Garfield on YouTube) BEFORE THE FIRST BOND IS SOLD AND BEFORE THE FIRST APPLICATION FOR LOAN IS RECEIVED.

Analysis of the loan transaction will show that for the fly-by-night originators who have long since vanished, they had no right or ability to even touch the money at closing, which was coming in reform a third party source with whom they had no relationship — which is why the Wall Street lawyers consider them both bankruptcy remote and liability remote (I.e., anything wrong at closing won’t be ascribed to either the broker dealer, or the investors (or their empty unfunded trust). Countrywide is a larger example of this.

All the sub entities of Countrywide and Lehman (Aurora, BNC etc.) are also examples despite their appearance as “institutions” they were merely sham entities operating as strawmen — nominees without authority to do anything and who never touched the closing money except for receipt of fees which in part were paid as set forth in the borrower’s closing documents, and in part paid without disclosure (another TILA violation) through a labyrinth of entities.

Thus the only reasonable conclusion is that there never was a complete offer with all material terms disclosed. No offer=no contract=no enforcement=no foreclosure is possible, although it is possible for a civil judgment to be obtained against the borrower if a real party in interest could allege and prove financial injury. It also means that the documents signed by the borrower neither disclosed the real terms or real parties, which means they were procured through false representations — the very same allegation the investors are making against the broker dealers (investment banks).

In the case of actual banks, like Wells Fargo, it is more counterintuitive than the fly by night “originators.” But discovery, deep inside the operations of the bank will show that the underwriting standards for portfolio loans in which the bank had a risk of loss were different than the underwriting standards for “securitized” loans. In fact they were run and processed on entirely different platforms. The repurchase agreement being discussed in the literature on structured finance actually results from the fictitious sale of the loan rather than the underwriting at origination.

When the borrower signed the closing document he or she was executing an acceptance of a deal that was only part of the complete offer, which contained numerous restrictions that would have insured to the benefit of both the borrower and the lender, which turns out to be the group of investors who gave their money to a broker dealer (investment bank). If you want to split hairs, it is possible that the “closing documents” were an offer from the borrower that was never accepted by anyone who could perform under the terms of the quasi contract.

So we clearly have a problem with the first two components of an enforceable contract — offer and acceptance.

The final component is consideration which is to say that someone actually parted with money to fund the loan. And low and behold this is the first time our boots fall on solid ground — albeit nowhere near the loan described in the loan documentation. There was indeed money sent to the closing agent. Who sent it? Not the originator, not the nominees, not the trust because it was never funded, and not the investors because they had already funded their “purchase” of the “mortgage bonds” by delivering money to the broker dealer. We can’t say nobody sent it, because that is plainly untrue. Where did the money come from? Did the closing agent err in applying money from an unknown party to the closing of the loan?

It came from a controlled account (superfund) spread out over multiple entities that were NOT identified by a particular REMIC Trust. There was a reason for that, but that is for another article. Whether it was American Broker’s Conduit, a fictitious name sometimes registered, sometimes not, or Wells Fargo itself, the name of the entity was being “rented” for purposes of closing just as it is being rented for purposes of foreclosure.

Therefore the consideration did not come from any party at closing and the inevitable conclusion is that no enforceable contract was created at closing. This does not mean the borrower doesn’t owe the money. It just means that nobody should be able to foreclose on a void mortgage and it is doubtful that anyone could obtain judgment on a promissory note with some many defects. But there are other actions, such as unjust enrichment, which have been discussed in recent cases. It is foreclosure that is legally impossible under the true scenario as I see it and as others see it now. My position has not changed in 7 years. The only thing that has changed is the way I say it.

So the issue of the Wells Fargo and its fabrication manual is that discovery will lead to deeper and deeper secrets that will undermine not only the entire foreclosure infrastructure, but also the financial statements that support ever growing stock prices for the major banks.

BeforeYou Open Your Mouth Or Write Anything Down, Know What You Are Talking About

EDITOR’S NOTE: By popular demand I am writing a new workbook that is up to date on the theories and practices of real estate loans, documentation, securitizations and effective enforcement and foreclosure of the collateral (real property — i.e., the house). The book will be finished around the end of January. If you want to purchase an advance subscription to an advance copy we can give you a discount off the price of $599. You will receive the final edit drafts of each section as completed. And your comments might be included in the final text with attribution. This is an excerpt from what I have done so far ( the references to “boxes” is a reference to artwork that has not yet been completed but the meaning is clear enough from the words):

[Note: I did borrow some phrases and cites from Judge Jennifer Bailey’s Bench Book for Judges in Dade County. But things have changed substantially since she wrote that guide and my book is intended to update the various treatises, books and articles on the subject of mortgage related litigation in the era of securitization]

 

INTRODUCTION

 

The massive volume of foreclosures and real estate closings have resulted in a failure of the judicial system — both Judges and Attorneys to scrutinize the transactions and foreclosures and other enforcement actions for compliance with basic contract law. This starts with whether there is an actual loan at the base of the tree of assignments, endorsements, powers of attorney etc. If the party at the base of the tree did not in fact make any loan and was not possessed of any actual or apparent authority to represent the party who DID make the loan, then the instruments executed in favor of the originator are void, not voidable. This is simply because the loan contract like any contract requires offer, acceptance and consideration. Lacking any meeting of the minds and/or consideration, there was no contract regardless of what one of the parties signed.

 

The interesting issue at the start of our investigation is how to define the loan contract. Is it a contract that arises by operation of statutory or common law? Is it a contract that arises by execution of instruments? What if the borrower executes an instruments that acknowledges receipt of money he never received from the party he thought was giving him the money? Is it possible for the written instruments to create a conflict between the presumptions at law arising from written, properly executed instruments and the real facts that gave rise to a contract that was created by operation of law?

 

These questions come up because there is no actual written loan contract. The borrower and lender do not come together and sign a contract for loan. The contract is implied from the documents and actions contemporaneously occurring at or around the time of the loan “closing.” It appears to be a case of first impression that the borrower is induced to sign documents in favor of someone who, at the end of the day, does NOT give him the loan. This never was a defect before the era of claims of securitization. Now it is central to the issue of establishing the identity and rights of a creditor and debtor and whether the debt is secured or unsecured.

 

Even where the loan contract is solid, the same legal and factual problems arise at the time of the alleged acquisition of the loan where assignments lack consideration because, like the above origination, an undisclosed third party was the actual source of funds.

 

 

 

Definitions:

 

 

 

1)   Debt: in the context of loans, the amount of money due from the borrower to the lender. This may include successors to the lender. In a simple mortgage loan the amount of money due, the identity of the borrower and the identity of the lender are clear. In cases where the mortgage loan is subject to claims of assignments, transfers, sales or securitization by either the borrower or the party claiming to be the lender or the successor to the lender, there are questions of fact and law that must be determined by the court based on the method by which the money advanced to or on behalf of the borrower that leads to a finding by the court of the identity of the party who advanced the money for the origination of the debt or for the acquisition of the debt.

 

a)    In all cases the debt arises by operation of law at the moment that the borrower receives the advance of money from a lender regardless of the method utilized and regardless of the validity of any instruments that were executed by either the borrower or the lender.

 

i)     The acceptance of the money by the borrower raises a strong presumption that the advance of money in the context of the situation was not a gift.

 

ii)    In simple loans the legal instruments that were executed by the borrower at the loan closing are presumptively supported by consideration as expressed in the note or mortgage and a valid contract presumptively exists such that the court can enforce the note and the mortgage.

 

b)   The factual circumstances and any written instruments that were executed by the parties as part of a loan contract govern terms of repayment of the debt.

 

c)    Enforcement of the repayment obligation of the borrower requires either a lawsuit on the loan of money or a lawsuit on a promissory note.

 

i)     If the lawsuit is on the loan of money plaintiff must state the ultimate facts upon which relief could be granted including the factual circumstances of the loan and the fact that the loan was made. In Florida — F.R.C.P. 1.110 (b), Form 1.936

 

ii)    The lawsuit is on a note plaintiff must state the ultimate facts upon which relief could be granted including that the plaintiff owns and holds the note, that Defendant owes the Plaintiff money, and state the amount of money that is owed. In Florida — F.R.C.P. 1.110 (b), Form 1.934

 

(1)Where the Plaintiff alleges it is a party by virtue of a sale, assignment, transfer or endorsement of the note, Plaintiffs frequently fail to allege the required elements in which case the Court should dismiss the complaint — unless the Defendant has already admitted the debt, the note, the mortgage, and the default.

 

(2)The burden of pleading and proving the required elements is on the Plaintiff and cannot be shifted to the defendant without violating the constitutional requirements of due process.

 

(3)Requiring the Defendant to raise a required but missing element of a defective complaint filed by a Plaintiff would require the Defendant to raise the missing element and then deny it as an attempt at stating an affirmative defense that raises no issue other than an element that was required to be in the complaint of the Plaintiff. This is reversible error in that it improperly shifts the burden of pleading onto the Defendant and requires the Defendant to prove facts mostly in the sole control of the Defendant and which would establish standing to bring the action.

 

d)   In those cases where the loan is subject to claims of assignments, transfers, sales or securitization by either party the court must decide on a case-by-case basis whether the legal consideration for the loan (i.e., the advance of money from lender to borrower or for the benefit of the borrower) supports the debt described in the legal instruments that were executed by the borrower at the loan closing.

 

i)     If the Court finds that the legal instruments that were executed by the borrower at the loan closing are not supported by consideration, then the debt simply exists by operation of law and is not secured.

 

(1)Such a finding could only be based on the court determining that the lender described in the legal instruments is a different party than the party who actually loaned the money.

 

(2)Warehouse lending arrangements may be sufficient for the court to determine that the named payee on the note or the identified lender supplied consideration. The court must determine whether the warehouse lender was an actual lender or a strawman, nominee or conduit.

 

ii)    If the court finds that the legal instruments that were executed by the borrower at the loan closing are supported by consideration, then a valid contract may be found to exist that the court can enforce.

 

2)   Mortgage: a contract in which a borrower agrees that the lender may sell the real property (as described in the mortgage) for the purposes of satisfying a debt described in a promissory note that is described in the mortgage contract. It must be a written instrument securing the payment of money or advances made to or on behalf of the borrower. A lien to secure payment of assessments for condominiums, cooperatives and homeowner association is treated as a mortgage contract, pursuant to the enabling documents. See state statutes. For example, F.S. 702.09, Fla. Stat. (2010)

 

a)    a mortgage, if properly perfected, creates a specific lien against the property and is not a conveyance of legal title or of the right of possession to the real property described in the mortgage contract. See state statutes. For example section 697.02, Fla. Stat. (2010), Fla. Nat’l Bank v brown, 47 So 2d 748 (1949).

 

b)   Mortgagee: the party to home the real property is pledged as collateral against the debt described in the note. Mortgagee is presumptively the party named in the mortgage contract. With the advent of MERS and other situations where there is an assignment of the mortgage (expressly or by operation of law) the named mortgagee might be a strawman or nominee for a party described as the lender. In such cases there is an issue of fact as to perfection of the mortgage contract and therefore the mortgage encumbrance resulting from the recording of the mortgage contract. See state statutes. For example F.S. 721.82(6), Fla. Stat. (2010).

 

i)     In Florida the term mortgagee refers to the lender, the secured party or the holder of the mortgage lien. There are several questions of fact and law that the court must determine in order to define and apply these terms.

 

c)    Mortgagor

 

d)   Lender: the party who loaned money to the borrower. If the lender was identified in the mortgage contract by name then the mortgage contract is most likely enforceable.

 

i)     If the lender described in the mortgage contract is a strawman, nominee or conduit then there is an issue of fact as to whether any party could claim to be a secured party under the mortgage contract. Under such circumstances the mortgage contract must be treated as naming no identified secured party. Whether this results in a finding that the mortgage contract is not complete, not perfected or not enforceable is a question of fact that is decided on a case-by-case basis.

 

e)    No right to jury trial exists for enforcement of provisions of the mortgage. However, a right to jury trial exists if timely demanded provided that the foreclosing party seeks judgment on the note or the loan, to wit: financial damages for financial injury suffered by the Plaintiff.

 

i)     Bifurcation of the trial for damages and trial for enforcement of the mortgage contract may be necessary if the basis for the enforcement of the mortgage is non-payment of the note. Any properly raised affirmative defenses relating to setoff or enforceability of the note would be raised in the case for damages.

 

ii)    In that case the trial on the breach of the note would first be needed to render a verdict on the default and then a trial on enforcement of the mortgage would be held before the court without a jury.  Any properly raised defense relating to fees and other costs assessed in enforcement of the mortgage contract.

 

iii)  A question of fact and law must be decided by the court in actions in which the plaintiff merely seeks to enforce the mortgage by virtue of an alleged default by the plaintiff but does not seek monetary damages. Florida Form 1.944 (Foreclosure Complaint) is not specific as to whether it is allowing for a single trial without jury.

 

(1)Since foreclosures are actions in equity, no jury trial is required, but it can be allowed. Since actions for damages require jury trial if properly demanded, it would appear that this issue was not considered when the Florida Form was created.

 

iv)  The requirement that the Plaintiff must own the loan is a requirement that the Plaintiff is not acting in a representative capacity unless it brings the action on behalf of a principal that is disclosed and alleges and attaches to the complaint an instrument that confers upon Plaintiff its authority to do so.

 

v)    Owning the loan means, as set forth in Article 9 of the UCC that the Plaintiff paid for it in money or other consideration that was equivalent to money. The same thing holds true under Article 3 of the UCC for enforcement of the note if the Plaintiff seeks the exalted status of Holder in Due Course which requires payment PLUS no knowledge of defenses all of which must be alleged and proven by the Plaintiff. [1]

 

3)   Note: a written instrument describing the terms of repayment or terms of payment to the payee or a legal successor in interest. In mortgage loans the payor is often described as the borrower. This instrument is usually described in the mortgage contract as the basis for the forced sale of the property. The note is part of a contract for loan of money. It is often considered the total contract. The loan contract is not complete without the loan of money from the payee on the note. If the lender was identified in the note by name then the note is most likely enforceable.

 


[1] In non-judicial states where the power of sale is recognized as a contractual right, the issue is less clear as to the alignment of parties, claims and defenses. In actions to contest substitution of trustees, notices of sale, notices of default etc. it is the borrower who must bring the lawsuit and in some states they must do so within a very short time frame. Check applicable state statutes. The confusion stems from the fact that the Borrower is actually denying the allegations that would have been made if the alleged beneficiary under the deed of trust had filed a judicial complaint. The trustee on the deed of trust probably should file an action in interpleader if a proper objection is raised but this does not appear to be occurring in practice. This leaves the borrower as the Plaintiff and requiring allegations that would, in judicial states, be either denials or affirmative defenses. Temporary restraining orders are granted but usually only on a showing that the Plaintiff has a likelihood of  prevailing — a requirement not imposed on Plaintiffs in judicial states where the lender or “owner” must file the complaint.

 

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