The difference between paper instruments and real money

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bank Fraud From the Top Down

MERS is not, as its proponents claim, a device for eliminating the recording charges on legitimate purchases and sales of mortgage loans; instead it is a “layering” device (another Wall Street term) for creating the illusion of such transfers even though no transaction actually took place.

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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I recently had the occasion to ghost write something for a customer in relation to claims based upon fraud, MERS, and “Successors.” Here is what I drafted, with references to actual people and entities deleted:

  •  MERS was created in 1996 as a means for private traders to create the illusion of loan transfers. On its website MERS states emphatically that it specifically disclaims any interest in any debt and disclaims any interest in any documentation of debt (i.e., a promissory note) and specifically disclaims any interest in any agreement for collateralizing the obligations stated on the note.
  • There is no agreement in which MERS is authorized as an agent of any creditor. The statement on the note and/or mortgage that it is named as nominee for a “lender” is false. No agreement exists that sets forth the terms or standards of agency relationship between the Payee on the subject “note” or the mortgagee on the subject mortgage. MERS is merely named on instruments without any powers to exercise on behalf of any party who would qualify as a bona fide mortgagee or beneficiary.
  • No person in MERS actually performs ANY action in connection with loans and no officer or employee of MERS did perform any banking activity in relation tot he subject loan. MERS is a passive database for which access is freely given to anyone who wants to make an entry, regardless of the truth or falsity of that entry. It is a platform where the person accessing the MERS IT system appoints themselves as “assistant secretary” or some other false status in relation to MERS. MERS is not, as its proponents claim, a device for eliminating the recording charges on legitimate purchases and sales of mortgage loans; instead it is a “layering” device (another wall Street term) for creating the illusion of such transfers even though no transaction actually took place.
  • Hence there is no basis under existing law under which MERS, in this case, was either a nominee for a real creditor and no basis under existing law under which MERS, in this case, could possibly claim that it was either a mortgagee or beneficiary under a deed of trust.
  • MERS has not claimed and never will claim that it is a mortgagee or beneficiary.
  • The lender, under the alleged “closing documents” was also a sham nominee. None of the parties in the alleged “chain” were at any times a creditor, lender, purchaser, mortgagee, beneficiary, or holder of any note. None of them have any financial interest or risk of loss in the performance of the alleged “loan” obligations.
  • Plaintiff reasonably relied upon the representations at the “Closing” that the originator who was named as Payee on the note was lending her money. But in fact the originator was merely acting as a broker, conduit or sales agent whose job was to get the Plaintiff to sign papers — an event that triggered windfall compensation to all the participants (except the Plaintiff), equal to or even greater than the amount of principal supposedly due from the “loan.”
  • In fact, the originator and multiple other parties had entered into a scheme that was memorialized in an illegal contract violating public policy regarding the disclosure of the identity of the “lender” and the compensation by all parties who received any remuneration of any type arising out the “Closing of the transaction.” The name of the contract is probably a “Purchase and Assumption Agreement” — a standard agreement that is used in the banking industry after the loan has been underwritten, approved and funded. In the case at bar those parties entered into the Purchase and Assumption Agreement before the subject “loan” was closed”, before the Plaintiff even applied for a loan.
  • The source of the money for the alleged “loan” was a “dark pool” (a term used by investment bankers) consisting of the money advanced by investors who thought they were buying mortgage bonds issued by a Trust, in which their money would be managed by the Trustee. In fact, the Trust is either nonexistent or inchoate having never been funded with the investors’ money. The dark pool contains money commingled from hundreds of investors in thousands of trusts.
  • The investors were generally stable managed funds including pension, retirement, 401K money for people relying upon said money for their living expenses after retirement. They are the unwitting, unknowing source of funds for the transaction described as a “closing.” Hence the loan contract upon which the Defendants rely is based upon fraudulent representations designed to mislead the court and mislead the Plaintiff and the byproduct of a broader scheme to defraud investors in “Mortgage backed securities” that were issued by a nonexistent trust that never owned the assets supposedly “backing” the “security” often described as a mortgage bond.
  • Thus the fraud starts with the misrepresentation to investors that the managed funds would be managed by a trustee and would be used to acquire existing loans rather than originate new loans. Instead their funds were used directly on the “closing” table by presumably unwitting “Closing agents.” The fact that the funds arrived created the illusion that the party named on the note and mortgage was actually funding the loan to the “borrower.” This was a lie. But it explains why the Defendants have continually refused to provide any evidence of the “purchase” of the loan by the parties they claim to form a “Chain.”
  • In the alleged “transfer” of the loan, there was no purchase and no payment of money because at the base of their chain, the originator, there was no right to receive the money that would ordinarily be a requirement for purchase of the loan. There also was no Purchase and Assumption Agreement, which is basic standard banking practice in the acquisition of loans, particularly in pools.
  • As Plaintiff as recently learned, the originator was not entitled to receive any payment from “successors” and not entitled to receive any money from the Plaintiff who was described as a “borrower.” In simple accounting terms there was no debit and so there could be no “corresponding” credit. And in fact, the originator never did receive any money for purchasing the loan nor any payments that were credited to a loan receivable account in its accounting records. Yet the originator executed or allowed instruments to be executed in which the completely fraudulent assertion that the originator had sold the loan was memorialized.
  • The “closing” was completely improper in which Plaintiff was fraudulently induced to execute a promissory note as maker and fraudulently induced to execute a mortgage as collateral for the performance under the note. Plaintiff was unaware that she had just created a second liability because the debt could not be legally merged into an instrument that named a party who was not the lender, not a creditor, and not a proper payee for a note memorializing a loan of money from the “lender” to the Plaintiff.
  • The purpose of the merger rule is to prevent a borrower from creating two liabilities for one transaction. The debt is merged into the note upon execution such that no claim can be made on the debt. None of these fine points of law were known to Plaintiff until recently. The reason she did not know is that the originator and the rest of the parties making claims based upon the fraudulent “loan” memorialized in the note all conspired to withhold information that was required to be disclosed to “borrowers” under Federal and State Law.
  • In the case at bar, the debt arises from the fact that Plaintiff did in fact receive money or the benefit of payments on her behalf — from third parties who have no contractual, constructive or other relationship with the source of funds for the transaction. The note is based upon a transaction that never existed — a loan from the originator to the Plaintiff. The debt is based upon the receipt of money from a party who was clearly not intending to make a gift to Plaintiff. The debt and the note are two different liabilities.
  • Assuming the original note exists, Plaintiff is entitled to its its cancellation and return, along with release and satisfaction of the mortgage that collateralizes the obligation set forth on the sham promissory note.
  • In the interim, as this case clearly shows, the Plaintiff is at risk of a second liability even if she prevails in her claim that the note was a sham, to wit: Under UCC Article 3, if an innocent third party actually purchases the mortgage or deed of trust, the statute shifts the risk of loss onto the maker of the instrument regardless of how serious and egregious the practices of the originator and the background “players” who engineered this scheme.
  • Further the financial identity and reputation of the Plaintiff was fraudulently used without her knowledge and consent to conduct “trades” based upon her execution of the above referenced false instruments in which many undisclosed players were reaping what they called “trading profits” arising from the “closing” and the illegal and unwanted misuse of her signatures on instruments in which she was induced to sign by fraudulent misrepresentations as to the nature and content of the documents.
  • Plaintiff suffered damages in that her title was slandered and emotional distress damages and damage to her financial identity and reputation. Further damages arising from violation of her right to quiet enjoyment of the property was violated by this insidious scheme.
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