There are a few things that have occurred to me with the evolution of this mortgage meltdown crisis and the entire improper process by which it is being handled. The foreclosures are of course improper and there are many offensive and defensive strategies that have been presented here in this blog.

The main issues are whether the “lender” or “trustee” has any authority to foreclose, agree to short sale, or modify the loan. The answer is no, they don’t. A secondary and more exotic issue is that (a) co-obligors were added as the loan documents moved up the chain of securitization and (b) the pooling and service agreement combined with the structural requirements of the SPV require a misapplication of payments.

Co-obligors are added by (a) the people who received fees to insure, guarantee or otherwise pay for the income stream or the principal (credit default swaps etc.) and (b) starting with the toxic waste z tranche of the SPV, each tranche is obligated to apply its payments upwards to the more senior tranches. The effect of this latter point is that even if the borrower pays his mortgage payment, it is applied to someone else’s mortgage payment. It also effectively splits the note from the mortgage. Thus, it is apparent that the pleadings of the “lender” in a judicial state or the assumptions of the trustee in getting instructions from the “lender” in a non-judicial state are wrong. They are only presenting a small part of the story. Requesting the Court to take Judicial notice of 8k and 10k filings which are sworn statements made to a Federal Agency (SEC) should get you over the hump of proving your point.

The single transaction scenario is easily proved. No Investor, No Note. No Note, No Investor. Thus everything in between is part of the same transaction, including the insurance, CDS, guarantees, and payment application agreements (between tranches) which of course the borrower never signed off on and never would.

Thus the investor is the only party who could claim to being a holder in due course because the investor is the only party that can claim ignorance of the predatory loan tactics, lack of disclosure of real parties, lack of disclosure of fees paid to undisclosed parties etc. Hence the issue is NOT whether the “lender” received payment, it is whether the holder of the note received payment, regardless of the source of that payment. If my aunt wishes to pay off my mortgage payment or the entire balance, she is perfectly within her rights to do so and and my obligation would be required to reduced accordingly.

The Trustee is breaching his fiduciary duties to the borrower by not requiring the “lender” to make representations that (a) disclose the holder in due course and (b) that the holder did not receive payment. There is also the issue as to whether the nominal trustee on the deed of trust was replaced by the trustee of the pooling and services agreement and thus whether the Trustee is misrepresenting itself as having continued authority to even communicate with the borrower regarding the collection of a debt, the foreclosure of the property or to pursue the eviction of the homeowner.

The bottom line of all this is that anyone who takes title following an auction sale is taking title subject to claims that have not been resolved. The title to the property, the title to the mortgage, and the title tot he note, a negotiable instrument is clearly not what is represented by the actions and statements of the “lender” and “Trustee.”

That is why the form used to communicate with the Trustee is so important. It requires a response from the Trustee as to the demand for a satisfaction of mortgage to be filed. And that response requires the Trustee to perform due diligence to determine the holder in due course. Due diligence further requires the Trustee to inquire as to all payments made by or on behalf of the borrowers. If the investor was paid out of some reserve within the SPV, or by insurance, CDS, or some other guarantee or contribution, there is no delinquency or default because the payment is made. A third party payment MIGHT give rise to a an unsecured claim by that third party against the borrower, but at that point the mortgage and note are severed and the borrower is entitled to a satisfaction of mortgage or quiet title.

Thus the option for people who have alrady “lost the their homes” is to regain them by filing quiet title actions. The option for investors who did not get paid is to file a claim against the borrower for both foreclosure and collection, thus creating an additional cloud on the title to the property, the mortgage and the note.

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