Identification of Actual Creditor is essential for Deciding Many Issues

CREDITORS ARE NECESSARY AND INDISPENSABLE PARTIES: I think this piece identifies the correct issues in the identification of actual creditors — i.e., parties entitled to receive payment from a homeowner. Inferentially it raises the very issues that foreclosure defense lawyers have been raising for years — without knowing the identity of the real creditor, how can you connect the real creditor to the snowstorm of documents created by the banks, trustees and servicers?

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Hat tip to Dan Edstrom
The financial industry has successfully re-defined law, procedure and rules as they progress through the avalanche of foreclosures which is continuing despite well-placed reports to the contrary. Perhaps the most important “re-write” has been the notion that the actual creditor need not be disclosed, despite the fact that all authority and actions must flow from the actual creditor.
Those who have pursued foreclosure have used legal presumptions in a twisted way — arriving at the conclusion that a debtor need not know the identity of the actual creditor in order for the obligation to be enforced.
The enforcement consists of three separate and distinct issues — enforcement of the debt, enforcement of the note and use of the mortgage (or deed of trust) to force the sale of property.
The debt arises by operation of law upon the homeowner’s receipt of money from a third party as long as the money was not a gift. In THAT transaction the debtor is the person who received the money and the creditor is the one who gave the money. It is simple. The debtor owes the money to the creditor. Interposing a servicer changes nothing. The debt is still owed to the creditor no matter how many agents are appointed to deal with the debtor. So knowing the identity of the creditor is a prerequisite to determining the authority of multiple third parties who claim to be holders, servicers, or agents of the creditor.
The note is an instrument which defines the debtor, defines the creditor and defines the terms of repayment from the debtor to the creditor. The note cannot change the debt. If the debt was for $100,000, the execution of a note for an amount different than the debt would be improper. The note is not the debt — it is merely evidence of the debt, which means that the parties to the note must be the same parties to the debt. Inserting a Payee on the note who is different than the creditor creates two liabilities when there was only one transaction.
The debtor owes the creditor as a result of the transaction in which the creditor’s money was used to fund the transaction and the maker of the note, while the same as the debtor in the original transaction, has now signed a document to a separate party in which there is a separate liability to the Payee PLUS the original liability to the actual creditor.
Under the merger rule the debt is supposed to be merged into the note to prevent multiple liabilities. Substitution of a new party on the note prevents the merger rule from operating. The merger rule is a principle of law that says that the execution of the note should result in merger of the debt with the note because the note is accurately asserting the identity of the parties to the debt and the terms of repayment, thus avoiding multiple liability for one transaction.
The mortgage instrument is a statement that real property is collateral for the faithful performance under the note. If the maker of the note fails to perform then the collateral can be sold to satisfy the balance due on the note. But without a valid note that memorializes the terms of the debt, the mortgage is collateral for an obligation that does not exist — unless the note is improperly sold to an innocent third party who pays value, in good faith without knowledge of the maker’s defenses. That bona fide third party is protected under the law.
If the maker executes an instrument that is defective in some way by reference to parole evidence (outside the assertions made on the note) then the third party can enforce the note against the maker despite the existence of otherwise valid defenses of the maker of the note. For anyone other than an innocent holder in due course, the burden is on them to prove that the note was merged with the debt.
Thus in the case of a holder in due course the issue of whether the note was merged with the debt becomes irrelevant. The maker is limited to bringing claims against the parties who tricked the maker into signing an instrument that did not merge the debt into the note.
See the following from

In re Vargas, 396 BR 511 – Bankr. Court, CD California 2008

explains further why the above issues are so important:

The identification of the secured creditor for a claim (or a movant, objector, etc.) serves several important functions. First, it will (presumably) link the creditor, movant or objector to the Schedule A list of real property owned by the debtor. Second, this identification (presumably) links the creditor, movant or objector to the Schedule D list of creditors holding secured claims. Third, this identification permits the judge to determine whether he must recuse himself based on the Code of Conduct for United States Judges (requiring recusal in a variety of circumstances based on the judge’s relationship, if any, to a party seeking relief – i.e. moving party, objecting party, creditor/claimant, etc.)[1]  See In re Vargas, 396 BR 511 – Bankr. Court, CD California 2008.
U.S. Bank, National Association has alleged to have been appointed as a trustee (without evidence of any kind whatsoever), but none of the beneficiaries have been included or disclosed in Proof fo Claim 2-1 or disclosed in this case at all, despite Debtors repeated objections. The beneficiaries for complex Wall Street financial engineering transactions are typically hedge funds and other large scale investors, including those managing retirements funds, such as those that Federal employees (and Federal judges) may be invested in.
The trustee is only an agent for the beneficiaries, and holds only bare legal title to the (alleged) mortgages belonging to the trust. The beneficiaries are the beneficial owners of the trust assets, and are an indispensable party. See Office of the Comptroller of the Currency Interpretive Letter #1016 located on a government website here: The note attached to Proof of Claim 2-1 provides the following definition: Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the “Note Holder.” The only parties entitled to payments for this type of “trust” are the beneficiaries.

Pursuant to FRCP Rule 19(a) PERSONS REQUIRED TO BE JOINED IF FEASIBLE, Debtor states that the beneficiaries are required parties, are subject to service of process, and their joinder will not deprive the court of subject matter jurisdiction (to the extent the purported creditor has a valid, legally binding and enforceable claim against Debtor or the estate).  With the beneficiaries absent, the court cannot accord complete relief among existing parties. The beneficiaries (allegedly) claim an interest relating to the subject action (claim against Debtor or the estate) and are so situated that disposing of the action in the beneficiary’s absence will: (i) as a practical matter impair or impede the beneficiary’s ability to protect their interest; (ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

            Pursuant to FRCP Rule 19(b) WHEN JOINDER IS NOT FEASIBLE, Debtor states that to the extent the beneficiaries cannot be joined, the claim should be dismissed or stricken from the record. In equity and good conscience: (i) allowing the claim or denying the claim without determining the beneficiary’s actual pecuniary interest in the claim would prejudice that beneficiary or the existing parties (especially Debtor); (ii) rendering a judgment in the beneficiary’s absence would not be adequate; and/or (iii) the “creditor” does have another remedy if the action were dismissed (i.e. the claim stricken or disallowed) for nonjoinder, as that party could file a judicial action requiring it to prove their case by presenting affirmative claims and asking for affirmative relief (this due process requirement is sorely missing from Proof of Claim 2-1).
Finally, the “creditor” has not provided the names of all the indispensable parties (beneficiaries), nor provided evidence of their existence, nor complied with FRCP Rule 19(c) which imposes on the “creditor”: “When asserting a claim for relief, a party must state: (1) the name, if known, of any person who is required to be joined if feasible but is not joined; and (2) the reasons for not joining that person.”
CA. Civ. Code 1550 provides the elements of a contract in California, which includes parties capable of contracting. An alleged trustee is only a trustee if there are beneficiaries to act as an agent of. CA. Civ. Code 1558 provides that parties to a contract must not only exist, but must be identifiable. Debtor has consistently, timely, and repeatedly objected to the refusal and failure to disclose the existence of any and all beneficiaries for which U.S. Bank, National Association as a purported trustee is acting on behalf of.
The Fourth, Ninth and Tenth Circuits apply an abuse of discretion standard to the district court’s determination for both necessary and indispensable parties. See Washington v. Daley, 173 F.3d 1158 (9th Cir. 1999); NATIONAL UNION FIRE v. RITE AND OF SOUTH CAROLINA, 210 F.3d 246 (4th Cir. 2000); Davis v. US, 192 F.3d 951 (10th Cir. 1999).

Notarized MERS Assignment of DOT as Nominee: Forensic Analysis and Motion Practice

I was looking at an assignment signed by Margaret Dalton, “Vice President”, Mortgage Electronic Registration Systems, Inc (MERS) “as nominee” for “Hoecomings” (sic) Financial Network, Inc. with an execution date of March 5, 2010 and a notarization date of the same date, notarized by D. Pakusic in Duval County, Florida, naming United Independent Title as Trustee under the Deed of Trust and purporting to assign the Deed of Trust to JP Morgan Chase Bank National Association.

A forensic analysis report would or should state as follows:

  1. The title chain reveals the property is located in the County of Los Angeles, State of California and contains a purported assignment signed by Margaret Dalton, “Vice President”, Mortgage Electronic Registration Systems, Inc (MERS) “as nominee” for “Hoecomings” (sic) Financial Network, Inc. with an execution date of March 5, 2010 and a notarization date of the same date, notarized by D. Pakusic in Duval County, Florida, naming United Independent Title as Trustee under the Deed of Trust and purporting to assign the Deed of Trust to JP Morgan Chase Bank National Association. in public records book ____, at page ____ of the County of _________, in the State of Florida. The document appears on its face to have been prepared by Malcolm-Cisneros, a Law Corporation located at 2112 Business Center Dr., Irvine, California 92612. Given the location of the property in California, the location of the law firm that prepared it in California and the location of of the other parties, the fact that it was “notarized” in Florida raises numerous forensic questions requiring production of additional documentation and facts.
  2. Location Issues: The property is located in the State of California, as are the Trustors under the Deed of Trust (DOT). Margaret Dalton is believed to be located in Irvine, California, possibly employed by or on the premises of the above-referenced Law Corporation. The Notary is located in Duval County, Florida which has no known connection with any of the parties. MERS offices are reported to be located in states other than California and the IT platform is reported to be located in the Midwest. Homecoming Financial Network, Inc. (which undersigned believes was intended by the referenced instruments and title chain) is authorized to do business in the State of California, but upon research does not appear to be a chartered bank, financial institution or lender. HFN is a mortgage originator acting on behalf of unknown sources of funds who may be located anywhere, since they are neither disclosed nor described in the closing documentation nor any document on record. Accordingly there is a question as to the identity of the creditor at the time of the origination of the loan, the identity of the creditor at the current time, and the identity of the creditor at all times between the origination of the loan and the present. There are also questions requiring additional documentation and fats to reveal whether the purported assignment was executed by or on behalf of anyone in Duval County, Florida where the instrument was notarized or in Irvine, California where the instrument may have been executed.
  3. Margaret Dalton’s employment is unknown but it does not appear that she has ever been an employee of MERS, nor that MERS is located where Margaret Dalton apparently signed the document. Previous investigations by the undersigned indicate that MERS is an electronic database privately owned and operated by fewer than 17 employees, which do not include Ms. Dalton. According to information received from MERS, the database platform operated by MERS for its members, has an access procedure consisting of a user ID and password. With such information any person could enter, alter or amend any entry in the MERS database. The procedure also provides access to an automated procedure wherein the user may name a person to serve as “vice-president” or “limited signing officer” for MERS. No record has been produced for this analysis indicating that Ms. Dalton was named as “vice-president” or whether she did so herself, nor whether she was authorized to do so or from whom said authority would be claimed. There is accordingly a question as to whether the document was in fact signed by Ms. Dalton, and if so whether she had authority to sign a document that conveyed an interest in real property.
  4. Given the above information, there is also a question as to whether the notarization was valid or void. Florida law provides that if the Notary knows that the person signing does not possess authority to sign or knows that the person is ignorant of their authority, that the oath administered is invalid and that the instrument is construed to be not notarized, despite the signature and stamp. Recording laws require notarization. Thus there is a question as to whether the document is or would be construed as a recorded instrument despite its obvious appearance in the title record. If it is not construed as a recorded instrument, then the chain of title should be amended to remove this document.
  5. The chain of title, as stated above, reveals a Deed of Trust (DOT) in favor of MERS as nominee. No issues are readily apparent as to the execution of the Deed of Trust. However, the content of the DOT raises factual issues that require further examination and the production of additional documents and information. Since MERS is an IT platform operated for the purposes of its private owners, it is not authorized by Florida Statutes nor California Statutes to serve as the equivalent of a recording record for instruments in the public records. It is a data entry and retrieval system that is private, not public. Since MERS was named as nominee and the MERS documentation available on the internet clearly state that under no circumstances will MERS ever claim an interest in the real property, the DOT, the note, nor will ever be the actual lender, beneficiary or mortgagee in any transaction, the effect of naming MERS raises factual issues since there are questions regarding title raised by the conflict between naming MERS and MERS disclaiming any such interest. There is no record of MERS accepting the position as nominee and if so under what circumstances. Those terms exist in agreements executed between members of MERS and one of the MERS corporations and are unavailable to the undersigned forensic analyst.
  6. The DOT and the above-referenced purported assignment refer to MERS as nominee for HFN, which was neither the creditor nor the lender at the time of the origination of the loan. Thus the DOT appears to name MERS (who disclaims any interest in the loan) on behalf of HFN (who served as a conduit for a table-funded loan transaction, probably as part of the securitization of the subject loan transaction) both of whom served principals that were not disclosed at the time of the origination of the loan nor, to the knowledge of the undersigned, to the present. The effect of misspelling the name of HFN on the purported assignment is unknown, but based upon advice from title agents consulted, it would be ordinarily required in any subsequent transaction, that the document be re-executed with the proper spelling. Whether this affects the legality of the instrument is unknown to the undersigned analyst.
  7. The purported assignment refers only to the DOT, which raises several questions. It is unknown whether an assignment of the note, as evidence of the underlying obligation, was executed at the same time as the purported assignment of the DOT. It is unknown whether all the necessary parties executed instruments required to authorize the assignments, and if so when this was accomplished. If there were no such other assignments then there is a question as to whether the instrument was effective, and if so, whether it intended to provide ownership of the security instrument (DOT) to one party while the ownership of the note remained or was transferred to another party, while at the same time the underlying obligation to yet another party may have existed between the Trustor as debtor and the source of funds for the origination of the loan, as creditor. Additional documentation and facts would be required to make these determinations.
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