FREE HOUSE?

Posted on December 27, 2016 by Neil Garfield

Judges may be biased in favor of “national security” (i.e., protecting the banks), but they have a surprisingly low threshold of tolerance when they are confronted by the bank’s argument that they don’t have to accept the money and that it is the bank’s option as to whether to accept the money or proceed with the foreclosure. To my knowledge that argument has lost 100% of the time. And THAT means the homeowner was able to get the proverbial free house or otherwise settle under seal of confidentiality (which might include the “free house.”)

all too often the Golden Rule of Mortgage Foreclosure is simply ignored and the foreclosure goes ahead as if the rule were not the statutory law of every jurisdiction in the United States — Douglas Whaley

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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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The article below demonstrates (with edits from me) just how “hairy” these issues get. Things that laymen presume to be axiomatic don’t even exist in the legal world. I just sent my son a mug that says “Don’t confuse your Google search with my medical degree.” The same could be said for law. You might have discovered something that appears right to you but only a lawyer with actual experience can tell you if it will fly — remember that the bumblebee, according to the known laws of aerodynamics — is incapable of flying. Yet it flies seemingly unconcerned about our laws of aerodynamics. Similar to the lack of concern judges have, as if they were bumblebees, for the laws of contract and negotiation of instruments.

“Be careful what you wish for.” We must not give the banks a condition that they can satisfy with a fake. If the statute says that they must come up with the original promissory note, or the encumbrance is automatically lifted by a Clerk’s signature, then that means that (a) the debt still exists (b) the note could still be enforced with a lost note affidavit (which lies about the origination of the “loan” and subsequent nonexistent transactions), and (c) the debt can still be enforced.

A suit on the note or the debt that is successful will yield a Final Judgment, which in turn can be recorded in the county records. A further action for execution against the property owner will cause execution to issue — namely the judgment becomes a judgment lien that can now be foreclosed with no note whatsoever. The elements of a judgment lien foreclosure are basically (I have the Judgment, the statute says I can record it and foreclose on it).

There are homestead exemptions in many states. Whereas Florida provides a total homestead exemption except in bankruptcy court (up to $125,000 value), Georgia provides very little protection to the property owner which means that Georgia property owners are vulnerable to losing their homes if they don’t pay a debt that has been reduced to a Final Judgment and filed as a Judgment lien.

So the upshot is this: if you ask for the original note they might simply change their routines so that they produce the fabricated original earlier rather than later. Proving that it is a fake is not easy to do, but it can be done. The problem is that even if you prove the note is fabricated, the debt still remains. And in the current climate that means that any “credible” entity can step into the void created by the Wall Street banks and claim ownership of the debt for the purpose of the lawsuit.

What you want to do and in my opinion what you must do is focus on the identity of the creditor in addition to the the demand for the “original” note. When you couple that with tender of the amount demanded (under any one of the scenarios we use in our AMGAR programs) on the industry practice of demanding the identity of the creditor before anyone receives payment, then you really have something going.

But the risk element for tender MUST be present or it will likely be brushed aside who sees it as merely a gimmick — using the state law regarding tender as an offensive tool to get rid of the encumbrance and thus prevent foreclosure.

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So the commitment is to pay off or refinance the alleged debt conforming to the industry standard of giving estoppel information — with the name of the creditor, where the payment should be sent, and the amount demanded by the creditor, and per diem, escrow and other information.

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The inability and unwillingness of anyone to name a creditor has been credited with eliminating both the foreclosure and the mortgages in several dozen cases.

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Judges may be biased in favor of “national security” (i.e., protecting the banks), but they have a surprisingly low threshold of tolerance when they are confronted by the bank’s argument that they don’t have to accept the money and that it is the banks option as to whether to accept the money or proceed with the foreclosure. To my knowledge that argument has lost 100% of the time. And THAT means the homeowner was able to get the proverbial free house or otherwise settle under seal of confidentiality (which might include the “free house.”)

Here is the UCC article by Douglas Whaley. [Words in brackets are from the Livinglies editor and not from Mr. Whaley]

the Golden Rule of Mortgage Foreclosure: the Uniform Commercial Code forbids foreclosure of the mortgage unless the creditor possesses the properly-negotiated original promissory note. If this can’t be done the foreclosure must
stop.
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all too often the Golden Rule of Mortgage Foreclosure is simply ignored and the foreclosure goes ahead as if the rule were not the statutory law of every jurisdiction in the United States.1
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Why is that? The answer is almost too sad to explain. The problem is that the Uniform Commercial Code is generally unpopular in general, and particularly when it comes to the law of negotiable instruments (checks and promissory notes) contained in Article Three of the Code. Most lawyers were not trained in this law when in law school (The course on the subject, whether called “Commercial Paper” or “Payment Law,” is frequently dubbed a “real snoozer” and skipped in favor or more exotic subjects), and so the only exposure to the topic attorneys have occurs, if at all, in bar prep studies (where coverage is spotty at best). Thus many foreclosures occur without it occurring to anyone that the UCC has any bearing on the issue.
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If the defendant’s attorney announces that the Uniform Commercial Code requires the production of the original promissory note, the judge may react by saying something like, “You mean to tell me that some technicality of negotiable instruments law lets someone who’s failed to pay the mortgage get away with it if the promissory note can’t be found, and that I have to slow down my overly crowded docket in the hundreds of foreclosure cases I’ve got pending to hear about this nonsense?” It’s a wonder the judge doesn’t add, “If you say one more word about Article Three of the UCC you’ll be in contempt of court!”
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The debt is created by the signing of a promissory note (which is governed by Article Three of the Uniform Commercial Code); the home owner will be the maker/issuer of the promissory note and the lending institution will be payee on the note. There is a common law maxim that “security follows the debt.” This means that it is presumed that whoever is the current holder of the promissory note (the “debt”) is entitled to enforce the mortgage lien (the “security”). The mortgage is reified as a mortgage deed which the lender should file in the local real property records so that the mortgage properly binds the property not only against the mortgagor but also the rest of the world (this process is called “perfection” of the lien).1
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{EDITOR’S NOTE: Technically the author is correct when he states that a debt is created by the signing of a promissory note governed by Article 3 of the Uniform Commercial Code. But it is also true that the note is merely a written instrument that memorializes the “loan contract” and which in and unto itself constitutes evidence of the debt.
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This means that some sort of transaction with a monetary value to both sides must have taken place between the two parties on the note — the maker (borrower) and the payee (the lender). If no such transaction has in fact occurred then, ordinarily the note is worthless and unenforceable. But in the event that a third party purchases the note for value in good faith and without knowledge of the borrowers defenses, the note essentially and irrevocably becomes the debt and not merely an evidence of the debt. In that case the note is treated as the debt itself for all practical purposes.
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Such a purchaser would be entitled to the exalted status of holder in due course. Yet if the borrower raises defenses that equate to an assertion that the note should be treated as void because there was no debt (the maker didn’t sign it or the maker signed it under false pretenses — i.e. fraud in the execution) then in most cases the HDC status won’t prevail over the real facts of the case..The corollary is that if there was no debt there must have been no loan.
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This would be fraud in the inducement which moves the case into a gray area where public policy is to protect the innocent third party buyer of the note. All other defenses raised by borrowers are affirmative defenses (violations of lending statutes, for example) raising additional issues that were not presented nor implied in the complaint  enforce the note or the nonjudicial procedure in which the note is being enforced by nonjudicial foreclosure.}
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The bankers all knew the importance of the mortgage, and supposedly kept records as to the identity of the entities to whom the mortgage was assigned. But they were damn careless about the promissory notes, some of which were properly transferred whenever the mortgage was, some of which were kept at the originating bank, some of which were deliberately destroyed (a really stupid thing to do), and some of which disappeared into the black hole of the financial collapse, never to be seen again.
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Filing fees in real property record offices average $35 every time a new document is filed. The solution was the creation of a straw-man holding company called Mortgage Electronic Registration Systems [MERS]. MERS makes no loans, collects no payments, though it does sometimes foreclose on properties (through local counsel). Instead it is simply a record-keeper that allows its name to be used as the assignee of the mortgage deed from the original lender, so that MERS holds the lien interest on the real property. While MERS has legal title to the property [EDITOR’S NOTE: this assertion of title is now back in a grey area as MERS does not fulfill the definition of a beneficiary under a deed of trust nor a mortgagor under a mortgage deed.], it does not pretend to have an equitable interest. At its headquarters in Reston, Va., MERS (where it has only 50 full time employees, but deputizes thousands of temporary local agents whenever needed) supposedly keeps track of who is the true current assignee of the mortgage as the securitization process moves the ownership from one entity to another.3
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Meanwhile the homeowner, who has never heard of MERS, is making payment to the [self proclaimed] mortgage servicer (who forwards them to whomever MERS says is the current assignee of the mortgage) [or as is more likely, forwards the proceeds of payments to the underwriter who sold bogus mortgage bonds, on which every few months another bank takes the hit on a multibillion dollar fine]..

Article 3 of the Uniform Commercial Code could not be clearer when it comes to the issue of mortgage note foreclosure. When someone signs a promissory note as its maker (“issuer”), he/she automatically incurs the obligation in UCC §3-412 that the instrument will be paid to a “person entitled to enforce” the note.5″Person entitled to enforce”—hereinafter abbreviated to “PETE”—is in turn defined in §3-301:

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person

not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d) . . . .

[Editors’ note: the caveat here is that while the execution of a note creates a liability, it does not create a liability for a DEBT. The note creates a statutory liability while the debt creates a liability to repay a loan. Until the modern era of fake securitization, the two were the same and under the merger doctrine the liability for the debt was merged into the execution of the note because the note was payable to the party who loaned the money.

And under the merger doctrine, the debt is NOT merged into the note if the parties are different — i.e., ABC makes the loan but DEF gets the paperwork. Now you have two (2) liabilities — one for the debt that arose when the “borrower” received payment or received the benefits of payments made on his/her behalf and one for the note which is payable to an entirely different party. Thus far, the banks have succeeded in making the circular argument that since they are withholding the information, there is not way for the “borrower” to allege the identity of the creditor and thus no way for the “borrower” to claim that there are two liabilities.]

Three primary entities are involved in this definition that have to do with missing promissory notes: (1) a “holder” of the note, (3) a “non-holder in possession who has the rights of a holder, and (3) someone who recreates a lost note under §3-309.6

A. “Holder”

Essentially a “holder” is someone who possesses a negotiable instrument payable to his/her order or properly negotiated to the later taker by a proper chain of indorsements. This result is reached by the definition of “holder” in §1-201(b)(21):

(21) “Holder” means:

(A) the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession . . . .

and by §3-203:

(a) “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.

(b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

The rules of negotiation follow next.

B. “Negotiation”

A proper negotiation of the note creates “holder” status in the transferee, and makes the transferee a PETE. The two terms complement each other: a “holder” takes through a valid “negotiation,” and a valid “negotiation” leads to “holder” status. How is this done? There are two ways: ablankindorsement or aspecialindorsement by the original payee of the note.

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With a blank indorsement (one that doesn’t name a new payee) the payee simply signs its name on the back of the instrument. If an instrument has been thus indorsed by the payee, anyone (and I mean anyone) acquiring the note thereafter is a PETE, and all the arguments explored below will not carry the day. Once a blank indorsement has been placed on the note by the payee, all later parties in possession of the note qualify as “holders,” and therefore are PETEs.7
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Only if there is a valid chain of such indorsements has a negotiation taken place, thus creating “holder” status in the current possessor of the note and making that person a PETE. With the exception mentioned next, the indorsements have to be written on the instrument itself (traditionally on the back).
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the allonge must be “affixed to the instrument” per §3-204(a)’s last sentence. It is not enough that there is a separate piece of paper which documents the unless that piece of paper is “affixed” to the note.10What does “affixed” mean? The common law required gluing. Would a paper clip do the trick? A staple?11
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a contractual agreement by which the payee on the note transfers an interest in the note, but never signs it, cannot qualify as an allonge (it is not affixed to the note), and no proper negotiation of the note has occurred. If the indorsement by the original mortgagee/payee on the note is not written on the note itself, there must be an allonge or the note has not been properly negotiated, and the current holder of that note is not a PETE (since there is no proper negotiation chain). THE LACK OF SIGNATURE BECOMES A SERIOUS ISSUE IN THE CURRENT ERA BECAUSE OF WHAT HAS BEEN DUBBED “ROBO-SIGNING” THE EXACT DEFINITION OF WHICH HAS NOT YET BEEN DETERMINED BUT IT REFERS TO THE STAMPED OR EXECUTED SIGNATURE BY ONE POSSESSES NO KNOWLEDGE OR INTEREST IN THE CONTENTS OF THE INSTRUMENT AND ESPECIALLY WHEN THE PERSON HAS NO EMPLOYMENT OR OTHER LEGALR RELATIONSHIP WITHT EH ENTITY ON WHOSE BEHALF THE INDORSEMENT WAS EXECUTED. As stated in one case the base of robo-signing is that it is a forgery and therefore amounts to no signature at all which means the note has not really be negotiated, all appearances to the contrary. ]
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The Code never requires the person making an indorsement to have an ownership interest in the note13 (though of course the payee normally does have such an interest), but simply that he/she is the named payee, and the Code clearly allows for correction of a missing indorsement. [EDITOR’S NOTE: Here is where the enforcement tot he note and the ability to enforce the mortgage diverge, See Article 9. The possessor of a note that is properly signed by a party to whom the note was payable or indorsed commits no offense by executing an indorsemtn in blank (bearer) or to another named indorse. The author is correct when he states that ownership of the note is not required to enforce the note; but the implication that the right to foreclose a mortgage works the same way is just plain wrong, to wit: foreclosure is ALL about ownership of the mortgage and Article 9 provisions specifically state the ownership means that the purported holder has paid value for it]. 
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  1. 13   Thieves can qualify as a “holder” of a negotiable instrument and thereafter validly negotiate same to another; see Official Comment 1 to 3-201, giving an example involving a thief.
  2. 1.  Subsections (a) and (b) are based in part on subsection (1) of the former section 3-202.  A person can become holder of an instrument when the instrument is issued to that person, or the status of holder can arise as the result of an event that occurs after issuance.  “Negotiation” is the term used in article 3 to describe this post-issuance event.  Normally, negotiation occurs as the result of a voluntary transfer of possession of an instrument by a holder to another person who becomes the holder as a result of the transfer. Negotiation always requires a change in possession of the instrument because nobody can be a holder without possessing the instrument, either directly or  through an agent.  But in some cases the transfer of possession is involuntary and in some cases the person transferring possession is not a holder.  In defining “negotiation” former section 3-202(1) used the word “transfer,” an undefined term, and “delivery,” defined in section 1-201(14) to mean voluntary change of possession. Instead, subsections (a) and (b) used the term “transfer of possession” and subsection (a) states that negotiation can occur by an involuntary transfer of possession.  For example, if an instrument is payable to bearer and it is stolen by Thief or is found by Finder, Thief or Finder becomes the holder of the instrument when possession is obtained.  In this case there is an involuntary transfer of possession that results in negotiation to Thief or Finder. 
  3. [EDITOR’S NOTE: The heading for UCC 3-201 indicates it relates to “negotiation” of a note, not necessarily enforcement. The thief might be able to negotiate the note but enforcement can only be by a party with rights to enforce it. While a holder is presumed to have that right, it is a rebuttable presumption. Hence either a borrower or the party from whom the note was stolen can defeat the thief in court. But if the negotiation of the note includes payment of value in good faith without knowledge of the borrower’s defenses or complicity in the theft, then the successor to the thief is a holder in due course allowing enforcement against the maker. The borrower or victim of theft is then left with actions at law against the thief.]
 

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Holder or PETE?

Posted on June 17, 2016 by Neil Garfield

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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COURT DECISION SAYS REMIC HAS NO RECOURSE AGAINST COLALTERAL: ARE REMICs UNSECURED????

Posted on January 6, 2015 by Neil Garfield

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

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see Article by Lane Powell PC Scott M. Edwards and Daniel A. Kittle

I hate to be petty but if you look back to my articles in 2007-2008 you will see that I predicted that ultimately, the way this was done in practice (as opposed to the way the Trusts were created in writing — as opposed to the way the trusts were conceived and codified under the Internal Revenue Code) — neither the beneficiaries nor the Trust have a secured interest in the property.

That means they have no interest in the mortgage and that means that neither the beneficiaries nor the Trust can foreclose because they have no right to foreclose on any mortgage or deed of trust. But the problem is that the beneficiaries are the people who are owed the money — unfortunately payable in a manner that differs in amount and method substantially different than the payment described in the note.

The court noted that its HomeStreet decision identified five statutory requirements for the deduction: (1) the taxpayer must be a “banking, loan, security, or other financial business;” (2) the amount deducted must be “derived from interest” received; (3) the amount deducted was received because of loan or investment; (4) “primarily secured” by a first mortgage or deed of trust; and (5) on “nontransient residential real property.” According to the court, there was no dispute that four of the five requirements were satisfied; the only issue was whether REMICs are “primarily secured” by the underlying mortgages.

On this issue, the court held that to satisfy the “primarily secured” by a mortgage or deed of trust requirement, the bank claiming the deduction must have “some recourse” against the collateral.  The court found that a REMIC investor has “no direct or indirect legal recourse” against the underlying mortgages.

I have no time to elaborate at the moment. But the argument raised by legal beagle Ron Ryan, Esq. in Tucson, Arizona turns out to be correct — 7 years later. The note and mortgage were fatally split; and the note itself was destroyed physically because its terms became irrelevant to the obligation owed to the real creditor. Hence it is impossible to be a holder in due course or a party entitled to enforce (HDC or PETE) on a mortgage loan that was either originated or “transferred” (always without consideration) within the context of a securitization scheme.

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The Truth is Coming Out: More Questions About Loan Origination, Debt, Note, Mortgage and Foreclosure

Posted on December 3, 2014 by Neil Garfield

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

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Carol Molloy, Esq., one of our preferred attorneys is now taking on new cases for litigation support only. This means that if you have an attorney in the jurisdiction in which your property is located, then Carol can serve in a support role framing pleadings, motions and discovery and coaching the lawyer on what to do and say in court. Carol Molloy is licensed in Tennessee and Massachusetts where she has cases in both jurisdictions in which she is the lead attorney. As part of our team she gets support from myself and others. call our numbers above to get in touch with her.

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Hat tip to our lead investigator Ken McLeod (Chandler, Az) who brought this case to my attention. It is from 2013.

see New York Department of Housing vs Deutsch

Mysteriously seemingly knowledgeable legislators passed statutes permitting government agencies to finance mortgage loans in amounts for more than the property is worth, to people who could not afford to pay, without the need to document things such as income, and then to allow the chopping up the [*7]loans into little pieces to sell to new investors, so that if a borrower defaulted in repayment of the loan, the lender would not have the ability to prove it actually owned the debt, let alone plead its name correctly. The spell cast was so widespread that courts find almost everyone involved in mortgage foreclosure litigation raising the “Sgt. Schultz Defense” of “I know nothing.”

Rather than assert its rights and perhaps obligations under the terms of the mortgage to maintain the property and its investment, respondent has asserted the Herman Melville “Bartleby the Scrivener Defense” of “I prefer not to” and relying on the word “may” in the document, has elected to do nothing in this regard. Because this loan appears to have been sold to investors, it may be asked, does not the respondent have a legal obligation to those investors to take whatever steps are necessary to preserve the property such as collecting the rents and maintain the property as permitted in the mortgage documents?

It should be noted that in its cross-motion in this action Deutsche asserts that its correct name is “Deutsche Bank National Trust Company, as Trustee for Saxon Asset Securities Trust 2007-3, Mortgage Loan Asset Backed Certificates, Series 2007-3” and not the name petitioner placed in the caption. Which deserves the response “you’ve got to be kidding.” Deutsche is not mentioned in the chain of title; it is listed in these HP proceedings with the same name as on the caption of the foreclosure action in which it is the plaintiff and which its counsel drafted; and its name is not in the body of foreclosure action pleadings. In the foreclosure proceeding Deutsche pleads that it “was and still is duly organized and existing under the laws of the UNITED STATES OF AMERICA.” However, there is no reference to or pleading of the particular law of the USA under which it exists leaving the court to speculate whether it is some federal banking statute, or one that allows Volkswagens, BMW’s and Mercedes-Benz’s to be imported to the US or one that permitted German scientists to come to the US and develop our space program after World War II.

As more and more cases are revealed or published, the truth is emerging beyond a reasonable doubt about the origination of the loans, the actual debt (identifying creditor and debtor), the note, the mortgage and the inevitable attempt at foreclosure and forced sale (forfeiture) of property to entities who have nothing to do with any actual transaction involving the borrower. The New York court quoted above describes in colorful language the false nature of the entire scheme from beginning to end.

see bankers-who-commit-fraud-like-murderers-are-supposed-to-go-to-jail

see http://www.salon.com/2014/12/02/big_banks_broke_america_why_nows_the_time_to_break_our_national_addiction/

The TRUTH of the matter, as we now know it includes but is not limited to the following:

  1. DONALD DUCK LOANS: NONEXISTENT Pretender Lenders: Hundreds of thousands of loan closings involved the false disclosure of a lender that did not legally or physically exist. The money from the loan obviously came from somewhere else and the use of the non-existent entity name was a scam to deflect attention from the real nature of the transaction. These are by definition “table-funded” loans and when used in a pattern of conduct constitutes not only violation of TILA but is dubbed “predatory per se” under Reg Z. Since the mortgage and note and settlement documents all referred to a nonexistent entity, you might just as well have signed the note payable to Donald Duck, who at least is better known than American Broker’s Conduit. Such mortgages are void because the party in whose favor they are drafted and signed does not exist. Such a mortgage should never be recorded and is subject to a quiet title action. The debt still arises by operation of law between the debtor (borrower) and the the creditor (unidentified lender) but it is not secured and the note is NOT presumptive evidence of the debt. THINK I’M WRONG? “SHOW ME A CASE!” WELL HERE IS ONE FOR STARTERS: 18th Judicial Circuit BOA v Nash VOID mortgage Void Note Reverse Judgement for Payments made to non-existent entity
  2. DEAD ENTITY LOANS: Existing Entity Sham Pretender Lender: Here the lender was alive or might still be alive but it is and probably always was broke, incapable of loaning money to anyone. Hundreds of thousands of loan closings involved the false disclosure of a lender that did not legally or physically make a loan to the borrower (debtor). The money from the loan obviously came from somewhere else and the use of the sham entity name was a scam to deflect attention from the real nature of the transaction. These are by definition “table-funded” loans and when used in a pattern of conduct constitutes not only violation of TILA but is dubbed “predatory per se” under Reg Z. Since the mortgage and note and settlement documents all referred to an entity that did not actually loan money to the borrower, (like The Money Source) such mortgages are void because the party in whose favor they are drafted and signed did not fulfill a black letter element of an enforceable contract — consideration. Such a mortgage should never be recorded and is subject to a quiet title action. The debt still arises by operation of law between the debtor (borrower) and the the creditor (unidentified lender) but it is not secured and the note is NOT presumptive evidence of the debt.
  3. BRAND NAME LOANS FROM BIG BANKS OR BIG ORIGINATORS: Here the loans were disguised as loans from the entity that could have loaned the money to the borrower — but didn’t. Millions of loan closings involved the false disclosure of a lender that did not legally or physically make a loan to the borrower (debtor). The money from the loan came from somewhere else and the use of the brand name entity (like Wells Fargo or Quicken Loans) name was a scam to deflect attention from the real nature of the transaction. These are by definition “table-funded” loans and when used in a pattern of conduct constitutes not only violation of TILA but is dubbed “predatory per se” under Reg Z. Since the mortgage and note and settlement documents all referred to an entity that did not actually loan money to the borrower, such mortgages are void because the party in whose favor they are drafted and signed did not fulfill a black letter element of an enforceable contract — consideration. Such a mortgage should never be recorded and is subject to a quiet title action. The debt still arises by operation of law between the debtor (borrower) and the the creditor (unidentified lender) but it is not secured and the note is NOT presumptive evidence of the debt.
  4. TRANSFER WITHOUT SALE: You can’t sell what you don’t own. And you can’t own the loan without paying for its origination or acquisition. Millions of foreclosures are predicated upon acquisition of the loan through a nonexistent purchase — but facially valid paperwork leads to the assumption or even presumption that the sale of the loan took place — i.e., delivery of the loan documents in exchange for payment received. These loans can be traced down to one of the three types of loans described above by asking the question “Why was there no payment.” In turn this inquiry can start from the question “Why is the Trust not named as a holder in due course?” The answer is that an HDC must acquire the loan for value and receive delivery. What the banks are doing is showing evidence of delivery and an “assignment” or “power of attorney” that has no basis in real life — the endorsement of the note or assignment of the mortgage was fabricated, robo-signed and is subject to perjury in court testimony. Using the Pooling and Servicing Agreement only shows that more fabricated paperwork was used to fool the court into thinking that there is a pool of loans which in most cases does not exist — a t least not in the REMIC Trust.
  5. VIOLATION OF THE TRUST DOCUMENT: Most trusts are governed by New York law. Some of them are governed by Delaware law and some invoke both jurisdictions (see Christiana Bank). The laws that MUST be applied to the REMIC Trusts declare that any action taken without express authority from the Trust instrument is VOID. The investors still have not been told that their money never went into the trust, but that is what happened. They have also not been told that the Trust issued mortgage bonds but never received the proceeds of sale of those bonds. And they have not been told that the Trust, being unfunded, never acquired the loans. And that is why there is no assertion of holder in due course status. Some courts have held that the PSA is irrelevant — but they are failing to realize that such a ruling by definition eliminates the foreclosure as a viable action; that is true because the only basis of authority to pursue foreclosure, collection or any other enforcement of the sham loan documents is in the PSA which is the Trust document.
  6. THIRD PARTY PAYMENTS WITHOUT ACCOUNTING: “Servicer” advances that are actually made by the servicer but pulled from an account controlled by the broker dealer who sold the mortgage bonds. These payments continue regardless of whether the borrower is paying or not. Banks fight this issue because it would require that the actual creditors be identified and given notice of proceedings that are being pursued contrary to the interests of the investors. Those payments negate any default between the debtor and the actual creditor who has been paid. They also reduce the amount due. The same holds true for proceeds of insurance, guarantees, loss sharing with the FDIC and proceeds of hedge products like credit default swaps. Legally it is clear that these payments satisfies the payments due from the borrower but gives rise to an unsecured volunteer payment recapture through a claim for unjust enrichment. That could lead to a money judgment, the filing of the judgment and the foreclosure of the judgment lien. But the banks don’t want to do that because they would definitely be required to show the money trail — something they are avoiding at all costs because it would unravel the entire fraudulent scheme of “securitization fail.” (Adam Levitin’s term).
  7. ESTOPPEL: Inducing people to go into default so that there can be more foreclosures: Millions of people called the servicer asking for a modification or workout that the servicer obviously had no right to entertain. The servicer customer representative gave the impression that the borrower was talking to the right person. And this trusted person then started practicing law without a license by advising that modifications could not be requested until the borrower was at least 90 days in arrears. All of this was a lie. HAMP and other programs do NOT require 90 day arrearage. The purpose was to get homeowners in so deep that they could never get out because the servicers are charged with the job of getting as many loans into foreclosure as possible. By telling the borrower to stop paying they were (a) telling them the right thing because the servicer actually had no right to collect the payment anyway and (b) they put the servicer in an estoppel position — you can’t tell a borrower to stop paying and then say THEY breached the “agreement”. Stopping payment was a the request or demand of the servicer. Further complicating the process was the intentional loss of submissions by borrowers; the purpose of these “losses” (like “lost notes” was to elongate the process and get the borrower deeper and deeper into the false arrearage claimed by the servicer.

The conclusion is obvious — complete strangers to the actual transaction (between the actual debtor and actual creditor) are using the names of other complete strangers to the transaction and faking documents regularly to close out serious liabilities totaling trillions of dollars for “faulty”, fraudulent loans, transfers and foreclosures. As pointed out in many previous articles here, this is often accomplished through an Assignment and Assumption Agreement in which the program requires violating the Truth in Lending Act (TILA) and the Real Estate Settlement and Procedures Act (RESPA), the HAMP modification program etc. Logically it is easy to see why they allowed “foreclosures” to languish for 5-8 years — they are running the statute of limitations on TILA violations, rescission etc. But the common law right of rescission still exists as does a cause of action for nullification of the note and mortgage.

The essential truth in the bottom line is this: the paperwork generated at the loan closing is “faulty” and most often fabricated and the borrower is induced to execute documents that create a second liability to an entity who did nothing in exchange for the note and mortgage except get paid as a pretender lender — all in violation of disclosure requirements on Federal and state levels. This is and was a fraudulent scheme. Hence the “Clean hands” element of equitable relief in foreclosure as well as basic contract law prevent the right to enforce the mortgage, the note or the debt against the debtor/borrower by strangers to the transaction with the borrower.

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No. Carolina Appeals Court Approves Dismissal of Foreclosure With Prejudice

Posted on December 2, 2014 by Neil Garfield

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

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see 13-450 N Carolina Appellate Decision on Holder, PETE, HDC and Owner of the Debt 2013 Decision

There are several interesting features to this appellate case, not the least of which is that it comes from North Carolina which has not been particularly friendly to borrowers. What is interesting is that the court was looking at the substance of the transaction and finding that the the bank was playing games and now wanted to play more. The trial court said no, and then the appellate court said no. The decision is one year old but was recently brought to my attention of a litigant who is confronting the “bank” that claims rights to collect, enforce and foreclose.

This was a case in which the foreclosing party never established any of the conditions under which it was (a) the owner of the debt, (b) the payee on the note or (c) the PETE — party entitled to enforce the note. The Court considered the situation and dismissed the foreclosure WITH PREJUDICE —a trial court decision that is highly unusual looking back 7 years but not so unusual looking back 12 months.

The appellate decision looks first where I said to look — the payee on the note. If the foreclosing party IS the payee on the note then it need not allege how it became the “holder” but it probably has some burden of proving the loan. We will see about that. SO if you are the Payee most of the case is presumed. The problem is that most courts having been applying that universally accepted presumption to cases in which the foreclosing party is NOT the payee on the note. And, as pointed out by this court, that is wrong.

The trial court correctly dismissed the case with prejudice because dismissal was mandatory and in the absence of any action by the bank, the dismissal must be with prejudice. The bank can’t come back later and assert a right to amend when they could have voluntarily dismissed, moved to amend, or taken some action that would put the issue of amendment before the court. As this court states, it is not up to the trial judge, sua sponte, to provide a path to amendment. Hence the same rules that have cooked borrowers for years because they admitted or waived defenses unintentionally now comes back and bite the bank.

And most importantly, when you look to the DEBT, it is the substance of the claim that counts not just the paperwork.

Neither the trial court nor the appellate court liked the fact that the affidavit submitted was so vague that it said nothing — particularly about the acquisition of the DEBT, and nothing about how it was a PETE. This simple statement in the body of the opinion, might represent a sea change in judicial attitude. After all, the point of commercial paper, negotiable instruments, foreclosures etc is that they are all about the same thing — MONEY. The laws (UCC etc) were never meant to facilitate theft from innocent parties (investors, borrowers etc.).

The bank argued that it should not have been dismissed with prejudice and that it should have been given an opportunity to amend, citing to laws, cases and rules that permit liberal amendment. But here the court turned the same indifference to consequences that has plagued borrowers and used it against the bank. You might call it blind justice in practice. The court found that the failure of the bank to do anything to protect its right to amend was sufficient to uphold the trial court’s dismissal with prejudice. The bank argued that this was an extreme remedy implying a windfall fro the borrower. But the appellate court said, quite correctly, how do we know that?

The court was clearly implying that a subsequent action by a real party in interest could theoretically be brought against the homeowner either on the debt, the note the mortgage or all of those. They clearly thought that the party who was bringing the action in this case was a sham party filing a sham action. And they obviously wanted to stop that practice.

It remains to be seen how many cases we will see that discuss the foreclosure the way this court did. I am hopeful and ever optimistic that the courts will follow the money trail and not allow shuffling of paper to replace actual transactions. Every time we enforce an APPARENT transaction we take the risk of ignoring the real transaction. Each time foreclosure judgments are entered raises the probability that a second debt is being created.

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Who Can Sign a Lost Note Affidavit? What Happens When It Is “Found?”

Posted on November 18, 2014 by Neil Garfield

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

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Let’s start with the study that planted the seed of doubt as to the validity of the debt, note, mortgage and foreclosure and whether any of those “securitized debt” foreclosures should have been allowed to even get to first base. Katherine Ann Porter, when she was a professor in Iowa (2007) did a seminal study of “lost” documents and found that at least 40% of ALL notes were lost as a result of intentional destruction or negligence. You can find her study on this blog.

The issue with “lost notes” is actually simple. If the note is lost then the court and the borrower are entitled to an explanation of the the full story behind the loss of the note, why it was intentionally destroyed and whose negligence caused the loss of the note. And the reason is also simple. If the Court and the borrower are not fully satisfied that the whole story has been told, then neither one can determine whether the party claiming rights to collect or enforce the note actually has those rights.

This is the question posed to me by a knowledgeable person involved in the challenge to the validity of the debt, note, mortgage and foreclosure:

Who is finding the Note?  Can a servicer execute a Lost Note Affidavit as a holder?  Non holder in possession?

It took me a while to get to the obvious point of the above defense.  It is intended in the event that party A loses the Note and files a LNA [Lost Note Affidavit}, that the Issuer, does not have to pay party B even if he appears with a blank endorsed note, unless B can prove holder in due course (virtually impossible these days, esp in foreclosure cases).

This is critical.  The foreclosing party, through a series of mergers and successions, files a case as successor by merger to ABC.  Can’t locate note, so it files a LNA, stating ABC lost the Note.  Note is found, but the foreclosing party says, oops, was in a custodial file for which we were the servicer for XYZ.   While the foreclosing party has the note, it cannot unring the fact it got the Note from XYZ after ABC lost it.

Good questions. He understands that the requirements as expressly stated in the law (UCC, State law etc.) are quite stringent. You cannot re-establish a lost note with a copy of it unless you can prove that you had it and that you were the person entitled to enforce it (known as PETE). You also cannot re-establish the note unless you can prove that the note was lost or destroyed under circumstances where it is far more likely than not that the original won’t show up later in the hands of someone else claiming PETE status. So there should be a heavy burden placed on any party seeking to foreclose or even just to collect on a “lost note.” But courts have steamrolled over this obvious problem requiring something on the order of “probable cause” rather than actual proof. While there is some evidence the judiciary is turning the corner against the banks, the great majority of cases fly over these issues either because of presumptions by the bench or because the “borrower” fails to raise it — and fails to make appropriate motions in limine and raise objections in trial.

But the person who posed this question drills down deeper into the real factual issues. He wants to know details. We all know that it is easier to allege that you destroyed it accidentally or even intentionally than to allege the loss of the note. A witness from the party asserting PETE can say, truthfully or not, “I destroyed it.” Proving that he didn’t and that the copy is fabricated is very difficult for a homeowner with limited resources. If the allegation and the testimony is that the note was lost, we get into the question of what, when where, how and why. But in a lost note situation most states require some sort of indemnification from the party asserting PETE status or holder in due course status. That is also a problem. I remember rejecting the offer of indemnification from Taylor, Bean and Whitaker after I reviewed their financial statements. It was obvious they were going broke and they did. And the officers went to jail for criminal acts.

So the first question is exactly when was the “original” note last seen and by whom? In whose possession was it when it was allegedly lost? How was it lost? Who has direct personal information on the location of the original and the timing and method of loss? And what happens when the note is “found?” We know that original documents are being fabricated by advanced technology such that even the borrower doesn’t realize he is not being shown the original (that is why I suggest denying that they are the holder of the note, denying they are PETE, denying they are holder in due course etc.)

In the confusion of those issues, the homeowner usually fails to realize that this is just another lie. But in discovery, if you are awake to the issue, you can either learn the facts (or deal with the inevitable objections to discovery). And then the lawyer for the homeowner should graph out the allegations and testimony as best as possible. The questioner is dead right — if the party NOW claiming PETE status or HDC status received the “found” original note but received it from someone other than the party who “lost” it, there is no chain upon which the foreclosing party can rely. In simple language, what they are attempting to do is fly over the gap between when the note was lost and destroyed and the time that the current claimant took possession of the paper. And once again I say that the real proof is the real money trail. If the underlying transactions exist, then there will be some correspondence, agreements and a payment of money that will reveal the true transfer.

And again I say, that if you are attacking the paper you need to be extremely careful not to give the impression that the borrower is attempting to get out of a legitimate debt. The position is that there is no legitimate debt IN THIS CHAIN. The debt lies outside the chain. The true debt is owed to whoever supplied the money that was received at the loan closing, regardless of what paperwork was signed. Failure to prove the original loan transaction should be fatal to the action on the note or the mortgage (except if the foreclosing party can prove the status of a holder in due course). The fact that the paperwork was signed only creates a potential second liability that does not benefit the party whose money was used for the loan.

The foreclosure is a thinly disguised adventure in greed — where the perpetrators of the false foreclosure, use fabricated, robo-signed paper without ANY loan at the base of the paper trail and without any payments made by any of the parties for possession or enforcement of the paper. They are essentially stealing the house, the proceeds, and the money that was used to fund the “loan” all to the detriment of the real parties in interest, to wit: the investors who were tricked into directly lending the money to borrowers  and the homeowners who were tricked into signing paperwork that created a second liability for the same loan.

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Meet PETE: Person Entitled to Enforce

Posted on November 7, 2014 by Neil Garfield

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

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§ 3-301. PERSON ENTITLED TO ENFORCE INSTRUMENT.

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

See my blog article from yesterday and listen to the show.

Concentrating on PETE goes to the nub of the problem. But Judges are not looking for the letter of the law — especially if it conflicts with what they think is common sense. And frankly the UCC is not very helpful for a situation like this — where the banks institutionalized violating the law. It doesn’t make sense to the Judge. From the beginning of this era of litigation, which I would say was around 2004, it was generally thought that Banks would not risk destruction and diminishing their brands by committing crimes that would or could send bankers to jail. Individuals would but banks would not.

The Judge would believe this crazy story if it was an individual in a tee shirt with tattoos and a Hells Angel jacket but it is completely counter-intuitive to believe that the banks would have committed so many crimes in such an elaborate, complicated and complex scheme of layers and laddering. The banks would not do these things they are accused of doing and the regulators would not have allowed it. And today, it STILL makes no sense to most people and most Judges. The borrowers  do not have sufficient education or experience to argue with the popular myth about what the Banks would do, why they would do it and why the borrowers are technically speaking in a far superior legal position when compared to the banks.

So everything presented to the Judge including outright proof of the facts supporting the homeowners’ theory of the case is filtered out by the completely wrong assumption that the bank would never act so irresponsibly and the borrower is merely seizing on hairsplitting notions to escape liability on a deal that went bad for them. The little voice in the Judge’s mind says “Even if you are right, the bank got hurt as well and our laws favor enforcement of negotiable instruments.” And the bank argument that failure to enforce would destroy the financial system and the economy therefore resonates strongly with nearly all judges on both the trial bench and courts of appeal.

The real cause of the trouble comes from the fact that the borrower got money at closing and the notion that assignments, endorsements, powers of attorney were not based upon any actual transaction. To say that there was no money at closing sounds ridiculous to anyone who has not analyzed this from the perspective of an investment banker. There you will easily see that there was no money in the original transaction and there was no money in any “succession” created by false paperwork. And the reason that is important is that in the end the intent of all law is to make a debtor pay his creditor. But who is the creditor?

As the old cases put it, the mortgage follows the note and will automatically inure to the benefit of the party to whom the obligation is owed. see http://law.missouri.edu/whitman/files/2013/12/Foreclosing-on-Nothing.pdf.
The trick here is that the borrower didn’t know there was a difference at closing between the party who funded the loan and the party to whom he promised to pay money. If he did know, or if he was told shortly after closing, then he would no doubt have reconsidered or rescinded once he saw all the people who were actually making money on the origination and transfers of his loan.
The confusion starts with the novel issue or novel fact pattern in which there is now a difference between PAYMENT and REPAYMENT. PAYMENT means you have an obligation to pay. That is not the deal with a loan. THAT is a promise caused by the sale of goods or services. REPAYMENT means that you made a promise to pay back money you received from the Payee on the note, the mortgagee on the mortgage, the beneficiary under the deed of trust.
It should be about REPAYMENT not PAYMENT. And that is where the essential problem lies. If there was no loan at the base of the chain of transfers, then there is no basis to enforce by ANYONE. I think we ought to argue that if some crooked individual had done these things for himself, the Judge would have no problem in stopping enforcement. The fact that a crooked banker engineered this through dozens of conduits and outright civil and potentially criminal theft should make no difference to the result.
I wonder if a voir dire question should not be addressed to the Judge to ask whether it makes any difference to him whether the acts complained of by the homeowner were allegedly committed by some felon with a criminal record or a banker with a clean record. Admittedly the credibility of witnesses is at stake in that example but the ultimate ANALYSIS of the legal and financial  consequences of these schemes should be examined with lady blind justice in mind. I have asked voir dire questions to judges and found them receptive. It is an ideal time to take control of the narrative.

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