Unilateral Mistake: Equitable Defenses Explained — How homeowners can get the upper hand and defend against enforcement of contract that is different from the one they knew or intended

Homeowners are missing out on a huge opportunity for economic gain that balances the power between Wall Street and consumers. 

Courts of equity are courts of conscience, which should not be shackled by rigid rules of procedure,[51] and inherent in a court’s equitable powers is the authority to prevent injustice engendered by fraud, accident, or mistake.[52] Florida Bar Journal Novembert/December 2021 “Two, Three or Four Prongs? The Contractual Defense of Unilateral mistake in Florida”

Second, there is a distinction between the equitable remedies of rescission and reformation that may further blur the lines. The Florida Supreme Court and a few others have ruled that reformation is not appropriate except for mutual mistake,[53] but other Florida courts have extended it in the case of unilateral mistake where there is some form of inequitable conduct or inducement by the party seeking to avoid the defense.[54

Rescission should return the parties to status quo ante; reformation calls for a court, looking at the parties’ intent, to “rewrite” the agreement. The latter is more extreme and against the longstanding principle of court hesitancy to rewrite contracts. The Florida courts have long endeavored to refrain from the rewriting of terms in contracts.[55] Apparently, some bad act by the party seeking to enforce an agreement could under more extenuating circumstances, however, convince a court to rewrite a portion of an agreement.[56]

the courts must take their arguments as presented. Our system is adversarial,[58] and even in equity (with perhaps a bit more flexibility), courts are constrained to consider what parties present. It is not the courts’ role to re-craft a party’s arguments. Whether by choice of the parties or steerage by the courts, assertion of fraud in contracts cases is not undertaken lightly; other arguments devoid of accusations of fraud are more palatable. Additionally, to avoid having to address the fraud question, courts may entertain contractual defense arguments based on mutual mistake, unconscionability and possibly even undue influence (which has an inducement feature balanced with the level of susceptibility, but it is not outright “fraud”). Why find a party guilty of fraud, in a civil case, when a court could reach the same result based on a defense other than fraud? [e.s.]

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THIS ARTICLE APPLIES ONLY TO HOMEOWNER TRANSACTIONS IN WHICH THE SCHEDULED PAYMENTS ARE SUBJECT TO CLAIMS OF SECURITIZATION OF DEBT.

Matthew Marin and Paul Carrier wrote an important article featured in the recent Florida Bar Journal that provides a coherent explanation of contractual defenses that can be applied to contracts claimed to be loans and defenses against enforcement of the note or mortgage. In so doing they remind us of basic principles of what a court can and cannot do — including, I emphasize, the fact that a judge COULD think to himself or herself that an argument or claim or defense could be presented better does not establish the authority to do so. Judges are charged with considering the arguments presented — not the ones that could be presented. And the omission of the ones that could have been presented waives any later attempt to assert them.

This is not up for discussion or debate. It is a basic fact in litigation — one which homeowners have learned (or not) the hard way. Blaming a judge for not doing it is like blaming a dog for failure to fly. Homeowners in my opinion SHOULD be attacking most claims of authority to administer, collect or enforce scheduled payments, and there are plenty of grounds for doing so. In fact, there are good grounds for asking for money in addition to avoiding liability for issuing a promissory note without consideration — and If more homeowners did it the landscape would look totally different. The bottom line is hard for most to accept: the deal was not what it appeared to be.

The grounds for the attack should be largely equitable, but also include legal defenses —- they should be directed at authority (even if the contract was not rescinded, reformed, or set aside in whole or in part) and also on equitable grounds like a unilateral mistake, no meeting of the minds, etc. And as the article points out, validating what I have been saying, alleging fraud makes it far more difficult to plead or prove your point.

So here is the hardest part for homeowners and lawyers for homeowners to understand or even admit.

Nearly all notes and mortgages are issued because of unilateral mistake(s) on the part of the homeowner, induced by investment banks who continue to hide facts that are statutorily required to be disclosed, including but not limited to:

  • They do not know that they are doing business with an undisclosed investment bank doing business through a string of intermediaries.
  • They do not know that the supposed loan transaction is being underwritten for the purpose of justifying sale of unregulated securities and not for purposes of justifying a loan.
  • They do not know that the appraisal is being forced high to justify the contract price and the amount of the “loan”
  •  They do not know that there is an absence of any real party in interest that has a risk of loss — the essential balancing element of all contracts
  • They do not know that the undisclosed revenue for the sale of securities vastly exceeds the amount of their transaction. At the moment they sign, homeowners have triggered revenue that erases all possible risk of loss and eliminates the need to establish a loan account receivable on the books of anyone.
  • They do not know that it is their signature on purported loan documents that creates the illusion of a loan transaction thus triggering the undisclosed sale of securities (without which the “loan” would never have offered, much less occurred.
    • This one fact triggers a series of claims on behalf of homeowners that does not require alleging fraud and keeps the burden of proof manageable (generally preponderance, rather than clear and convincing).
    • Homeowners were not borrowers. They were investors and participants in the sale of unregulated securities. They were entitled to know that and bargain for a fair share of the proceeds. The issuance of the note by the homeowner was based upon a universal error or mistake by all homeowners that they were purchasing a loan product which was not true.
    • In addition, if the transaction was deemed by a court of competent jurisdiction to be a true loan with a “true lender” as set forth in the regulations, then the undisclosed amount of revenue generated from the sale of securities arising from the closing of the transaction with the homeowner is owed back to the homeowner (in full) under the Federal Truth in Lending Act.
      • This element of foreclosure litigation has not been adequately pursued. In judicial states it is an affirmative defense that is not barred by the statute of limitations. In nonjudicial states, the application of the statute of limitations to such claims must be unconstitutional because of unequal treatment based upon choice of procedure. Homeowners should not be barred from using meritorious defenses that are available under the same state’s judicial foreclosure procedure.
  • They do not know that no loan account receivable is created or maintained — thus making modification or workouts rare or impossible
  • They do not know that there is nobody who is legally authorized to administer, collect or enforce the promise they made to make scheduled payments, to wit: the presumed authority to enforce arising from the alleged possession of the alleged original note leads to a false conclusion of fact. Such authority ultimate must come from the party who owns the underlying obligation as contained on their records as a loan account receivable. There is no such loan account receivable.
  • They do not know that the transaction is going to be subject to false claims of servicing
  • They do not know that the “servicing” is not performed by the named “servicer”

The bottom line is that homeowners did not get what they applied for and the investment banks did not pay money to the homeowner or on their behalf because they wanted to loan money. They wanted to sell securities and they needed homeowners to do it. The fact that a homeowner received money and used it to either buy a home or settle a previous financial transaction does NOT make it a loan. A loan is a label for a certain type of contract. There must be a meeting of the minds. In cases where there was no meeting of the minds, there is no contract. And if there was no meeting of the minds because one party to the alleged contract was hiding and did not disclose the real terms as required by laws, rules, and regulations concerning loan contracts make it is imperative that established existing remedies be allowed to homeowners.

PRACTICE NOTE: It seems that a lot of people don’t understand the judicial notice and the insignificance of documents uploaded to the sec.gov site. By filing a registration statement followed by a notice that no further filings are necessary, anyone can upload anything to sec.gov. In effect, it is nothing more than box.com, dropbox, etc.

Lawyers and others involved in false foreclosure claims often upload documents under that cloud and then download those documents from the sec.gov site such that the download shows the sec.gov header.

They then file a motion for judicial notice of the document of a government document even though it was never reviewed accepted, approved nor even a part of a required registration since the sale of “certificates” is not regulated as securities. It is not subject to judicial notice because the document was not an official record of any governmental agency and was never officially registered or recorded.

It does not establish the existence of a trust or the powers of a trustee. Therefore, it cannot serve as the foundation for the claims of the company claiming to be a servicer for that “trust.” It is worthless as to its existence (probably because it is incomplete in the text or exhibits) and it contains only statements of future intent — not a recital of anything that has occurred.

 

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Neil F Garfield, MBA, JD, 74, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.
  • But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 12 years or more.
  • Yes you DO need a lawyer.
  • If you wish to retain me as a legal consultant please write to me at neilfgarfield@hotmail.com.
Please visit www.lendinglies.com for more information.

 

It’s time to reassess the role of investment banks, originators, servicers and other players claiming “securitization” before the next foreclosure tidal wave.

Since foreclosures are about to start another meteoric rise, this would be a good time to write a new article on what went wrong the last time, what is going on now, and what is still likely to go wrong this time.
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I know that some of the rantings on the internet seem like the spillage of conspiracy theorists and some of them are just that. But overall they are right.
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The bottom line is that back in 1993, investment banks latched onto a scheme that had been partially developed by Michael Milken, who went to prison. The new scheme was patently illegal, which made it one step over the line that Milken actually didn’t cross. His junk bonds were perfectly legal. Drexel Burnham disclosed the real risks. But Michael had bigger plans. The plan was to raise the perception of junk bonds to investment grade.
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But then he went to jail. But upon release he was immediately paid $50 million and then hundreds of millions more to help devise the scheme. His actual role is subject to conjecture.
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The goal was to tap the largest market for debt in the world — home lending. It required all the major investment banks (Citi, Goldman, JPM, Credit Suisse) to “cooperate” (i.e., conspire).
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They had to each support the “securitization” schemes of each other, entice other lesser investment banks into playing (Lehman, Bear Stearns) and then influence or buy off fund managers (pension funds) to purchase the junk bonds they were issuing as “Certificates.”
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It as the “holy grail” of investment banking. Issuing trash securities as though it was for a third party issuer when in fact the issuer was the investment bank itself.
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To justify the purchases by stable managed funds, the investment banks paid off and coerced the insurers into issuing insurance contracts and the rating agencies to issue highest quality ratings based upon false assumptions about diversification of risk. The error is simple: diversification is irrelevant if the entire group of loans is (a) not owned and (b) tainted by bad underwriting.
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And the insurance contracts were payable not to the investors nor even for their benefit but rather for the profit of the investment bank who purchased it. The contracts were based upon index performance not actual losses.
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The same is true for the bailouts that occurred. No losses were paid off because the parties receiving the benefits of insurance or bailout had no loss. See the evolution of the definition of TARP from something covering loan losses, to something covering losses on certificates issued by investment banks, to an undefined toxic asset category.
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The now infamous AIG bailout was primarily for the benefit of Goldman Sachs. Having installed their former CEO as US Treasury Secretary, a very reluctant President Bush was convinced to bailout AIG on the false premise that the financial markets would collapse if he didn’t. But the proceeds went to Goldman Sachs as pure profit.
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AIG took the money to pay off Goldman for its bet that the certificates would decline in value. The decline in value was based upon a contractual provision that gave Goldman the sole right in its sole discretion to declare the event. The money covered no losses because Goldman had no losses. It was pure profit. And when the money was received (around $50 billion from the bailout, bonuses, parties and lavish spending ensued.
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Meanwhile the only two real parties to the scheme — investors and homeowners — were left out in the cold.
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At the end of each securitization cycle, the goal was to avoid liability for violations of lending and securities laws. Avoiding lending laws was easy. They used sham entities to act as “originators” who served for a fee and who appeared on the note and mortgage as a lender.
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Avoiding violations of securities was also easy. they disclosed enough to be able to say they told investors what they were doing, the investors were sophisticated and should have been able to ascertain the risks, and through leveraging the typical herd mentality on Wall Street they created a stampede in all securities brokerage firms to buy and sell the certificates. The world was hooked on a financial weapon of mass destruction.
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Eliminating the liability of a lender in form and substance meant that the role of creditor or lender had to be eliminated. That was accomplished by actually eliminating the homeowner’s debt without notice to the homeowner. Hence the “boarding process” asserted in court is fake. There can be no boarding of a debt that does not exist and a history of payments on the nonexistent debt is irrelevant.
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Each party other than the investor got paid in full. But the homeowner never received any notice of reduction due to receipt of payment because nobody maintained an accounting entry on any books of record that showed that the debt was owed or owned.
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The debt could not be owned without a corresponding entry that showed value being paid for the debt. No such transaction had never occurred since the only actual value was paid by investors, who didn’t own the debt.
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The investor never purchased any debt, note or mortgage. At the end of the day there was no person or entity that legally owned any debt, note or mortgage and therefore no lender or lender successor who could be liable for violations of Federal and State lending laws.
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The scheme then required foreclosure on debts that had already been fully paid several times over. To do this the investment banks had to again resort to using sham entities who would fake their roles using fabricated, false, forged and backdated instruments literally manufactured out of thin air. Despite numerous settlements in all US jurisdictions for such practices, they continue unabated.
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And the proceeds of foreclosure are ultimately received by the investment banks who pay out lavish compensation for the players who contributed to the foreclosure process. *
Since no loss is covered or paid or recorded on any books of account, the money is literally free money in which for tax purposes, is falsely reported as payment on loans. So the foreclosure proceeds are pure profit which is untaxed, at least up until this point in time. Investors never see a penny and homeowners are never the wiser that their debt does not exist anywhere.
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In order to accomplish all this the banks needed to coordinate their activities. enter Black Knight who is literally a  successor to DOCX, which was acquired by Lender Processing Systems (LPS). Lorraine Browne took one for the team when she became the only person in the scheme to go to jail for fabrication of documents.
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Somehow the courts continue to apply presumptions that are supposed to only raise from inherent credibility of documents that are patently false. This results in foreclosure on the erroneous assumption that even if the paperwork is somehow false or even fabricated the proceeds will find their way to the investors. That presumption is wrong.
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Black Knight is the hub in which all things are centralized to prevent foreclosure of the same homeowner transaction by more than one entity — something that would expose the false nature of all of the foreclosures.
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By getting a foreclosure judgment the investment banks succeeded in getting a legal stamp of approval on everything that had transpired before the foreclosure was initiated and the grounds on which they could report the proceeds as return of loan. Basically all fabricated false documentation emanates by or at the direction of Black Knight.
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Judges of all stripes have always been curious about the muscle chairs strategy of presenting several servicers, plaintiffs and other parties. Maybe this time, with a little help from the press, they might be open to considering the fact that the investment banks are not saving the economy, they are stealing from investors and homeowners alike. And if they start asking for fake bailouts again they are stealing from the government and taxpayers. 

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New foreclosure rocket dockets will emerge unless these practices are controlled or stopped. If the claimant is not the owner of the debt, present, existing, black letter law, does not allow foreclosure. In fact, enforcement of the note or separately, the debt, is not allowed unless the right to enforce comes from the owner of the debt. The law is clear, unless someone pays value, they can’t own the debt. Assignments of mortgage without the debt are a legal nullity.
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To “save” the economy the only legal option available is to reassess the homeowner transaction using the equitable powers of the court. It might be true that the homeowner obligation can be enforced after such a reassessment — but only after the facts are all exposed and all stakeholders are brought to the table.
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This would require that the court hear a properly filed pleading requesting equitable reformation of the contract to allow for maintaining the homeowner obligation because without that, the entire securitization infrastructure is in danger of collapse — even though nobody in the securitization infrastructure actually ever owns the debt or suffers a loss from nonpayment.
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To make the homeowner obligation enforceable the court must allow a designee or nominee to pose as creditor. Further the court must adopt procedures that allow a party to act as the designator, even though neither the designee nor the designator own the debt and will suffer no loss from any payment or nonpayment by a homeowner. The current practice of allowing such designees to reap such rewards is  not legally sustainable and probably unjust and unfair.
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The legal analysis requires a beginning point of analysis the contracting intent of the contracting parties. And that in turn requires an analysis of the identity of the contracting parties.
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That analysis results in an indisputable truth: taken separately there was no meeting of the minds — because the homeowner wanted a loan and the investment bank , acting through the originator, wanted the issuance of securities — the note and mortgage — without anyone assuming the substantive role of a lender.
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But taken together a contract can be fashioned in which the homeowner transaction can be treated as a loan contract and the absence of any creditor can be adjusted to insert a designee or creditor who can enforce. but ti do that, the entire contract must be taken into consideration.
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If the homeowner was seeking an actual loan under lending laws but didn’t get it, what is the consideration for entering into a deal that was so profitable for the other contracting parties, whether they were stated or concealed?
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If the answer is nothing, then the court must determine the proper amount of consideration that the homeowner should have received for being drafted into a risky securities scheme — a scheme in which his rights as a consumer, borrower or customer were virtually eviscerated by the substance of the deal.
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The only other legal option is common law rescission. That will result in dismantling the entire securitization scheme.
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Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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Quiet Title Revisited: Not Quite a Dead End

Void means that the instrument meant nothing when it was filed, not that it is unenforceable now.

 

I know how hard it is to let go of something that you really want to believe in. But for practical reasons I consider it unwise to continue on the QT path until we can find a way to get rid of the void assignment. That unto itself might a form of quiet title action and it is far easier to do. The allegation need only be that neither the assignor nor the assignee (a) had any right, justification or excuse to claim an interest in the recorded mortgage and (b) neither one was ever party to a completed transaction in which either of them had paid value for any interest in the recorded mortgage. Hence the assignment is void and should be removed from the chain of title reflected in the county records. So that takes care of one of several problems and the attack does not seek to remove the mortgage — yet.

 

Quiet title is a very limited remedy. In nearly all cases if the facts are contested it almost automatically means that there is no quiet tile relief available. It is meant to remove wild deeds or any other void (not voidable) instrument. Void means that the instrument meant nothing when it was filed, not that it is unenforceable now.

I contributed to the mystery of quiet title because it was apparent that the mortgage was void because it never named the true lender. In fact the existence and identity of the true source of funds for the transaction was intentionally withheld from the borrower leaving the mortgage with only one party instead of two.

 

The problem many courts are having with this is that the mortgage might still be subject to reformation that would insert the correct name of the actual lender (theoretically, potentially reformation). The fact that there is no such creditor whose name can be inserted does not make the mortgage void. It makes it voidable. Actually proving that there is no such creditor won’t be easy since only the banks have the information that shows that.

 

If there are any future events that could revive the mortgage deed, then quiet title can’t work. Add to that the fact that judges are not treating these attacks seriously and routinely ruling for the banks and you have a what appears to be a dead end.

 

All that said, there ARE causes of action that could attack the void assignment and the voidable mortgage in which the court could theoretically declare that in the absence of information sought from the defendants, who appear to be the only potential claimants, the mortgage is THEN declared void by court order, THEN a second count in quiet title would be in order. I cannot emphasize enough the fact that Judges are going to be very resistant to this but I think that appellate courts are starting to understand what happened with false claims of securitization.

 

Essentially, the Court must state that:

  1. The mortgage failed to name the correct party as lender.
  2. That failure makes the mortgage voidable.
  3. Despite publication and notice, there are no parties who could answer to the description of the creditor whose name should have been on the mortgage.
  4. The mortgage is therefore void
  5. Court declares title to be vested in the name of Smith and Jones without any encumbrance arising out of the mortgage recorded at Page 123 Book 456 of the public records of XXXX County, Florida.
 This of course directly challenges the judicial notion that once the homeowner receives money, it is a loan, it is enforceable and it doesn’t matter who comes into court to enforce it. To say that this judicial “law” opened the door to mayhem and moral hazard would be an understatement. Using the opinions written by trial judges, appellate judges and even Supreme Court justices, people who like to “leverage the system” have seized on this obvious opening to steal receivables from the rightful recipient — with no negative consequences. They write a letter that appears on its face to be correct and valid. According to current practices this raises the presumption that the contents of the letter are true.
 Hence the self-serving letter creates the legal presumption that the writer is authorized to tell the debtor that the writer is now the owner of the debt and to direct payments to the “new owner.” This isn’t speculation. Starting in California this business plan is spreading across the country. By the time the rightful owner of the debt wakes up the Newco Debt Servicing company has collected or settled the account.
Since the presumption is raised that the thief writing the letter is authorized, the real party in interest cannot beat the defense of payment by a debtor who thought they were doing the right thing. Reasonable reliance by the borrower is presumed since the authority and the validity of the letter was presumed. And that is not just a description of some dirty rag tag gangsters; it is a verifiable description of what the banks have been doing for years with mortgage debt, credit card debt, student loan debt and every other kind of debt imaginable.
By the time the investors wake up and find out their money was not used to fund a trust or real business entity, their money is gone and they are at the mercy of the big time banks who will offer settlements of claims that should have resulted in jail time for the bankers. Instead we have literally authorized small time crooks to emulate the behavior of the banks thus throwing the marketplace into further chaos.
So if you start off knowing that the banks can never come up with the name and contact information of a creditor, then you begin to see how there are some attacks on the position of banks that could have enormous traction even though on their face those strategies look like losers.
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