How Does the Debt Get Transferred?

Basic Black Letter law: A debt can only be transferred by the owner of the debt. The owner of the debt may use agents or intermediaries to accomplish the transfer of the debt. If an intermediary executes a document of transfer without reference and identification of the owner of the debt, the document has potentially fatal defects.

Parole evidence may be admitted, upon discretion of a court of competent jurisdiction. But in the end, the party claiming authority to enforce the debt in a foreclosure of the mortgage or deed of trust must prove that it is doing so on behalf of the owner of the debt.

The simplest way of doing this is by alleging or asserting the name of the owner of the debt and the fact that the enforcer is representing the owner of the debt. In the absence of such allegation or assertion it is more likely than not that the enforcer is not representing the owner of the debt and therefore has no authority to enforce the foreclosure.

Promissory notes may be enforced without ownership of the debt. Mortgages and deeds of trust cannot. Article 9 of the UCC as adopted by all 50 states as their state law requires that the debt be owned or purchased for value as a condition precedent to the right of the claimant to enforce a mortgage through foreclosure.

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The courts are hiding the issue but there is full consensus on the fact that a mortgage without ownership of the debt is useless. If you analyze the decisions it is always there. But the courts are creative in coming to the conclusion that the transfer of ownership of the debt MUST have occurred (even if it didn’t).

They are bridging that divide by making some legal presumptions like “why execute the assignment of mortgage if you were not transferring the debt?” This of course ignores the question of whether (1) the assignor owned the debt (2) the assignor also specifically referenced transfer of the debt either in the assignment of mortgage or in an indorsement on the note.

I have already explained in many different ways that the ownership of the debt is completely dependent upon actual payment of value and the assumption of the risk of nonpayment.  And I have often explained that the last person in the fictitious chain used by enforcers is virtually never the owner of the debt nor an authorized representative of the owner of the debt.

The rule is this: At some point in the fictitious chain, payment was not made because the loan was already sold. This could be as early as before the loan “Closing” to as late as the most recent assignment of mortgage. Note as well that where assignment of mortgage is abandoned at trial the case ceases to become a foreclosure case and converts solely to an action for damages for nonpayment on the note.

Transfer of the note is evidence of transfer of the debt. The matter asserted is that the debt was transferred. If the transferor of the note actually owned the debt, the evidence of transfer of the debt becomes fairly conclusive. But without evidence showing that the transferor owned the debt, no legal presumption should arise. And if the maker of the note challenges (denies) the transfer of the debt, the burden is on the enforcer to establish a chain of evidence starting with the owner of the debt. One way to put this in contention is simply denying that the note is held or owned by the enforcer which makes them prove it. In many cases the enforcer ahs been successful at fabricating a new “original.”

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There is also an issue that is more grounded in law: the delivery of the note signals transfer of the debt because the note is like the title to a car. You become the legal owner when you get it. When you receive the note the presumption arises that the only evidence of the debt has been transferred to the recipient. Whether the note really is the only evidence of the debt is of course subject to dispute and normally not true. Dozens of documents at closing reflect the existence of the debt but not necessarily the owner of the debt. The only real conclusive evidence of the debt is evidence of actual payment by the Payee on the note to or on behalf of the Maker.
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The creative courts dodge (1) the question about whether the prior possessor owned the note or debt and (2) whether the original note was actually physically delivered. In most cases only an image was delivered electronically, the original most likely having been destroyed or “lost.” Other sales of the image of the original note have almost always occurred. However, up to this point in time, the payoff to the underwriter/investment bank is not counted as reducing the receivable from the borrower to zero, even if the amount received is a multiple of the original note. If the investment bank was acting in the interest of investors to whom it sold Trust certificates, then the first money would have been return of capital to the investors and subsequent payoffs would have been shared between the underwriter and the investors.
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The problem of course is that there would be no subsequent sales without the illusion that the loan still exists. So the investment banks created a convoluted trail to make it appear that the receivable (debt) existed while at the same time not titling it as such in the name of anyone. It was a brilliant act of deception. And THAT is the reason why they won’t identify the creditor. And it is the reason why no bank has ever challenged a TILA rescission by filing a suit to vacate the rescission. THERE IS NO CREDITOR, DESIGNATED OR OTHERWISE. Hence all such enforcement claims lack legal standing. TILA rescission strips away the veneer. If the banks actually had a creditor they would have buried anyone using rescission with a simple lawsuit vacating the rescission. They don’t because they can’t.

What to Do When the “Original” Note is Proferred

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.
There are two issues when the other side presents original documents. First is that they say these are originals and they do not accompany it with an affidavit from someone with actual personal knowledge of the transactions or the high bar for business records exceptions to hearsay. My experience is that 50-50, the documents are original or fabricated by use of Photoshop and a laser printer or dot matrix printer. So what you need to do is to go down to the clerk’s office and see what they filed. It would not be unusual for them to file a copy saying it was the original. Second, on that same point, the original can be examined. When the signatures are heavy there should be indentations on the back. Also a notary stamp tends to bleed through the paper to the back.

The second major point is the issue of holder v owner. The owner of the debt is entitled to the ultimate relief, not the note-holder unless the other side fails to object. So along with the proffering of the “originals” they must tell the story, using competent foundation testimony, how they came into possession of the note. In discovery this is done by asking to see proof of payment and proof of loss. Which is to say that you want to see the canceled check or wire transfer receipt that paid for the “transaction” in which the possessor of the note became a holder under UCC and is entitled to a rebuttable presumption that they are the owner. If there is no transaction for value, then the note was not negotiated under the terms of the UCC.

Since they possess the note there is a hairline allowance that they may sue for the collection on a note in which they have no financial sake but there is no ability to win if the borrower denies they received the money or that the possessor of the note obtained the note for purposes of litigation and is not the creditor — i.e., the party who could properly submit a credit bid at auction by a creditor as defined by Florida statutes, nor are they able to execute a satisfaction of mortgage because even upon the receipt of the money they have no loss, and under the terms of the note itself the overpayment is due back to the borrower.

And just as importantly, they cannot modify the mortgage so any submission to them for modification is futile without them showing proof of payment, proof of loss and/or authority to speak for and represent the interests of an identified creditor.

An identified creditor is not merely a name but is a report of the name of the owner of the debt, the contact person and their contact information. Then you can contact the owner and ask for the balance and how it was computed. So the failure to identify the actual owner is interference with the borrower’s right to seek HAMP or HARP modifications — potentially a cause of action for intentional interference in the contractual relations of another (asserting that the note and mortgage incorporated existing law) or violation of statutory duties since the Dodd-Frank act includes all participants in the securitization scheme as servicers.

The key is the money trail because that is the actual transaction where money exchanged hands and it must be shown that the money trail leads from A to B to C etc. The documents would then be examined to see if they are in fact relating to the transaction or a particular leg of the chain.

If the documents don’t conform to the actual monetary transaction, then the documents are refuted as evidence of the debt or any right to enforce the debt. What we know is that in nearly all cases the documents at origination do NOT reflect the actual monetary transaction which means they (a) do not show the actual owner of the debt but rather a straw-man nominee for an undisclosed lender contrary to several provisions of the Truth in Lending Act. The same holds true for the false securitization” chain in which documents are fabricated to refer to transactions that never occurred — where there was a transfer of the debt on paper that was worthless because no transaction took place.

One last thing on this is the issue of blank endorsements. There is widespread confusion between the requirements of the UCC and the requirements of the Pooling and Servicing Agreement. It is absolutely true that a blank endorsement on a negotiable instrument is valid and that the holder possesses all rights of a holder including the presumption (rebuttable) of ownership.

But hundreds of Judges have erred in stopping their inquiry there. Because the UCC says that the agreement of the parties is paramount to any provision of the act. So if the PSA says the endorsement and assignment must be in a particular form (recordable) made out to the trust and that no blank endorsements will be accepted, then the indorsement is an offer which cannot be accepted by the asset pool or the trustee for the asset pool because it would violate an express prohibition in the PSA.

And that leads to the last point which is that a document calling itself an assignment is not irrefutable evidence of an actual transfer of the loan. If the assignee does not agree to take it, then the transaction is void.  None of the assignments I have seen have any joinder and acceptance by the trustee or anyone on behalf of the pool because nobody on the trustee level is willing to risk jail, even though Eric Holder now says he won’t prosecute those crimes. If you take the deposition of the trustee and ask for information concerning the trust account, they will get all squirrelly because there is no trust account on which the trustee is a signatory.

If you ask them whether they accepted the assignment of a defaulted loan and if so, what was the basis for them doing so they will get even more nervous. And if you ask them specifically if they accepted the assignment which you attach to the interrogatory or which you show them at deposition, they will have to say that they did not execute any document accepting that assignment, and then they will be required to agree, when you point out the PSA provisions that no such assignment or endorsement would be valid.

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