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

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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.

Meet PETE: Person Entitled to Enforce

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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.

When an assignment of a mortgage is invalid, does it require a foreclosure case to be dismissed?

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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There seems to be confusion about what is necessary to file a foreclosure. To start with the basics, the debt is created when the borrower receives the funds or when the funds are disbursed for the benefit of the borrower. This requires no documentation. The receipt of funds presumptively implies a loan that is a demand loan. The source of funding is the creditor and the borrower is the debtor. The promissory note is EVIDENCE of the debt and contains the terms of repayment. In residential loan transactions it changes the terms from a demand loan to a term loan with periodic payments.

But without the debt, the note is worthless — unless the note gets into the hands of a party who claims status as a holder in due course. In that case the debt doesn’t exist but the liability to pay under the terms of the note can be enforced anyway. In foreclosure litigation based upon paper where there are claims or evidence of securitization, there are virtually all cases in which the “holder” of the note seeks enforcement, it does NOT allege the status of holder in due course. To the contrary, many cases contain an admission that the note doesn’t exist because it was lost or destroyed.

The lender is the party who loans the money to the borrower.  The lender can bring suit against the borrower for failure to pay and receive a money judgment that can be enforced against income or non-exempt property of the borrower by writ of garnishment or attachment. There is no limit to the borrower’s defenses and counterclaims against the lender, assuming they are based on facts that show improper conduct by the lender. The contest does NOT require anything in writing. If the party seeking to enforce the debt wishes to rely on a note as evidence of the debt, their claim about the validity of the note as evidence or as information containing the terms of repayment may be contested by the borrower.

If the note is transferred by endorsement and delivery, the transferee can enforce the note under most circumstances. But the transferee of the note takes the note subject to all defenses of the borrower. So if the borrower says that the loan never happened or denies it in his answer the lender and its successors must prove the loan actually took place. This is true in all cases EXCEPT situations where the transferee purchases the note for value, gets delivery and endorsement, and is acting in good faith without knowledge of the borrower’s defenses (UCC refers to this as a holder in due course). The borrower who signs a note without receiving the consideration of the loan is taking the risk that he or she has created a debt or liability if the eventual transferee claims to be a holder in due course. Further information on the creation and transfer of notes as negotiable paper is contained in Article 3 of the Uniform Commercial Code (UCC).

Thus the questions about enforceability of the note or recovery on the debt are fairly well settled. The question is what happens in the case where collateral for the loan secures the performance required under the note. This is done with a security instrument which in real property transactions is a mortgage or deed of trust. This is a separate contract between the lender and the borrower. It says that if the borrower does not pay or fails to pay taxes, maintain the property, insure the property etc., the lender may foreclose and the borrower will forfeit the collateral. This suit is an action to enforce the security instrument (mortgage, deed of trust etc.) seeking to foreclose all claims inferior to the rights of the lender established when the mortgage or deed of trust was recorded.

The mortgage is a contract that does not qualify as a negotiable instrument and so is not covered by Article 3 of the UCC. It is covered by Article 9 of the UCC (Secured Transactions). The general rule is that a party who purchases the mortgage instrument for value in good faith and without knowledge of the  borrower’s defenses may enforce the mortgage if the contract is breached by the borrower. This coincides with the requirement that the holder of the mortgage must also be a holder in due course of the note — if the breach consists of failure to pay under the terms of the note. Any party may assign their rights under a contract unless the contract itself says that it is not assignable or assignment is barred by statute or administrative rules.

The “assignment” of the mortgage or deed of trust is generally taken to be an instrument of conveyance. But forfeiture of collateral, particularly one’s home, is considered to be a much more severe remedy against the borrower than a money judgment for economic loss caused by breach of the borrower in making payments on a legitimate debt. So the statute (Article 9, UCC)  requires that the assignment be the result of an actual transaction in which the mortgage is purchased for value. The confusion that erupts here is that no reasonable person would merely purchase a mortgage which is not really an asset deriving its value from a borrower’s promise to pay. That asset is the note.

So if the note is purchased for value, and assuming the purchaser receives delivery and endorsement of the note, as a holder in due course there is no question that the mortgage assignment is valid and enforceable by the assignee. The problems that have emerged is when, if ever, any value was paid to anyone in the “chain” on either the note or the mortgage. If no value was paid then the note might be enforceable subject to borrower’s defenses but the mortgage cannot be enforced. Additional issues emerge where the “proof” (often fabricated robo-signed documents) imply through hearsay that the note was the subject of a transaction at a different time than the date on the assignment. Denial and/or discovery would reveal the fraud upon the Court here — assuming you can persuasively argue that the production of evidence is required.

Another interesting question comes up when you seen the language of endorsement on the mortgage. This might be seen as splitting hairs, but I think it is more than that. To assign a mortgage in form that would ordinarily be accepted in general commerce — and in particular by banks — the assignment would be in the form that recites the ownership of the mortgage and the intention to convey it and on what terms. Instead, many cases show that there is an additional page stapled to the mortgage which contains only the endorsement to a particular party or blank endorsement. The endorsement is not recordable whereas a facially valid assignment is recordable.

The attachment of the last page could mean nothing was conveyed or that it was accidentally done in addition to a proper assignment. But I have seen several cases where the only evidence of assignment was a stamped endorsement, undated, in which there was no assignment. This appears to be designed to confuse the Judge who might be encouraged to apply the rules of transfer of the note to the circumstances of transfer of the mortgage. This smoke and mirrors approach often results in a foreclosure judgment in favor of a party who has paid nothing for the debt, note or mortgage. It leaves the actual lender out in the cold without a note or mortgage which they should have received.

It is these and other factors which have resulted in trial and appellate decisions that appear to be in conflict with each other. Currently in Florida the Supreme Court is deciding whether to issue an opinion on whether the assignment after the lawsuit has begun cures jurisdictional standing. The standing rule in Florida is that if you don’t own the mortgage at the time you declare a default, acceleration and sue, then those actions are essentially void.

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Valid assignment is necessary for the plaintiff to have standing in a foreclosure case. (David E. Peterson, Cracking the Mortgage Assignment Shell Game, The Florida Bar Journal, Volume 85, No. 9, November, 2011, page 18).

In BAC Funding Consortium v. Jean-Jeans and US Bank National Association, the Second District of Florida reversed summary judgment for a foreclosure for bank because there was no evidence that the bank validly held the note and mortgage. BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean-Jacques 28 So.2d, 936.

BAC has been negatively distinguished by two cases:

  • Riggs v. Aurora Loan Services, LLC, 36 So.3d 932, (Fla.App. 4 Dist.,2010) was distinguished from BAC, because in BAC the bank did not file an affidavits that the mortgage was properly assigned; in Riggs they did. The 4th District held that the “company’s possession of original note, indorsed in blank, established company’s status as lawful holder of note, entitled to enforce its terms.” [Editor’s note: The appellate court might have erred here. The enforcement of the note and the enforcement of the mortgage are two different things as described above].
  • Dage v. Deutsche Bank Nat. Trust Co., 95 So.3d 1021, (Fla.App. 2 Dist.,2012) was distinguished from BAC, because in Dage, the homeowners waited two years to challenge the foreclosure judgment on the grounds that the bank lacked standing due to invalid assignment of mortgage. The court held that a lack of standing is merely voidable, not void, and the homeowners had to challenge the ruling in a timely manner. [Editor’s note: Jurisdiction is normally construed as something that cannot be invoked at a later time. It can even be invoked for the first time on appeal.]

In his article, “Cracking the Mortgage Assignment Shell Game,” Peterson in on the side of the banks and plaintiffs in foreclosure cases, but his section “Who Has Standing to Foreclosure the Mortgage?” is full of valuable insights about when a case can be dismissed based on invalid assignment. Instead of reinventing the wheel, I’ve copied and pasted the section below:

It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.34 Further, an agent for the holder can sue to foreclose.35 The holder of a collateral assignment has sufficient standing to foreclose.36 [Editor’s note: Here again we see the leap of faith that just because someone might have standing to sue on the note, they automatically have standing to sue on the mortgage, even if no value was paid for either the note or the mortgage].

Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.37 Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.38 [e.s.]

In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.39

When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.40 [e.s.] 34  Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).

35                  Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”). [Editor’s note: This is an example of judicial ignorance of what is really happening. MERS is a conduit, a naked nominee, whose existence is meaningless, as is its records of transfer or ownership of the the debt, the note or the mortgage]

36                  Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).

37                  See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).

38                  BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But see Lizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership). [Editor’s note: this is the nub of the problems in foreclosure litigation. The law requires purchase for value for ownership, along with other criteria described above. This court’s conclusion places an unfair burden of proof on the borrower. The party with the sole care, custody and control of the actual evidence and information about the transfer or sale of the ndebt, note or mortgage is the Plaintiff. The plaintiff should therefore be required to show the details of the transaction in which the debt, note or mortgage was acquired. To me, that means showing a cancelled check or wire transfer receipt in which the reference was to the loan in dispute. Anything less than that raises questions about whether the loan implied by the note and mortgage ever existed. See my previous articles regarding securitization where the actual loan was actually applied from third party funds. hence the originator, who did not loan any money, was never paid for note or mortgage because consideration from a third party had already passed.]

39                  See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after). [Editor’s note: if the note and mortgage were in fact transfered for actual value (with proof of payment) then a “late” assignment might properly be categorized as a clerical issue rather than a legal one — because the substance of the transaction actually took place long before the assignment was executed and recorded. But the cautionary remark here is that in all probability, nobody who relies upon the “Chain” ever paid anything but fees to their predecessor. Why would they? If the consideration already passed from third party — i.e., pension fund money — why would the originator or any successor be entitled to demand the value of the note and mortgage? The originator in that scenario is neither the lender nor the owner of the debt and therefore should be given no rights under the note and mortgage, where title was diverted from the third party who DID the the loan to the originator who did NOT fund the loan. 40 Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).-David E. Peterson, “Cracking the Mortgage Assignment Shell Game”, The Florida Bar Journal, Volume 85, No. 9, November, 2011.

I also came across a blog post from another attorney on how to argue Florida assignments of judges. I don’t know how reliable this is, but it does cite several cases, and may be a useful resource to you: http://discoverytactics.wordpress.com/tactics-strategies/how-to-argue-florida-assignments-to-judges/. Someone also posted the content of the above link verbatim in a comment on my blog at http://livinglies.me/foreclosure-defense-forms/people-players-and-resources/state-laws/florida-laws/.

 

Another Short Treatise on Securitization

Patrick Giunta brought this article to my attention. He practices in South Florida and I co-counsel cases with him. Although there are some errors in facts and I have some differences of opinion with the writer, I think the article is a MUST-READ for anyone effected by “securitization” — especially foreclosure defense attorneys. If nothing else there is corroboration of what I have said all along. The entire thing is the emperor’s new clothes — see article I wrote about 7 years ago. If you don’t understand that, then you don’t know how to cross examine the “corporate representative” at trial.

The following is an excerpt from the article, and the link to the entire article is below:

“A serious problem with modern securitization is that it destroys “privity.” Privity of contract is the traditional notion that there are two parties to a contract and that only a party to the contract can enforce or renegotiate that contract. Put simply, if A and B have a contract, C cannot enforce B’s rights against A (unless A expressly agrees or C otherwise shows a lawful agency relationship with B). The frustration for Joe is that he cannot find the other party to his transaction. When Joe talks to his “bank” (really his Servicer) and tries to renegotiate his loan, his bank tells him that a mysterious “investor” will not approve. He can’t do this because they don’t exist, have been paid or don’t have the authority to negotiate Joe’s loan.

“Joe’s ultimate “investor” is the Fed, as evidenced by the trillion of MBSs on its balance sheet. Although Fannie/Freddie purportedly now “own” 80 percent of all U.S. “mortgage loans,” Fannie/Freddie are really just the Fed’s repo agents. Joe has no privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed know this. So they are using the Bailout Banks to frontrun the process – the Bailout Bank (who also have no cognizable connection to the note and therefore no privity relationship with Joe) conducts a fraudulent foreclosure by creating a “record title” right to foreclose and, when the fraudulent process is over, hands the bag of stolen loot (Joe’s home) to Fannie and Freddie.”

http://butlerlibertylaw.com/foreclosure-fraud/

Why They Sue as Holder and Not as Holder in Due Course

Parties claiming a right to foreclose allege they are the “Holder” and do not allege they are the holder in due course (HDC) because they are ducking the issue of consideration required by both Article 3 and Article 9 of the UCC. So far their strategy of confusion is working. They are directly or impliedly claiming they are the holder of the NOTE. They cannot claim they are the holder of the MORTGAGE, because no such status exists — they either own the mortgage encumbrance because they paid for it or they didn’t. If they didn’t pay for it, they cannot enforce it even if they still can enforce the note.

The framers of the Uniform Commercial Code (UCC) had a plan they executed in Article 3 and Article 9 of the UCC, as adopted by 49 states (Louisiana, excepted). They had four (4) problems to solve.

Consider two possible fact patterns, to wit: first the payee (“lender”) did in fact fund the loan putting cash in the hands of the borrower or paying debts on the borrower’s behalf; second, the payee (“originator”) gets the borrower to sign the note but fails or refuses or never intended to fund the loan of money to the borrower. In the first instance the note is evidence of a real debt whereas in the second instance the note is not evidence of a real debt.

This issue has been obscured by the fact that SOMEONE (“investors”) did fund a loan. The questions posed here is whether the investors received the protection of a note and mortgage and if they didn’t, what is the effect of advancing funds for a loan without getting the required evidence of the loan (Promissory Note) and without getting the collateral (Mortgage) that would ordinarily apply.

The Four Goals

First, the UCC framers wanted to encourage the free flow of commerce by making certain instruments the equivalent of cash. The Payee should be able to use such instruments in trading for goods, services, or credit. This is the promissory note — a written instrument containing an unconditional promise to pay a certain amount. The timing of the payments, the amount, the terms, the method of payment must all be obvious from the face of the note without reference to any outside evidence (parol evidence) that could reduce or eliminate the value of the note. If there are questions or conditions apparent from the face of the instrument, it fails the test of a negotiable instrument or cash equivalent. That means that Article 3, UCC doesn’t apply.

Second they wanted to protect the issuer of the note (the payor) from the effects of fraud, improper lending practices and other deprive lending policies and practices from any false claims for payment on the note. If the Payor (homeowner, borrower) received no benefit from the Payee but was somehow induced to sign the note in anticipation of receiving the benefit, then the Payee should not be able to collect from the Payor. This goal conflicts with the first goal only when the note is sold to an innocent third party for value who had no notice of the defective nature of the origins of the note (Holder in Due Course -HDC).

Thus third, in order to maintain the status of cash equivalent paper, they had to provide a mechanism in which an innocent third party was protected when they advanced money for the purchase of the note without having any notice of the borrower’s defenses. This would allow the buyer to sue the payor (borrower, debtor) and collect free of any potential defenses. The burden of the borrower’s claims would then fall on the borrower to collect damages against the original payee for wrongful acts. (Article 3, UCC, Holder in Due Course -HDC).

And in order to allow all such notes to be enforceable regardless of the circumstances of their origin, any party holding the note (“Holder”) can enforce the note if they have physical possession of the note, even if they paid nothing for it, as long as it is endorsed to them. But if they are a HOLDER and not a HOLDER IN DUE COURSE then they sue subject to all of the borrower’s defenses. The central issue is whether the Holder has paid for the note, in which case they would be in HDC status or if they did not pay for the note, in which case they enforce subject to all borrower’s defenses — including the allegation that the original payee never made the loan.

Fourth was the issue of forfeiture of collateral. This is considered the most extreme remedy under commercial law, analogous to the death penalty in criminal cases. (Article 9, UCC — secured transactions). It is one thing to preserve liquidity in the marketplace by protecting the investment of innocent third parties who purchase negotiable instruments from defenses — and quite another to cause forfeiture of home or property. Here again, the language of Article 3 is used for an HDC — i.e., an assignment of the mortgage is enforceable ONLY if the Assignor paid for it and had no notice of borrower’s defenses.

So they devised a structure in which a bona fide purchaser of the paper without notice of the borrower’s defenses would be called a holder in due course. They could sue the borrower despite wrongful behavior by the original payee on the unconditional promise to pay (the note). In the event of fraud in the sale of the note, the new owner of the note could sue both the seller (Assignor, endorser or indorser).

Then they considered the possibility of wrongful behavior: the issuance of such commercial paper would be a claim, but not negotiable paper — but if it was sold anyway it would be subject to the borrower’s defenses. This allows outside evidence (parol evidence) — which is to say that in this fact pattern, the promise to pay was conditional on the value and effect of the borrower’s defenses. The HOLDER of this instrument need not pay for the sale of the note and need not be ignorant of the borrower’s defenses. This holder could sue both the payor (borrower, debtor) and the party who transferred the note — depending upon the agreement that accompanied the transfer of the note by delivery and indorsement.

The party who accepts indorsement without paying for the note or even knowing of potential borrower defenses can still enforce the note, but unlike the the HOLDER IN DUE COURSE, the Payor (Borrower) could raise all defenses to the original transaction. The UCC Article 3 calls this a holder. A holder need not purchase the note and may have actual knowledge of the borrower’s defenses but can still sue the payor (borrower) for the principal amount due on the unconditional promise to pay.

I have noticed that most judicial foreclosures are either in rem (foreclosures only) or the claim on the note is that the Plaintiff is a “holder.” If they have possession and it is indorsed, they are probably a holder entitled to enforce the note. But the Defendant can raise all available defenses just as he or she would do if the fight was with the originator of the note execution. And nothing is a better defense than the distinction between being the originator of the note execution and the originator of the loan. The confusion over the term “originator” has allowed millions of foreclosures to be completed despite the fact that the “holder” neither paid for the note nor could they claim they were ignorant of the borrower’s defenses.

This confusion has led most courts to look at Article 3, UCC, instead of Article 9, UCC. Neither allow the claimant to sue on either the note or the mortgage without having paid for the assignment of the mortgage or delivery of the note, if the holder has actual notice of borrower’s defenses. In most cases the claimant either has the knowledge of the fraud and predatory practices at closing or is a made to order controlled company of a real party who has such knowledge.

In conclusion, borrowers should prevail in foreclosure litigation in situations where the claimant is unable to prove the identity of the actual lender who advanced funds, or where the claimant has failed to purchase the mortgage.

Based upon vast quantities of information in the public domain including investor lawsuits, insurer lawsuits and government agency lawsuits (all alleging FRAUD and mismanagement of funds) against broker dealers who sold mortgage bonds, it seems highly likely that in the 96% of all loans between 2001-2009 that are subject to claims of securitization three things are true:

(1) the securitization plan was never followed in most cases thus making the investors direct lenders without benefit of a note or mortgage and

(2) none of the parties “holding” paper possess any of the qualities of a party who could have standing to foreclose and

(3) claims still exist on the notes, even though they were not supported by consideration but those claims are unsecured and subject to all defenses that could have been raised against the originator.

Neil F Garfield, Esq.

For further information call 520-405-1688, or 954-495-9867. Do not use the above information without consulting an attorney licensed in the jurisdiction in which your property is located and who knows all the facts of your case. The above article is a general description and may not apply to your case.

Unconscionable and Negligent Conduct in Loan Modification Practices

JOIN US EVERY THURSDAY AT 6PM Eastern time on The Neil Garfield Show. We will discuss the Stenberger decision and other important developments affecting consumers, borrowers and banks. We had 561 listeners so far who were on the air with us or who downloaded the show. Thank you — that is a good start for our first show. And thank you Patrick Giunta, Esq. (Broward County Attorney) as our first guest. For more information call 954-495-9867.

In the case of Wane v. Loan Corp. the 11th Circuit struck down the borrower’s attempt to rescind. The reasoning in that case had to do with whether the originator was the real lender. I think, based upon my review of that and other cases, that the facts were not totally known and perhaps could have been and then included in the pleading. It is one thing to say that you don’t think the originator actually paid for the loan. It is quite another to say that a third party did actually pay for the loan and failed to get the note and mortgage or deed of trust executed properly to protect the real source of funds. In order to do that you might need the copy of the wire transfer receipt and wire transfer instructions and potentially a forensic report showing the path of “securitization” which probably never happened.

The importance of the Steinberger decision (see prior post) is that it reverts back to simple doctrines of law rather the complexity and resistance in the courts to apply the clear wording in the Truth in Lending Act. The act says that any statement indicating the desire to rescind within the time limits set forth in the statute is sufficient to nullify the mortgage or deed of trust by operation of law unless the alleged creditor/lender files an action within the prescribed time limits. It is a good law and it covers a lot of the abuses that we see in the legal battleground. But Judges are refusing to apply it. And that includes Appellate courts including the 9th Circuit that wrote into the statute the requirement that the money be tendered “back to the creditor” in order for the rescission to have any legal effect.

The 9th Circuit obviously is saying the they refuse to abide by the statute. The tender back to the creditor need only be a statement that the homeowner is prepared to execute a note and mortgage in favor of the real lender. To tender the money “back” to the originator is to assume they made the loan, which ordinarily was not the case. The courts are getting educated but they are not at the point where they “get it.”

But with the Steinberger decision we can get similar results without battling the rescission issue that so far is encountering nothing but resistance. That case manifestly agrees that a borrower can challenge the authority of those who are claiming money from him or her and that if there are problems with the mortgage, the foreclosure or the modification program in which the borrower was lured into actions that caused the borrower harm, there are damages for the “lender” to pay. The recent Wells Fargo decision posted a few days ago said the same thing. The logic behind that applies to the closing as well.

So lawyers should start thinking about more basic common law doctrines and use the statutes as corroboration for the common law cause of action rather than the other way around. Predatory practices under TILA can be alleged under doctrines of unconscionability and negligence. Title issues, “real lender” issues can be attacked using common law negligence.

Remember that the common allegation of the “lenders” is that they are “holders” — not that they are holders in due course which would require them to show that they paid value for the note and that they have the right to enforce it and collect because the money is actually owed to them. The “holders” are subject to claims detailed in the Steinberger decision without reference to TILA, RESPA or any of the other claims that the courts are resisting. As holders they are subject to all claims and defenses of the borrower. And remember as well that it is a mistake to assume that the mortgage or deed of trust is governed by Article 3 of the UCC. Security instruments are only governed by Article 9 and they must be purchased for value for a party to be able to enforce them.

All of this is predicated on real facts that you can prove. So you need forensic research and analysis. The more specific you are in your allegations, the more difficult it will be for the trial court to throw your claims and defenses out of court because they are hypothetical or too speculative.

Question: who do we sue? Answer: I think the usual suspects — originator, servicers, broker dealer, etc. but also the closing agent.

Servicer’s Advance Payments When Borrower Stops

The following message and article brings up questions that I have been receiving with increasing frequency as homeowners, their forensic analysts and attorney dig further and further. They are following the money and coming up with the fact that servicers are advancing payments to investors when the borrower stops paying. In fact, they advance those payments to investors after the declaration of default and even after the foreclosure is complete. Where do they get the money from?

The answer is that they either get the money from their own pockets or funds they “borrow” from the investment banker that did the underwriting on the mortgage bonds or they are taking money paid on other performing loans and using it to make payments on loans that are not performing. Either way, the payment has been made and the account receivable of the real creditor is not in default. The only way to conclude that it doesn’t make any difference is if you look at all the players in the cloud of so-called “securitization of debt” as one single venture — a view that would raise all kinds of questions as to why and when you can ignore the corporate veil or the existence of a separate entity.

When this gets litigated, and I am sure it will, Judges will probably tend to the easier cloud view. But on appeal, it is likely that the appellate court will look at each transaction, the pleadings and the proof. They will likely conclude that with the account receivable of the alleged creditor being current, there should have been no declaration of default, acceleration, foreclosure or sale of the house. But they will say that the borrower is not off the hook. The Servicer has a separate claim for contribution or unjust enrichment. But such claims are obviously not secured by a pledge of the house as collateral because no such documentation exists.

Which brings me back to the falsification of securitization as cover for a PONZI scheme. If the bankers had played fair, they would have had the notes payable to the REMIC trusts and the mortgages naming the trusts as mortgagees or immediately record assignments of both. They could have disclosed the securitization at closing but they didn’t. If they did, the advances by servicers could have been covered by the documents producing the cloud effect that the banks want to see from the courts.
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From Dan Edstrom, senior mortgage analyst for Livinglies.—

I am not sure if you are aware of a recent article from Martin Andelman. His position on servicer advances of principal and interest is that it has nothing to do with the Borrower and these are just loans. Jim and I talked with him on the phone for a short period of time, but he wasn’t convinced that these payments should be applied to the Borrower (not that we can convince him or have to convince him). But I just read the following article and the light bulb went on again. Martin said the servicer advance is a loan and is to be repaid. Possible, although this isn’t contemplated (that I know of) in UCC 3-602. But now consider the following article that just came out. The advance pays senior tranches in full. By the time the servicer goes to pull the money out of the trust, a lower tranche loses that money (that was paid by other borrowers) and it gets diverted to the servicer for reimbursement. The losing tranche agreed to take these losses. The Borrower did not agree to make a payment to one creditor, give that creditor a discharge, and then take out a new loan with a different creditor and owe that creditor money (the creditor who agreed to lose money). When did I transfer the right to others to open and close credit accounts (or transactions) on my behalf (paying off debt to one party and acquiring debt from another party)?

Investors Warned on Nationstar, Ocwen RMBS Cash Remit Differences
Analysts are warning investors about the impact of different servicing strategies on the cash flow generated by mortgage servicing rights on securitized delinquent loans.

A Moody’s Investors Service analysis of the loss mitigation practices of Nationstar and Ocwen, two of the nation’s largest and fastest-growing servicers, revealed “particularly different advancing rates on delinquent loans,” enable Nationstar to pay more cash from its securitized subprime residential loans than Ocwen.

Findings matter to investors involved in current and future servicing transfers from portfolios acquired by Nationstar and Ocwen as well as to other residential mortgage-backed securities trusts eyeing MSR market deals.

“Ocwen’s recent acquisition of GMAC’s RMBS servicing portfolio is credit negative for that reason, although GMAC’s performing loans will continue to generate strong cash flow,” explained Jiwon Park, a Moody’s analyst who specializes in the MSR market.

Comparatively, Park wrote in a recent report, Nationstar’s scheduled acquisition of certain RMBS loan portfolios from Bank of America Corp. “is likely to have a minimal impact” on affected loans and their securities because “Nationstar has generally remitted” the same amount of cash on these assets as B of A.

The trend persists across the board with subprime RMBS vintages securitized between 2005 and 2010. Data show Nationstar implements higher advancing rates for delinquent loans and consistently pays more cash than Ocwen. Higher cash payments help keep the RMBS credit positive “because they pay down senior bonds with priority and more quickly,” the analyst wrote.

For example, during the first two months of the third quarter of this year, Nationstar’s monthly cash flow remittances from principal and interest collections, net proceeds from short sales and foreclosure liquidations, voluntary prepayments and delinquent loan advances was at 0.82% of the servicer’s outstanding RMBS balance, compared to 0.77% for Ocwen.

Park finds advancing rate differences between the two servicers are significant. During the same time period the amount of cash generated from distressed securities by source, Nationstar paid 0.07% of the balances from delinquent loan advances, compared to only 0.02% paid by Ocwen.

Loss mitigation strategies also influenced the amount of cash remittances leading to higher revenue from Nationstar’s REO property liquidations, while Ocwen is more successful in generating cash from loan modifications.

In the long term, however, even though Ocwen stops generating advances much faster than Nationstar, its much lower cash flow advances on delinquent loans is not expected to have a long-term effect on the relatively large GMAC portfolio, which includes a larger percentage of performing loans.
frequency. As homeowners, their forensic analysis, and lawyers dig further and further Follow the movement of money, they are finding that the so-called real creditor continues to get paid long after the borrower stops paying, and even long after the actual foreclosure. The motivation for this behavior in my opinion is to keep the investors happy, not suing the investment banker and still buying more mortgage bonds.

But the question is what is the effect of these payments? It has been postulated that it changes nothing. I don’t agree. Using generally accepted accounting principles, we find that the the creditor’s receivable account shows no default because they received payment from the Servicer. Since they never receive direct payment from the Borrower, they are satisfied — the amounts payable under the mortgage bond are fully satisfied. And the mortgage bond obligation is based on payments from borrowers plus payments from third party obligors but no where in the PSA or prospectus does it provide that the Servicer has an obligation to continue making payments when the borrower stops.

If the creditor’s account does not show a default then there should be no declaration of default, acceleration, foreclosure and/or eviction — which is why the Banks are doing a two step and moving the goal post around the field on who has the right to initiate a foreclosure. It is also covers up the fact that the Foreclosures are merely a way to conclude the fraudulent PONZI scheme that is mistakenly referred to as securitization.

So does that mean that the debt of the borrower has been extinguished? The answer is yes and no. Yes it satisfies the payment requirement to the creditor on the mortgage. But no, that doesn’t mean that the borrower is off the hook like magic. The Servicer has an action against the borrower for contribution or unjust enrichment. The difference is that the servicer’s claim is not secured with the house because THAT debt has been paid pursuant to the note (readers are reminded that I don’t believe either the note or mortgage are valid instruments in most cases).

When this matter is litigated as I am positive it will be, Judges will want to look at “securitization” of loans as a cloud, and that what goes on in the cloud, doesn’t matter. So my prediction is that at the trial level there will be mostly decisions against the borrower. On appeal, with the issues properly preserved and a good record for the appeals court to see, I think they will be required to look into the cloud and see that if they ignore the existence of separate entities without any pleading or proof as to why the corporate veils should be ignored, they will open the door to a boatload of trail and other moral hazards. Taking the transactions one payment at a time, the payments by the Servicer converts the obligation from payment on a secured note to a liability to the Servicer that is unsecured.

The other question is where do they get the money from if not the borrower making payments? The answer by pure logic is one of two ways — either from payments received from other borrowers or money they have or “borrow” from a very willing investment banker who doesn’t want another investor lawsuit and who wants to sell that investor more mortgage bonds.
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From Dan Edstrom, senior mortgage analyst for livinglies.—

I am not sure if you are aware of a recent article from Martin Andelman. His position on servicer advances of principal and interest is that it has nothing to do with the Borrower and these are just loans. Jim and I talked with him on the phone for a short period of time, but he wasn’t convinced that these payments should be applied to the Borrower (not that we can convince him or have to convince him). But I just read the following article and the light bulb went on again. Martin said the servicer advance is a loan and is to be repaid. Possible, although this isn’t contemplated (that I know of) in UCC 3-602. But now consider the following article that just came out. The advance pays senior tranches in full. By the time the servicer goes to pull the money out of the trust, a lower tranche loses that money (that was paid by other borrowers) and it gets diverted to the servicer for reimbursement. The losing tranche agreed to take these losses. The Borrower did not agree to make a payment to one creditor, give that creditor a discharge, and then take out a new loan with a different creditor and owe that creditor money (the creditor who agreed to lose money). When did I transfer the right to others to open and close credit accounts (or transactions) on my behalf (paying off debt to one party and acquiring debt from another party)?

Investors Warned on Nationstar, Ocwen RMBS Cash Remit Differences
Analysts are warning investors about the impact of different servicing strategies on the cash flow generated by mortgage servicing rights on securitized delinquent loans.

A Moody’s Investors Service analysis of the loss mitigation practices of Nationstar and Ocwen, two of the nation’s largest and fastest-growing servicers, revealed “particularly different advancing rates on delinquent loans,” enable Nationstar to pay more cash from its securitized subprime residential loans than Ocwen.

Findings matter to investors involved in current and future servicing transfers from portfolios acquired by Nationstar and Ocwen as well as to other residential mortgage-backed securities trusts eyeing MSR market deals.

“Ocwen’s recent acquisition of GMAC’s RMBS servicing portfolio is credit negative for that reason, although GMAC’s performing loans will continue to generate strong cash flow,” explained Jiwon Park, a Moody’s analyst who specializes in the MSR market.

Comparatively, Park wrote in a recent report, Nationstar’s scheduled acquisition of certain RMBS loan portfolios from Bank of America Corp. “is likely to have a minimal impact” on affected loans and their securities because “Nationstar has generally remitted” the same amount of cash on these assets as B of A.

The trend persists across the board with subprime RMBS vintages securitized between 2005 and 2010. Data show Nationstar implements higher advancing rates for delinquent loans and consistently pays more cash than Ocwen. Higher cash payments help keep the RMBS credit positive “because they pay down senior bonds with priority and more quickly,” the analyst wrote.

For example, during the first two months of the third quarter of this year, Nationstar’s monthly cash flow remittances from principal and interest collections, net proceeds from short sales and foreclosure liquidations, voluntary prepayments and delinquent loan advances was at 0.82% of the servicer’s outstanding RMBS balance, compared to 0.77% for Ocwen.

Park finds advancing rate differences between the two servicers are significant. During the same time period the amount of cash generated from distressed securities by source, Nationstar paid 0.07% of the balances from delinquent loan advances, compared to only 0.02% paid by Ocwen.

Loss mitigation strategies also influenced the amount of cash remittances leading to higher revenue from Nationstar’s REO property liquidations, while Ocwen is more successful in generating cash from loan modifications.

In the long term, however, even though Ocwen stops generating advances much faster than Nationstar, its much lower cash flow advances on delinquent loans is not expected to have a long-term effect on the relatively large GMAC portfolio, which includes a larger percentage of performing loans.

Danielle Kelley, Esq. Swings Back at Separation of Note and Mortgage

If the banks lose the application of the UCC, which they should, they are dead in the water because they have no way to prove the transactions upon which they rely in collection and foreclosure.

Internet Store Notice: As requested by customer service, this is to explain the use of the COMBO, Consultation and Expert Declaration. The only reason they are separate is that too many people only wanted or could only afford one or the other — all three should be purchased. The Combo is a road map for the attorney to set up his file and start drafting the appropriate pleadings. It reveals defects in the title chain and inferentially in the money chain and provides the facts relative to making specific allegations concerning securitization issues. The consultation looks at your specific case and gives the benefit of litigation support consultation and advice that I can give to lawyers but I cannot give to pro se litigants. The expert declaration is my explanation to the Court of the findings of the forensic analysis. It is rare that I am actually called as a witness apparently because the cases are settled before a hearing at which evidence is taken.
If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services. Get advice from attorneys licensed in the jurisdiction in which your property is located. We do provide litigation support — but only for licensed attorneys.
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Danielle Kelley, Esq. whom I admired before she became my law partner has again broke some old/new ground in compelling fashion. This is not legal advice and nobody should use it without consulting an attorney who is properly licensed in good standing in the jurisdiction in which the property is located and who is competent on the subject of bills and notes.

The bottom line: if the note and mortgage were intended by the law to be considered one instrument, they would be one instrument. But they are not because all the conditions in the mortgage would render the note non-negotiable under the UCC and that would be true even if the loan was actually sold, for real, with payment and an assignment. The conditions expressed in the mortgage or deed of trust render the mortgage non-negotiable. Hence an alleged transfer of the note separates the note from the mortgage because the mortgage is by definition non-negotiable. If the banks lose the application of the UCC, which they should, they are dead in the water because they have no way to prove the transactions upon which they rely in collection and foreclosure.

All of this leads us back to the “sale” of the loan because the presumption arising out of being a holder or holder in due course does not exist where the paper is non-negotiable. The Banks must allege and prove the origination and sale the old fashioned way — by alleging that on the ___ day of ___, in the year ___ XYZ loaned the homeowner $____________. Pursuant to that transaction the defendant executed a note and mortgage (or deed of trust), attached hereto and incorporated by reference. On the ___ day of ________ in the year ________, Plaintiff acquired said loan by payment of valuable consideration and received an assignment that was recorded in the public records at page ___, Book ____ of the public records of ____ County. Defendant failed or refused to make payment commencing the ___ day of ____ in the year ____. Plaintiff gave notice of the delinquency and default, provided the Defendant with an opportunity to reinstate as required by the mortgage and applicable law (copy of said notices attached). Defendant will suffer financial loss without collection of the debt for which it owns the account receivable. Pursuant to the terms of the mortgage which is attached hereto, Defendant agreed that the subject property was pledged as collateral for the faithful performance of the duties under the note, to wit: payment.

Of course the Banks refuse to do that because it opens the door to discovery to exactly what money was paid, to whom and why. AND it would show that there were no actual transactions — just shuffling of paper.

Affirmative defense

Non-negotiability of Subject Note Prohibits Plaintiff from Enforcing it Pursuant to Fla. Stat. §673, et seq and Failure to Attach Documents Pursuant to Florida Rule of Civil Procedure 1.130

With regard to all counts of the Complaint, the Plaintiff’s claims are barred in whole or in part because the subject note that the Plaintiff may produce is not a negotiable instrument and therefore the Plaintiff cannot claim enforcement of the note pursuant to Fla. Stat. §673, et seq.  In order for an instrument to be negotiable it must not, amongst other things, “state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.”  §673.1041(1)(c).  While there is no appellate case law in Florida (and precious little in the entire country) which has ever interpreted this portion of the statute to mortgage promissory notes, the Second District has interpreted this section with respect to retail installment sales contracts in GMAC v. Honest Air Conditioning & Heating, Inc., et al., 933 So. 2d 34 (Fla. 2d DCA 2006).  There, the Second District held that clauses in the RISC such as the requirement for late fees and NSF charges rendered the contract non-negotiable.  This Court should be mindful that the GMAC case was recently applied to a mortgage foreclosure in the Sixth Judicial Circuit.  See Wells Fargo Bank, N.A. v. Christopher J. Chesney, Case No. 51-2009-CA-6509-WS/G (6th Judicial Circuit/Hon. Stanley R. Mills February 22, 2010).

The note attached to Plaintiff’s Complaint contains the following obligations other than the payment of money

1.      The obligation that the borrower pay a late charge if the lender has not received payment by the end of a certain period of days after the payment is due.  Defendants assert this defense although Section 7(a) of the Note attached states “See Attached Rider”.  The only riders attached to the Complaint are a “Prepayment Rider to Note” and an “Adjustable Rate Rider”, the latter of which deals with the interest change, not late fees.  Therefore there are documents potentially missing from the Complaint which runs afoul of Florida Rule of Civil Procedure 1.130 that such documents be attached as they are a document upon which a defense can be made.  Defendants are asserting the defense without the applicable rider; however, if Plaintiff is in possession of the original note, as they should be in order to foreclose, Plaintiff would have had said document to file.   

2.      The obligation that the borrower to tell the lender, in writing, if borrower opts to may prepay in clause 5 of the Note and the Prepayment Rider to the Note. 

3.      The obligation that the lender send any notices that must be given to the borrower pursuant to the terms of the subject note by either delivering it or mailing it by first class mail in clause 8; and

4.       The obligation of the borrower to waive the right of presentment and notice of dishonor in clause 9.

Because the subject note contains undertakings or instructions other than the payment of money, the subject note is not negotiable and therefore the Plaintiff cannot claim that it is entitled to enforce same pursuant to Fla. Stat. §673, et seq.

In addition to, or in alternative of, the following argument, even if the subject note is deemed negotiable, Fla. Stat. §673, et seq. (and therefore negotiation) cannot be utilized to transfer the non-negotiable mortgage, which is a separate transaction.  See in Sims v. New Falls Corporation, 37 So. 3d 358, 360 (Fla. 3d DCA 2010) (providing that a note and mortgage were two separate transactions).  The terms of the mortgage are expressly not incorporated into the terms of the note; rather, they are merely referenced by the note.  See clause 11 of the note.  Indeed, nowhere in the subject note is the right to foreclose the mortgage a remedy for default under the note.  It is clause 22 of the mortgage, on the other hand, which allows this.  Clause 22 of the mortgage, however, cannot be transferred to Plaintiff by negotiation as the mortgage is not negotiable.  

 

Banks Won’t Take the Money: Insist on Foreclosure Even When Payment in Full is Tendered

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We have seen a number of cases in which the bank is refusing to cooperate with a sale that would pay off the mortgage completely, as demanded, and at least one other case where the homeowner deeded the property without any agreement to the foreclosing party on the assumption that the foreclosing party had a right to foreclose, enforce the note or mortgage. There is a reason for that. They don’t want the money, they don’t even want the house — what they desperately need is a foreclosure judgment because that caps the liability on that loan to repay insurers and CDS counterparties, the Federal Reserve and many other parties who paid in full over and over again for the bonds of the REMIC trust that claimed to have ownership of the loan.

This should and does alert judges that something is amiss and some of their basic assumptions are at least questionable.

I strongly suggest we all read the Renuart article carefully as it contains many elements of what we seek to prove and could be used as an attachment to a memorandum of law. She does not go into the issue of their being actual consideration in the actual transactions because she is unfamiliar with Wall Street practices. But she does make clear that in order for the sale of a note to occur or even the creation of a note, there must be consideration flowing from the payee on the note to the maker. In the absence of that consideration, the note is non-negotiable. Thus it is relevant in discovery to ask for the the proof of the the first transaction in which the note and mortgage were created as well as the following alleged transactions in which it is “presumed” that the loan was sold because of an endorsement or assignment or allonge. To put it simply, if they didn’t pay for it, then it didn’t happen no matter what the instrument or endorsement says.

The facts are that in many if not most cases the origination of the loan, the execution of the note and mortgage and the settlement documents were all created and recorded under the presumption that the payee on the note was the source of consideration. It was easy to make that mistake. The originator was the one stated throughout the disclosure and settlement documents. And of course the money DID appear at the closing. But it did not appear because of anything that the originator did except pretend to be a lender and get paid for its acting service. Lastly, the mistake was easy to make, because even if the loan was known or suspected to be securitized, one would assume that the assignment and assumption agreement for funding would have been between the originator or aggregator (in the predatory loan practice of table funding) and the Trust for the asset pool. Instead it was between the originator and an aggregator who also contributed no consideration or value to the transaction. The REMIC trust is absent from the agreement and so is the ivnestor, the borrower, the isnurers and the counterparties to credit default swaps (CDS).

If the loan had been properly securitized, the investors’ money would have funded the REMIC trust, the Trust would have purchased the loan by giving money, and the assignment to the trust would have been timely (contemporaneous) with the creation of the trust and the sale of the the loan — or the Trust would simply have been named as the payee and secured party. Instead naked nominees and disinterested intermediaries were used in order to divert the promised debt from the investors who paid for it and to divert the promised collateral from the investors who counted on it. The servicer who brings the foreclosure action in its own name, the beneficiary who is self proclaimed and changes the trustee on deeds of trust does so without any foundation in law or fact. None of them meet the statutory standards of a creditor who could submit a credit bid. If the action is not brought by or on behalf of the creditor there is no jurisdiction.

Add to that the mistake made by the courts as to the accounting, and you have a more complete picture of the transactions. The Banks and servicers do not want to reveal the money trail because none exists. The money advanced by investors was the source of funds for the origination and acquisition of residential mortgage loans. But by substituting parties in origination and transfers, just as they substitute parties in non-judicial states without authority to do so, the intermediaries made themselves appear as principals. This presumption falls apart completely when they ordered to show consideration for the origination of the loan and consideration for each transfer of the loan on which they rely.

The objection to this analysis is that this might give the homeowner a windfall. The answer is that yes, a windfall might occur to homeowners who contest the mortgage or who defend foreclosure. But the overwhelming number of homeowners are not seeking a free house with no debt. They would be more than happy to execute new, valid documentation in place of the fatally defective old documentation. But they are only willing to do so with the actual creditor. And they are only willing to do so on the actual balance of their loan after all credits, debits and offsets. This requires discovery or disclosure of the receipt by the intermediaries of money while they were pretending to be lenders or owners of the debt on which they had contributed no value or consideration. Thus the investor’s agents received insurance, CDS and other moneys including sales to the Federal reserve of Bonds that were issued in street name to the name of the investment bankers, but which were purchased by investors and belonged to them under every theory of law one could apply.

Hence the receipt  of that money, which is still sitting with the investment banks, must be credited for purposes of determining the balance of the account receivable, because the money was paid with the express written waiver of any remedy against the borrower homeowners. Hence the payment reduces the account receivable. Those payments were made, like any insurance contract, as a result of payment of a premium. The premium was paid from the moneys held by the investment bank on behalf of the investors who advanced all the funds that were used in this scheme.

If the effect of these transactions was to satisfy the account payable to the investors several times over then the least the borrower should gain is extinguishing the debt and the most, as per the terms of the false note which really can’t be used for enforcement by either side, would be receipt of the over payment. The investor lenders are making claims based upon various theories and settling their claims against the investment banks for their misbehavior. The result is that the investors are satisfied, the investment bank is still keeping a large portion of illicit gains and the borrower is being foreclosed even though the account receivable has been closed.

As long as the intermediary banks continue to pull the wool over the eyes of most observers and act as though they are owners of the debt or that they have some mysterious right to enforce the debt on behalf of an unnamed creditor, and get judgment in the name of the intermediary bank thus robbing the investors, they will continue to interfere with investors and borrowers getting together to settle up. Perhaps the reason is that the debt on all $13 trillion of mortgages, whether in default or not, has been extinguished by payment, and that the banks will be left staring into the angry eyes of investors who finally got the whole picture.

READ CAREFULLY! UNEASY INTERSECTIONS: THE RIGHT TO FORECLOSE AND THE UCC by Elizabeth Renuart, Associate Professor of Law, Albany Law School — Google it or pick it off of Facebook

 

The Real Deal and How to Get There

Internet Store Notice: As requested by customer service, this is to explain the use of the COMBO, Consultation and Expert Declaration. The only reason they are separate is that too many people only wanted or could only afford one or the other — all three should be purchased. The Combo is a road map for the attorney to set up his file and start drafting the appropriate pleadings. It reveals defects in the title chain and inferentially in the money chain and provides the facts relative to making specific allegations concerning securitization issues. The consultation looks at your specific case and gives the benefit of litigation support consultation and advice that I can give to lawyers but I cannot give to pro se litigants. The expert declaration is my explanation to the Court of the findings of the forensic analysis. It is rare that I am actually called as a witness apparently because the cases are settled before a hearing at which evidence is taken.
If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services. Get advice from attorneys licensed in the jurisdiction in which your property is located. We do provide litigation support — but only for licensed attorneys.
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The Real Deal and How to Get There

If you read the Glaski case any of the hundreds of other decisions that have been rendered you will see one glaring error — failure to raise an issue or objection in a timely manner. This results from ignorance of the facts of securitization. So here is my contribution to all lawyers, wherever you are, to prosecute your case. I would also suggest that you use every tool available to disabuse the Judge of the notion that your goal is delay — so push the case even when the other side is backpedaling, ask for expedited discovery. Act like you have a winning case on your hands, because, in my opinion, you do.

The key is to attack the Judge’s presumption whether stated or not, that a real transaction took place, whether at origination or transfer. Once you let the Court know that is what you are attacking the Judge must either rule against you as a matter of law which would be overturned easily on appeal and they know it, or they must allow penetrating discovery that will reveal the real money trail. The error made by nearly everyone is that the presumption that the paperwork tells THE story. The truth is that the paperwork tells a story but it is false.

Nevertheless the burden is on the proponent of that argument to properly plead it with facts and as we know the facts are largely in the hands of the investment banker and not even the servicer has it. My law firm represents clients directly in Florida and provides litigation support to any attorney wherever they are located. We now send out a preservation letter (Google it) as soon as we are retained. We send it to everyone we know or think might have some connection to the file. If they can’t find something, the presumption arises they destroyed it if we show that in the ordinary course of business they would keep records like that. We also have a computer forensic analyst who is a lawyer that can go into the computers and the data and see when they were created, by whom and reveal the input that was done to create certain files and instruments.

Once the facts are properly proposed, then the proponent still has the burden of proving the allegations through discovery. That is because the paperwork raises a rebuttable presumption of validity. The Glaski case gives lots of hints as to how and when to do this. Neither judicial notice of an instrument nor the rebuttable presumption arising out of an instrument of commerce gives the bank immunity. And the requests for discovery should attack the root of their position — that the foreclosing party is true beneficiary or mortgagee.

With the Glaski Case in California and we have one just like it in Florida, the allegation must be made that the transaction is void as to the transfer to the Trust. You have a related proof challenge when they insist that the loan was not securitized. You say it was subject to claims of securitization. That puts you in a he said she said situation — which puts you in the position of the Judge ruling against you because you have not passed the threshold of moving the burden back to the Bank. What penetrates that void is the allegation and proof of the absence of any actual transaction — i.e., one in which there was an offer, acceptance of the offer and consideration. The UCC says an instrument is negotiated when sold for value. You say there was no value. Proving the loan is subject to claims of securitization may require discovery into the accounting records of the parties in the securitization chain. What you are looking for is a loan receivable account or account receivable that is owned by the party to whom the money is owed. At the servicer this does not exist, which is why the error in court is to go with the servicer’s records, which are incomplete because they do not reveal the payments OUT to third party creditors or others, nor other payments IN like from the investment bank who funds continued payment to the creditors to keep them ignorant that their portfolio is collapsing.

The transaction is void if there was an attempt to assign the loan into the trust. First, it violated the instrument of the trust (PSA) because of the cutoff rule. The court in Glaski correctly pointed out that under the circumstances this challenge was valid because of the prejudice to the beneficiaries of the trust. They use discretion to assert that there is prejudice to the beneficiaries because of the economic impact of losing their preferential tax status. They did not add (because nobody raised it), that the additional prejudice to the beneficiaries is that it is usually a loan that is already declared in default that is being assigned. Judge Shack in New York has frequently commented on this.

Hence the proposed transfer violates the cutoff date, the tax status and the requirement that the loan be in good standing. Sales of the bonds issued by the trust were based upon the premise that the bonds were extremely low risk. Taking defaulted loans into the trust certainly  violates that and under federal and state regulations the pension funds, as “Stable managed funds” can ONLY invest in extremely low risk securities.

Hence the possibility of ratification is out of the question. First, it is isn’t allowed  under the IRC and the PSA and second, it isn’t allowed under the PSA because the investors are being handed an immediate loss — a purchase with their funds (which you will show never happened anyway) of a defaulted loan. But to close the loop on the argument of possible ratification, you must take the deposition of the trustee of the trust.

Without the possibility of ratification, the transaction is definitely void. In that depo it will be revealed that they had no access or signature authority to any trust account and performed no duties. But they are still the party entrusted with the fiduciary duties to the beneficiaries. So when you ask whether they would allow the purchase of a bad loan or any loan that would cause the REMIC to lose its tax status they must answer either “no” or I don’t know. The latter answer would make appear foolish.

A note in the Glaski case is also very revealing. It is stated there that BOTH sides conceded that the real owner of the debt is probably unknown and can never be known. So tread softly on the proposition that the real owner of the loan NOW is the investor. But there is a deeper question suggested by this startling admission by the Court and both sides of the litigation. If the facts are alleged that a given set of investors somehow pooled their money and it was used to fund the loan origination or to fund the loan acquisition, what exactly do the investors have NOW? It would appear to be a total loss on that loan. They paid for it but they don’t own it because it never made it into the trust.

The alternative, proposed by me, is that this conclusion is prejudicial to the beneficiary, violates basic fairness, and is contrary to the intent of the real parties in interest — the investors as lenders and the homeowners as borrowers. The proper conclusion should be, regardless of the form of transaction and content of instruments that were all patently false, that the investors are lenders and the homeowner is a borrower. The principal is the amount borrowed. The terms are uncertain because the investors were buying a bond with repayment terms vastly different than the repayment terms of the note that the homeowner signed. Where this occurs the note or obligation is generally converted into a demand obligation, which like tender of money in a loan dispute, is enforced unless it produces an inequitable result, which is patently obvious in this case since it would result in a judgment and judgment lien that might be foreclosed against the homeowner.

With the assignment to the trust being void, and the money of the investor being used to fund the loan, and there being no privity between the investor and the homeowner, the only logical conclusion is to establish that the debt exists, but that it is unsecured and subject to the court’s determination to fashion the terms of repayment — or mediation in which the unsecured loan becomes legitimately secured through negotiations with the investors.

Since the loan was not legally assigned into the trust and the trust did not fund the origination of the loan, the PSA no longer governs the transaction; thus the authority of the servicer is absent, but the servicer should still be subpoenaed to produce ALL the records, which is to say the transactions between the servicer and the borrower AND the transactions between the servicer and any third parties to whom it forwarded the payment, or with whom it engaged in other receipts or disbursements related to this loan.

Since the loan was not legally assigned into the trust, the trustee has no responsibility for that loan, but the investment bank who used the investors money to fund the the loan is also a proper target of discovery as is the Maser Servicer and aggregators, all of whom engaged in various transactions that were based upon the ownership of the loan being in the trust. Now we know it isn’t in the trust. The Banks have used this void to jump in and claim that they own the loan, which is obviously inequitable (if not criminal). But the equitable and proper result would be to establish that the investors own an account receivable from borrowers in this type of situation since they were the ones who advanced the money, not the banks.

Since the loan was not legally assigned into the trust, the servicer has no  actual authority or contract with the investors who are now free to enter into direct negotiations with the borrowers and avoid the servicers who are clearly serving the interest of the parties in the securitization chain (which failed) and not the investors. Thus any instrument executed using the securitization or history of “assignments” (without consideration) as the foundation for executing such an instrument is void. That includes substitutions of trustees, assignments, notices of default, notices of sale, lawsuits to foreclose or any effort at collection.

Note that without authority and based upon intentionally false representations, the servicers might be subject to a cause of action for interference with contractual rights, especially where a modification proposal was “turned down by the investor. “ If the investor was not the Trust and it was the Trust allegedly who turned it down (I am nearly certain that the investors are NEVER contacted), then the servicer’s push into foreclosure not only produces a wrongful foreclose but also interference with the rights and obligations of the true lenders and borrowers who are both probably willing to enter into negotiations to settle this mess.

The second inquiry is about the balance of the account receivable and the obvious connection between the account receivable owned by the investors and the account payable owed by the homeowners. I don’t think there is any reasonable question about the initial balance due, because that can easily be established and should be established by reference to a canceled check or wire transfer receipt. But the balance now is affected by sales to the Federal Reserve, insurance, bailouts and credit default swaps (CDS).

Since the loan was not assigned to the trust then the bond issued by the trust that purports to own the loan is wrong. The insurance, CDS, guarantees, purchases and bailouts were all premised on the assumption that the false securitization trail was true, then it follows that the money received by anyone represents proceeds that does not in any way belong to them. They clearly owe that money to the investor to the extent of the investors’ advance of actual money, with the balance due to the homeowner, as per the agreement of the parties at the closing with the homeowner. But the payors of those moneys also have a claim for refund, buy back, or unjust enrichment, fraud, etc.

Those payors have one obvious problem: they executed agreements that waived any right to collect from the borrower. Thus they are stuck with the bond which is worthless through no fault of the beneficiaries. So their claim, I would argue, is against the investment bank. The guarantors (Fannie, Freddie et al) have buyback rights against the parties who sold them the loans they didn’t own or the bonds representing ownership that was non-existent. Here a fair way of looking at it is that the investors are credited with the third party mitigation payments, the account payable of the borrower is reduced proportionately with the reduction of the account receivable (by virtue of cash payment to their agents which reduces the account receivable because the money should be paid to and credited to the investor) and the balance of the money received should then go to the guarantor to the extent of their loss, and then any further balance left divided equally amongst the investors, borrowers and guarantors.

To do it any other way would either leave the banks with their ill-gotten gains and unjust enrichment, or over payment to the investors, over payment to the borrowers who are entitled to such proceeds as per most statutes governing the subject, or over payment to the guarantors. The argument would be made that the investors, borrowers and guarantors are getting a windfall. Yes that might be the case if the over payments resulting from multiple sales of the same loan exceeded all money advanced on the actual loan. But to leave it with the Banks who were never at risk and who are still getting preferential treatment because of their shaky status would be to reward those who intended to be the risk takers, but who masked the absence of risk to them through false statements to the parties who all collectively advanced money and property to this scheme without knowing that they were all doing so.

 

The question is on what basis should the banks be rewarded with the windfall. I can find no support for that proposition. But based upon public policy or other considerations regarding the nature of the hedge transactions used to sell the same loan over and over again, it might be argued that the investment bank is entitled to retain SOME money if the total exceeds the full balances owed to the investors (thereby extinguishing the payable from the borrower), and the full balances owed to the guarantors.

“Conversion” of the Note to a Bond Leaves Confusion in the Courts

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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.

Brent Bentrim, a regular contributor to the dialogue, posed a question.

I am having some trouble following this.  The note cannot be converted any more than when a stock is purchased by a mutual fund (trust) it becomes a mutual fund share.

You’re close and I understand where you seem to be going…ie, the loans were serviced not based on the note and closing documents, but on the PSA.  What I do not understand is the assumption that the note was converted.  From a security standpoint, it cannot.

You are right. When I say it was “converted” I mean in the lay sense rather a legal one. Of course it cannot be converted without the borrower signing. That is the point. But the treatment of the debt was as if it had been converted and that is where the problem lies for the Courts — hence the diametrically opposed appellate decisions in GA and MA. Once you have pinned down the opposing side to say they are relying on the PSA for their authority to bring the foreclosure action, and relying on the “assignment” without value, the issue shifts —- because the PSA and prospectus have vastly different terms for repayment of interest and principal than the note signed by the borrower.There are also different parties. The investor gets a bond from a special purpose vehicle under the assumption that the money deposited with the investment bank goes to the SPV and the SPV then buys the mortgage or funds the origination. In that scenario the payee on the note would either be the SPV or the originator. But it can’t be the originator if the originator did not fulfill its part of the bargain by funding the loan. And there is no disclosure as to the presence of other parties in the securitization chain much less the compensation they received contrary to Federal Law. (TILA).

Under the terms of the PSA and prospectus the expectation of the investor was that the investment was insured and hedged. That is one of the places where there is a break in the chain — the insurance is not made payable to either the SPV or the investors. Instead it is paid to the investment bank that merely created the entities and served as a depository institution or intermediary for the funds. The investment bank takes the position that such money is payable to them as profit in proprietary trading, which is ridiculous. They cannot take the position that they are agents of the creditor for purposes of foreclosure and then take the position that they were not agents of the investors when the money came in from insurance and credit default swaps.

Even under the actual money trail scenario the same holds true — they were acting as agents of the principal, albeit violating the terms of the “lender” agreement with the investors. Here is where another break occurred. Instead of funding the SPV, the investment bank held all investor money in a commingled undifferentiated mega account and the SPV never even had any account or signatory on any account in which money was placed.

Hence the SPV cannot be said to have purchased the loan because it lacked the funding to do it. The banks want to say that when they funded the origination or acquisition of the loan they were doing so under the PSA and prospectus. But that would only be true if they were following the provisions and terms of those instruments, which they were not. The banks funded the acquisition of loans directly with investor money instead of through the SPV, hence the tax exempt claims of the SPV’s are false and the tax effects on the investors could be far different — especially when you consider the fact that the mega suspense account in the investment bank had funds from many other investors who also thought they were investing in many different SPVs.

The reality of the money trail scenario is that the SPV can’t be the owner of the note or the owner of the mortgage because there simply was no transaction in which money or other consideration changed hands between the SPV and any other party. The same holds true for all the parties is the false securitization trail — no money was involved in the assignments. Thus it was not a commercial transaction creating a negotiable instrument.

In both scenarios the debt was created merely by the receipt of money that is presumed not to be gift. The question is whether the note, the bond or both should be used to re-structure the loan and determine the amount of interest, principal, if any that is left to pay.

The further question is if the originator did not loan any money, how can the recording of a mortgage have been proper to secure a debt that did not exist in favor of the secured party named on the mortgage or deed of trust?
And if the lender is determined by the actual money trail then the lenders consist of a group of investors, all of whom had money deposited in the account from which the acquisition of the loan was funded. And despite investment bank claims to the contrary, there is no evidence that there was any attempt to actually segregate funds based upon the PSA and prospectus. So the pool of investors consists of all investors in all SPVs rather just one — a factor that changes the income and tax status of each investor because now they are in a common law general partnership.

Thus the “conversion” language I have used, is merely shorthand to describe a far more complex process in which the written instruments were ignored, more written instruments were fabricated based upon nonexistent transactions, and no documentation was provided to the investors who were the real lenders. That leaves a common law debt that is undocumented by any promissory note or any secured interest in the property because the recorded mortgage or deed of trust was filed under false pretenses and hence was never perfected.

The conversion factor comes back in when you think about what a Judge might be able to do with this. Having none of the documentation naming and protecting the investors to document or secure the loan, the Judge must enter judgment either for the whole amount due, if any (after deductions for insurance and credit default swap proceeds) or in some payment plan.

If the Judge refers to the flawed documentation, he or she must consider the interests and expectation s of both the lender (investors) and the borrower, which means by definition that he must refer back to the prospectus and PSA as well as the promissory note.
The interesting thing about all this is that homeowners are of course willing to sign new mortgages that reflect the economic reality of the value of their homes, and the principal balance due, as well as money that continued to be paid to the creditor by the same same servicer that declared the default (and was therefore curing the default with each payment to the creditor).
The only question left is where did the money come from that was paid to the creditor after the homeowner stopped making payments and does that further complicate the matter by adding parties who might have an unsecured right of contribution against the borrower for money  advanced advanced by an intermediary sub servicer thereby converting the debt (or that part that was paid by the subservicer from funds other than the borrower) from any claim to being secured to a potential unsecured right of contribution from the borrower.
To that extent the servicer should admit that it is suing on its behalf for the unsecured portion of the loan on which it advanced payments, and for the secured portion they claim is due to other parties. They obviously don’t want to do that because it would focus attention on the actual accounting, posting and bookkeeping for actual transfers or payments of money. The focus on reality could be devastating to the banks and reveal liabilities and reduction of claimed assets on their balance sheets that would cause them to be broken up. They are counting on the fact that not too many people will understand enough of what is contained in this post. So far it seems to be working for them.Remember that as to the insurance and credit default swaps there are express waivers of subrogation or any right to seek collection from the borrowers in the mortgages. The issue arises because the bonds were insured and thus the underlying mortgage payments were insured — a fact that played out in the real world where payments continued being made to creditors who were advancing money for “investment” in bogus mortgage bonds. This leaves only the equitable powers of the court to fashion a remedy, perhaps by agreement between the parties by which the lenders are made parties to the action and the borrowers are of course parties to the action but he servicers are left out of the mix because they have an interest in continuing the farce rather than seeing it settled, because they are receiving fees and picking up property for free (credit bids from non-creditors).

This is precisely the point that the courts are missing. By looking at the paperwork first and disregarding the actual money trail they are going down a rabbit hole neatly prepared for them by the banks. If there was no commercial transaction then the UCC doesn’t apply and neither do any presumptions of ownership, right to enforce etc.

The question of “ownership” of the note and mortgage are a distraction from the fact that neither the note or the mortgage tells the whole story of the transaction. The actions of the participants and the real movement of money governs every transaction.

Whether the courts will recognize the conversion factor or something similar remains to be seen. But it is obvious that the confusion in the courts relates directly to their ignorance of the the fact that the actual money transaction is not brought to their attention or they are ignoring it out of pure confusion as to what law to apply.

Now UCC Me, Now You Don’t: The Massachusetts Supreme Judicial Court Ignores the UCC in Requiring Unity of Note and Mortgage for Foreclosure in Eaton v. Fannie Mae
http://4closurefraud.org/2013/05/20/now-ucc-me-now-you-dont-the-massachusetts-supreme-judicial-court-ignores-the-ucc-in-requiring-unity-of-note-and-mortgage-for-foreclosure-in-eaton-v-fannie-mae/

High court rules in favor of bank in Suwanee foreclosure case
http://www.gwinnettdailypost.com/news/2013/may/20/high-court-rules-in-favor-of-bank-in-suwanee/

Wells Fargo slows foreclosure sales, BofA not so much
http://www.bizjournals.com/orlando/morning_call/2013/05/wells-fargo-slows-foreclosure-sales.html

Illinois Takes A Step in the Right Direction

If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
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.

Editor’s Comment: Illinois has taken a step forward but they are still plagued by the wrong assumption — that the courts are dealing with a legitimate debt. There is no debt if it is paid and in many cases the original debt has been paid down or paid off by  third party mitigation payments from insurance and credit default swaps.

Remember the note raises the presumption of the existence of the debt which is rebuttable. It does not prove the loss. Without proof of loss there is no foreclosure or any other lawsuit for that matter. The party seeking relief must show they have been or will be injured in some way to get money damages, equitable relief (like foreclosure) or anything else. Without injury they don’t belong in court, which is why we have a jurisdictional rule regarding standing. No injury=no standing.

So the bad point about the new rules is that the forecloser must prove the debt, but it doesn’t specifically say they must plead or prove the loss. The problem with that is production of the note (whether the the real note or something that looks like the real note) raises the presumption of the debt. It also causes Judges to assume that the loss is self-evident — i.e., if someone has the note it is presumed that they paid for it and will suffer a loss of their expectancy of payment under the terms of the note.

If you don’t demand to see the canceled check or the wire transfer receipt and wire transfer instructions or other forms of actual payment of money (where it can be seen that money actually exchanged hands) then there is no consideration, the paper is not negotiable, the UCC doesn’t apply and the party seeking to foreclose has no standing because they have not been injured by the borrower, even if the borrower didn’t make any payments. At the root of this mess is a scheme of illusions created by the banks. Demand reality and you will get traction.

But there are also some good points about the new rules. The one requiring counseling for the homeowners would be good if the counselors knew what they were talking about and understood the perfectly valid defenses available to homeowners who got swindled into signing papers in favor of a company that never made a loan to them. From what I have seen, the counselors don’t have any idea about such things and it is merely a debt counseling session about getting your life in order, which is a good thing, but not what you can do about having your life turned upside down by an illegal foreclosure.

The part I like is the burden placed on foreclosers that would show that a modification is not possible. This is simple: if the results of foreclosure are that the net proceeds are substantially less than what the homeowner is offering, then the loan  can be modified. Demand should be made for the methodology and the person who calculated the modification for the forecloser and their authority to do so. And demand should be made for what contact they had with the “creditor.” Then you contact the creditor and find out (a) if they are the creditor (b) whether they were contacted and (c) how they feel about getting $150,000 from the homeowner rather than $50,000 from foreclosure.

As for the modification part, the banks are going to fake it just like they fake everything else. Be ready with an expert declaration that shows that the modification offered is far better than foreclosure, and that this is evidence of the fact that the servicer never even “Considered” the modification, which is violation of HAMP and HARP.

EXCELLENT AMICI BRIEF ON UCC REQUIREMENTS

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SEE 10.17.2011-Dobson-v-Wells-Fargo-Bank-w

Filed by North Carolina Justice Center, North Carolina Advocates for Justice, Center for Responsible Lending, Maine Attorneys Saving Homes, Financial Protection Law Center, AARP, and the National Association of Consumer Advocates

PRESENTING THE NOTE AND PROVING THE RIGHT TO ENFORCE IT UNDER THE UCC

AFFIDAVITS IN FORECLOSURE PROCEEDINGS MOST COMPLY WITH BASIC STANDARDS FOR AFFIDAVITS IN COURT PROCEEDINGS

ABUSES IN THE EXECUTION OF AFFIDAVITS AND OTHER DOCUMENTS IMPUGN THE INTEGRITY OF THE FORECLOSURE PROCESS

To Streamline the Foreclosure Process and Cut Costs, Mortgage Companies Routinely File Untrustworthy Affidavits and Fraudulent  Documents

Federal And State governments Respond to Mortgage servicers’ Fraudulent Conduct

Robo-signing and Other Fraudulent Practices result in Wrongful foreclosures

Robo-signed Affidavits are fundamentally unreliable as evidence of ownership or default

False affidavits mask servicer errors that lead to wrongful foreclosures

Wrongful foreclosure of active duty military personnel

NEW RULES IN JUDGE CASE COURT; FEDERAL RULES OF EVIDENCE

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Start with the Federal Rules of Evidence. This is an act of congress signed into law by the President of the United States. You can’t get much higher than that for authority. At issue in this article are Rule 901 and 902. Judge Charles G Case issued his own local rules regarding motions to lift stay. These rules are revealing not only because they say, in part, what borrowers want to hear, but because they  contain a warning for both Borrowers and the pretender lenders.

The essence of what Judge Case is saying is that we have rules of evidence — follow them. And the next person who tries to use a buzz word without knowing what they are talking about will receive sanctions. In all probability that next person will be a pro se litigant and they may be fined literally out of court.

Judge Case’ “New Rules” say as follows, citing In Re VEAL: “A party seeking stay relief in order to enforce a secured obligation against real property has the burden of making a colorable showing that it has standing to enforce the note and deed of trust or mortgage. To meet this burden, Movant must provide evidence, in the form of assignments, endorsements or otherwise, demonstrating that it is a person entitled to enforce the note under the Uniform Commercial Code as well as a complete chain of title of the beneficial interest under the deed of trust or mortgage. Such evidence shall either be self authenticated under FRE 902 or accompanied by a declaration of a person with knowledge authenticating each document in a form sufficient under FRE 901. If the Movant is proceeding as a servicer or agent, evidence of the servicing or agency agreement must be provided, authenticated as indicated above. Absent such a showing, a hearing on the motion may be vacated and sanctions may be imposed.”

So the good news is that pretender lenders will be sanctioned if they attempt, without proper grounds, to come into court and state that they are entitled to a relief from the automatic stay order that issues in every bankruptcy proceeding. And Judge Case is very specific as to what is proper and what is not, so we can expect some orders levying sanctions against the pretender lenders as they try to get past Judge Case with their usual arguments of spin. It remains to be seen how strictly Judge Case will adhere to his own rules. But if he is trying to penetrate the fog of securitization, and if he really wants to know whether the party seeking to lift stay was the lender or actually acquired the loan, then the Banks are in for tough going at higher and higher levels.

On the other hand, a challenge to standing will not stand on its own. Just saying it doesn’t make it so and Judge Case is making it clear that he ie quite tired of hearing accusations without the foundation of fact and law required to challenge standing. “Any objection to standing must be made with particularity. If an objection to standing is made without an adequate basis in law or fact, the party making the objection may be subject to sanctions.” It appears that Judge Case is saying that he is going to enforce the rulers of evidence and pleading, very strictly against anyone who comes to court and presents either a claim or a defense. If you want to challenge standing, it must be either apparent from the face of the pretender’s own documents and pleadings, or backed up by information that is actually offered into evidence and which therefore is admissible evidence.

I don’t agree with Judge Case in that he continues to place the burden on the borrower to establish the case for the opposition and then establish a defense. It puts the burden on the borrower to come up with information that is admissible evidence when it is the borrower who has the least amount of information and the party with the least access to that information. In any other setting Judge Case would require any party seeking affirmative relief to satisfy its burden of pleading and proving a prima facie case in support of the relief requested. Somehow, borrowers still remain different.

UCC: NO NAME, NO RIGHTS — IMPERFECT LIEN IF ACTUAL SECURITY HOLDER NOT NAMED

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EDITOR’S NOTE: FROM ARIZONA LAW, BUT JUST LIKE ANY OTHER STATE, it only makes sense that you neither have a debtor nor a creditor if they are not named or sufficiently described for identification. If you can’t identify the debtor or obligor, then you can’t get paid. If you can’t identify the creditor or obligee, then there is nobody to pay — and more importantly, nobody from whom you can obtain a release of lien.

So what is the effect of a mortgage that fails to identify the creditor by name or description? The answer is obvious. It is the same as a deed signed by someone who isn’t the owner of the property. It means nothing.

The mortgage deed is a wild deed if it doesn’t comply with the basic requirements of law as to identification of the debtor, the property and the creditor.

The banks want us to change that so they can stick in any old entity and foreclose on property — thus stealing from both the investor/lenders and the homeowner/borrowers. If the banks win, how will you ever know whether you are really getting title if a nominee, even if named as nominee, is used on the document without disclosing the principal?

We have 100 million real estate transactions in which title defects were created by this loose method of naming “bankruptcy remote” vehicles to protect the Wall Street players from lending violations and violations of property law. But the same layer that protects them also destroys the security. If a mortgage doesn’t give you the name and address of the lender from whom you can get a release, then it isn’t a lien. It doesn’t attach to the land.

Here are the Arizona Statutes adopting the UCC to prove it. See recent case law from Federal and State Courts, right up to State Supreme Courts. It’s unanimous: you can’t foreclose unless you OWN the obligation, not merely hold it. You might be able to enforce the obligation to repay separately as merely a holder but you can’t foreclose.

47-1103. Construction to promote purposes and policies; applicability of supplemental principles of law

A. This title must be liberally construed and applied to promote its underlying purposes and policies, which are:

1. To simplify, clarify and modernize the law governing commercial transactions;

2. To permit the continued expansion of commercial practices through custom, usage and agreement of the parties; and

3. To make uniform the law among the various jurisdictions.

B. Unless displaced by the particular provisions of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy and other validating or invalidating cause supplement its provisions.

47-1201. General definitions

A. Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions contained in other chapters of this title that apply to particular chapters or parts thereof, have the meanings stated.

B. Subject to definitions contained in other chapters of this title that apply to particular chapters or parts thereof:

1. “Action”, in the sense of a judicial proceeding, includes recoupment, counterclaim, set-off, suit in equity and any other proceeding in which rights are determined.

2. “Aggrieved party” means a party entitled to pursue a remedy.

3. “Agreement”, as distinguished from “contract”, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing or usage of trade as provided in section 47-1303.

4. “Bank” means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union and trust company.

5. “Bearer” means a person in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, negotiable tangible document of title or certificated security that is payable to bearer or indorsed in blank.

6. “Bill of lading” means a document of title evidencing the receipt of goods for shipment issued by a person engaged in the business of directly or indirectly transporting or forwarding goods. The term does not include a warehouse receipt.

7. “Branch” includes a separately incorporated foreign branch of a bank.

8. “Burden of establishing” a fact means the burden of persuading the trier of fact that the existence of the fact is more probable than its nonexistence.

9. “Buyer in ordinary course of business” means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices. A person that sells oil, gas or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property or on secured or unsecured credit, and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under chapter 2 of this title may be a buyer in ordinary course of business. Buyer in ordinary course of business does not include a person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

10. “Conspicuous”, with reference to a term, means so written, displayed or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is conspicuous or not is a decision for the court. Conspicuous terms include the following:

(a) A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font or color to the surrounding text of the same or lesser size; and

(b) Language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.

11. “Consumer” means an individual who enters into a transaction primarily for personal, family or household purposes.

12. “Contract”, as distinguished from “agreement”, means the total legal obligation that results from the parties’ agreement as determined by this title as supplemented by any other applicable laws.

13. “Creditor” includes a general creditor, a secured creditor, a lien creditor and any representative of creditors, including an assignee for the benefit of creditors, a trustee in bankruptcy, a receiver in equity and an executor or administrator of an insolvent debtor’s or assignor’s estate.

14. “Defendant” includes a person in the position of defendant in a counterclaim, cross-claim or third-party claim.

15. “Delivery”, with respect to an electronic document of title, means voluntary transfer of control, and with respect to an instrument, a tangible document of title or chattel paper means voluntary transfer of possession.

16. “Document of title” means a record:

(a) That in the regular course of business or financing is treated as adequately evidencing that the person in possession or control of the record is entitled to receive, control, hold and dispose of the record and the goods the record covers; and

(b) That purports to be issued by or addressed to a bailee and to cover goods in the bailee’s possession that are either identified or are fungible portions of an identified mass. The term includes a bill of lading, transport document, dock warrant, dock receipt, warehouse receipt and order for delivery of goods. An electronic document of title means a document of title evidenced by a record consisting of information stored in an electronic medium. A tangible document of title means a document of title evidenced by a record consisting of information that is inscribed on a tangible medium.

17. “Fault” means a default, breach or wrongful act or omission.

18. “Fungible goods” means:

(a) Goods of which any unit, by nature or usage of trade, is the equivalent of any other like unit; or

(b) Goods that by agreement are treated as equivalent.

19. “Genuine” means free of forgery or counterfeiting.

20. “Good faith” means honesty in fact in the conduct or transaction concerned.

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;

(b) The person in possession of a negotiable tangible document of title if the goods are deliverable either to bearer or to the order of the person in possession; or

(c) The person in control of a negotiable electronic document of title.

22. “Insolvency proceeding” includes an assignment for the benefit of creditors or other proceeding intended to liquidate or rehabilitate the estate of the person involved.

23. “Insolvent” means:

(a) Having generally ceased to pay debts in the ordinary course of business other than as a result of bona fide dispute;

(b) Being unable to pay debts as they become due; or

(c) Being insolvent within the meaning of federal bankruptcy law.

24. “Money” means a medium of exchange currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries.

25. “Organization” means a person other than an individual.

26. “Party”, as distinguished from “third party”, means a person that has engaged in a transaction or made an agreement subject to this title.

27. “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency or instrumentality, public corporation or any other legal or commercial entity.

28. “Present value” means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain by use of either an interest rate specified by the parties if that rate is not manifestly unreasonable at the time the transaction is entered into or, if an interest rate is not so specified, a commercially reasonable rate that takes into account the facts and circumstances at the time the transaction is entered into.

29. “Purchase” means taking by sale, lease, discount, negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift or any other voluntary transaction creating an interest in property.

30. “Purchaser” means a person that takes by purchase.

31. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

32. “Remedy” means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal.

33. “Representative” means a person empowered to act for another, including an agent, an officer of a corporation or association and a trustee, executor or administrator of an estate.

34. “Right” includes remedy.

35. “Security interest” means an interest in personal property or fixtures that secures payment or performance of an obligation. Security interest includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible or a promissory note in a transaction that is subject to chapter 9 of this title. Security interest does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under Section 47-2401, but a buyer may also acquire a security interest by complying with chapter 9 of this title. Except as otherwise provided in Section 47-2505, the right of a seller or lessor of goods under chapter 2 or 2A of this title to retain or acquire possession of the goods is not a security interest, but a seller or lessor may also acquire a security interest by complying with chapter 9 of this title. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under section 47-2401 is limited in effect to a reservation of a security interest. Whether a transaction in the form of a lease creates a security interest is determined pursuant to section 47-1203.

36. “Send” in connection with a writing, record or notice means:

(a) To deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and, in the case of an instrument, to an address specified thereon or otherwise agreed, or if there is none to any address reasonable under the circumstances; or

(b) In any other way to cause to be received any record or notice within the time it would have arrived if properly sent.

37. “Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing.

38. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States.

39. “Surety” includes a guarantor or other secondary obligor.

40. “Term” means a portion of an agreement that relates to a particular matter.

41. “Unauthorized signature” means a signature made without actual, implied or apparent authority. The term includes a forgery.

42. “Warehouse receipt” means a document of title issued by a person engaged in the business of storing goods for hire.

43. “Writing” includes printing, typewriting or any other intentional reduction to tangible form. “Written” has a corresponding meaning.

47-1202. Notice; knowledge

A. Subject to subsection F, a person has “notice” of a fact if the person:

1. Has actual knowledge of it;

2. Has received a notice or notification of it; or

3. From all the facts and circumstances known to the person at the time in question, has reason to know that it exists.

B. “Knowledge” means actual knowledge. “Knows” has a corresponding meaning.

c. “Discover”, “learn” or words of similar import refer to knowledge rather than to reason to know.

D. A person “notifies” or “gives” a notice or notification to another person by taking such steps as may be reasonably required to inform the other person in ordinary course, whether or not the other person actually comes to know of it.

E. Subject to subsection F, a person “receives” a notice or notification when:

1. It comes to that person’s attention; or

2. It is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made or at another location held out by that person as the place for receipt of such communications.

F. Notice, knowledge or a notice or notification received by an organization is effective for a particular transaction from the time it is brought to the attention of the individual conducting that transaction and, in any event, from the time it would have been brought to the individual’s attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless the communication is part of the individual’s regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.

47-1204. Value

Except as otherwise provided in chapters 3, 4 and 5 of this title, a person gives value for rights if the person acquires them:

1. In return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection;

2. As security for, or in total or partial satisfaction of, a preexisting claim;

3. By accepting delivery under a preexisting contract for purchase; or

4. In return for any consideration sufficient to support a simple contract.

47-1206. Presumptions

Whenever this title creates a “presumption” with respect to a fact, or provides that a fact is “presumed”, the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.

47-1302. Variation by agreement

A. Except as otherwise provided in subsection B or elsewhere in this title, the effect of provisions of this title may be varied by agreement.

B. The obligations of good faith, diligence, reasonableness and care prescribed by this title may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Whenever this title requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.

C. The presence in certain provisions of this title of the phrase “unless otherwise agreed”, or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under this section.

47-1305. Remedies to be liberally administered

A. The remedies provided by this title must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in this title or by other rule of law.

B. Any right or obligation declared by this title is enforceable by action unless the provision declaring it specifies a different and limited effect.

47-1306. Waiver or renunciation of claim or right after breach

A claim or right arising out of an alleged breach may be discharged in whole or in part without consideration by agreement of the aggrieved party in an authenticated record.

47-1307. Prima facie evidence by third party documents

A document in due form purporting to be a bill of lading, policy or certificate of insurance, official weigher’s or inspector’s certificate, consular invoice or any other document authorized or required by the contract to be issued by a third party is prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party.

47-3301. Person entitled to enforce instrument

“Person entitled to enforce” an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 47-3309 or section 47-3418, subsection 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.

47-3302. Holder in due course

A. Subject to subsection C of this section and section 47-3106, subsection D, “holder in due course” means the holder of an instrument if:

1. The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

2. The holder took the instrument:

(a) For value;

(b) In good faith;

(c) Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series;

(d) Without notice that the instrument contains an unauthorized signature or has been altered;

(e) Without notice of any claim to the instrument described in section 47-3306; and

(f) Without notice that any party has a defense or claim in recoupment described in section 47-3305, subsection A.

B. Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection A of this section, but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment or claim to the instrument.

C. Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken:

1. By legal process or by purchase in an execution, bankruptcy or creditor’s sale or similar proceeding;

2. By purchase as part of a bulk transaction not in ordinary course of business of the transferor; or

3. As the successor in interest to an estate or other organization.

D. If, under section 47-3303, subsection A, paragraph 1, the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

E. If the person entitled to enforce an instrument has only a security interest in the instrument and the person obliged to pay the instrument has a defense, claim in recoupment or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

F. To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

G. This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

47-3303. Value and consideration

A. An instrument is issued or transferred for value if:

1. The instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;

2. The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;

3. The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due;

4. The instrument is issued or transferred in exchange for a negotiable instrument; or

5. The instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.

B. “Consideration” means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in subsection A, the instrument is also issued for consideration.

47-3306. Claims to an instrument

A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.

47-3308. Proof of signatures and status as holder in due course

A. In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature. If an action to enforce the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument, the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person under section 47-3402, subsection A.

B. If the validity of signatures is admitted or proved and there is compliance with subsection A of this section, a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under section 47-3301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim.

47-3401. Signature

A. A person is not liable on an instrument unless:

1. The person signed the instrument; or

2. The person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under section 47-3402.

B. A signature may be made:

1. Manually or by means of a device or machine; and

2. By the use of any name, including a trade or assumed name, or by a word, mark or symbol executed or adopted by a person with present intention to authenticate a writing.

47-3402. Signature by representative

A. If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person or the name of the signer, the represented person is bound by the signature to the same extent the represented person would be bound if the signature were on a simple contract. If the represented person is bound, the signature of the representative is the “authorized signature of the represented person” and the represented person is liable on the instrument, whether or not identified in the instrument.

B. If a representative signs the name of the representative to an instrument and the signature is an authorized signature of the represented person, the following rules apply:

1. If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified in the instrument, the representative is not liable on the instrument.

2. Subject to subsection C, if the form of the signature does not show unambiguously that the signature is made in a representative capacity or the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument.

C. If a representative signs the name of the representative as drawer of a check without indication of the representative status and the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the signature is an authorized signature of the represented person.

47-3403. Unauthorized signature

A. Unless otherwise provided in this chapter or chapter 4 of this title, an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value. An unauthorized signature may be ratified for all purposes of this chapter.

B. If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is lacking.

C. The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this chapter which makes the unauthorized signature effective for the purposes of this chapter.

47-3404. Impostors; fictitious payees

A. If an impostor, by use of the mails or otherwise, induces the issuer of an instrument to issue the instrument to the impostor, or to a person acting in concert with the impostor, by impersonating the payee of the instrument or a person authorized to act for the payee, an indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

B. If a person whose intent determines to whom an instrument is payable (section 47-3110, subsection A or B) does not intend the person identified as payee to have any interest in the instrument or the person identified as payee of an instrument is a fictitious person, the following rules apply until the instrument is negotiated by special indorsement:

1. Any person in possession of the instrument is its holder.

2. An indorsement by any person in the name of the payee stated in the instrument is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

C. Under subsection A or B of this section, an indorsement is made in the name of a payee if:

1. It is made in a name substantially similar to that of the payee; or

2. The instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to that of the payee.

D. With respect to an instrument to which subsection A or B of this section applies, if a person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from payment of the instrument, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

47-3405. Employer’s responsibility for fraudulent indorsement by employee

A. In this section:

1. “Employee” includes an independent contractor and employee of an independent contractor retained by the employer.

2. “Fraudulent indorsement” means:

(a) In the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer; or

(b) In the case of an instrument with respect to which the employer is the issuer, a forged indorsement purporting to be that of the person identified as payee.

3. “Responsibility” with respect to instruments means authority to:

(a) Sign or indorse instruments on behalf of the employer;

(b) Process instruments received by the employer for bookkeeping purposes, for deposit to an account or for other disposition;

(c) Prepare or process instruments for issue in the name of the employer;

(d) Supply information determining the names or addresses of payees of instruments to be issued in the name of the employer;

(e) Control the disposition of instruments to be issued in the name of the employer; or

(f) Act otherwise with respect to instruments in a responsible capacity.

Responsibility does not include authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail, or similar access.

B. For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value or for collection, if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

C. Under subsection B, an indorsement is made in the name of the person to whom an instrument is payable if:

1. It is made in a name substantially similar to the name of that person; or

2. The instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to the name of that person

47-3406. Negligence contributing to forged signature or alteration of instrument

A. A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.

B. Under subsection A, if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.

C. Under subsection A, the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection B, the burden of proving failure to exercise ordinary care is on the person precluded.

47-3412. Obligation of issuer of note or cashier’s check

The issuer of a note or cashier’s check or other draft drawn on the drawer is obliged to pay the instrument:

1. According to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder; or

2. If the issuer signed an incomplete instrument, according to its terms when completed, to the extent stated in sections 47-3115 and 47-3407. The obligation is owed to a person entitled to enforce the instrument or to an indorser who paid the instrument under section 47-3415.

47-8201. Issuer

A. With respect to an obligation on or a defense to a security, an “issuer” includes a person that:

1. Places or authorizes the placing of its name on a security certificate, other than as authenticating trustee, registrar, transfer agent, or the like, to evidence a share, participation or other interest in its property or in an enterprise or to evidence its duty to perform an obligation represented by the certificate;

2. Creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an uncertificated security;

3. Directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a security certificate; or

4. Becomes responsible for, or in place of, another person described as an issuer in this section.

B. With respect to an obligation on or defense to a security, a guarantor is an issuer to the extent of its guaranty, whether or not its obligation is noted on a security certificate.

C. With respect to a registration of a transfer, issuer means a person on whose behalf transfer books are maintained.

47-9102. Definitions and index of definitions

A. In this chapter, unless the context otherwise requires:

1. “Accession” means goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.

2. “Account”, except as used in “account for”, means a right to payment of a monetary obligation, whether or not earned by performance, for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of, for services rendered or to be rendered, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or other contract, arising out of the use of a credit or charge card or information contained on or for use with the card or as winnings in a lottery or other game of chance operated or sponsored by a state, a governmental unit of a state or a person licensed or authorized to operate the game by a state or governmental unit of a state. Account includes health-care-insurance receivables. Account does not include rights to payment evidenced by chattel paper or an instrument, commercial tort claims, deposit accounts, investment property, letter-of-credit rights or letters of credit or rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.

3. “Account debtor” means a person obligated on an account, chattel paper or general intangible but does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.

4. “Accounting”, except as used in “accounting for”, means a record:

(a) Authenticated by a secured party;

(b) Indicating the aggregate unpaid secured obligations as of a date not more than thirty-five days earlier or thirty-five days later than the date of the record; and

(c) Identifying the components of the obligations in reasonable detail.

5. “Agricultural lien” means an interest, other than a security interest, in farm products:

(a) That secures payment or performance of an obligation for:

(i) Goods or services furnished in connection with a debtor’s farming operation; or

(ii) Rent on real property leased by a debtor in connection with its farming operation;

(b) That is created by statute in favor of a person that:

(i) In the ordinary course of its business furnished goods or services to a debtor in connection with a debtor’s farming operation; or

(ii) Leased real property to a debtor in connection with the debtor’s farming operation; and

(c) Whose effectiveness does not depend on the person’s possession of the personal property.

6. “As-extracted collateral” means:

(a) Oil, gas or other minerals that are subject to a security interest that:

(i) Is created by a debtor having an interest in the minerals before extraction; and

(ii) Attaches to the minerals as extracted; or

(b) Accounts arising out of the sale at the wellhead or minehead of oil, gas or other minerals in which the debtor had an interest before extraction.

7. “Authenticate” means:

(a) To sign; or

(b) To execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, with the present intent of the authenticating person to identify the person and adopt or accept a record.

8. “Bank” means an organization that is engaged in the business of banking. Bank includes savings banks, savings and loan associations, credit unions and trust companies.

9. “Cash proceeds” means proceeds that are money, checks, deposit accounts or the like.

10. “Certificate of title” means a certificate of title with respect to which a statute provides for the security interest in question to be indicated on the certificate as a condition or result of the security interest’s obtaining priority over the rights of a lien creditor with respect to the collateral.

11. “Chattel paper” means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods or a lease of specific goods and license of software used in the goods. In this paragraph, “monetary obligation” means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods. Chattel paper does not include charters or other contracts involving the use or hire of a vessel or records that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card. If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken together constitutes chattel paper.

12. “Collateral” means the property subject to a security interest or agricultural lien. Collateral includes:

(a) Proceeds to which a security interest attaches;

(b) Accounts, chattel paper, payment intangibles and promissory notes that have been sold; and

(c) Goods that are the subject of a consignment.

13. “Commercial tort claim” means a claim arising in tort with respect to which:

(a) The claimant is an organization; or

(b) The claimant is an individual and the claim:

(i) Arose in the course of the claimant’s business or profession; and

(ii) Does not include damages arising out of personal injury to or the death of an individual.

14. “Commodity account” means an account maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer.

15. “Commodity contract” means a commodity futures contract, an option on a commodity futures contract, a commodity option or another contract if the contract or option is:

(a) Traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to federal commodities laws; or

(b) Traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a commodity intermediary for a commodity customer.

16. “Commodity customer” means a person for which a commodity intermediary carries a commodity contract on its books.

17. “Commodity intermediary” means a person that:

(a) Is registered as a futures commission merchant under federal commodities law; or

(b) In the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to federal commodities law.

18. “Communicate” means:

(a) To send a written or other tangible record;

(b) To transmit a record by any means agreed on by the persons sending and receiving the record; or

(c) In the case of transmission of a record to or by a filing office, to transmit a record by any means prescribed by filing office rule.

19. “Consignee” means a merchant to which goods are delivered in a consignment.

20. “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and:

(a) The merchant:

(i) Deals in goods of that kind under a name other than the name of the person making delivery;

(ii) Is not an auctioneer; and

(iii) Is not generally known by its creditors to be substantially engaged in selling the goods of others;

(b) With respect to each delivery, the aggregate value of the goods is one thousand dollars or more at the time of delivery;

(c) The goods are not consumer goods immediately before delivery; and

(d) The transaction does not create a security interest that secures an obligation.

21. “Consignor” means a person that delivers goods to a consignee in a consignment.

22. “Consumer debtor” means a debtor in a consumer transaction.

23. “Consumer goods” means goods that are used or bought for use primarily for personal, family or household purposes.

24. “Consumer goods transaction” means a consumer transaction in which:

(a) An individual incurs an obligation primarily for personal, family or household purposes; and

(b) A security interest in consumer goods secures the obligation.

25. “Consumer obligor” means an obligor who is an individual and who incurred the obligation as part of a transaction entered into primarily for personal, family or household purposes.

26. “Consumer transaction” means a transaction in which an individual incurs an obligation primarily for personal, family or household purposes, a security interest secures the obligation and the collateral is held or acquired primarily for personal, family or household purposes. Consumer transaction includes consumer goods transactions.

27. “Continuation statement” means an amendment of a financing statement that:

(a) Identifies, by its file number, the initial financing statement to which it relates; and

(b) Indicates that it is a continuation statement for, or that it is filed to continue the effectiveness of, the identified financing statement.

28. “Debtor” means:

(a) A person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;

(b) A seller of accounts, chattel paper, payment intangibles or promissory notes; or

(c) A consignee.

29. “Deposit account” means a demand, time, savings, passbook or similar account maintained with a bank. Deposit account does not include investment property or accounts evidenced by an instrument.

30. “Document” means a document of title or a receipt of the type described in section 47-7201, subsection B.

31. “Electronic chattel paper” means chattel paper evidenced by a record or records consisting of information stored in an electronic medium.

32. “Encumbrance” means a right, other than an ownership interest, in real property. Encumbrance includes mortgages and other liens on real property.

33. “Equipment” means goods other than inventory, farm products or consumer goods.

34. “Farm products” means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and that are:

(a) Crops grown, growing or to be grown, including:

(i) Crops produced on trees, vines and bushes; and

(ii) Aquatic goods produced in aquacultural operations;

(b) Livestock, born or unborn, including aquatic goods produced in aquacultural operations;

(c) Supplies used or produced in a farming operation; or

(d) Products of crops or livestock in their unmanufactured states.

35. “Farming operation” means raising, cultivating, propagating, fattening, grazing or any other farming, livestock or aquacultural operation.

36. “File number” means the number assigned to an initial financing statement pursuant to section 47-9519, subsection A.

37. “Filing office” means an office designated in section 47-9501 as the place to file a financing statement.

38. “Filing office rule” means a rule adopted pursuant to section 47-9526.

39. “Financing statement” means a record or records composed of an initial financing statement and any filed record relating to the initial financing statement.

40. “Fixture filing” means the filing of a financing statement covering goods that are or are to become fixtures and satisfying section 47-9502, subsections A and B. Fixture filing includes the filing of a financing statement covering goods of a transmitting utility that are or are to become fixtures.

41. “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property law.

42. “General intangible” means any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money and oil, gas or other minerals before extraction. General intangible includes payment intangibles and software.

43. “Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.

44. “Goods” means all things that are movable when a security interest attaches.

(a) Goods includes:

(i) Fixtures;

(ii) Standing timber that is to be cut and removed under a conveyance or contract for sale;

(iii) The unborn young of animals;

(iv) Crops grown, growing or to be grown, even if the crops are produced on trees, vines or bushes; and

(v) Manufactured homes.

(b) Goods also includes a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if:

(i) The program is associated with the goods in such a manner that it customarily is considered part of the goods; or

(ii) By becoming the owner of the goods, a person acquires a right to use the program in connection with the goods.

(c) Goods does not include a computer program embedded in goods that consist solely of the medium in which the program is embedded.

(d) Goods also does not include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment property, letter-of-credit rights, letters of credit, money, or oil, gas or other minerals before extraction.

45. “Governmental unit” means a subdivision, agency, department, county, parish, municipality or other unit of the government of the United States, a state or a foreign country. Governmental unit includes an organization having a separate corporate or legal existence if the organization is eligible to issue or incur obligations the interest on which is excluded from gross income for federal income tax purposes.

46. “Health-care-insurance receivable” means an interest in or claim under a policy of insurance that is a right to payment of a monetary obligation for health care goods or services provided.

47. “Instrument” means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease and is of a type that in the ordinary course of business is transferred by delivery with any necessary indorsement or assignment. Instrument does not include:

(a) Investment property;

(b) Letters of credit; or

(c) Writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.

48. “Inventory” means goods, other than farm products, that:

(a) Are leased by a person as lessor;

(b) Are held by a person for sale or lease or to be furnished under a contract of service;

(c) Are furnished by a person under a contract of service; or

(d) Consist of raw materials, work in process or materials used or consumed in a business.

49. “Investment property” means a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract or commodity account.

50. “Jurisdiction of organization”, with respect to a registered organization, means the jurisdiction under whose law the organization is organized.

51. “Letter-of-credit right” means a right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. Letter-of-credit right does not include the right of a beneficiary to demand payment or performance under a letter of credit.

52. “Lien creditor” means:

(a) A creditor that has acquired a lien on the property involved by attachment, levy or the like;

(b) An assignee for benefit of creditors from the time of assignment;

(c) A trustee in bankruptcy from the date of the filing of the petition; or

(d) A receiver in equity from the time of appointment.

53. “Manufactured home” means a structure that is transportable in one or more sections and that, in the traveling mode, is eight body feet or more in width or forty body feet or more in length, or, when erected on site, is three hundred twenty or more square feet, and that is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning and electrical systems contained therein. Manufactured home includes any structure that meets all of the requirements of this paragraph except the size requirements and with respect to which the manufacturer voluntarily files a certification required by the United States secretary of housing and urban development and complies with the standards established under title 42 of the United States Code.

54. “Manufactured home transaction” means a secured transaction:

(a) That creates a purchase money security interest in a manufactured home, other than a manufactured home held as inventory; or

(b) In which a manufactured home, other than a manufactured home held as inventory, is the primary collateral.

55. “Mortgage” means a consensual interest in real property, including fixtures, that secures payment or performance of an obligation.

56. “New debtor” means a person that becomes bound as debtor under section 47-9203, subsection D by a security agreement previously entered into by another person.

57. “New value” means money, money’s worth in property, services or new credit or release by a transferee of an interest in property previously transferred to the transferee. New value does not include an obligation substituted for another obligation.

58. “Noncash proceeds” means proceeds other than cash proceeds.

59. “Obligor” means a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, owes payment or other performance of the obligation, has provided property other than the collateral to secure payment or other performance of the obligation or is otherwise accountable in whole or in part for payment or other performance of the obligation. Obligor does not include issuers or nominated persons under a letter of credit.

60. “Original debtor”, except as used in section 47-9310, subsection C, means a person that, as debtor, entered into a security agreement to which a new debtor has become bound under section 47-9203, subsection D.

61. “Payment intangible” means a general intangible under which the account debtor’s principal obligation is a monetary obligation.

62. “Person related to”, with respect to an individual, means:

(a) The spouse of the individual;

(b) A brother, brother-in-law, sister or sister-in-law of the individual;

(c) An ancestor or lineal descendant of the individual or the individual’s spouse; or

(d) Any other relative, by blood or marriage, of the individual or the individual’s spouse who shares the same home with the individual.

63. “Person related to”, with respect to an organization, means:

(a) A person directly or indirectly controlling, controlled by or under common control with the organization;

(b) An officer or director of, or a person performing similar functions with respect to, the organization;

(c) An officer or director of, or a person performing similar functions with respect to, a person described in subdivision (a) of this paragraph;

(d) The spouse of an individual described in subdivision (a), (b) or (c) of this paragraph; or

(e) An individual who is related by blood or marriage to an individual described in subdivision (a), (b), (c) or (d) of this paragraph and who shares the same home with the individual.

64. “Proceeds”, except as used in section 47-9609, subsection B, means the following property:

(a) Whatever is acquired on the sale, lease, license, exchange or other disposition of collateral;

(b) Whatever is collected on, or distributed on account of, collateral;

(c) Rights arising out of collateral;

(d) To the extent of the value of collateral, claims arising out of the loss, nonconformity or interference with the use of, defects or infringement of rights in, or damage to the collateral; or

(e) To the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to the collateral.

65. “Promissory note” means an instrument that evidences a promise to pay a monetary obligation, does not evidence an order to pay and does not contain an acknowledgment by a bank that the bank has received for deposit a sum of money or funds.

66. “Proposal” means a record authenticated by a secured party that includes the terms on which the secured party is willing to accept collateral in full or partial satisfaction of the obligation it secures pursuant to sections 47-9620, 47-9621 and 47-9622.

67. “Pursuant to commitment”, with respect to an advance made or other value given by a secured party, means pursuant to the secured party’s obligation, whether or not a subsequent event of default or other event not within the secured party’s control has relieved or may relieve the secured party from its obligation.

68. “Record”, except as used in “for record”, “of record”, “record or legal title”, and “record owner”, means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

69. “Registered organization” means an organization organized solely under the law of a single state or the United States and as to which the state or the United States must maintain a public record showing the organization to have been organized.

70. “Secondary obligor” means an obligor to the extent that:

(a) The obligor’s obligation is secondary; or

(b) The obligor has a right of recourse with respect to an obligation secured by collateral against the debtor, another obligor or property of either.

71. “Secured party” means:

(a) A person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding;

(b) A person that holds an agricultural lien;

(c) A consignor;

(d) A person to which accounts, chattel paper, payment intangibles or promissory notes have been sold;

(e) A trustee, indenture trustee, agent, collateral agent or other representative in whose favor a security interest or agricultural lien is created or provided for; or

(f) A person that holds a security interest arising under section 47-2401, 47-2505, 47-2711, 47-2A508, 47-4210 or 47-5118.

72. “Security agreement” means an agreement that creates or provides for a security interest.

73. “Send”, in connection with a record or notification, means:

(a) To deposit in the mail, deliver for transmission or transmit by any other usual means of communication, with postage or cost of transmission provided for, addressed to any address reasonable under the circumstances; or

(b) To cause the record or notification to be received within the time that it would have been received if properly sent under subdivision (a) of this paragraph.

74. “Software” means a computer program and any supporting information provided in connection with a transaction relating to the program. Software does not include a computer program that is included in the definition of goods.

75. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States.

76. “Supporting obligation” means a letter-of-credit right or secondary obligation that supports the payment or performance of an account, chattel paper, a document, a general intangible, an instrument or investment property.

77. “Tangible chattel paper” means chattel paper evidenced by a record or records consisting of information that is inscribed on a tangible medium.

78. “Termination statement” means an amendment of a financing statement that:

(a) Identifies, by its file number, the initial financing statement to which it relates; and

(b) Indicates either that it is a termination statement or that the identified financing statement is no longer effective.

79. “Transmitting utility” means a person primarily engaged in the business of:

(a) Operating a railroad, subway, street railway or trolley bus;

(b) Transmitting communications electrically, electromagnetically or by light;

(c) Transmitting goods by pipeline or sewer; or

(d) Transmitting or producing and transmitting electricity, steam, gas or water.

B. “Control” as provided in section 47-7106 and the following definitions in other sections apply to this chapter:

      1.  "Applicant"                               Section 47-5102
      2.  "Beneficiary"                             Section 47-5102
      3.  "Broker"                                  Section 47-8102
      4.  "Certificated security"                   Section 47-8102
      5.  "Check"                                   Section 47-3104
      6.  "Clearing corporation"                    Section 47-8102
      7.  "Contract for sale"                       Section 47-2106
      8.  "Customer"                                Section 47-4104
      9.  "Entitlement holder"                      Section 47-8102
     10.  "Financial asset"                         Section 47-8102
     11.  "Holder in due course"                    Section 47-3302

12. “Issuer” (with respect to a letter of

           credit or letter-of-credit right)        Section 47-5102
     13.  "Issuer" (with respect to a security)     Section 47-8201

14. “Issuer” (with respect to documents

           of title)                                Section 47-7102
     15.  "Lease"                                   Section 47-2A103
     16.  "Lease agreement"                         Section 47-2A103
     17.  "Lease contract"                          Section 47-2A103
     18.  "Leasehold interest"                      Section 47-2A103
     19.  "Lessee"                                  Section 47-2A103

20. “Lessee in ordinary course

of business"                        Section 47-2A103
     21.  "Lessor"                                  Section 47-2A103
     22.  "Lessor's residual interest"              Section 47-2A103
     23.  "Letter of credit"                        Section 47-5102
     24.  "Merchant"                                Section 47-2104
     25.  "Negotiable instrument"                   Section 47-3104
     26.  "Nominated person"                        Section 47-5102
     27.  "Note"                                    Section 47-3104
     28.  "Proceeds of a letter of credit"          Section 47-5114
     29.  "Prove"                                   Section 47-3103
     30.  "Sale"                                    Section 47-2106
     31.  "Securities account"                      Section 47-8501
     32.  "Securities intermediary"                 Section 47-8102
     33.  "Security"                                Section 47-8102
     34.  "Security certificate"                    Section 47-8102
     35.  "Security entitlement"                    Section 47-8102
     36.  "Uncertificated security"                 Section 47-8102

47-9103. Purchase money security interest; application of payments; burden of establishing

A. In this section:

1. “Purchase money collateral” means goods or software that secures a purchase money obligation incurred with respect to that collateral.

2. “Purchase money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.

B. A security interest in goods is a purchase money security interest:

1. To the extent that the goods are purchase money collateral with respect to that security interest;

2. If the security interest is in inventory that is or was purchase money collateral, also to the extent that the security interest secures a purchase money obligation incurred with respect to other inventory in which the secured party holds or held a purchase money security interest; and

3. Also to the extent that the security interest secures a purchase money obligation incurred with respect to software in which the secured party holds or held a purchase money security interest.

C. A security interest in software is a purchase money security interest to the extent that the security interest also secures a purchase money obligation incurred with respect to goods in which the secured party holds or held a purchase money security interest if:

1. The debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and

2. The debtor acquired its interest in the software for the principal purpose of using the software in the goods.

D. The security interest of a consignor in goods that are the subject of a consignment is a purchase money security interest in inventory.

E. In a transaction other than a consumer goods transaction, if the extent to which a security interest is a purchase money security interest depends on the application of a payment to a particular obligation, the payment must be applied:

1. In accordance with any reasonable method of application to which the parties agree;

2. In the absence of the parties’ agreement to a reasonable method, in accordance with any intention of the obligor manifested at or before the time of payment; or

3. In the absence of an agreement to a reasonable method and a timely manifestation of the obligor’s intention, in the following order:

(a) To obligations that are not secured; and

(b) If more than one obligation is secured, to obligations secured by purchase money security interests in the order in which those obligations were incurred.

F. In a transaction other than a consumer goods transaction, a purchase money security interest does not lose its status as such, even if:

1. The purchase money collateral also secures an obligation that is not a purchase money obligation;

2. Collateral that is not purchase money collateral also secures the purchase money obligation; or

3. The purchase money obligation has been renewed, refinanced, consolidated or restructured.

G. In a transaction other than a consumer goods transaction, a secured party claiming a purchase money security interest has the burden of establishing the extent to which the security interest is a purchase money security interest.

H. The limitation of the rules in subsections E, F and G to transactions other than consumer goods transactions is intended to leave to the court the determination of the proper rules in consumer goods transactions. The court may not infer from that limitation the nature of the proper rule in consumer goods transactions and may continue to apply established approaches.

47-9108. Sufficiency of description

A. Except as otherwise provided in subsections C, D and E, a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.

B. Except as otherwise provided in subsection D, a description of collateral reasonably identifies the collateral if it identifies the collateral by:

1. Specific listing;

2. Category;

3. Except as otherwise provided in subsection E, a type of collateral defined in this title;

4. Quantity;

5. Computational or allocational formula or procedure; or

6. Except as otherwise provided in subsection C, any other method, if the identity of the collateral is objectively determinable.

C. A description of collateral as “all the debtor’s assets” or “all the debtor’s personal property” or using words of similar import does not reasonably identify the collateral.

D. Except as otherwise provided in subsection E, a description of a security entitlement, securities account or commodity account is sufficient if it describes:

1. The collateral by those terms or as investment property; or

2. The underlying financial asset or commodity contract.

E. A description only by type of collateral defined in this title is an insufficient description of:

1. A commercial tort claim; or

2. In a consumer transaction, consumer goods, a security entitlement, a securities account or a commodity account.

7-9201. General effectiveness of security agreement

A. Except as otherwise provided in this title, a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.

B. A transaction subject to this chapter is subject to any applicable rule of law that establishes a different rule for consumers and any other statute or rule that regulates the rates, charges, agreements and practices for loans, credit sales or other extensions of credit and any consumer protection statute or rule.

C. In case of conflict between this chapter and a rule of law, statute or other rule described in subsection B, the rule of law, statute or other rule controls. Failure to comply with a statute or rule described in subsection B has only the effect the statute or rule specifies.

D. This chapter does not:

1. Validate any rate, charge, agreement or practice that violates a rule of law, statute or other rule described in subsection B; or

2. Extend the application of the rule of law, statute or other rule to a transaction not otherwise subject to it.

47-9203. Attachment and enforceability of security interest; proceeds; supporting obligations; formal requisites

A. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.

B. Except as otherwise provided in subsections C through I of this section, a security interest is enforceable against the debtor and third parties with respect to the collateral only if:

1. Value has been given;

2. The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and

3. One of the following conditions is met:

(a) The debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;

(b) The collateral is not a certificated security and is in the possession of the secured party under section 47-9313 pursuant to the debtor’s security agreement;

(c) The collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 47-8301 pursuant to the debtor’s security agreement; or

(d) The collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights or electronic documents, and the secured party has control under section 47-7106, 47-9104, 47-9105, 47-9106 or 47-9107 pursuant to the debtor’s security agreement.

C. Subsection B of this section is subject to section 47-4210 on the security interest of a collecting bank, section 47-5118 on the security interest of a letter-of-credit issuer or nominated person, section 47-9110 on a security interest arising under chapter 2 or 2A of this title, and section 47-9206 on security interests in investment property.

D. A person becomes bound as debtor by a security agreement entered into by another person if, by operation of law other than this chapter or by contract:

1. The security agreement becomes effective to create a security interest in the person’s property; or

2. The person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.

E. If a new debtor becomes bound as debtor by a security agreement entered into by another person:

1. The agreement satisfies subsection B, paragraph 3 of this section with respect to existing or after-acquired property of the new debtor to the extent the property is described in the agreement; and

2. Another agreement is not necessary to make a security interest in the property enforceable.

F. The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by section 47-9315 and is also attachment of a security interest in a supporting obligation for the collateral.

G. The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage or other lien.

H. The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.

I. The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.

47-9301. Law governing perfection and priority of security interests

Except as otherwise provided in sections 47-9303 through 47-9306, the following rules determine the law governing perfection, the effect of perfection or nonperfection and the priority of a security interest in collateral:

1. Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection and the priority of a security interest in collateral.

2. While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection and the priority of a possessory security interest in that collateral.

3. Except as otherwise provided in paragraph 4 of this section, while tangible negotiable documents, goods, instruments, money or tangible chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:

(a) Perfection of a security interest in the goods by filing a fixture filing;

(b) Perfection of a security interest in timber to be cut; and

(c) The effect of perfection or nonperfection and the priority of a nonpossessory security interest in the collateral.

4. The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or nonperfection and the priority of a security interest in as-extracted collateral.

47-9318. No interest retained in right to payment that is sold; rights and title of seller of account or chattel paper with respect to creditors and purchasers

A. A debtor that has sold an account, chattel paper, payment intangible or promissory note does not retain a legal or equitable interest in the collateral sold.

B. For purposes of determining the rights of creditors of, and purchasers for value of an account or chattel paper from, a debtor that has sold an account or chattel paper, while the buyer’s security interest is unperfected, the debtor is deemed to have rights and title to the account or chattel paper identical to those the debtor sold.

47-9406. Discharge of account debtor; notification of assignment; identification and proof of assignment; restrictions on assignment of accounts, chattel paper, payment intangibles and promissory notes ineffective

A. Subject to subsections B through H of this section, an account debtor on an account, chattel paper or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.

B. Subject to subsection H of this section, notification is ineffective under subsection A of this section:

1. If it does not reasonably identify the rights assigned;

2. To the extent that an agreement between an account debtor and a seller of a payment intangible limits the account debtor’s duty to pay a person other than the seller and the limitation is effective under law other than this chapter; or

3. At the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if:

(a) Only a portion of the account, chattel paper or payment intangible has been assigned to that assignee;

(b) A portion has been assigned to another assignee; or

(c) The account debtor knows that the assignment to that assignee is limited.

C. Subject to subsection H of this section, if requested by the account debtor, an assignee shall seasonably furnish reasonable proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under subsection A of this section.

D. Except as otherwise provided in subsection E of this section and sections 47-2A303 and 47-9407, and subject to subsection H of this section, a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it:

1. Prohibits, restricts or requires the consent of the account debtor or person obligated on the promissory note to the assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, the account, chattel paper, payment intangible or promissory note; or

2. Provides that the assignment or transfer or the creation, attachment, perfection or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination or remedy under the account, chattel paper, payment intangible or promissory note.

E. Subsection D of this section does not apply to the sale of a payment intangible or promissory note.

F. Except as otherwise provided in sections 47-2A303 and 47-9407 and subject to subsections H and J of this section, a rule of law, statute or regulation that prohibits, restricts or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper, is ineffective to the extent that the rule of law, statute or regulation:

1. Prohibits, restricts or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, the account or chattel paper; or

2. Provides that the assignment or transfer or the creation, attachment, perfection or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination or remedy under the account or chattel paper.

G. Subject to subsection H of this section, an account debtor shall not waive or vary its option under subsection B, paragraph 3 of this section.

H. This section is subject to law other than this chapter that establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family or household purposes.

I. This section does not apply to an assignment of a health-care-insurance receivable.

J. This section prevails over any inconsistent provisions in any statutes, rules and regulations.

47-9501. Filing office

A. Except as otherwise provided in subsection B, if the local law of this state governs perfection of a security interest or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is:

1. The office designated for the filing or recording of a record of a mortgage on the related real property, if:

(a) The collateral is as-extracted collateral or timber to be cut; or

(b) The financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; or

2. The office of the secretary of state, in all other cases, including a case in which the collateral is goods that are or are to become fixtures and the financing statement is not filed as a fixture filing.

B. The office in which to file a financing statement to perfect a security interest in collateral, including fixtures, of a transmitting utility is the office of the secretary of state. The financing statement also constitutes a fixture filing as to the collateral indicated in the financing statement that is or is to become fixtures.

47-9502. Contents of financing statement; record of mortgage as financing statement; time of filing financing statement

A. Subject to subsection B of this section, a financing statement is sufficient only if it:

1. Provides the name of the debtor;

2. Provides the name of the secured party or a representative of the secured party; and

3. Indicates the collateral covered by the financing statement.

B. Except as otherwise provided in section 47-9501, subsection B, to be sufficient, a financing statement that covers as-extracted collateral or timber to be cut, or that is filed as a fixture filing and covers goods that are or are to become fixtures, must satisfy subsection A of this section and also:

1. Indicate that it covers this type of collateral;

2. Indicate that it is to be filed in the real property records;

3. Provide a description of the real property to which the collateral is related; and

4. If the debtor does not have an interest of record in the real property, provide the name of a record owner.

C. A record of a mortgage is effective, from the date of recording, as a financing statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut only if:

1. The record indicates the goods or accounts that it covers;

2. The goods are or are to become fixtures related to the real property described in the record or the collateral is related to the real property described in the record and is as-extracted collateral or timber to be cut;

3. The record satisfies the requirements for a financing statement in this section other than an indication that it is to be filed in the real property records; and

4. The record is recorded.

D. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.

47-9503. Name of debtor and secured party

A. A financing statement sufficiently provides the name of the debtor:

1. If the debtor is a registered organization, only if the financing statement provides the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization that shows the debtor to have been organized;

2. If the debtor is a decedent’s estate, only if the financing statement provides the name of the decedent and indicates that the debtor is an estate;

3. If the debtor is a trust or a trustee acting with respect to property held in trust, only if the financing statement:

(a) Provides the name specified for the trust in its organic documents or, if no name is specified, provides the name of the settlor and additional information sufficient to distinguish the debtor from other trusts having one or more of the same settlors; and

(b) Indicates, in the debtor’s name or otherwise, that the debtor is a trust or is a trustee acting with respect to property held in trust; and

4. In other cases:

(a) If the debtor has a name, only if it provides the individual or organizational name of the debtor; and

(b) If the debtor does not have a name, only if it provides the names of the partners, members, associates or other persons comprising the debtor.

B. A financing statement that provides the name of the debtor in accordance with subsection A is not rendered ineffective by the absence of:

1. A trade name or other name of the debtor; or

2. Unless required under subsection A, paragraph 4, subdivision (b), names of partners, members, associates or other persons comprising the debtor.

C. A financing statement that provides only the debtor’s trade name does not sufficiently provide the name of the debtor.

D. Failure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement.

E. A financing statement may provide the name of more than one debtor and the name of more than one secured party.

47-9509. Persons entitled to file a record

A. A person may file an initial financing statement, amendment that adds collateral covered by a financing statement or amendment that adds a debtor to a financing statement only if:

1. The debtor authorizes the filing in an authenticated record or pursuant to subsection B or C of this section; or

2. The person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien.

B. By authenticating or becoming bound as debtor by a security agreement, a debtor or new debtor authorizes the filing of an initial financing statement, and an amendment, covering:

1. The collateral described in the security agreement; and

2. Property that becomes collateral under section 47-9315, subsection A, paragraph 2, whether or not the security agreement expressly covers proceeds.

C. A person may file an amendment other than an amendment that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement only if:

1. The secured party of record authorizes the filing; or

2. The amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by section 47-9513, subsection A or C, the debtor authorizes the filing and the termination statement indicates that the debtor authorized it to be filed.

D. If there is more than one secured party of record for a financing statement, each secured party of record may authorize the filing of an amendment under subsection C of this section.

47-9511. Secured party of record

A. A secured party of record with respect to a financing statement is a person whose name is provided as the name of the secured party or a representative of the secured party in an initial financing statement that has been filed. If an initial financing statement is filed under section 47-9514, subsection A, the assignee named in the initial financing statement is the secured party of record with respect to the financing statement.

B. If an amendment of a financing statement that provides the name of a person as a secured party or a representative of a secured party is filed, the person named in the amendment is a secured party of record. If an amendment is filed under section 47-9514, subsection B, the assignee named in the amendment is a secured party of record.

C. A person remains a secured party of record until the filing of an amendment of the financing statement that deletes the person.

47-9514. Assignment of powers of secured party of record

A. Except as otherwise provided in subsection C of this section, an initial financing statement may reflect an assignment of all of the secured party’s power to authorize an amendment to the financing statement by providing the name and mailing address of the assignee as the name and address of the secured party.

B. Except as otherwise provided in subsection C of this section, a secured party of record may assign of record all or part of its power to authorize an amendment to a financing statement by filing in the filing office an amendment of the financing statement that:

1. Identifies, by its file number, the initial financing statement to which it relates;

2. Provides the name of the assignor; and

3. Provides the name and mailing address of the assignee.

C. An assignment of record of a security interest in a fixture covered by a record of a mortgage that is effective as a financing statement filed as a fixture filing under section 47-9502, subsection C may be made only by an assignment of record of the mortgage in the manner provided by law of this state other than this title.

D. A secured party of record may assign of record all of the secured party’s rights under more than one financing statement filed with the secretary of state by filing a master assignment setting forth the name of the secured party of record and file number of each financing statement and the name and mailing address of the assignee. The secured party shall also provide filing information in computer-readable form prescribed by the secretary of state.

C. In addition, chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

If a creditor or buyer extends value in reliance on the clean title, the question that arises is who as between the original creditor and a later creditor or buyer should prevail in the event of a dispute.  In Doherty v. Obregon, 433 P.2d 52 (Ariz.App. 1967), decided under an earlier version of Arizona’s certificate of title law, the court held in favor of the original creditor on the ground that that creditor had duly complied with the certificate of title law and had done all that it could do to perfect its security interest.  The rationale of the Obregon decision is sound and may well be applied should such a dispute arise under new Article 9.  It is desirable to give some degree of protection to non-dealer buyers, such as is provided for in new section 9-337 and discussed in Chapter 24 (Continuing Perfection — Changes as to the Use of the Collateral or in the Location of the Collateral or the Debtor; Security Interests in Proceeds).  However, even with the changes in the certificate of title lien notation system aimed at reducing the risk of mistake or fraud, see, e.g., ARS 28-2008 and 28-2057, the message to creditors and buyers is that they should not rely on the physical appearance of a certificate of title and should check with the motor vehicles department to be sure there are not any outstanding encumbrances.

In Obregon the dispute was between parties both of whom were relying on certificates of title issued by the same state.  It also can happen that certificates of title are issued by more than one state.  The new Article 9 scheme contemplates that there be only one certificate of title covering goods at any one time and that it will be clear which state’s law governs perfection and non-perfection.  However, because of fraud and the lack of complete coordination among state agencies responsible for administering certificate of title statutes from state to state, more than one certificate of title covering the same goods may be issued and be outstanding.  See Official Comment to 6 to 9-303.  Deciding which state’s law governs perfection in these rare but not unheard of cases requires applying new sections 9-316(d) and (e) and the examination of these sections is best left to Chapter 24 (Continuing Perfection — Changes as to the Use of the Collateral or in the Location of the Collateral or the Debtor; Security Interests in Proceeds).

The next five problems will help you get a handle on the certificate of title lien notation scheme exception to perfection under Article 9 itself.

Problem 17.1

Dealer, an Arizona automobile dealer, sells a new automobile to Buyer, an Arizona resident, in Arizona. The automobile is purchased for use on the Arizona highways.  Buyer pays $2,000 down and agrees to pay the balance over four years.  Buyer gives Dealer an interest in the automobile to secure the unpaid price.  How should Dealer perfect its security interest?  If Dealer submits an application for a certificate of title nine days after the purchase contract is signed is the security interest perfected and, if so, as of what date?  Do your answers differ depending on whether former or new Article 9 applies?  Would your answer to the question of how Dealer should perfect its security interest change if Dealer knows Buyer is just passing through Arizona and resides and will use the vehicle in California?  Which state’s law, that of Arizona or that of California, governs perfection if Dealer applies for a California certificate of title?  Does it make any difference to perfection and the timing of perfection whether Arizona or California law governs?

Problem 17.2

Dealer is a seller of new automobiles. Dealer is an Arizona corporation doing business in Phoenix, Arizona and San Diego, California. Dealer acquires a fleet of new automobiles to add to its inventory. The purchase is financed by Bank, which takes a security interest in the automobiles to secure the unpaid price of the fleet of automobiles.  How should Bank perfect its security interest in the fleet of automobiles under new Article 9?  By way of review of important material covered in Chapter 13 (Overview of Perfection by Filing), where should Bank file its financing statement?  Would filing be proper if the facts of Problem 17.2 were that the debtor was an automobile rental agency that leased but did not sell automobiles (except to dispose of and replace automobiles that were leased)?

Problem 17.3

Lender lends to Debtor in Arizona.  Debtor delivers the certificate of title to Lender as security for the loan.  Is the security interest perfected under new Article 9?  Would your answer change if Lender took possession of the vehicle?

Problem 17.4 

Bank finances the purchase of an automobile by Debtor in Arizona.  Bank duly applies to the Arizona Motor Vehicle Department for a certificate of title noting Bank’s security interest.  Such a title is issued to Debtor.  Subsequently, Debtor informs the Department of Motor Vehicles that it has lost the title to the vehicle and a replacement title is issued.  No lien is noted on the title.  Debtor sells the vehicle to Dealer in Arizona and Dealer pays an amount unadjusted for the amount of the security interest.  Debtor defaults on the loan to Bank.  Bank tracks the vehicle to Dealer and demands that Dealer satisfy the loan debt or turn the vehicle over to Bank.  Who wins?  In answering the question assume that the outcome turns on whether Bank’s security interest is perfected or not.  As noted above, under contemporary certificate of title systems disputes such as that in Problem 17.4 generally should not arise.  However, what should a similarly situated dealer (or lender) do to be safe?

Problem 17.5

Dealer in Arizona sells to Debtor a new cabin cruiser boat and boat trailer that are to be kept and used in Debtor’s business in Arizona.  Dealer takes an interest in the boat and boat trailer to secure the unpaid purchase price of each.  How should the security interests be perfected under new Article 9?

G. Vehicle Financing As A Three-Party Transaction

It is useful here to anticipate some complexity that often exists as to an already not uncomplicated perfection scheme.  That complexity arises because vehicle financing, whether the debtor is a dealer and the vehicles are inventory (in which case a financing statement is required) or the debtor is a person other than a dealer holding a vehicle for sale (in which case lien notation is required), often is a three-party transaction.

In a three-party transaction there will be two debtors and two creditors.  For example, if you buy an automobile on credit from a retailer and the retailer takes a security interest in the vehicle then you are the debtor and the retailer is the secured creditor.  But, quite likely the dealer has borrowed from a lender who finances the dealer’s acquisition of inventory, including the vehicle you have purchased on credit.  Consequently, the dealer is a creditor as to you but a debtor as to the lender.

There are many variations on three-party transactions. Recall from Chapter 4 (Scope of Article 9) that under new section 9-109(a)(3) sales of contracts are treated as secured transactions. The details determine what each creditor must do to perfect its security interest.  Former 9-302(2) provided that if a perfected security interest was assigned no further action was needed to perfect the interest.  The effect of this section was that where a creditor had been assigned an already perfected security interest the assignee-creditor did not have to take further action to perfect the assigned security interest.  New section 9-310(c) tracks former 9-302(2) word for word.

However, the assignee-creditor is excused from further action only where the assigned security interest was in fact perfected at the time of the assignment.  Moreover, whether the assignment of a security interest is effective and whether the assigned security interest is perfected are separate matters.  It should also be noted that new section 9-310(c) refers to the need to file a financing statement. As discussed earlier, under new section 9-311(c) lien notation in compliance with a certificate of title statute is the equivalent of filing.

You may test your understanding of the three-party financing arrangements in the next problem.

Problem 17.6

Dealer in Problem 17.1 borrows from Finance Company.  Dealer assigns to Finance Company the contract of sale involved in Problem 17.1.  Is Finance Company protected against a trustee in bankruptcy if Buyer files bankruptcy? Recall that protection against a trustee in bankruptcy turns on perfection.  Is Finance Company protected against a trustee in bankruptcy if Dealer files bankruptcy?  What advice would you give to Finance Company if you were advising Finance Company as to bankruptcy risks?

Hogan v WAMU Az Appellate Decision Against Borrower

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SEE DECISION AT Hogan v WAMU Decision Against Borrower

EDITOR’S NOTE: If you actually read the decision rather than focusing exclusively on the results, you can see that the court was simply following precedent in the absence of a proper presentation by the Borrower. However you can be sure that the pretender lenders will waive this decision in front of judges in support of their pretension to foreclose on property in which they have no interest.

GAME OVER? VEAL CASE VINDICATES EVERY POINT REPORTED ON LIVINGLIES

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NEIL GARFIELD, GARFIELD CONTINUUM SEMINARS, LIVINGLIES VINDICATED IN FULL

NO MERIT TO FORECLOSURE ACTIONS, PAST PRESENT OR FUTURE UNLESS THE REAL CREDITOR IS PRESENT.

BURDEN OF PROOF SHIFTS TO PRETENDERS

57568003-IN-RE-VEAL-w

  1. “IN THIS CASE, ONE COMPONENT OF PRUDENTIAL STANDING IS PARTICULARLY APPLICABLE. IT IS THE DOCTRINE THAT A PLAINTIFF MUST ASSERT ITS OWN LEGAL RIGHTS AND MAY NOT ASSERT THE LEGAL RIGHTS OF OTHERS. SPRINT, 554 U.S. AT 589; WARTH, 422 AT 499; OREGON V LEGAL SERVS. CORP, 552 F. 3D 965, 971 (9TH CIR., 2009).

  2. “Civil Rule 17(a)(1) starts simply: “An action must be prosecuted in the name of the real party in interest… The modern function  of the rule… is simply to protect the defendant against a subsequent action by the party actually entitled to recover, and to insure generally that the Judgement will have its proper effect as res judicata.”

  3. “The party asserting it has standing bears the burden of proof to establish standing. Sumers v Earth Island Inst., 555 U.S. 488 (2009)

  4. “Real party in interest analysis requires a determination of the applicable substantive law, since it is that law which defines and specifies the wrong, those aggrieved, and the redress they may receive. 6A Federal practice and Procedure sec 1543 at 480-481

ILLUSION OF SECURITIZATION IS FALLING APART

COLLATERAL BENEFIT TO HOMEOWNER

RESULTING FROM DEFECTS IN PRETENDER LENDER CASE

IS NOT A REASON TO RULE AGAINST THE HOMEOWNER-BORROWER

In a decision filed June 10, 2011 — one year after oral argument — the BAP carefully analyzed the position of the borrower and the alleged creditor and came up with nothing to support the allegations that there was a creditor in the room. Standing being a jurisdictional issue wiped out AHMSI and Wells Fargo.

This one is for publication, which means it is controlling precedent for all bankruptcy Judges in the Ninth Circuit. In a nutshells, the claim of “holder” is not enough, even for a motion to lift stay where the burden is extremely light. Thanks to a growing number of bankruptcy lawyers who understand these issues and thanks to their skill in presenting it, Bankruptcy Judges are realizing two things (1) lifting the stay is misused by the movant by creating the appearance that the merits of the case have already been heard and decided and therefore are engraved in stone under the doctrine of collateral estoppel and the Rooker-Feldman doctrine and (2) nipping abuse of process in the bud is the proper way for the courts to handle the pretender lenders.

It is very clear that this represents a sea change in the judicial attitude toward the pretender lenders. The documents don’t add up. So if anyone wants to come in to a court alleging that they can foreclose on the property or collect on the debt, they need to have real evidence which means live witnesses testifying under oath that they have personal knowledge and can authenticate the documents and other evidence proffered by the pretenders. These people don’t exist.

The bottom line is that there is no claim, an objection to the proof of claim will obviously be upheld in view of this ruling, and the homeowner is going to get their home free and clear of any encumbrances or debts unless the real creditor shows up — which is unlikely since the investors are busy suing the investment banks that sold them the bogus mortgage bonds.

LAWYERS ARE SHARPENING UP THEIR PENCILS GETTING READY TO FILE MOTIONS FOR REHEARING AND RECONSIDERATION IN AND OUT OF BANKRUPTCY COURT.

QUOTES FROM THE CASE:

“We hold that that a party has standing to seek relief from stay if it has a property interest in, or is entitled to enforce or pursue remedies related thereto, teh secured obligation that forms the basis of its motion.”

“We hold that a party has standing to prosecute a proof of claim involving a negotiable promissory note secured by real property if, under applicable law, it is a “person entitled to enforce the note” as defined by the Uniform Commercial Code.”

“The Dorchuck letter is just that; a letter, and nothing more. Mr. Dorchuck does not declare that his statements are made under penalty of perjury, nor does the document bear any other traditional elements of admissible evidence.”

“No basis was laid for authenticating or otherwise admitting the Dorchuck letter into evidence at any of the hearings in this matter.”

“Wells Fargo presented no evidence as to who possessed the note and no evidence regarding any property interest it held in the Note.”

“the purported assignment from Option One to Wells Fargo does not contain language affecting the assignment of the note. While the Note is referred to, that reference serves only to identify the mortgage. Moreover, the record is devoid of any indorsement of the Note from Option One to Wells Fargo. As a consequence, even had the second assignment been considered as evidence, it would not have provided any proof of the transfer of the note to Wells Fargo. At most, it would have been proof that only the mortgage, and all associated rights arising from it, had been assigned.”

“given the carve out of the Note at the beginning… the relative pronouns “therein”, “thereto” and thereon” more naturally refer back to the obligations contained in the mortgage, such as the the obligation to insure the property, and not to an external obligation such as the Note…. Although the clauses might be sufficiently vague to permit parol evidence to clarify their intended meaning, no such evidence was offered or requested.”
“STANDING  is a threshold question in every federal case, determining the power of the court to entertain the suit.”

“Prudential standing ” ’embodies judicially self-imposed limits on the exercise of federal jurisdiction.'” Spring, 554 U.S. at 289 (quoting Elk Grove, 542 U.S. at 11); County of Kern F. 3d at 845.

“IN THIS CASE, ONE COMPONENT OF PRUDENTIAL STANDING IS PARTICULARLY APPLICABLE. IT IS THE DOCTRINE THAT A PLAINTIFF MUST ASSERT ITS OWN LEGAL RIGHTS AND MAY NOT ASSERT THE LEGAL RIGHTS OF OTHERS. SPRINT, 554 U.S. AT 589; WARTH, 422 AT 499; OREGON V LEGAL SERVS. CORP, 552 F. 3D 965, 971 (9TH CIR., 2009).

“Civil Rule 17(a)(1) starts simply: “An action must be prosecuted in the name of the real party in interest… The modern function  of the rule… is simply to protect the defendant against a subsequent action by the party actually entitled to recover, and to insure generally that the Judgement will have its proper effect as res judicata.”

“The party asserting it has standing bears the burden of proof to establish standing. Sumers v Earth Island Inst., 555 U.S. 488 (2009)

“Real party in interest analysis requires a determination of the applicable substantive law, since it is that law which defines and specifies the wrong, those aggrieved, and the redress they may receive. 6A Federal practice and Procedure sec 1543 at 480-481

PRIORITY OF LIENS: TWISTED TAIL OF TITLE FRAUD

THE BOTTOM LINE IS THAT CASE LAW IN VARIOUS CASES REPORTED IN THIS BLOG SHOWS THAT WHEN ONE INSTITUTION CONFRONTS ANOTHER, THE APPARENTLY INFERIOR LIEN BECOMES EITHER SUPERIOR, OR THE ONLY LIEN. CONDOMINIUM ASSOCIATIONS, HOMEOWNER ASSOCIATIONS TAKE NOTE: YOUR LIEN MIGHT BE WORTH THE ENTIRE HOUSE IF YOU FILE FOR A DECLARATORY ACTION RAISING THE PRIORITY OF YOUR LIEN. HELOC AND SECOND MORTGAGE HOLDERS TAKE NOTE AS WELL. AND OF COURSE HOMEOWNERS OR THOSE WHO THINK THEY ARE EX-HOMEOWNERS TAKE NOTE: YOU MIGHT STILL HAVE THE RIGHT TO BRING A QUIET TITLE ACTION AND RECLAIM YOUR PROPERTY — ALLOWING ANY ACTUAL “LOSER” IN THE DEAL TO MAKE THEIR CLAIM BUT BARRING NOMINAL PARTIES FROM WINDFALL PROFITS IN THE ABSENCE OF ANY RISK OR INVESTMENT.

There is practically nobody left who doesn’t see that the “ownership” of the loan is a big red question mark. The question that is unresolved is whether that is relevant to questions of title and foreclosure sales. Here is the issue: In most cases the title record (the official title records books located in the property clerk’s office) show only one “party” to the note (a company identified as a lender) and one “party” to the security instrument — the mortgage or Deed of Trust — (a company identified as the mortgagee or beneficiary most frequently MERS or some other straw man or nominee).

So the first problem is that from the start, the ownership of the note and the ownership of the mortgage are split intentionally by the parties who engineered the “loan” closing. With the exception of a few states where the big banks lobbied for corrective legislation that probably is unenforceable or unconstitutional, it is not possible to enforce a mortgage that is not incident to a note. Each state has adopted the Uniform Commercial Code and its own property laws that make it impossible for one person to get the house and another to get a monetary judgment for the note —- both based upon the same obligation.

  • They must be the same person or there is no enforcement of the security instrument (i.e., no foreclosure). And in those states, the mortgage or deed of trust is not incident to the note unless they have a common “owner.” So even before we get to the issue of securitization of the receivable, we have a problem. There is basically no law that would allow foreclosure of a so-called mortgage or deed of trust in which the holder of the mortgage or deed of trust is different than the holder of the note.

Before we get to the securitization issue, there is one more factor that is covered by Reg Z and the Truth in Lending Act. It is whether the “loan” was table funded. A table funded loan is one in which the party identified as a lender was not the source of the money in the transaction. The prohibition and restriction against these transactions is meant to keep the consumer informed about the identity of the party with whom he/she is doing business and therefore able to decide whether in fact they want to do business with the party who is really funding the loan.

  • The title problem with a table-funded loan is obvious: the note is supposedly a description of the obligation that arises when the borrower accepts the benefits of the monetary advance from the source of funds. In a table funded loan, the note does NOT describe the real parties and therefore is not proper evidence of the obligation and thus cannot be used as a substitute for proof of the obligation.
  • Federal law and rules state that anyone who as a matter of practice is doing table-funded loans, is defined as a predatory lender.
  • This means that if someone wants to enforce the obligation, they must have more than the note to prove their case. This is precisely where the pretender lenders are finessing the courts — because before the antics of the last decade, there was no difference between the obligation and the note and everyone on both sides of even an adversary proceeding usually agreed that the original note was proper evidence of the obligation.
  • This also means that if someone wants to foreclose, they need something more than the note, because the note, as we have seen, is NOT the complete evidence of the obligation — there is another party involved who was undisclosed and who was the source of the funds. So the obligation was between the borrower and the source of the funds. But the borrower was not told or informed that the money being advanced was from another entity.
  • Ordinarily this would not present a major problem, but it still would require corrective action in order to clear title for  purposes of a satisfaction or release of the mortgage or deed of trust, refinance, sale, second mortgage, condominium association lien, homeowner association lien, HELOC, non-judicial sale or judicial sale. Without this corrective action ON RECORD at the county recorder’s office, the documents releasing or transferring title to the property would be fatally defective in that the real party who advanced the funds did not execute a release or satisfaction, leaving the borrower or the borrower’s successor with the exposure of yet another foreclosure or another claim on the original obligation. This defect is either suspect or apparent on its face when you see MERS involved or an “originating Lender” that is not a bank (and usually out of business now).

All of this mind-numbing analysis morphs from nitpicking to highly relevant when securitization enters the picture. Securitization as it was used in actual practice, i.e., real world reality, was simply a process by which the payments were split from the obligation, not the note and reframed as the basis for a third party obligation under the terms of a mortgage bond sold to third party investors. So the source of funding never receives the note or any of the borrower’s closing documents. He receives a mortgage bond in which there are multiple payors, obligors, and contingent liabilities only one of which is the borrower’s obligation to repay the obligation.

There are two primary defects in this process that are of high significance:

  1. In practice, the intermediaries used the documentation for securitization to multiply rather than split the obligation to pay amongst the various payors and co-obligors.
  • This means that for every dollar that was advanced for the benefit of the borrower, an obligation was ADDED to the receivable stream for each payor or co-obligor that was ADDED to the obligation to make payments under the mortgage bond. This is where the intermediaries began to make multiples of the money being funded rather than small basis points as was customary in the industry.
  • Through the use of highly sophisticated cloaked transactions, each dollar funded was multiplied as a nominal receivable which in turn was sold multiple times and insured multiple times in multiple ways.
  • Hence the the total evidence of the borrower’s obligation consists of the closing borrower documents PLUS the closing investor documents. The total accounting consists of the the servicing record of the borrower’s payments PLUS the distribution and tape record of reports and payments to the bond holders.
  • This totality of the evidence reveals that the borrower’s obligation resulted in multiple payments by multiple payors and co-obligors, some of whom made money participating in the sham scheme, and some of whom lost money in the scheme.
  • In most cases, one of the groups that lost money were the original investors who advanced money for their share of the flow of receivables described in the mortgage bond, which included, at all times, the receivables due from third party payors and co-obligors. Other losers were traders and institutions that were creating the appearance of an unregulated but phantom securities market in which profits and losses were apparently made on a daily basis, but which in fact were all accounting entries much like the Madoff scheme.
  • The current foreclosure scheme ignores these factors enabling intermediaries dubbed “pretender lenders” to profit from the confusion by pretending to be lenders when in fact they were never lenders of record and never lenders in the sense that they ever advanced any money. The intermediaries are filing false, fabricated and even forged or back-dated affidavits in the name of “Trustees” for trusts that do not exist or which have been dissolved or paid in whole or in part. The lender having been paid or settled as to the obligation under the mortgage bond thus releases any further claim. The intermediaries profit by pocketing the multiples of payments received, and the borrower suffers from the loss of a home or enforcement of a note that was never the evidence of the obligation.
  1. In practice, the actual source of funding — the party who advanced funds and who received a mortgage bond instead of the evidence of the borrower’s obligation —- NEVER held the note and was never intended to hold the note — and NEVER was the mortgagee or beneficiary and never was intended to be the mortgagee or beneficiary. Thus a declaratory action against the mortgagee or beneficiary of record should succeed in raising the priority of the interest of the plaintiff above that of the record holder of the security instrument, since the record holder has no obligation owed to it, and never was intended to be the recipient of funds nor to have the right or capacity to foreclose on the loan.

THE BOTTOM LINE IS THAT CASE LAW IN VARIOUS CASES REPORTED IN THIS BLOG SHOWS THAT WHEN ONE INSTITUTION CONFRONTS ANOTHER, THE APPARENTLY INFERIOR LIEN BECOMES EITHER SUPERIOR, OR THE ONLY LIEN. CONDOMINIUM ASSOCIATIONS, HOMEOWNER ASSOCIATIONS TAKE NOTE: YOUR LIEN MIGHT BE WORTH THE ENTIRE HOUSE IF YOU FILE FOR A DECLARATORY ACTION RAISING THE PRIORITY OF YOUR LIEN. HELOC AND SECOND MORTGAGE HOLDERS TAKE NOTE AS WELL. AND OF COURSE HOMEOWNERS OR THOSE WHO THINK THEY ARE EX-HOMEOWNERS TAKE NOTE: YOU MIGHT STILL HAVE THE RIGHT TO BRING A QUIET TITLE ACTION AND RECLAIM YOUR PROPERTY — ALLOWING ANY ACTUAL “LOSER” IN THE DEAL TO MAKE THEIR CLAIM BUT BARRING NOMINAL PARTIES FROM WINDFALL PROFITS IN THE ABSENCE OF ANY RISK OR INVESTMENT.

WITHOUT RECOURSE: Hangman’s Noose

By Collete McDonald

Editor’s Note: Ms. McDonald hits the nail on the head with this article. You should incorporate it word for word in any relevant memoranda. Why is this important?

Because most of the “notes” (assuming they were the real notes and were timely indorsed and not back-dated) are presented as having been indorsed “without recourse.” Your opposition is counting on the fact that you don’t know the UCC, and you don’t know anything about indorsements.

This is another case where the instrument could appear valid on its face but for the fact that it is a fake. In this case the words “without recourse” on a note (executed as evidence of an obligation on a home loan) is contradicted by the very instrument that authorizes the indorsement — the PSA (Pooling and Servicing Agreement). The PSA ALWAYS provides for conditions, terms and provisions that are exactly the opposite of “without recourse.” These conditions have a negative effect on the negotiability of the instrument. So not only do we have a case where the “assignment” or indorsement” was merely an offer that was never accepted (and could not be accepted as per the terms of the PSA) but you also have an instrument that could not be negotiated under the terms expressed on it.

WHAT ARE THE CONDITIONS EFFECTING THE INDORSEMENT “WITHOUT RECOURSE?”: Well the main one is that the pooling and servicing agreement states that if the loan becomes non-performing, the assignor must replace it with either cash or another performing loan. Nothing could be more clear that the indorsement was WITH RECOURSE.

The bottom Line: Most if not all “assignments” or “indorsements” are without effect, which means that the party having legal title to the instrument is the party named on it. And THAT means that each time the opposition attempts to establish authority under the chain of securitization, they are actually making the case that they have no such authority. You can’t come to court and say I am the Trustee for asset backed Pool XYZ which has ownership of this loan” and then turnaround and say you also have authority (legal authority supporting the power of sale in non-judicial states and the standing to foreclose in judicial states) to represent the “lender.” Not if the “lender” is named on the note as payee and on the mortgage or deed of trust as the lender.

If they want to establish some equitable right to enforce the note, they MUST file a judicial action.

WITHOUT RECOURSE:

A phrase used by an endorser (a signer other than the original maker) of a negotiable instrument (for example, a check or promissory note) to mean that if payment of the instrument is refused, the endorser will not be responsible.

An individual who endorses a check or promissory note using the phrase without recourse specifically declines to accept any responsibility for payment. By using this phrase, the endorser does not assume any responsibility by virtue of the endorsement alone and, in effect, becomes merely the assignor of the title to the paper.

A without recourse endorsement is governed by the laws of commercial paper, which have been codified in Article 3 of the Uniform Commercial Code (UCC). The UCC has been adopted wholly or in part by every state, establishing uniform rights of endorsers under UCC § 3-414(1).

A without recourse endorsement is a qualified endorsement and will be honored by the courts if certain requirements are met. Any words other than “without recourse” should clearly be of similar meaning. Because the payee’s name is on the back of the note, he is presumed to be an unqualified endorser unless there are words that express a different intention. The denial of recourse against a prior endorser must be found in express words. An implied qualification, based on the circumstances surrounding the endorsement to a third party, will not be recognized by the courts. An assignment of a note is generally regarded as constituting an endorsement, and the mere fact that an instrument is assigned by express statement on the back does not make the signer a qualified endorser.

The qualification without recourse, or its equivalent, is limited to the immediate endorsement to which it applies. It may precede or follow the name of the endorser, but its proximity to the name should be such as to give a subsequent purchaser reasonable notice of the endorsement to which it applies.

A person might agree to accept a check without recourse if the person believes she could collect the money in question. Often the purchaser of such a note will acquire it at a substantial discount from the face value of the note, in recognition that the purchaser can only seek to collect the money from the original maker of note.

An example of a without recourse note is a personal check written by A, the maker, to B, the payee. B, in turn pays off a debt to C by endorsing the check and adding the without recourse phrase. If A’s bank refuses to pay C the check amount because A has insufficient funds in his checking account, C cannot demand payment from B. C will have to attempt to collect the money from A.

Glossary Update: Conflict of Laws — UCC

CONFLICT OF LAWS:

Most states have adopted the Uniform Commercial Code without making any revisions. The UCC is an outgrowth of the Uniform Code arising from the Hague conventions. Thus the laws concerning indorsement, transfer, accommodation and assignment date back hundreds of years from common law from over 30 countries. Variance in application of these laws carries with it the probability of undermining the confidence that people will have in knowing that contractual obligations will be enforced and that they are protected by legal conventions that are accepted all over the world. In the context of the mortgage meltdown, the ONLY defensive positions that can be taken by those who would enforce securitized notes and mortgages, given the predatory practices employed and the failure to disclose the inflated pricing and valuation on both sides of the transaction — the investor who put up the money for the loan, and the borrower who signed the papers — is to run contrary to established law. An indorsement in blank generally means nothing without more. It does not convert the instrument to a bearer instrument. An accommodation indorsement fails to provide “cover” which is necessary for one to claim being a holder in due course. The following is an old treatise comparing laws from various jurisdictions. The inescapable conclusions are that the laws that were taught in law schools 100 years ago, 50 years ago and even 25 years ago are all the same. The only party capable of claiming the status of holder in due course is the investor who purchased certificates that gave him/her/it a share of a pool of assets which consisted of, in its purest form, a pool of notes and mortgages that were corrupted by the promise (unknown to the borrower or the investor) to apply payments to parties OTHER THAN the holder in due course. This has the obvious effect of separating the stream of revenue from the original obligor (and co-obligors acquired along the way) from the security instrument (the mortgage) which is a recorded document, as should be any assignment thereof. The parties holding the mortgage and the parties to whom the revenue stream is pledged are different, diverse, and in most cases unknown as they are dependent upon conditions subsequent that were undisclosed to either the borrower or the investor (overcollateralization of the asset backed securities, cross guarantees between tranches, insurance against loss, credit default swaps etc.). Hence the obligation was converted from a secured credit transaction to an unsecured unliquidated contingent contract obligation, subject to affirmative defenses and counterclaims, including the quieting of title, from the borrower. Conflict of Laws as to Bills and Notes

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