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At the risk of lecturing judges on the law allow me to point out that the transfer of an apparently “negotiable instrument” is not a transaction that can be interpreted or enforced under the Uniform Commercial Code unless it is accompanied by payment or exchange of value, which is to say that there must be money involved. A loan that was originated without any money from the payee under the note or the secured party under the mortgage is not to be interpreted by reference to the Uniform Commercial Code because of the lack of consideration.
That leaves the pooling and servicing agreement. Employing and servicing agreement specifies the precise manner in which loans can be transferred into the asset pool and one of the things that is not allowed is an endorsement in blank. This provides no protection to the investors which is why the provisions in the pooling and servicing agreement require that the endorsement be in recordable form and in order to the benefit of the investors or the asset pool.
The problem is that the judges are searching for a way to rule in favor of the banks instead of searching for a way to simply rule on the admissibility and credibility of evidence. It often happens that the attorney for the borrower argues that the Uniform Commercial Code does not allow recipients of a transfer of loan documents, which then leaves the court to say that the transfer occurred pursuant to the terms of the pooling and servicing agreement. Or some courts seeing that the transfer was not performed in accordance with the terms of the pooling and servicing agreement applied the Uniform Commercial Code even though there is a material dispute of fact as to whether or not any consideration was involved in the transfer of the loan.
If the loan was transferred into the pool pursuant to the pooling and servicing agreement then why were the other terms of the pooling and servicing agreement ignored? I have yet to see any pooling and servicing agreement that provided for an endorsement in blank. Such a thing could not possibly exist since the investors thought that they were buying mortgage-backed securities. The pooling and servicing agreement clearly specifies the method of transfer and clearly does not include an endorsement in blank as an approved method.
The object of the investors was to take ownership of the loans by way of the mortgage-backed securities and distribute the risk and income proportionately to their investments. What the banks did was instead of putting the investors first and inserting the name of the asset pool on the loan origination documents or the assignment executed in the manner provided by the pooling and servicing agreement, they used an exotic and completely unnecessary chain of title for what was essentially a very simple transaction. By having the loan originated by the nominee of a nominee acting under power of attorney they created the illusion that the “holder” of the paper was presumptively the creditor. This is the exact opposite of what the pooling and servicing agreement required; had it been known that they were going to operate this way they never would have received their AAA rating, their insurance, or any credit default swaps. It is clear that they inserted themselves or their nominees as the apparent owner of the debt even know the nominee did not make the loan. It is equally apparent that they inserted themselves or their nominee as the apparent owner of the debt even though they paid nothing for the assignment or transfer of the loan.
If the investment banks had intended to operate properly and legally they would have had no need for any nominees much less the parallel title tracking systems including MERS and all the other entities that pretend to have business interests even know they were so thinly capitalized and covered by layers of entities whose corporate veils need to be pierced. They would simply have placed the name of the asset pool on the mortgage and note making reference to an actual transaction involving actual money that changed hands between the lender and the borrower.
These nominee entities were planned far in advance as “bankruptcy remote” vehicles through which the bankers could channel nonexistent transactions. By creating the illusion that they were the owners of the debt it appeared as though the note and mortgage were valid. But they could never have been the owners of the debt since it was the investors who actually funded the mortgage. No document exists anywhere in which the investors or the asset pool assigned the ownership rights to the loans to the investment banks or any of their affiliates or nominees.
The courts are not clogged because of the volume of litigation. The volume of litigation is bottlenecked in the courts because the courts refused to accept at face value the pleadings and assertions of both parties and because the courts refused to require both parties to prove their claims. For those that assert their claim as a creditor they need only provide proof of payment and proof of loss, which is to say that they have not resold the loans or mortgage backed securities.
Instead, the banks insist on arguing for the presumption that a bona fide transaction took place for value in which money exchanged hands rather than being required to prove that assertion by simply producing a canceled check or wire transfer receipt. If you were the bank and you had proof of your payment and proof of your loss why wouldn’t you end the litigation in the first couple of months rather than let it stretch out for years? It is clear that the banks need judges to accept the presumption because the banks don’t have the actual proof.
Filed under: bubble, CDO, Eviction, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, GTC | Honor, Investor, Mortgage Tagged: | bias, courts, for value received, foreclosure, momney exchanging hands, nominees MERS, pooling and servcing agreement, presumption