George W. Mantor Runs for Public Office on “No More Dirty Deeds”

Mantor for Assessor/Recorder/Clerk of San Diego County

Editor’s note: I don’t actually know Mantor so I cannot endorse him personally — but I DO endorse the idea of people running for office on actual issues instead of buzz words and media bullets.

Mantor is aiming straight for his issue by running for the Recorder’s Position. I think his aim is right and he seems to get the nub of some very important issues in the piece I received from him. I’d be interested in feedback on this campaign and if it is favorable, I might give a little juice to his campaign on the blog and my radio show.

His concern is my concern: that within a few years, we will all discover that most of us have defective title, even if we didn’t know there was a loan subject to claims of securitization in our title chain. This is not a phenomenon that affects one transaction at a time. It affects every transaction that took place after the last valid loan closing on every property. It doesn’t matter if it was subject to judicial or non-judicial sale because real property is not to be settled by damages but rather by actual title.

Many investors are buying up property believing they have eliminated the risk of loss by purchasing property either at or after the auction sale of the property. They might not be correct in that assumption. It depends upon the depth and breadth of the fraud. Right now, it seems very deep and very wide.

Here is one quote from Mantor that got my attention:

Despite the fact that everyone knows, despite the fact that they signed consent decrees promising not to steal homes, they go right on doing it.

Where is law enforcement, the Attorneys General, the regulators? They all know but they only prosecute the least significant offenders.

Foreclosures spiked 57% in California last month. How many of those were illegal? Most, if not all.

An audit of San Francisco County revealed one or more irregularities in 99% of the subject loans. In 84% of the loans, there appear to be one or more clear violations of law.

Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010.  There were130 cases where the Bank of New York was foreclosing on behalf of a Countrywide mortgage-backed security.  In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.

None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower’s signature.  Two-thirds of the loans made by other banks also lacked bank endorsements.  The other third were endorsed either directly on the note or on an allonge, or a rider, accompanying the note.

No_More_Dirty_Deeds

“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

LAWYER BONANZA!: Wells Fargo Foreclosing on Homeowner Who Made all Payments and Paid Extra

WELLS FARGO MAKES HUGE ERROR ADMITTING LACK OF POWER TO BIND CREDITOR TO MODIFICATIONS OR SETTLEMENTS

The simple truth is that the banks are not nearly as interested in the property as they are in the foreclosure. It is the foreclosure sale that creates the illusion of a stamp of approval from the state government that the entire securitization scheme was valid and it creates the reality of a presumption of the validity of the deed issued at the so-called auction of the property upon submission of  false credit bid from a non-creditor who is a stranger (not in privity) to the transaction alleged. — Neil F Garfield, livinglies.me

see also http://livinglies.wordpress.com/2013/05/16/estoppel-when-the-bank-tells-you-to-stop-making-payments/

Editor’s Comment and Analysis: Wells Fargo is foreclosing on a man who has made his payments early and made extra payments to pay down the principal allegedly due on his mortgage. In response to media questions as to their authority to foreclose, the response was curious and very revealing. Wells Fargo said that the reason was that the securitization documents contain restrictions and prohibitions that prevent modifications of mortgage.

The fact that Wells Fargo offered a particular payment plan and the homeowner accepted it together with the fact that the homeowner made the required payments and even added extra payments, all of which was accepted by Wells Fargo and cashed  doesn’t seem to bother Wells Fargo but it probably will bother a judge who sees both the doctrine of estoppel and a simple contract in which Wells Fargo had the apparent authority to make the offer, accept the payments, and bind the actual creditors (whoever they might be).

It also corroborates our continuing opinion that when Wells Fargo and similar banks received insurance and creditable swap payments, they should have been applied to the receivable account of the investors which in turn would have resulted by definition in a reduction of the amount owed. The reduction in the amount owed would obviously decrease the amount payable by the borrower. If we follow the terms of the only contract that was signed by the borrower then any overpayments to the creditor beyond account receivable held by the creditor would be due and payable to the borrower. It is a violation of the spirit and content of the federal bailout to allow the banks to keep the money that is so desperately needed by the investors who supplied the money and the homeowners whose loans were paid in whole or in part by insurance and credit default swaps.

The reason I am interested in this particular case and the reason why I think it is of ultimate importance to understand the significance of the Wells Fargo response to the media is that it corroborates the facts and theories presented here and elsewhere that the original promissory note vanished and was replaced by a mortgage bond, the terms of which were vastly different than the terms of the promissory note signed by the homeowner.

Wells Fargo seeks to impose the terms, provisions, conditions and restrictions of the securitization documents onto the buyer without realizing that they have admitted that the original promissory note signed by the homeowner and therefore the original mortgage lien or deed of trust were never presented to the actual lenders for acceptance or approval of the loan.

CONVERSION OF PROMISSORY NOTE TO MORTGAGE BOND WITHOUT NOTICE

In fact, Wells Fargo has now admitted that the terms of the loan are governed strictly by the securitization documents. How they intend to enforce securitization documents whose existence was actively hidden from the borrower is going to be an interesting question.  If the position of the banks were to be accepted, then any creditor could change the essential terms of the debt or the essential terms of repayment without notice or consent from the borrower despite the absence of any reference to such power in the documents presented to the borrower for the borrower’s signature.

 But one thing is certain, to wit: the closing documents presented to the borrower  were incomplete and failed to disclose both the real parties in table funded loans (making the loans predatory per se as per TILA and Reg Z) and the existence and compensation of intermediaries, the disclosure of which is absolutely mandatory under federal law. Each borrower who was deprived of knowledge of multiple other parties and intermediaries and their compensation has a clear right of action for recovery of all undisclosed fees, interest, payments, attorney fees and probably treble damages.

This case also clearly shows that despite the representations by counsel and “witnesses” Wells Fargo has now admitted the basic fact behind its pattern of conduct wherein they claim to be the authorized sub servicer fully empowered by the real creditors and then claim to have no responsibility or powers with respect to the loan or the real creditors (which appears to include the Federal Reserve if their purchase of mortgage bonds had any substance).

Wells Fargo, US Bank, Bank of New York and of course Bank of America have all been sanctioned with substantial fines of up to seven figures so far in individual cases where they clearly took inconsistent positions and the judge found them to be in contempt of court because of the lies they told and levied those sanctions on both the attorneys and the banks.

It was only a matter of time before this entire false foreclosure mess blew up in the face of the banks. You can be sure that Wells Fargo will attempt to bury this case by paying off the homeowner and any other people that have been involved who could blow the whistle on their illegal, fraudulent and probably criminal behavior.

This is not the end of the game for Wells Fargo or any other bank, but it is one more concrete step toward revealing basic truth behind the mortgage mess, to it: the Wall Street banks stole the money from the investors, stole the ownership of the loans from the “trusts” and have been stealing houses despite the absence of any monetary or other consideration in the origination or acquisition of any loan. This absence of consideration removes the paperwork offered by the banks from the category of a negotiable instrument. None of the presumptions applicable to negotiable instruments apply.

Once again I emphasize that in practice lawyers should immediately take control of the narrative and the case by showing that the party seeking foreclosure possesses no records of any actual or real transaction in which money exchanged hands. This means, in my opinion, that the allegations of investors in lawsuits against the investment banks on Wall Street are true, to wit: they were entitled to an forcible notes and enforceable mortgages but they didn’t get it. That is an admission in the public record by the real parties in interest that the notes and mortgages are fabricated because they referred to commercial transactions that never occurred.

Going back to my original articles when I started this blog in 2007, the solution to the current mortgage mess which includes the corruption of title records across the country is that the intermediaries should be cut out of the process of modification and settlement. A different agency should be given the power to match up investors and borrowers and facilitate the execution of new promissory notes new mortgages or deeds of trust that are in fact enforceable but based in reality as to both the value of the property and the viability of the loan. It is the intermediaries including the Wall Street banks, sub servicers, Master servicers, and so-called trustees that are abusing the court process and clogging the court calendars with false claims. Get rid of them and you get rid of the problem.

http://4closurefraud.org/2013/05/16/wells-fargo-forecloses-on-florida-man-who-paid-on-time-early/

Alignment of Parties and Cancellation of VOID Instrument

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DENY and DISCOVER: First you need to start with the premise that the origination (“closing”) documents were defective from the start. By naming the wrong payee and containing terms different from the terms agreed by the actual Lender (source of funds) specifically as to how the receivable is to be repaid, the note fails the essential tests required to be considered “evidence of the obligation.”

The defective note therefore cannot be reinvigorated into non-defective merely by mention in the collateral mortgage or deed of trust which is recorded to assure faithful performance by the Payor under the terms of the note.  Perhaps the reverse would be true if the mortgage or deed of trust disclosed the reality of a table funded transaction, but that is not apparent for any loan for which there are claims of securitization or assignment.

Hence, the cause of action for cancellation of a VOID instrument lies in the fact that although the mortgage or deed of trust was recorded, it should not have been recorded because it did not recite the basic requirements of a perfected lien. I would add the caveat that cancellation of the instrument probably does not apply to the note, but does apply to the mortgage or deed of trust.

The note is subject to a cause of action for return of the note as satisfied or cancelled if you allege and prove that the Lender was paid in full and that anyone other than the homeowner who paid it might have a cause of action for contribution but that (a) said cause of action is NOT before the court and (b) an action for contribution cannot be considered secured even by a valid mortgage that was satisfied, much less a mortgage or deed of trust that was never a perfected lien.

The cause of action is NOT in contribution if the allegation is that the “creditor” (after showing the details of the transaction in which money was exchanged) purchased the note and mortgage, which is different. In that case, an assignment would be required or some other bill of sale or other instrument in order to preserve a perfected lien. But the payment and even a transfer does not perfect a lien that is defective.

That bring us to the issue of evidence and the alignment of the parties. Nearly all pro se litigants and lawyers are using the above arguments as affirmative defenses or worse yet, merely as argument at hearings for demurrers, motions to dismiss, motions for summary judgment and motions to lift stay. This is understandable in the non-judicial states because of confusion and conflict in the rules of civil procedure.

In seeking a Temporary Restraining Order, the homeowner needs to bring the lawsuit, which is ridiculous when you thin about it because the information about the loan is in the hands of multiple parties, many of whom the known parties refuse to disclose the identity or status of said stakeholders.

Where I see attorneys getting traction in courts previously disposed to be dismissive of defenses and claims of borrowers, is precisely in this realm. First by denying the obligation, note and mortgage, that pouts the matter at issue. At that point it is universally agreed that the burden switches to the other side as to pleading and proof. People often ask me during seminars or conference calls
how do I prove that?”. The answer is that you don’t — you make them plead and prove their allegations. Non-judicial foreclosure was NEVER meant to be a vehicle to allow foreclosures to be completed when they would not have satisfied the statutory requirements of a judicial foreclosure.

This is what you cite: “Where the evidence necessary to establish a FACT that is ESSENTIAL to a CLAIM lies peculiarly within the knowledge and competence of one of the parties, THAT party has the BURDEN of going forward with the evidence on the issue even though it is NOT THE PARTY ASSERTING THE CLAIM.” [Garcia v Industrial Acc. Com (1953) 41 Cal.2d 689, 694; Wigmore Evidence 2d ed. 1940 Sec 2486; Witkin Cal. Evidence (1958) Sec 56(b).]

This doctrine is centuries old. You know something is true or you at least have good reason to believe a fact to be true but he other side has the proof. IN this case you know your denial of the essential elements of the judicial foreclosure forces the forecloser to come forward and prove their claim that they indeed have the right to foreclose.

Most Judges in most instances have realigned the parties and required the party claiming affirmative relief to plead as though they were the plaintiff even though the statute required the initiation of the lawsuit by the other side (the homeowner). It’s like some of the “negative” rulings against borrowers. There are plenty of people who can START a foreclosure, but only the creditor can finish it with a credit bid at auction.

California MEmo on ALignment and Cancellation of Note

Cancellation of Void Instrument

Consider this an add-on to the workbook entitled Whose Lien is It Anyway also known as Volume II Workbook from Garfield Continuum Seminars.

Several Attorneys, especially from California are experimenting with a cause of action in which an instrument is cancelled — because it throws the burden of proof onto the any party claiming the validity or authenticity of the instrument.

I have been researching and analyzing this, and I think they are onto something but I would caution that your pleadings must adopt the deny and discover strategy and that you must be prepared to appeal. There is also a resurgence of tacit procuration doctrines, in which the receiver of communication has a definite duty to respond.

Here is Part I of the analysis: There will be at least one more installment:

Cancellation of Void Instrument

In most cases loans that are later subject to claims of securitization (assignment) are equally subject to cancellation. There are potential defenses to the motion or pleading demanding cancellation of the instrument; but if framed properly, the motion or pleading could be utilized as an advanced discovery tool leading to a final order. This is particularly true if a RESPA 6 (Qualified Written Request) precedes the motion or pleading.

Cancellation of a void instrument is most often directed at a Mortgage or Deed of Trust that is recorded. The elements of cancellation of an instrument include that the document is void (not just the recording). That means that what you are saying is that there is nobody in existence with any legal right, justification or excuse to attempt to use or enforce the document.

I believe that it requires the pleader to allege that the parties on the instrument are unknown to the Pleader in that there never was a financial transaction between the pleader and the the other parties mentioned and accordingly the recording of the document is at best a mistake and at worst, fraud. The element of fraud usually is involved whether you plead it or not.  However the same principles and elements might well apply to the following:

Substitution of Trustee
Notice of Default
Notice of Sale
Deed recorded as a result of foreclosure auction
Judgment for Eviction or Unlawful Detainer
Mortgage Bond
Unrecorded instruments like promissory notes, pooling and servicing agreements, and mortgage bonds, credit default swaps etc.

Another word of caution: an existing document carries a certain amount of the appearance of authenticity and validity. That appearance may rise to an informal presumption by a Judge who believes he understands the “facts” of the case. The informal presumption might be elevated by state or federal statute that may describe the presumption as rebutable, or presumed to be rebuttable. In some cases, the rebutable presumption could be elevated to an irrebutable presumption, which might mean that nobody is permitted to challenge the validity or authenticity of the document. But even irrefutable presumptions are subject to challenge if they are procured by deceit or fraud in the inducement, or fraud in the execution.

The scenario assumed here is that no loan receivable was legally created because there was no financial transaction between the homeowner and whoever is on the note, mortgage or whatever document you are seeking to cancel. Where appropriate, the pleader can allege that they deny ever having signed the instrument to that it was signed with expectation that the parties designated as lender, beneficiary or payee never completed the transaction by funding.

It is probably fair to say that presumptions are only successfully challenged if the allegations involve fraud or at least breach of presumed facts or promises. A note is evidence of an obligation and is presumed to validly recite the terms of repayment of a legitimate debt. But it also possible that the note might be evidence of the amount of the obligation, but not its terms of repayment if the facts and circumstances show that the offer was unclear or the acceptance was unclear. In the case of so-called securitized loans, accepting the allegations made by foreclosers, the offer of the loan contained terms that were never communicated to the borrower. This is because an instrument containing the terms of repayment was at material variance with the terms recited in the note. The instrument received by the lender was a mortgage bond. And most importantly the lender and the borrower were never in direct communication with one another.

The interesting effect of the substitution of the mortgage bond for a loan receivable is that the mortgage bond is NOT signed by the homeowner and is no payments of principal and interest are due to the investor except from the REMIC issuing entity that never received any enforceable documents from the homeowner.

Nor were the terms for repayment ever disclosed to the homeowner. And the compensation of the intermediaries was not disclosed as required under TILA. This constellation of factors throws doubt, at the very least, as to whether the closing was ever completed even without the the funding. The fact that the funding never took place from the designated payee or “lender” more or less seals the deal.

You must have at the ready your clear argument that if the “trust” was the lender or any of its investors then the note should have said so and there would be no argument about funding, or whether the note or mortgage were valid instruments. But Wall Street had other plans for “ownership” of the loan and substituted a series a naked nominees or straw-men for their own financial benefit and contrary to the terms expressed to the investor (pension fund) and the homeowner (borrower).

Wire Transfer instructions to the closing agents tell another story. They do not show any indication that the transfer to the closing agent was for the benefit of the designated lender, whose name was simply borrowed by Wall Street banks in order to trade the “loans” as if they were real and as if the banks owned the bonds instead of the trusts or the investors. This could only have been accomplished by NOT having the investors money travel through the REMIC trust. Hence the moment of origination of the obligation took place when the homeowner received the money from the investors through accounts that were maintained by the banks not for the REMICS but for the investors. This means that investors who believe their rights emanate from the origination documents of the trust are mistaken because of the false statements by the banks when they sold the bogus mortgage bonds.

If that is the case, their is no perfected lien, because the only mortgage or deed of trust recorded shows that it is to protect the payee “lender” (actually a naked nominee) in the vent the borrower fails to make payments and otherwise comply with the terms of the note and mortgage. But the note and mortgage relate to an unfunded transaction in which at not time was any party in the alleged securitization chain the source of funds for origination, and at not time was there ever “value received” for any assignments, bogus or otherwise, robo-signed or otherwise.

It also means that the investors must be disclosed and that for the first time the homeowners and pension funds who actually were involved in the transaction, can compare notes and decide on the balance of the obligation, if any, and what to do about it. Allowing the banks to foreclose as servicer, trustee of an asset-backed trust, or in any other capacity is unsupported by the evidence. The homeowner, as in any mortgage foreclosure, is entitled to examine the loan receivable account from the item of origination through the present. If there is agreement, then the possibility of a HAMP or other modification or settlement is possible.

Allowing the servicers to intermediate between the investors and the homeowners is letting the fox into the hen-house. If any deal is struck, then all the money they received for credit de fault swaps and insurance might be due back to the payors, since the mortgages declared in default are actually still performing loans AND at present are not secured by any perfected lien.

Cancellation of the note does not cancel the obligation. In most cases it converts the obligation from one that provided for periodic payments to a demand loan. Success of the borrower could be dangerous and lead the borrower to adopt portions of the note as evidence of the terms of repayment while challenging other parts of the recitals of the note. Cancellation of the note would also eviscerate the promise of collateral which is a separate agreement that offers the home as collateral to secure the faithful performance  of the terms of the note. Hence the mortgage or deed of trust would be collaterally canceled merely by canceling the note.

If the note is cancelled, the action can move on to cancel the mortgage instrument. In the context of securitized loans it seems unlikely that there could be any success without attacking both the mortgage, as security, and the note, as evidence of an obligation. In its simplest form, the attack would have the highest chance of success by successfully attacking the obligation. If a lender obtains a note from a borrower and then fails to fund the loan, no obligation arises. It follows logically that the recitals of the note would then be meaningless as would the recitals in the mortgage. Having achieved the goal of proving the instrument as invalid or meaningless, the presence of the instrument in the county recorder’s office would naturally cause damage to other stakeholders and should be cancelled.

If the mortgage is in fact cancelled, then the next logical step might be a quiet title action that would have the court declare the rights and obligations of the stakeholders, thus eliminating any further claims based upon off-record transactions or the absence of actions presumed to be completed as stated in the instrument itself.

It must be emphasized that this is not a collateral attack or a flank attack on the obligation based upon theories of securitization, the pooling and servicing agreement or the prospectus. cancellation of an instrument can only be successful if the party who would seek to use the instrument under attack cannot substantiate that the instrument is supported by the facts.

The facts examined usually include the issues of offer, acceptance and consideration at the time of origination of the instrument under attack. A later breach will most likely not be accepted as reasons for cancellation unless the later event is payment of a debt. Failure to return the cancelled note would be a proper subject of cancellation if the allegation was made that the the obligation was completely satisfied. The presence of the original note after such payment and refusal or inability to return the note as cancelled is reason enough for the court to enter an order canceling the note. Any attempt to sell the note or assign it would be ineffective as against the maker of the note and could subject the assignor to both civil and criminal penalties.

Both payment and origination issues arise in connection with the creation of loan documents. The originator (and any successors) must be able to establish offer, acceptance and consideration. The signature element missing from most of the document chains subjecting all deeds of trusts, notes, mortgages and assignments to cancellation is the lack of consideration.

In a money transaction, consideration means money. If money was not tendered by the originator of the documents despite the requirements to do so as set forth in the documents, the putative borrower or debtor who executed the documents is entitled to cancellation.
In the case of securitized loans, the appearance of propriety is created by reams of documents that cover up the origination documents, giving the appearance that numerous parties agreed that the proper elements were present at the time of the origination of the loan. This has successfully been used by banks to create the informal presumption that the essential elements were present at origination — offer, acceptance and consideration.

The originator (or its successors) can easily avoid cancellation by simply establishing the identity of itself as the lender, the signature of the borrower, and the proof of a cashed check, wire transfer or ACH confirmation showing the payment by the originator to the borrower. In loans subject to claims of securitization and multiple assignments, they cannot do this because the original transaction was never completed.

The issue in securitized loans is that while wire transfer instructions exist and might even mention the borrower by name and could even make reference to the originator, the instructions always include directions on where to send the surplus funds, if any exist. Those funds are clearly not to be given or sent to the originator but rather back to the undisclosed lender, which makes the transaction a table funded loan defined as illegal predatory practices under the Federal Truth in Lending Act.

If the documents named the actual lender, then the offer, acceptance and consideration could be shown as being present. Originators may not “borrow” consideration from a deal between the borrower and another party and use it to establish the consideration for the closing loan documents with the originator. That would create two obligations — the one evidenced by the note and the other evidenced by the mortgage bond, that asserts ownership of the obligation.

Borrowers and creditors are restricted by one simple fact. For every dollar of principal borrowed there must be a dollar paid on that obligation. Putting aside the issue of interest on the loan, the creditor is entitled only to one dollar for each dollar loaned, and the borrower is only required to make a payment on an obligation that is due. The obligation becomes due the moment the borrower accepts the money or the benefits of the money, regardless of whether any documents are drafted or executed. The converse is also true — the creation, and even execution of documents does not create the obligation. It is only the actual money transaction that creates the obligation.

Stripping away all other issues and documentation at the time of origination of the loan, it can fairly assumed that in most of the subject cases of “securitization” that the originator was either not a depository institution or was not acting under its charter as a depository or lending institution. If it was not a lending institution, then it loaned money to the borrower out of its borrowed or retained capital — with the source of funds coming from their own bank account. Based upon a review of hundreds of wire transfer instructions, none of the non-lending institutions was the source of funds, yet their name was used specifically recited in the note as “lender.” The accompanying disclosure documents and settlement statement describes the “lender” as being the named originator. Hence, without funds, no consideration was present. If there was an absence of consideration for the documents that were putatively executed, then the documents are worthless.

The originator in the above scenario lacked two capacities: (1) it could not enforce the note or mortgage because it lacked a loan receivable account that would suffer financial damage and (2) it could not legally execute a satisfaction, cancellation or release of the obligation or the putative lien.  Such an originator at the moment of closing is therefore missing the necessary elements to survive a request to cancel the instrument at that time or any other time. No assignments, allonges, indorsements, or even delivery of the loan documents can improve the survival of the loan documents originated, even if some assignee up the chain paid for it.

Yet at the same time that there was no consideration from the originator, there was a loan received by the borrower. If it didn’t come from the originator, and the money actually arrived, the question is properly asked to identify the source of funds and whether that party had the capacity to enforce collection of the loan and could execute a release or satisfaction or cancellation of the note and mortgage. Here is where the hairs split. The source of funds is owed the money regardless of whether there was a note or mortgage or settlement documents or disclosures — simply because they do have a loan receivable that would be damaged by non-payment. But that loan receivable is not supported by any documentation that one would ordinarily find in a mortgage loan.

The creation of documents reciting a false transaction, “borrowing” the fact that the homeowner did receive funds from another source, does NOT create a second obligation. Hence the note, mortgage (Deed of trust) and obligation presumed in favor of the named originator must be cancelled.

Since the sources of funds are neither the owner of the loan, the payee on the note, the lender identified on the note, mortgage and settlement documents, they lack the power to enforce any of those documents and secondly, lack the power to cancel, release or satisfy a note or mortgage on which they are not the payee or secured party. Hence the fact that the borrower received funds gives rise to a demand obligation against the borrower to repay the loan. All the funding source needs is evidence of the payment from their bank account and the receipt by the borrower.

MERS GOES DOWN IN FLAMES IN WA SUPREME COURT DECISION

In questions certified from the United States District Court, the Supreme Court of the State of Washington En Banc concludes that MERS is not and cannot be a lawful beneficiary under Washington State Law. They decline to opine on the effect of the decision but the effects are obvious. They essentially said that only the real creditor (“the actual holder of the promissory note”) and who therefore has the power to appoint a substitute trustee could be a lawful beneficiary.

They rejected all arguments to the contrary, and reaffirmed that the power of sale is a “Significant Power” and thus the deed of trust should be liberally construed in favor of the borrower. The Court also reaffirmed the many decisions about the duties and obligations of trustees that have been routinely ignored by the banks and servicers. “… the process should provide an adequate opportunity for interested parties to prevent wrongful foreclosures.”

Their reasoning boils down to the old saying”you can’t pick up one end of the stick without picking up the other end too.” In this case their point was that financial institutions could not avoid the state recording laws and systems and then use those same laws to foreclose.

The Court also leaves open the door for actions in damages against MERS and those who used MERS for wrongful foreclosures.

see Bain Ruling

 

Discussion Started Between Livinglies and AZ Attorney General Tom Horne

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Editor’s Comment:

Dear Kathleen,

Thank you very much for taking my call this morning.

The question that Neil F. Garfield, Esq. had asked AZ Attorney General Tom Horne at Darrell Blomberg’s meeting was:

Why is the Arizona Attorney General not prosecuting the banks and servicers for corruption and racketeering by submitting false credit bids from non-creditors at foreclosure auctions?

Please feel free to browse Mr. Garfield’s web blog, www.LivingLies.wordpress.com as you may find much of the research and many of the articles to be relevant and of interest.

Mr. Garfield wishes the following comments and observations to be added, in order to clarify the question being asked.

It should probably be noted that in my own research and from the research from at least two dozen other lawyers whose practice concentrates in real property and foreclosures have all reached the same conclusion.  The submission of a credit bid by a stranger to the transaction is a fraudulent act.  A credit bid is only permissible in the event that the party seeking to offer the bid meets the following criteria:

1.  The homeowner borrower owes money to the alleged creditor

2.  The money that is owed to the alleged creditor arises out of a transaction in which the homeowner borrower agreed to the power of sale regarding that debt

3.  Any other creditor would be as much a stranger to the transaction as a non-creditor

Our group is also in agreement that:

4.  Acceptance of the credit bid is an ultra vires act.

5.  The deed issued in foreclosure under such circumstances is a wild deed requiring the title registrar to attach a statement from the office of the title registrar (for example Helen Purcell) stating that the deed does not meet the requirements of statute and therefore does not meet the requirements for recording.

6.  In the event that nobody else is permitted to bid, the auction violates Arizona statutes.

And we arrived at the following conclusions:

7.  In the event that there is no cash bid and the only “bid” was accepted as a cash bid from either a non-creditor or a creditor whose debt is not secured by the power of sale, no sale has legally occurred.

8.  The applicable statutes preventing the corruption of the title chain by such illegal means include the filing of false documents, grand theft, and evasion of the payment of required fees.

9.  This phenomenon is extremely wide spread and based upon surveys conducted by our office and dozens of other offices (including an independent audit of the title registry of San Francisco county) strongly suggest that the vast majority of foreclosures in Arizona resulted in illegal auctions, illegal acceptance of a bid, and illegal issuance of a deed on foreclosure-which resulted in many cases in illegal evictions.

10.  Federal and State-equivalent RICO may also apply, as well as Federal mail fraud which should be referred to the US Attorney.

CONSTITUTIONAL CHALLENGE TO THE NON-JUDICIAL SALE STATUTE AS APPLIED.

It should also be noted that all the same attorneys agreed that the use of an instrument called “Substitution of Trustee” was improper in most cases in that it removed a trustee owing a duty to both the debtor and the creditor and replaced the old trustee with an entity owned or controlled by the creditor.

This is the equivalent of allowing the creditor to appoint itself as Trustee.

In virtually all cases in which a securitization claim was involved in the attempted foreclosure the Substitution of Trustee was used exactly in the manner described in this paragraph.  This method of applying the powers set forth in the Deed of Trust is obviously unconstitutional as applied.

Constitutional scholars agree that the legislature has wide discretion in substituting one form of due process for another.  In this case, non-judicial sale was permitted on the premise that an independent trustee would exercise the ministerial duties of what had previously been a burden on the judiciary.

However, the ability of any creditor or non-creditor to claim the status of being the successor payee on a promissory note, being the secured party on the Deed of Trust, and having the right to substitute trustees does not confer on such a party the right to appoint itself as the trustee, auctioneer, and signatory on the Deed upon foreclosure nor to have submitted a credit bid.

We are very interested in your reply.  If your office has any cogent reasons for disagreement with the above analysis, we would like to “hear back from you” as you promised at Mr. Blomberg’s meeting 22 days ago.  We would encourage you to stay in touch with Mr. Blomberg or myself with regard to your progress in this matter in as much as we are considering a constitutional challenge not to the statute, but to the application of the statute on the above stated grounds.

Thank you for your time and consideration,

Sincerely

Neil F Garfield esq

licensed in Florida #229318

www.LivingLies.wordpress.com

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