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Editor’s Note: Adding insult to injury the checks being sent out for the so-called settlement that replaces the foreclosure review required by the federal reserve and the OCC are bouncing causing homeowners to be charged for the bounced check. The banks of course say it is all a big mistake that they forgot to transfer funds. That is probably true.
But it is equally true that these paltry settlement checks are in no way equal to the damage that was caused by the illegal foreclosures which were surfacing during the time that the review process was taking place. The OCC says that we are not allowed to look at that review process or the results because of privacy issues. I say that under the freedom of information act we are entitled to see everything and I’m betting on Elizabeth Warren to get that material and make it public.
It appears that the general context and status of these illegal foreclosures is that they are left standing as though they were legal and that the perpetrators are being let off the hook for a mere payment of $1000 on an average mortgage of $200,000.
It is important to remember that the settlement does not preclude homeowners from filing whatever claims they have even if they have accepted the check. It is also quite clear that the OCC is walking in lockstep with the banking lobby in an effort to protect the megabanks from extinction.
Several practitioners have asked me how to get past the judge who thinks the case is quite simple, to wit: the borrower accepted a loan and failed to pay it back in the manner specified by the promissory note and therefore borrower’s contractual consent to the sale of the home should be enforced. My answer is that there is an issue that needs to be introduced early, repeatedly and emphatically. The issue boils down to whether or not the court is going to decide the case on the actual facts or on faulty presumptions.
The faulty presumption is that the possessor of the note is deemed to be the holder of the note and therefore the holder in due course. That is not what the Uniform Commercial Code says. If it said that than any Courier carrying promissory notes endorsed in blank could collect on those notes to the detriment of both the borrower and the lender. The difference between a possessor of the note and a holder of the note is that the holder of the note acquired the note by virtue of a monetary transaction in which the new entity in the chain paid a sum of money to the last holder of the note. The Uniform Commercial Code specifically requires that in order for an instrument to be construed as a negotiable instrument the transaction requires consideration and consideration consists of payment. Payment means that money actually changed hands. Thus you have a party in possession of the note with proof that they paid for ownership of the note.
The Uniform Commercial Code is quite clear that the transaction must take place in the context of value received by the assignor from the assignee.
The other question that I have heard from both judges and attorneys relates to the so-called open endorsements. First, there is no transfer of ownership without consideration as I have detailed above. Second, open endorsements are specifically prohibited in the body of the pooling and servicing agreement upon which the forecloser relies for authority to proceed with the notice of default and the notice of sale or the filing of a judicial action seeking foreclosure.
I have heard a judge say that it doesn’t make any difference to him what details were involved in the transaction as long as the original note shows that it was endorsed in blank or otherwise constituted an open endorsement. Those judges are ignoring the requirements for consideration or value in order to treat the note as a negotiable instrument and thus apply the presumptions set forth in the Uniform Commercial Code.
They are also ignoring the fact that the pooling and servicing agreement specifically prohibits the open endorsement, which is no surprise since an open endorsement would not protect the investors whose money was used to fund the alleged mortgage loan. In fact it could fairly be said that the open endorsement or endorsement in blank produces a unique result, to wit: the only party who could not accept the note and claim ownership of the loan is the party that is doing exactly that. They can’t say that their authority comes from the pooling and servicing agreement but that the prohibition against open endorsements does not apply. Either the pooling and servicing agreement means something or it doesn’t.
But the key issue is actually the money and the money trail. Neither the trust nor any other party is entitled to a presumption of the status of a holder without alleging and proving that they paid for the note and attaching the relevant documents showing the sale of the note from the former holder of the note (if in fact they were actually a former holder of the note), giving the date, identifying the parties and showing the amount paid. Alleging that they are the holder of the note is a legal conclusion and not a short and plain statement of ultimate facts upon which relief could be granted. The short and plain statement of ultimate facts should be that on a certain date they paid a certain amount of money to a certain party who all owned the loan and that therefore they are a holder entitled to enforce the note and mortgage.
A failure to state that they were in fact damaged or to allege facts from which the trier of fact could conclude that they were damaged is a fatal defect in pleading and is a jurisdictional issue that can be raised at any time including on appeal — unless of course in the trial court the borrower admitted that the party seeking foreclosure was in fact the holder of the note.
If you follow these simple steps, the attorneys for the bank will fight tooth and nail for presumptions rather than facts. The reason is simple. They have no evidence of payment for the origination or transfer of the loan and therefore the presumption they wish to raise as a holder of the note is rebutted.
So you might want to ask the judge a question that goes something like this: “Judge, do you want to decide this case on the actual facts or do you want to decide this case on the basis of faulty presumptions that are contrary to the facts.
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Filed under: CDO, Eviction, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: considerataion, for value received, holder in due course. UCC, holders of note, illegal foreclosures, possessors of note, settlement, UNIFORM COMMERCIAL CODE, wrongnful foreclosures | 125 Comments »