One of the ways that judges are greasing the skids for fraud by the banks is that they ignore the basic requirement of pleading — that the complaining party plead the existence of a duty of the homeowner, breach of that duty and consequential damages as a result of that breach of that duty by the defendant homeowner. By failing to allege the ultimate fact that the originator actually made the loan, the banks are forcing the homeowner to file an affirmative defense instead of merely denying the allegation by the bank, which would place the burden of proof on the Bank — a burden that in most cases that they could not sustain.
Instead of any allegation that the Forecloser became the holder in a transaction in which value was exchanged or paid by the Forecloser, the Banks ignore that allegation and force the homeowner to file an affirmative defense stating that there was no value paid or even involved in the alleged transfer of the mortgage and note. The foreclosing party escapes without be required to allege facts that it could never prove! This isn’t just bad pleading that is allowed to pass as stating a cause of action, it is a violation of statute.
The complexity of the documentation and movement of money in fraudulent securitization schemes leads lawyers and judges to oversimplify the situation producing anomalous results. It may sound counterintuitive to say that a party may be “holding” the mortgage because if endorsement of the note but not be able to enforce the mortgage without showing and pleading they paid for it. But to say otherwise as the Banks insist, would allow sophisticated criminals to intervene and capture the property without paying a dime for it. The crime here is that the investors who advanced the ONLY consideration in the whole deal are deprived of both the proceeds of collection AND the collateral promised as security for their advance of funds. As an analogy, the logic being used in many courts would allow John Smith to sue for personal injuries suffered by John Doe in a slip and fall in front of a supermarket never visited by Smith, who had never even been in the same State!
As Ronald Ryan, Esq. of Tucson, Arizona pointed out years ago, the courts are confusing Article 3 and Article 9 of the UCC as adopted by each State. Nearly all the trial and appellate decisions are based on Article 3 despite the fact that ONLY Article 9 governs the enforcement and transfer of security agreements — including mortgages. That Article specifically requires that for a holder of the note to enforce the collection by sale of the collateral, the party seeking that affirmative relief must allege they paid for the mortgage. If there is no value paid, there is no enforcement of the mortgage. Period end of story.
But judges are accepting arguments from counsel based on Article 3 of the UCC which has nothing to do with mortgages. The new law in Florida (inadvertently or not) essentially recognizes this for a lawful foreclosure of the mortgage collateral. This is a judicial doctrine that interferes with both due process and essential substantive law. The key reason the banks are not pleading they made a loan and that they will suffer financial injury is because they didn’t make the loan (and neither did any predecessor) and since they didn’t pay value of any kind for the MORTGAGE there is no legal basis for alleging injury for enforcement under Article 9 of the UCC.
Like it or not the legal requirement for jurisdiction — STANDING — once gain takes center stage.
This informal judicial doctrine essentially converts judicial states to nonjudicial. Why? Because instead of the Forecloser having the burden of proving its case, the case is presumed, the burden of pleading is on the homeowner, and the burden of proof is placed on the homeowner to disprove a case that was never in the pleading of the Forecloser! Thus even if they DO prove it the Courts have entered judgment for foreclosure or denied Petitions for TRO in nonjudicial states, essentially treating the right to foreclose as an absolute right no matter who brings the action and no matter what economic interest the Forecloser has in the loan, debt, note or mortgage.
This has evolved from judicial error in both trial and appellate courts by looking at Article 3 of the UCC and judicial confusion between holder and holder in undue course. The Forecloser never pleads it is a holder in due course — because it would be stating that it took the note FOR VALUE and WITHOUT NOTICE that the obligation had been declared in default and WITHOUT knowledge of the borrower’s defenses — not the least of which instead yes, they signed the note, but they never received the loan from the payee. The contract at the beginning was broken.
Under Article 3 of the UCC the allegation that the collecting party is entitled to enforce as a “holder” merely asserts the existence of a contract as shown by the closing documents in which the homeowner signed the note, mortgage, and other papers at closing. It is NOT entitled to any presumption other than that it is in lawful possession of the note, nor that the contractual duties are valid and enforceable. But the Courts are going on “inevitability” and expediency to clear dockets while sealing the fate of borrowers and adding another chapter of fraud in the book being written by Wall Street banks.
So the Courts have swallowed the bait hook line and sinker under BOTH ARTICLE 3 and ARTICLE 9 of the UCC.
As an afterthought consider the implications for demand for a jury trial. If the would be Forecloser is relying strictly on Article 3 of the UCC, they might be waiving their right to foreclose which is governed by Article 9 and of course state law. An action for money damages is subject to a demand for jury trial. The right is constitutional so there is no state law preemption involved. Thus could cause bifurcation if they demand both an action on the collection of the note and the sale of the collateral (the mortgaged property). Thus in order to establish a prima facie case for foreclosure there would first need to be a jury verdict in favor of the pretender lender in a stated amount. Only then would the Forecloser be allowed to proceed on its claim to sell the property as collateral for the loan. OR as I have repeatedly suggested, the jury verdict might result in zero due to the pretender lender in which case the entire case would be defeated.
Needless to say, before you try anything along these lines you must consult a licensed attorney in the jurisdiction in which your property is located. And to lawyers, I would suggest you study up on bills and notes so that you are clear in your presentation.
I am pleased to report that Ronald Ryan, who gave me the above analysis, is now accepting cases again having cleared his docket. Lawyers and pro se litigants seeking representation in Arizona or litigation support involving Bankruptcy, state court litigation or Federal Court litigation are encouraged to contact him. Listen carefully , because he goes fast. Like me, things that are obvious to him he sometimes assumes another lawyer or experienced pro litigant knows the basics. But this IS basic and most lawyers and judges do not pause to process this information, understand it or apply it.
RONALD RYAN CAN BE REACHED AT 520-298-3333 or firstname.lastname@example.org.
For litigation support to attorneys please go to http://www.livingliesstore.com or call 520-405-1688.
Filed under: foreclosure