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I was taken to task for one of my comments by a person who is extremely knowledgeable in the banking industry and with respect to mortgages. He was thrown off by appellate assertions that in certain states and in certain situations assignment of the note is a virtual or “equitable” assignment of the mortgage as well. That is true certainly as between the parties to the sale of the loan — if a sale of the loan occurred. That is my point. If a genuine sale occurred the presumption of enforceability is almost irrefutable. Without the sale of the loan, an assignment is virtually nothing. All you need is a warm body to deflect the spurious assertions of the would-be forecloser.
It is true that endorsement and delivery of the note allows the holder to sue on the note. But it is also true that some appellate courts have gone off the reservation allowing foreclosure (enforcement of the mortgage) even in the absence of a genuine transaction anywhere in the chain of “securitization” . That is not what was intended by commercial transaction law, the UCC or anything else. In some states the presence of facially valid documents may allow for suit to be brought — subject to all possible defenses of the “borrower” including his denial that he is a borrower. “Did you get the money” is used synonymously with “then you owe the debt” with horse blinders on the question of to whom the debt is owed.
One lawyer in New York seemed to have gotten the Judge’s attention when he asked the Judge who was his cellphone carrier. The Judge said it was AT&T. And then the lawyer said, so what would you say to Sprint if they came in and demanded payment? You would say that as to Sprint, you are NOT a cell phone customer just as you are NOT a borrower in relation to someone who has neither loaned you money nor spent money purchasing your debt.
Starting with a fraudulent transaction and allowing it to be compounded by wrongful foreclosure is clearly not what any legislature, any court precedent, or any government policy was intent on doing.
And while if you push it there is no such thing as an equitable mortgage, there are particular circumstances under which it will be regarded as such — namely between a limited number of parties as litigants in the same lawsuit rather than “notice to the world” with nobody else on the horizon making a claim. In other words for purposes of a specific case and specific parties the mortgage is deemed effective — much as one might do when they enter into an IT agreement and they agree to treat the idea or business plan as patented in favor of one of the parties even though no application was made.
Thus spawns the idea that equitable mortgages are permissible. They are not. Equitable assignments operate in much the same way. They cannot operate against the world, but they can operate against specific parties because the circumstances are deemed to demand it. The error in the courts is that are skipping a step and lured into doing so by skillful avoidance of the distinction between a holder, a holder with rights to enforce and a holder in due course.
So the analysis comes down to the fact that there are no equitable mortgages, and there are no equitable assignments of mortgage — or else public records don’t mean anything — and then the entire marketplace would be uncertain as to title to virtually anything where a loan was collateralized. BUT a party can show that the instrument should nonetheless be enforced against a specific party whether properly executed, properly recorded or not using parol evidence, circumstantial evidence etc. to arrive at the truth. Just because it wasn’t in writing, unless the statute of frauds applies, doesn’t mean you don’t have a duty to perform under an oral contract. And if the writing was wrong and it is obvious from the facts presented by the parties that the writing was incorrectly drafted, then it is the SUBSTANCE that counts, not what is in writing.
To be specific, imagine that in an ordinary loan, the bank forgot to record the mortgage. Without some third party interposing a claim of superiority over the bank, the bank can nonetheless enforce the mortgage. If there were mistakes made, then the bank could simply ask for reformation of the contract and then foreclosure.
THE BURDEN OF PROOF (PERSUASION) IS ON THE BANK NOT THE BORROWER: In order to do ANY of the things described above the bank would be required to show the real transaction and the real facts and the real money trail — unless the “borrower” failed to deny the allegations and object to anything but best evidence, non-hearsay, credible testimony and real business records presented by someone with complete access to all the records relating to this particular loan.
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Filed under: foreclosure |