I recently had a case in which the issue of standing, ownership and modification of the loan were all at issue. The case is an example of what happens when the parties purportedly representing the GSE’s bring a foreclosure action in the name of Fannie or Freddie, and then offer through a servicer (authorized or unauthroized). This is why Fannie and Freddie have said publicly that no servicer should use its name in a foreclosure action — and tangentially this could be extended to cases where in the testimony of the corporate representative, Fannie was the “investor” from the start.
First let’s get something straight. Neither Fannie nor Freddie is an loan originator. Their primary purpose is to guarantee loans and then act as Master Trustee of REMIC Trusts that allegedly purchase them at the time of the sale. It doesn’t really work that way but that is how the documents say it should work. Secondarily the GSE are allowed to buy loans. And the principal currency used for such purchases are the mortgage bonds issued by REMIC Trusts for whom it is the Master Trustee.
Either way each of the underlying REMIC Trusts hidden from view have their own Trustee, whose duties are spelled out in an ordinary Pooling and Servicing Agreement, which is the Trust instrument.
If the GSE was acting in its principal capacity, it is impossible for it to be the Plaintiff in a foreclosure action. The guarantee payment to the actual creditors who say they lost money does not occur until after the loss realized which means after the home has been through final liquidation to a third party. If the modification was offered by a servicer with apparent authority, they can hardly disclaim that authority when the standing to file foreclosure depends upon the evidence from that apparent servicer.
Here is the way I put it the currently pending case:
“It should be noted that the Law Offices of David Stern, Esq. were summarily discharged by virtually of its clients including the Plaintiff in the action below. That discharge was based upon allegations that the law office had engaged in a pattern of conduct of producing robo-signed, unauthorized forged documents that were fabricated for the purposes of litigation. The Court is encouraged to take note of the removal of said law firm in this case, and the hundreds of articles and formal announcements of Freddie in the public domain.
As stated below the alleged movement of fabricated documents belies the allegation that Freddie Mac ever had any interest in the subject loan. No allegation nor any proof offered that Freddie was or even could be a lender. The court is requested to take judicial notice of the public announcements from Freddie in which its enabling legislation and documents show that there is only two ways that this quasi-public entity can become involved in a specific loan, and neither of them allow Freddie to be named as the lender nor as plaintiff in a foreclosure action.It seems plausible that the primary purpose and actions of Freddie were at work here — guarantee of the loan in which case it could not possibly have brought the action because the payment of the guarantee is based upon the loss to the claimant which is computed after final liquidation of the property. Hence Freddie had no loss or any economic interest in the debt, loan, note or mortgage, thus depriving it of any claim of standing. In fact, the bringing of this action would Cause the loss which might otherwise have been mitigated by settlement and/or modification — which was somehow achieved and which now the Plaintiff insists should not have been enforced.On the other hand, the same sources suggest that Freddie could purchase the loans using bonds of REMIC trusts. No such transaction is suggested by the pleading or the proof offered on behalf of Freddie.In fact, no allegation nor offer of proof was ever offered in the court below as to how Freddie came to be named as Plaintiff — or for that matter whether they know of the existence of this action or have been given the opportunity to approve or disapprove. No witness or document from Freddie was ever alleged or produced or proffered as evidence. Defendant in the court below challenged Freddie to answer claims that it had not established standing, which is a jurisdictional issue. Freddie is principally a guarantor whose name should not be used in mortgage foreclosures according to its own pronouncements.
At the time of filing of the complaint there was no recorded assignment of the note or mortgage. The evidence produced by Freddie or on behalf of Freddie showed that delivery of the debt, note and mortgage could not possibly have occurred, to wit: no party whose authority to “represent” Freddie as agent or otherwise received said documents and no allegation nor any proof was offered that Freddie even acquired the loan, debt, note or mortgage through payment of value in good faith without knowledge of the borrower’s defenses (i.e., as a holder in due course).
The allegation is made that Freddie is a holder, which means that the plaintiff in the court below admits that it had NOT purchased the loan for value in good faith with no knowledge of borrower’s defenses. If Freddie was not the holder in due course, the actual owner of the debt, note and mortgage, then who fits that description? The answer is neither apparent from the record nor evidence from the pleadings nor the proof in the record below.
Pure logic required that if someone claims to be a holder and the “holder” is claiming rights to enforce, that those rights to enforce must be conferred from some set of documents, fact or both. There is nothing in the record in the allegations or proof as to why Freddie is named as “holder”, whether it had rights to enforce, or how it came to possess the rights to enforce — which of necessity would require the production of a witness or document or both showing that Freddie was named as agent to collect by the actual creditor.
This of course would require the identification of the actual creditor a basic right under all lending laws governing fair practices and preventing predatory lending. To hold otherwise would allow any stranger to the transaction to self proclaim itself as a party with rights to enforce contrary to the rights of the actual creditor.
But worse, naming Freddie as a mere holder belies its central purposes as a quasi governmental entity. If Freddie is a mere holder who won’t even claim that it has rights to enforce or show how it has rights to enforce, how is the consumer, the government or anyone else to determine the identity of the true creditor? In foreclosures this is especially important since ONLY an actual creditor on the actual secured debt can submit a credit bid in lieu of cash at the auction of the property — and only that party can be paid if the borrower seeks to redeem the property.
In this case, the Court was clearly confused by the conflicting evidence and pleadings but saw a way out — the Defendant in the Court below sought to enforce a modification agreement in which the modification had been subject to underwriting, the trial payments were made, but he “Plaintiff” wanted to foreclose anyway. The court concluded that the modification should be enforced, but in order to do so arrived at the dubious conclusion that Freddie was the proper party in the action.
Hoisted on its own petards, Freddie now seeks to overturn the ruling that it must abide by a modification agreement it proposed, was accepted by the Defendant and for which it received consideration.
Filed under: foreclosure |