Holder in Due Course and Due Process

The first thing I want to do is add to my previous comments. I believe there is an implicit admission of failure of consideration in any case where a holder in due course is not identified. In addition, where a REMIC trust not alleged or asserted to be a holder in due course it means by definition that they did not purchase the loan for value in good faith without knowledge of the defense of the “borrower” (maker of the note).

 

I believe that what this means is that any court that enters an order or judgment against the homeowner, who was the maker of the note, is implicitly entering an order or judgment against the trust beneficiaries and the trust, resulting in a loss of favorable tax status and just as importantly an economic loss directly resulting from being forced to accept a loan that is presumed to be in default. The failure of the trust to pay for the loan and receive delivery of the loan documents to the depositor leaves one with the question of “what is the relationship of the Trust to the subject loan?”

 

The same logic would apply regardless of whether the citizens trust is in dispute or not. There is circular logic in the argument of the bank. On the one hand they want to be seen as a holder with rights to enforce but on the other hand they don’t want to disclose, alleged, assert, or prove the foundation or source of the right to enforce.

 

Based upon the provisions and restrictions of the pooling and servicing agreement, the investors who purchased mortgage backed securities issued by the Trust were intended to be the collective creditor for loans that were accepted into the Trust. The acceptance is stated in the pooling and servicing agreement and the exhibits to the pooling and servicing agreement should have the loans that were accepted. After the cutoff period, the only way a loan could be accepted was by acceptance by the Trustee. And the only way there could be acceptance by the trustee would be upon receipt of an opinion letter from counsel for the trust stating that they would be no adverse effect on the beneficiaries. The adverse effects are clear. One is the loss of advantageous tax treatment and the other is the economic loss from accepting a loan does not conform to the types of loans that are acceptable to the trust, as per the terms of the pooling and servicing agreement.

 

Pooling and servicing agreement is the trust instrument. Since the pooling and servicing agreement is governed under the laws of the state of New York, a violation of the restrictions and provisions of the trust is void, not voidable. The acceptance of a loan that is in default is not possible. The acceptance of any transaction that would violate the terms of the Internal Revenue Code sections on REMIC Trusts is not possible.

 

Thus the hidden issue here is that the real parties in interest who will be affected by the outcome of the litigation have not been given any notice of the pendency of the action. And the provisions of the pooling and servicing agreement prevent the trust beneficiaries from knowing or even inquiring about the status of any particular loan.

 

The confusion comes from the fact that the investors are indeed the creditors in practice. But because the trust was actually not utilized in the transaction they are direct creditors whose money was used to fund origination or acquisition of loans, contrary to the subscription agreement which promised that their money would be given to the issuer of the mortgage-backed securities that were being issued and purchased by the investors.

 

It seems obvious that the trust cannot be held to have acted in bad faith. It is equally obvious that the trust would have no knowledge of the borrower’s defenses. As the only element left for a holder in due course is the purchase for value. Since there is no allegation that the trust is a holder in due course, the bank is admitting that the trust never purchased the loan. It may be presumed that the trust might have originated or purchased the loan if it had received the proceeds of sale of the mortgage-backed securities issued by the trust. The logical assumption is that the trust never received those proceeds. The logical assumption is that the underwriter used the funds in ways that were never contemplated by the investors.

 

A further logical assumption would be that the underwriter kept the funds in its own name or in the accounts of entities controlled by the underwriter and is operating contrary to the interests of the investors.

 

The logical conclusion would be that the underwriter conducted a series of disguised sales of the same loan to multiple parties. Since the mortgage-backed securities were issued in the name of the underwriter as nominee (“street name”) they were able to trade on the loan and securities in their own name and receive the benefits without accounting to the investors or the borrower. The allocation of third-party funds (servicers, insurers, guarantors etc.) cannot be determined except by reference to books and records in the exclusive care, custody and control of the parties involved in the claims of securitization. It may be fairly concluded that such claims are false.

 

Now I will address the issues presented as to constitutional disposition of the case. It has long been judicial doctrine to avoid constitutional issues if the case can otherwise be decided on other grounds. It is also true that equal protection has proved more difficult than due process as the basis of any relief.

 

The problem in foreclosure litigation is that it must in my opinion include a claim for both due process and equal protection. The claim for lack of due process is not technically true. The true claim, in my opinion, would be lack of sufficient due process.

 

In actuality due process varies from state to state and even from county to county. If a party has been heard in court and presented arguments, then it may be fairly concluded that some due process was provided to that party. If presumptions arise against that party that give rise to orders and judgments that are contrary to the actual facts, a claim for denial of due process could be present. But the better claim, in my opinion, is to look at the state appellate decisions to show that more due process is allowed to debtors who are not involved in foreclosure litigation. I think this is a more accurate description of the actual situation.

 

The due process argument is simple: presumptions are used as shorthand for the facts. In this case the facts don’t match up with the presumptions. The only question is whose burden of proof is it. If the allegation was that a holder in due course was known and identified there is no doubt that anything the borrower had to say would be an affirmative defense, and thus after a prima facie case was made showing payment in good faith without knowledge of borrower’s defenses, the burden would shift to the alleged borrower who definitely was the maker of the note even if they were not the borrower in a loan transaction with the designated “lender.”

 

But, this is not the case at bar. The foreclosing party is asserting “holder” status, with dubious rights to enforce that are denied by the maker/homeowner. Absent is any allegation of status of a holder in due course, and of course noticeably absent is any allegation of the expenditure of funds or other consideration in exchange for delivery of the loan to the Depository designated in the PSA to receive the delivery. Thus neither the purchase nor the delivery are alleged. While being a holder might raise the presumption of being a holder with rights to enforce, it does not remove the burden of proving that said rights to enforce have been delivered from a party who definitely had the right to enforce — i.e., the holder in due course or “owner” of the loan.

 

The absence of the HDC allegation is an admission that the Trust did not buy the loan. The fact that the Trust did not buy the loan means that it is not and cannot be in the pool owned by the trust, with fractional shares owned by the investors who bought the MBS issued by the Trust. And that can ONLY mean that the right to enforce cannot be delivered or conveyed by the Trust because the Trust never received delivery and never had a right to receive delivery because they didn’t pay for the loan.

 

Thus on the face of the pleading it is up to the foreclosing party to prove its right to enforce the note by showing the identity of the party for whom the loan is being enforced, the fact that the party for whom it is being enforced owned the loan at the time the right to enforce was granted, the current balance ON THE BOOKS OF THE CREDITOR, the presence of a default ON THE BOOKS OF THE CREDITOR, and that the loan is still owned by the party who owns the loan (i.e., the HDC). Hence the burden is on the foreclosing party to reach the point where the borrower assumes the burden of refuting the case against him or her. The maker of the note is in an exclusive position of being shut out of the facts that would either corroborate or refute this narrative.

 

If the burden is placed on the borrower, it would be the equivalent of a murder on video in possession of the murderer but the State and the heirs of the victim are charged with proving the case without the video. The facts suggest here that the Trust paid nothing because it had no money to pay for a loan. The facts suggest that if it were otherwise, the Trust would have paid for the loan and be most anxious to plead HDC status. And thus the facts show that the foreclosing party cannot claim the right to enforce based upon a presumption without violating the due process rights of the homeowners here. Only the foreclosing party and its co-venturers have in their care, custody and control, the necessary information to refute or prove the facts behind the presumptions they are attempting to raise.

#foreclosureissues

 

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#foreclosureoptions

 

#foreclosuresinflorida

 

#foreclosuresinunitedstates

 

#foreclosureblog

 

#foreclosureadvise

 

9 Responses

  1. Most of what is in the post by Mr. Garfield is incorrect, to include the statement: “Since the pooling and servicing agreement is governed under the laws of the state of New York, a violation of the restrictions and provisions of the trust is void, not voidable.”

    Tran v. Bank of N.Y. (S.D.N.Y., 2014) (“courts considering EPTL § 7-2.4 have held that “even if it is true that the Notes were transferred to the trust in violation of the trust’s terms [after the closing date of the trust], that transaction could be ratified by the beneficiaries of the trust and is therefore merely voidable.”)

  2. Why would a judge take away our due process? What is his/her motivation? Especially those that were nominated by Democrats especially those who are old enough to go through the The 60’s?

    NEVER AGAIN

  3. Can a judge legally use the court for his/her personal use? Does the immunity apply for personal use? Or is the immunity of judges apply only for mistakes honest mistakes?

    Never Again

  4. Dear Mr. Garfield:
    thank you. Re your above quote in this article:

    “The allocation of third-party funds (servicers, insurers, guarantors etc.) cannot be determined except by reference to books and records in the exclusive care, custody and control of the parties involved in the claims of securitization. It may be fairly concluded that such claims are false.”

    Please note that while confirming that falsity, According to this expert’s attached elaborate report “SECURITIZATION IS ILLEGAL.”

    http://privateaudio.homestead.com/Exhibit_G_Securitization.pdf

    In addition, HDC is also illegal according to:

    Held Up in Due Course: Predatory Lending, Securitization, and the
    Holder in Due Course Doctrine, 35 Creighton L. Rev. 503 (2002)

    http://msfraud.org/Articles/HeldUpInDueCourse.pdf

    Regards.

  5. I read this blog most days
    And I think about the food chain pyramid and the parallel to “natural law” being mans nature whereby he has to be able recognize that the “fruits of his labor ” are rewarded proportionately and if they are not then it goes against natural law. We can not be debt slaves it doesnt work – the Pyramid collapses.

  6. Neil Garfield … outstanding presentation of the dilemma citizens are facing in the courts. The courts are hiding behind a veil or smoke screen of what looks like “Due Process” , but as explained, it is just a narrow portion of Due Process .. just enough to give the appearance and illusion that the victim/citizens were all given their day in court. So now we need to come up with a strategy of how we address this lack of “sufficient” Due Process … can it be argued before the Supreme Court? Can it be raised in State Appellate Courts ? Will they even understand the argument or acknowledge the injustice that now prevails and have cost so many their homes? What is the next step?

  7. Good post, Neil. Thanks. I would like to hear your thoughts about “third party beneficiaries”. This is an important matter in California, where most courts are saying that if the TRUST is claiming either HDC or PETE, the borrower has no “standing” to “enforce” the TRUST agreements, be they PSA or others governing the TRUST. In my view, a mortgagor is in fact a Third Party Beneficiary by almost any legal yardstick. By the way, this is a big issue in EROBOBO, which is currently before the NY Appeals Court. Bottom line to me is, that if the TRUST intended to be a CREDITOR…a borrower/mortgagor must be a third party beneficiary, because the intention was to benefit the borrower/mortgagor…if not at origination, then certainly upon all sums due an paid…with a satisfaction of mortgage/note.

    Would love to know your thoughts here because I can’t find (in CAL) any substantive law that precludes such assertion of third party beneficiary rights.

    Thanks.

  8. When I talk to an attorney, they say you can’t dispute what is in the Trust, unless you are one of the parties “DIRECTLY” involved with the Trust, such as the trustee, the investors, etc. COULDN’T I BUY A SHARE IN THE STOCK OF THE TRUST AND BECOME “one” of the INVESTORS?
    Dan the Man!

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