TILA RESCISSION: The Bottom Line for Now

Probably the main fallacy of the people who say that TILA Rescission is not possible or viable is that they project the outcome of a lawsuit to vacate rescission. Based upon their conjecture, they assume that Rescission is no more than a technicality. Congress, and SCOTUS beg to differ. It was enacted into law 50 years ago in an effort to prevent unscrupulous banks from screwing consumer borrowers.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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I keep getting emails from non lawyers who have a “legal opinion” that not only differs from mine, but also the opinion of hundreds of lawyers who represent the banks and servicers. They say that because disclosures were probably made that rescission is nothing more than a gimmick that will never succeed and they point to the many case decisions in which courts have ruled erroneously in favor of the banks despite a rescission that eliminated the subject matter jurisdiction of the court, since the loan contract, note and mortgage no longer exist. The debt, however, continues to exist even if it is unclear as to the identity of the party to whom it is owed.

First the courts ruled erroneously when they said that tender had to be made before rescission was effective. Then the courts said that no rescission could be effective without a court saying it was effective. That one put the burden on proving the figure to make proper disclosure on the homeowner. The Supreme Court of the United States, (SCOTUS — see Jesinoski v Countrywide) after thousands of decisions by trial and appellate courts, told them they were wrong. As of this date, no court has ever ruled that the rescission was vacated — the only thing that could stop it.

The lay naysayers keep harping on how wrong I am about rescission. Unfortunately many people believe what they read just because it is in writing. In my case I simply instruct the lawyers and homeowners to simply read the TILA Rescission statute and the unanimous SCOTUS decision in Jesinoski. What they will discover is that I am only repeating what they said — not making it up as some would have you believe.

To the naysayers and  all persons in doubt, i say the following:

As I have repeatedly said, in practice you are right, for the time being.
But the legal decision from SCOTUS will undoubtedly change the practice. The law is obvious and clear. SCOTUS already said that. So no interpretation is required or even permissible. SCOTUS said that too. TILA Rescission is mainly a procedural statute, not a substantive one. SCOTUS said that too. On the issue of when rescission is effective, it is upon mailing (USPS) or delivery. SCOTUS said that too. On the issue of what else a borrower needs to do to make TILA rescission effective, the answer is nothing. SCOTUS said that too.

Hence the current argument that you keep making is true “in practice” but only for the moment. SCOTUS will soon issue another scathing attack on the presumptuous courts who defied its ruling in Jesinoski. There can be no doubt that SCOTUS will rule that any “interpretation” that contradicts the following will be void, for lack of jurisdiction, because the loan contract is canceled and the note and mortgage are void:

  1. No court may change the meaning of the words of the TILA Rescission statute.
  2. Rescission is law when it is mailed or delivered.
  3. Other than delivery no action is required by the borrower. That means the loan contract is canceled and the note and mortgage are void. They do not exist by operation of law.
  4. Rescission remains effective even in the absence of a pleading filed by the borrower to enforce it.
  5. Due process is required to vacate the rescission. That means pleading standing and that proper disclosure was made, an opportunity for the borrower to respond, and then proof that the pleader has standing and that proper disclosures were made.
  6. Pleading against the rescission must be filed within 20 days or it is waived.
  7. At the end of one year both parties waive any remedies. That means the borrower can no longer enforce the duties imposed on the debt holder and the debt holder may no longer claim repayment.
  8. The only claim for repayment that exists after rescission is via the TILA Rescission statute — not the note and mortgage. This is based upon the actual debt, not the loan contract or closing documents.
  9. Any claim for repayment after rescission is predicated on full compliance with the three duties imposed by statute.
  10. A court may — upon proper notice, pleading and hearing — change the order of creditor compliance with the three duties imposed upon the debt holder. This does not mean that the court can remove any of the duties of the debt holder nor summarily ignore the rescission without issuing an order — upon proper notice, pleading and proof — that the rescission is vacated because the proper disclosures were made or for any other valid legal reason that does not change the wording of the statute.
  11. The three duties, which may not be ignored, include payment of money to the borrower, satisfaction of the lien (so that the borrower might have an opportunity to refinance), and delivery of the original canceled note.

Virtually 100% of lawyers for the banks and servicers agree with the above. They have advised their clients to file a lawsuit challenging the TILA Rescission because such a lawsuit could be easily won and would serve as a deterrent to people attempting to use TILA rescission as a defense to collection or foreclosure efforts. Yet their clients have failed to follow legal advice because they know that they have no debt holder to whom funds can be traced. If they did identify the debt holder(s) they would be showing that they played just as fast and loose with investor money as they have done with the paperwork in foreclosures.

Does this mean a free house to homeowners? Maybe. Considering how many times the loans were sold directly and indirectly, and how many times the banks received insurance, bailout and purchases from the Federal Reserve, that wouldn’t be a bad result. But the truth is that everyone knows that won’t happen unless the courts continue their decisions with blinders on.

In the end, the homeowners do owe money to the investors whose money was used too fund the loans, directly and indirectly. Whether it is secured or not may depend upon state law, but as a practical matter very few borrowers would withhold their signature from a valid mortgage and note based upon economic reality.

Even the Bank Attorneys Admit that NO Tender or lawsuit is Required in TILA Rescission. Burden is on the “lender” side.

It appears that I have struck a nerve with many of the people who seek to prove me wrong in my “theories.” They are facts, not theories. And as explained by yet another attorney writing an article for the banks and bank attorneys, it is up to the “bank” side of the equation to do anything about rescission. The borrower need do nothing except send the notice. If the “bank” side does nothing they do so at their own peril — not the homeowner’s peril. READ THE STATUTE and the unanimous decision by SCOTUS in Jesinoski v Countrywide.

Although trial judges treat the matter as unsettled or even settled opposite to the express wording of the statute and the only case that matters, the issues raised defensively by the “bank” side relative to TILA Rescission are plainly without merit and well-settled by statute and SCOTUS.

The article below seeks to point out that the TILA Rescission statute allows a court of competent jurisdiction to change the order of things — if petitioned to do so. She avoids the obvious problem: that nobody has filed such a suit because they (a) don’t have standing and (b) they are winning anyway by playing to the bias of judges.

“A borrower may effectuate rescission “by notifying the creditor.” 12 U.S.C. § 1635(a). The United States Supreme Court held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower need only send written notice to a lender “in order to exercise his right to rescind”; it is not necessary for the borrower to also sue for rescission to “exercise” the right of rescission. 574 U.S. ___, 135 S.Ct. 790, 793 (2016).”

Let us help you plan your narrative and strategy: 202-838-6345. Ask for a Consult.
Register now for Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar.
Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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SeeLaw360: When to Consider Modifying TILA Rescission Procedures

Guide to understanding TILA Rescission.
  1. If someone is giving you advice or analysis and they don’t have a law degree and some experience practicing law, ignore them.
  2. READ THE STATUTE YOURSELF: 15 USC §1635.
  3. READ THE ONLY CASE THAT MATTERS: Jesinoski v Countrywide, decided by the highest court in the land — the Supreme Court of the United States. (SCOTUS)
  4. Be prepared for push back because that is working for the “bank side.” They are wrong and they know it but they are still convincing judges to ignore the wording of the statute and ignore the word of the boss of bosses (SCOTUS).
  5. A court decision that does not vacate the rescission is no decision at all. The courts have been careful to avoid this obvious issue. Since the rescission is effective when mailed (or delivered), that is the moment when the loan contract is canceled, and the note and mortgage rendered void. Any court that moves forward despite rescission is exceeding its jurisdictional authority as there is no longer subject matter jurisdiction.

There many shills and well intended people out there on the internet who have strong opinions about TILA Rescission. Nearly all of them have no law degree and no experience practicing law and lack any useful knowledge about court procedure. They should be ignored. Even the “bank” lawyers ignore them.

Their erroneous points come down to this:

  1. if the disclosures to the borrower were complete, then rescission doesn’t count
  2. it is up to the borrower to make TILA rescission effective.
  3. if the borrower cannot tender the principal back then the rescission is not effective.
  4. the TILA statute allows courts to change the order of duties of the “bank” side and the borrower side.

All four points are dead wrong because of due process. You can’t get relief unless you plead for it. So far the “bank” side has convinced judges they don’t need to file a pleading to get rid of an effective TILA Rescission. That is going to change.

The statute contains no presumptions that the disclosures are complete. In our legal system that means that a party with standing must bring an action that requests relief from rescission on the grounds that disclosure was complete. And they must bring such an action timely under the TILA Rescission Statute (i.e, within 20 days).

TILA rescission is effective at the moment of mailing or delivery by operation of law (i.e., the TILA Statute). The Supreme Court has already ruled unanimously that no lawsuit or other action is required by the borrower on the issue of rescission. Sending it means the loan contract is canceled and the note and mortgage are void.

No tender of money or property is required by the TILA statute in order to make rescission effective. This is not a theory. This is what the statute says and what the Supreme Court of the United States says. You can disagree with it all you want but the matter is legally settled.

The fact that the statute allows the court to reorder the statutory duties and obligations does not mean anyone asked the court to do so. If they did, the borrower would be entitled to due process — i.e., time to respond to the new order of things. Obviously that pleading is not going to submitted by the borrower. Just as obviously that pleading must be filed seeking relief from the rescission and allowing due process — i.e., litigation over whether the sending of the rescission was lawful but only in the context of a pleading filed by a party with standing.

And that is the point. There probably is no party with standing once you strip away the note and mortgage. The owner of the debt is most likely unknown. And that is where we are. Eventually SCOTUS will rule again on TILA Rescission. If the next ruling is consistent with their last ruling they will once again strike down the procedures and substance of court rulings that ignore the existence of the TILA rescission which was effective by operation of law, from the moment it was sent or delivered.

Here are some relevant quotes from the article cited above, written by an attorney working for a firm that represents banks:

Lenders at times find themselves assessing how to handle a claim by a borrower that he or she is entitled to rescind a loan under the Truth in Lending Act (TILA). Rescission under TILA is distinct from common law rescission due to one main difference: unlike common law rescission, which requires the rescinding party to tender any benefits received under the contract back to the other party as a condition precedent, TILA allows a borrower to exercise the right of rescission before such tender must occur. This can result in putting a lender on its heels, seeking to defend against the merits of a TILA rescission claim before even knowing if the borrower can fully effectuate the rescission by ultimately tendering the proceeds of the loan back to the lender.

However, it is possible to avoid this situation, even when operating within the framework of TILA. A strategically useful but often under-utilized tool for lenders in litigation involving rescission under TILA is to seek an order altering the statutorily prescribed procedures for rescission.

Overview of Rescission under TILA

Ordinarily, under section 1635(a) of TILA, a borrower has the unconditional right to rescind a loan for three days after the consummation of the transaction, delivery of notice that the borrower has a right to rescind or delivery of all material disclosures – whichever comes later.[1] Thus, if the lender provides the borrower with the requisite material disclosures upon closing the loan, a borrower’s right of rescission under TILA is extinguished after three days.

Assuming, however, that a lender does not provide a borrower with all necessary “material disclosures,”[2] section 1635(f) of TILA extends a borrower’s right of rescission to three years after the consummation of the transaction.[3]

While common law rescission requires a rescinding party to tender the benefits received pursuant to an agreement back to the other party as a condition precedent, TILA prescribes otherwise. Section 1635(b) states that when a borrower “exercises his right to rescind under subsection (a), he is not liable for any finance or other charge, and any security interest given by the obligor … becomes void upon such a rescission.”[4] Moreover, upon the exercise of rescission “under subsection (a)” of TILA, the lender is required to return any down payments provided by the borrower and “take any action necessary or appropriate to reflect the termination of any security interest created under the transaction” within 20 days of receiving a notice of rescission.[5] Only after a lender performs its obligations under subsection (b) is the borrower required to tender back any benefits received, such as loan proceeds.[6] Notably, however, both section 1635(b) and TILA’s implementing regulation, Regulation Z, provide that the procedures for rescission under TILA may be modified by court order.[7]

 

 

When and What is Consummation of Contract?

Like many other “Black letter law” situations, when it comes to foreclosures the courts are ignoring all precedent, statutes, rules and regulations when they consider a loan contract consummated when one party signs documents — without the other side showing it signed documents and performed its obligations. Without consideration passing both ways, there is no contract to enforce.

The argument that there is nothing for the lender to sign is without merit. The further argument that therefore the only signature that counts in a written contract is the signature of one side is equally ridiculous. It is true that lenders don’t sign the notes and mortgages. But for lenders, their part of the contract only comes alive when they comply with TILA and perform — i.e., they give the loan of money.

To view it any other way would be saying that performance by the “lender” is optional. And that would by all accounts be an executory contract that would be unenforceable until the optional performance was completed. Hence consummation can only be (a) when the money appears (b) from the “lender” identified on the disclosure documents.

The banks craftily spotted the loophole that lenders don’t sign the actual instruments that provide evidence of a written loan contract. But those instruments may not be used to sidestep mutuality and reciprocity that MUST be present in every situation where a party is relying upon paper instruments instead of proving the loan from scratch. If a third party performs the duties promised by the originator there is no enforceable contract even if there is a separate remedy for recovery of money.

Consummation and consideration should be treated as fair game in discovery instead of annoying protests from the homeowner. The Courts have the power to make legal decisions — not political ones.

Let us help you plan your discovery requests: 202-838-6345. Ask for a Consult.
Register now for Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar.
Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Hat tip to Greg (cement boots)

Consummation vs Closing

Seems like various state laws redefine “consummation” as not the actual consummation (the initial fulfillment of promises made by both parties to a contract – think marriage) but instead, make it apply to the moment that a written obligation of a debtor (the wife) is signed at a “closing” in a loan transaction… These definitions do not take into account the duty of the originator or alleged lender (the husband) to timely perform their duties, especially to provide a record of the funding in the purported debtor’s name toward the discharge of the contracted obligation. This occurs most often in “refinance” deals where there is no seller or buyer, simply a rearranging of computer entries between financial institutions. This leaves the alleged debtor (the wife) wanting for proof of fidelity, consideration and performance while operating under the presumed legal disability created by the state’s definition. As you can imagine, and we have seen, this can have a deleterious effect on a judge’s or debtor’s ability to accurately calculate the deadline to timely file a TILA rescission notice within the three year statute of repose.

I think this comment is correct. By defining consummation as the moment when one party signs documents without regard to when or even whether the other party signs and performs contractual duties, the courts are letting originators off the hook for fraud, TILA violations and more. Like the debt itself the obligation is not open ended to anyone who claims it. It is owed to the party that owns the debt or obligation.

In normal contract law there is some fuzziness about consummation and sometimes rules of estoppel apply. But the normal rule is simply that the transaction is consummated and the documents are effective when the documentation is completed and executed by both sides, and consideration has passed both ways.

By considering consummation to be when only one party signs the courts are ignoring a basic legal doctrine that has been solid for centuries — consideration must pass before the documents can be used for enforcement.

This is particularly important in the modern era where “lenders” have been replaced by “originators.” In many cases the originator is not the lender. Hence no enforceable contract can be said to exist unless there is proof that the originator was acting for a third party Lender.

If the third party was not disclosed they would be admitting to a TILA violation. If the third party is not a lender either but rather a conduit, then we have (a) no consideration and (b) nondisclosure at “closing” as to the identity of the lender.

By “no consideration” I don’t mean that the homeowner did not receive money or the benefits of a disbursement.  I mean that nobody in the chain starting with the originator has paid that consideration and thus nobody in that chain of command is party to an enforceable contract. Like the fabricated assignments, allonges and endorsements, the existence of a paper instrument even if signed does not mean that the provisions contained therein are enforceable. Under contract law it is the transaction that must have consummated between the parties to the written contract. THAT is something that does not occur, even in the c leanest of cases, until after the closing and sometimes months or even years after.

By revealing the absence of a payment by the originator, one accomplishes two things. (1) the written loan contract (note and mortgage or Deed of Trust) was never enforceable and thus cannot be enforced by successors. (2) clear violations of TILA disclosure requirements have been violated.

BUT none of this means that there is no debt — assuming that money appeared after closing. The debt exists. The homeowner does owe money. And while the homeowner does not owe just anyone, he/she owes money to the person or parties who are out of pocket for the loan. Their remedy is probably an action in equity seeking to claim the paperwork AFTER they have proven that they are the real parties in interest. Or, their remedy would be simply the equitable action for unjust enrichment. In the first case they MIGHT preserve the mortgage encumbrance. In the second, they have no collateral.

Rescission Precision Goes to U.S. Supreme Court Petition for Mandamus

10 years ago, seeing where the foreclosure wave was going and watching court cases, I said on these pages that the only solution to these foreclosures is Mandamus. First to stop judges from applying legal PRESUMPTIONS and second to stop judges from ignoring TILA rescission. Now someone has done it and others might follow suit, if you pardon the pun. Lawyers were not well versed in mandamus and pro se litigants had never heard of it. So for the most part everyone has been screaming and yelling about injustice, fabrication, forgery and perjury.

Ironically it is Dan Junk, pro se, who has done the best legal writing on the issue of TILA Rescission and has chosen, in my opinion, the best route to getting the Supreme Court to issue an order prohibiting judges from disregarding TILA Rescission and requiring judges to follow the law in 15 U.S.C. §1635. The irony is doubled because of Dan’s last name (Junk) and the fact that the securitization scheme arose partly out of the junk bond craze 30 years ago. Except of course that back then Wall Street pirates WERE sent to prison.

SCOTUS has the option of taking any case they want to review. They did take the Jesinoski v Countrywide case from which this Petition for Mandamus arises. And once they take it for review, they can still deny the writ leaving decisions on rescissions in limbo and creating case precedent where Judges have the option of disregarding the law as written in a statute in virtually any kind of case.

This one was filed, as I understand it, last Friday. It may or may not be considered timely. The reason I am publishing the Petition for the Writ of Mandamus is  that it attacks exactly on point what is happening in the courts — namely, “denying” the existence and effect of TILA rescission even after it has taken effect as a nonjudicial remedy.

NEED HELP PREPARING FOR FORECLOSURE DEFENSE? We can help you and your attorney with drafting Motions, Discovery and Compelling Responses to Discovery Requests with Our Paralegal Team that works directly with Neil Garfield! We provide services directly to attorneys and to pro se litigants.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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see

Junk SCOTUS Petition for Writ of Mandamus on TILA RESCISSION

Hiding in Plain Sight_ Jesinoski and the Consumer_s Right of Resc

Jesinoski decision

Dan Junk attended one of my first seminars back in the days when I was co-presenting with Brad Keiser. In litigation for around 9 years, he has followed this blog (and many others) and fought off the “inevitable” foreclosure as long as he could in Ohio. Besides clear evidence of substantive defenses Dan had sent a notice of rescission within the 3 years stated in the TILA Rescission statute.

Like thousands of judges across the country in State and Federal courts, the timely and effective rescission was ignored simply because the judges didn’t like the result. The ultimate decision was against him because the courts continue to allow legal presumptions to apply even though they create “alternate facts” in conflict with reality.

Blind justice supposedly requires courts to apply the law, as written by the Federal and State legislatures. The answer for Dan was not in some attempted appeal but rather to seek a sweeping ruling from the Supreme Court of the United States that specifically requires all judges, whoever situated, to follow the TILA Rescission law. There is adequate evidence to show that this is of great public importance inasmuch as virtually all judges are committing the same “error” to wit: not taking TILA rescission literally or seriously.

We’ll see what happens. But in the meanwhile do give a careful read of the Brief Dan filed. This could be a moment where everything changes.

NJ Appellate Court Decision Goes to Achilles Heel of “Securitizers”

“In order to have standing to foreclose a mortgage, a party ‘must own or control the underlying debt.'”

New Jersey litigants need look no further. In fact, in every other state of the U.S. you will find the same decisions each quoting from several other to the same effect. Courts across the country have usually confused the issue and accepted the allegation of ownership as proof of ownership. This court answers that as well:

To establish such ownership or control, Plaintiff must present properly authenticated evidence that it is the holder of the note or a non-holder in possession with rights of the holder.”

So what is a holder, such that the party has established “ownership or control of the underlying debt.” That is the issue that has been blurred by the banks.

The banks focus on the state statutes (UCC) enabling a holder to enforce without ever establishing that the party owns or controls the underlying debt. If you think about it that is nonsense. But that one thing, more than anything else, is responsible for millions of wrongful foreclosures. 

see NJ Decision On POA and MERS

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Here are some basic black letter rules, quoted in the NJ case, that have been followed for centuries:

  1. A holder must possess the original note.
  2. Transfer of possession must be “authenticated by an affidavit or certification based upon personal knowledge.”
  3. A party relying upon power of attorney or other document must produce the authenticated original of that document.
  4. Using the words “as attorney in fact” means nothing unless the party is able to produce a witness who, in their own personal knowledge, knows and states that the POA is in writing and has not been revoked.
  5. That witness must be able to lay the factual foundation and authentication for introduction of the Power of Attorney or any other such document.
  6. Without such foundation and authentication, any testimony or documents proffered by virtue of the POA cannot be admitted into evidence and for purposes of the case then, such statements or documents do not exist.
  7. A party who claims a legal relationship with another party and who relies upon it for proffering evidence must provide evidence of the legal relationship.
  8. A Power of Attorney must be in writing, duly signed and acknowledged as set forth in state statutes. Oral Powers of Attorney cannot be used to circumvent the requirement that interests in real property (including mortgages) must be in writing.
  9. A party seeking to enforce a note must be able to establish, though competent evidence, the location and the previous locations of the note in order to establish possession and the right to enforce, respectively.
  10. Certifications must be based upon personal knowledge and not general familiarity.
  11. If testimony is offered based upon a “review” of records, the records must be present or the witness must identify those records and how the witness acquired personal knowledge of their content.
  12. Assignments of mortgage must be authenticated by a person who has personal knowledge of the assignment (and the circumstances in which the assignment occurred). Otherwise the assignment is hearsay and must be excluded from evidence unless otherwise admitted for different reasons. Hearsay statements in assignments cannot be admitted into evidence and for purposes of the case then, such statements do not exist.
  13. The fact that an assignment or other document exists as an original or a copy does not mean that what is written on it can be admitted into evidence. But without a proper objection, the document can be admitted into evidence as proof of the matters asserted therein.
  14. A document signed by an agent or “nominee” like MERS after the demise of the principal is void because the power of attorney expires upon expiration of the principal. If the originator no longer exists, MERS is not authorized to act on behalf of the originator.

The Devil is in the Details — The Mortgage Cannot Be Enforced, Even If the Note Can Be Enforced

Cashmere v Department of Revenue

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Editor’s Introduction: The REAL truth behind securitization of so-called mortgage loans comes out in tax litigation. There a competent Judge who is familiar with the terms of art used in the world of finance makes judgements based upon real evidence and real comprehension of how each part affects another in the “securitization fail” (Adam Levitin) that took us by surprise. In the beginning (2007) I was saying the loans were securitized and the banks were saying there was no securitization and there was no trust.

Within a short period of time (2008) I deduced that there securitization had failed and that no Trust was getting the money from investors who thought they were buying mortgage backed securities and therefore the Trust could never be a holder in due course. I deduced this from the complete absence of claims that they were holders in due course. Whether they initiated foreclosure as servicer, trustee or trust there was no claim of holder in due course. This was peculiar because all the elements of a holder in due course appeared to be present because that is what was required in the securitization documents — at least in the Pooling and Servicing Agreement and prospectus.

If the foreclosing party was a holder in due course they would merely have to show what the securitization required — a purchase in good faith of the loan documents for value without knowledge of any of borrower’s defenses.  This would bar virtually any defense by the borrower and allow them to get a judgment on the note and a foreclosure based upon the auxiliary contract for collateral — the mortgage. But they didn’t allege that for reasons that I have described in recent articles — they could not, as part of their prima facie case, prove that any party in their “chain” had funded or paid any money for the loan.

After analyzing this case, consider the possibility that there is no party in existence who has the power to foreclose. The Trust beneficiaries clearly don’t have that right. The Trust doesn’t either because they didn’t pay anything for it. The Trustee doesn’t have that right because it can only assert the rights of the Trust and Trust beneficiaries. The servicer doesn’t have that right because it derives its authority from the Pooling and Servicing Agreement which does not apply because the loan never made it into the Trust. The originator doesn’t have the right both because they never loaned the money and now disclaim any interest in the mortgage.

Then consider the fact that it is ONLY the investors who have their money at risk but that they failed to get any documentation securing their “involuntary loans.” They might have actions to recover money from the borrower, but those actions are far from secured, and certainly subject to numerous defenses. The investors are barred from enforcing either the note or the mortgage by the terms of the instruments, the terms of the PSA and the rule of law. They are left with an unsecured common law right of action to get what they can from a claim for unjust enrichment or some other type of claim that actually reflects the true facts of the original transaction in which the borrower did receive a loan, but not from anyone represented at the loan closing.

Now we have the Cashmere case. The only assumption that the Court seems to get wrong is that the investors were trust beneficiaries because the court was assuming that the Trust received the proceeds of sale of the bonds. This does not appear to be the case. But the case also explains why the investors wanted to take the position that they were trust beneficiaries in order to get the tax treatment they thought they were getting. So here we have the victims and perpetrators of the fraud taking the same side because of potentially catastrophic results in tax treatment — potentially treating principal payments as ordinary income. That would reduce the return on investment below zero. They lost.

http://stopforeclosurefraud.com/wp-content/uploads/2014/09/Cashmere-v-Dept-of-Revenue.pdf

I have changed fonts to emphasize certain portion of the following excerpts from the Case decision:

“Cashmere’s investments merely gave Cashmere the right to receive specific cash flows generated by the assets of the trust at specific times. But if the REMIC trustee failed to pay Cashmere according to the terms of the investment, Cashmere had no right to sell the mortgage loans or the residential property or any other asset of the trust to satisfy this obligation. Cf. Dep’t of Revenue v. Sec. Pac. Bank of Wash. Nat’/ Ass’n, 109 Wn. App. 795, 808, 38 P.3d 354 (2002) (deduction allowed because mortgage companies transferred ownership of loans to taxpayer who could sell the oans in event of default). Cashmere’s only recourse would be to sue the trustee for performance of the obligation or attempt to replace the trustee. The trustee’s successor would then take legal title to the underlying securities or other assets of the related trust. At no time could Cashmere take control of trust assets and reduce them to cash to satisfy a debt obligation. Thus, we hold that under the plain language of the statute, Cashmere’s investments in REMICs are not primarily secured by mortgages or deeds of trust.
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“Cashmere argues that the investments are secure because the trustee is obligated to protect the investors’ interests and the trustee has the right to foreclose. But, this is not always the case. The underlying mortgages back all of the tranches, and a trustee must balance competing interests between investors of different tranches. Thus, a default in one tranche does not automatically give the holders of that tranche a right to force foreclosure. We hold that if the terms of the trust do not give beneficiaries an investment secured by trust assets, the trustee’s fiduciary obligations do not transform the investment into a secured investment.

“In a 1990 determination, DOR explained why interest earned from investments in REMICs does not qualify for the mortgage tax deduction. see Wash. Dep’t of Revenue, Determination No. 90-288, 10 Wash. Tax Dec. 314 (1990). A savings and loan association sought a refund of B&O taxes assessed on interest earned from investments in REMICs. The taxpayer argued that because interest received from investments in pass-through securities is deductible, interest received on REMICs
should be too. DOR rejected the deduction, explaining that with pass-through securities, the issuer holds the mortgages in trust for the investor. In the event of individual default, the issuer, as trustee, will foreclose on the property to satisfy the terms of the loan. In other words, the right to foreclose is directly related to homeowner defaults-in the event of default, the trustee can foreclose and the proceeds from foreclosure flow to investors who have a beneficial ownership interest in the underlying mortgage. Thus, investments in pass-through securities are “primarily secured by” first mortgages.

“By contrast, with REMICs, a trustee’s default may or may not coincide with an individual homeowner default. So, there may be no right of foreclosure in the event a trustee fails to make a payment. And if a trustee can and does foreclose, proceeds from the sale do not necessarily go to the investors. Foreclosure does not affect the trustee’s obligations vis-a-vis the investor. Indeed, the Washington Mutual REMIC here contains a commonly used form of guaranty: “For any month, if the master servicer receives a payment on a mortgage loan that is less than the full scheduled payment or if no payment is received at all, the master servicer will advance its own funds to cover the shortfall.” “The master servicer will not be required to make advances if it determines that those advances will not be recoverable” in the future. At foreclosure or liquidation, any proceeds will go “first to the servicer to pay back any advances it might have made in the past.” Similarly, agency REMICs, like the Fannie Mae REMIC Trust 2000-38, guarantee payments even if mortgage borrowers default, regardless of whether the issuer expects to recover those payments. Moreover, the assets held in a REMIC trust are often MBSs, not mortgages.

“So, if the trustee defaults, the investors may require the trustee to sell the MBS, but the investor cannot compel foreclosure of individual properties. DOR also noted that it has consistently allowed the owners of a qualifying mortgage to claim the deduction in RCW 82.04.4292. But the taxpayer who invests in REMICs does not have any ownership interest in the MBSs placed in trust as collateral, much less any ownership interest in the mortgage themselves. By contrast, a pass-through security represents a beneficial ownership of a fractional undivided interest in a pool of first lien residential mortgage loans. Thus, DOR concluded that while investments in pass-through securities qualify for the tax deduction, investments in REMICs do not. We should defer to DOR’s interpretation because it comports with the plain meaning of the statute.

“Moreover, this case is factually distinct. Borrowers making the payments that eventually end up in Cashmere’s REMIC investments do not pay Cashmere, nor do they borrow money from Cashmere. The borrowers do not owe Cashmere for use of borrowed money, and they do not have any existing contracts with Cashmere. Unlike HomeStreet, Cashmere did not have an ongoing and enforceable relationship with borrowers and security for payments did not rest directly on borrowers’ promises to repay the loans. Indeed, REMIC investors are far removed from the underlying mortgages. Interest received from investments in REMICs is often repackaged several times and no longer resembles payments that homeowners are making on their mortgages.

“We affirm the Court of Appeals and hold that Cashmere’s REMIC investments are not “primarily secured by” first mortgages or deeds of trust on nontransient residential real properties. Cashmere has not shown that REMICs are secured-only that the underlying loans are primarily secured by first mortgages or deeds of trust. Although these investments gave Cashmere the right to receive specific cash flows generated by first mortgage loans, the borrowers on the original loans had no obligation to pay Cashmere. Relatedly, Cashmere has no direct or indirect legal recourse to the underlying mortgages as security for the investment. The mere fact that the trustee may be able to foreclose on behalf of trust beneficiaries does not mean the investment is “primarily secured” by first mortgages or deeds of trust.

Editor’s Note: The one thing that makes this case even more problematic is that it does not appear that the Trust ever paid for the acquisition or origination of loans. THAT implies that the Trust didn’t have the money to do so. Because the business of the trust was the acquisition or origination of loans. If the Trust didn’t have the money, THAT implies the Trust didn’t receive the proceeds of sale from their issuance of MBS. And THAT implies that the investors are not Trust beneficiaries in any substantive sense because even though the bonds were issued in the name of the securities broker as street name nominee (non objecting status) for the benefit of the investors, the bonds were issued in a transaction that was never completed.

Thus the investors become simply involuntary direct lenders through a conduit system to which they never agreed. The broker dealer controls all aspects of the actual money transfers and claims the amounts left over as fees or profits from proprietary trading. And THAT means that there is no valid mortgage because the Trust got an assignment without consideration, the Trustee has no interest in the mortgage and the investors who WERE the original source of funds were never given the protection they thought they were getting when they advanced the money. So the “lenders” (investors) knew nothing about the loan closing and neither did the borrower. The mortgage is not enforceable by the named “originator” because they were not the lender and they did not close as representative of the lenders.

There is no party who can enforce an unenforceable contract, which is what the mortgage is here. And the note is similarly defective — although if the note gets into the hands of a party who DID PAY value in good faith without knowledge of the borrower’s defenses and DID GET DELIVERY and ACCEPT DELIVERY of the loans then the note would be enforceable even if the mortgage is not. The borrower’s remedy would be to sue the people who put him into those loans, not the holder who is suing on the note because the legislature adopted the UCC and Article 3 says the risk of loss falls on the borrower even if there were defenses to the loan. The lack of consideration might be problematic but the likelihood is that the legislative imperative would be followed — allowing the holder in due course to collect from the borrower even in the absence of a loan by the so-called “originator.”

Powers of Attorney — New Documents Magically Appear

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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BONY/Mellon is among those who are attempting to use a Power of Attorney (POA) that they say proves their ownership of the note and mortgage. In No way does it prove ownership. But it almost forces the reader to assume ownership. But it is not entitled to a presumption of any kind. This is a document prepared for use in litigation and in no way is part of normal business records. They should be required to prove every word and every exhibit. The ONLY thing that would prove ownership is proof of payment. If they owned it they would be claiming HDC status. Not only doesn’t it PROVE ownership, it doesn’t even recite or warrant ownership, indemnification etc. It is a crazy document in substance but facially appealing even though it doesn’t really say anything.

The entire POA is hearsay, lacks foundation, and is irrelevant without the proper foundation be laid by the proponent of the document. I do not think it can be introduced as a business records exception since such documents are not normally created in the ordinary course of business especially with such wide sweeping powers that make no sense — unless you recognize that they are dealing with worthless paper that they are trying desperately to make valuable.

They should have given you a copy of the settlement agreement referred to in the POA and they should have identified the original PSA that is referred to in the settlement agreement. Those are the foundation documents because the POA says that the terms used are defined in the PSA, Settlement agreement or both. I want all documents that are incorporated by reference in the POA.

If you have asked whether the Trust ever paid for your loan, I would like to see their answer.

If CWALT, Inc. or CWABS, Inc., or CWMBS, Inc is anywhere in your chain of title or anywhere else mentioned in any alleged origination or transfer of your loan, I assume you asked for those and I would like to see them too.

The PSA requires that the Trust pay for and receive the loan documents by way of the depositor and custodian. The Trustee never takes possession of the loan documents. But more than that it is important to distinguish between the loan documents and the debt. If there is no debt between you and the originator (which means that the originator named on the note and mortgage never advanced you any money for the loan) then note, which is only evidence of the debt and allegedly containing the terms of repayment is only evidence of the debt — which we know does not exist if they never answered your requests for proof of payment, wire transfer or canceled check.

If you have been reading my posts the last couple of weeks you will see what I am talking about.

The POA does not warrant or even recite that YOUR loan or anything resembling control or ownership of YOUR LOAN is or was ever owned by BONY/Mellon or the alleged trust. It is a classic case of misdirection. By executing a long and very important-looking document they want the judge to presume that the recitations are true and that the unrecited assumptions are also true. None of that is correct. The reference to the PSA only shows intent to acquire loans but has no reference or exhibit identifying your loan. And even if there was such a reference or exhibit it would be fabricated and false — there being obvious evidence that they did not pay for it or any other loan.

The evidence that they did not pay consists of a lot of things but once piece of logic is irrefutable — if they were a holder in due course you would be left with no defenses. If they are not a holder in due course then they had no right to collect money from you and you might sue to get your payments back with interest, attorney fees and possibly punitive damages unless they turned over all your money to the real creditors — but that would require them to identify your real creditors (the investors who thought they were buying mortgage bonds but whose money was never given to the Trust but was instead used privately by the securities broker that did the underwriting on the bond offering).

And the main logical point for an assumption is that if they were a holder in due course they would have said so and you would be fighting with an empty gun except for predatory and improper lending practices at the loan closing which cannot be brought against the Trust and must be directed at the mortgage broker and “originator.” They have not alleged they are a holder in course.

The elements of holder in dude course are purchase for value, delivery of the loan documents, in good faith without knowledge of the borrower’s defenses. If they had paid for the loan documents they would have been more than happy to show that they did and then claim holder in due course status. The fact that the documents were not delivered in the manner set forth in the PSA — tot he depositor and custodian — is important but not likely to swing the Judge your way. If they paid they are a holder in due course.

The trust could not possibly be attacked successfully as lacking good faith or knowing the borrower’s defenses, so two out of four elements of HDC they already have. Their claim of delivery might be dubious but is not likely to convince a judge to nullify the mortgage or prevent its enforcement. Delivery will be presumed if they show up with what appears to be the original note and mortgage. So that means 3 out of the four elements of HDC status are satisfied by the Trust. The only remaining question is whether they ever entered into a transaction in which they originated or acquired any loans and whether yours was one of them.

Since they have not alleged HDC status, they are admitting they never paid for it. That means the Trust is admitting there was no payment, which means they were not entitled to delivery or ownership of the note, mortgage, or debt.

So that means they NEVER OWNED THE DEBT OR THE LOAN DOCUMENTS. AS A HOLDER IN COURSE IT WOULD NOT MATTER IF THEY OWNED THE DEBT — THE LOAN DOCUMENTS ARE ENFORCEABLE BY A HOLDER IN DUE COURSE EVEN IF THERE IS NO DEBT. THE RISK OF LOSS TO ANY PERSON WHO SIGNS A NOTE AND MORTGAGE AND ALLOWS IT TO BE TAKEN OUT OF HIS OR HER POSSESSION IS ON THE PARTY WHO TOOK IT AND THE PARTY WHO SIGNED IT — IF THERE WAS NO CONSIDERATION, THE DOCUMENTS ARE ONLY SUCCESSFULLY ENFORCED WHERE AN INNOCENT PARTY PAYS REAL VALUE AND TAKES DELIVERY OF THE NOTE AND MORTGAGE IN GOOD FAITH WITHOUT KNOWLEDGE OF THE BORROWER’S DEFENSES.

So if they did not allege they are an HDC then they are admitting they don’t own the loan papers and admitting they don’t own the loan. Since the business of the trust was to pay for origination of loans and acquisition of loans there is only one reason they wouldn’t have paid for the loan — to wit: the trust didn’t have the money. There is only one reason the trust would not have the money — they didn’t get the proceeds of the sale of the bonds. If the trust did not get the proceeds of sale of the bonds, then the trust was completely ignored in actual conduct regardless of what the documents say. Which means that the documents are not relevant to the power or authority of the servicer, master servicer, trust, or even the investors as TRUST BENEFICIARIES.

It means that the investors’ money was used directly for fees of multiple people who were not disclosed in your loan closing, and some portion of which was used to fund your loan. THAT MEANS the investors have no claim as trust beneficiaries. Their only claim is as owner of the debt, not the loan documents which were made out in favor of people other than the investors. And that means that there is no basis to claim any power, authority or rights claimed through “Securitization” (dubbed “securitization fail” by Adam Levitin).

This in turn means that the investors are owners of the debt but lack any documentation with which to enforce the debt. That doesn’t mean they can’t enforce the debt, but it does mean they can’t use the loan documents. Once they prove or you admit that you did get the loan and that the money came from them, they are entitled to a money judgment on the debt — but there is no right to foreclose because the deed of trust, like a mortgage, is made out to another party and the investors were never included in the chain of title because the intermediaries were  making money keeping it from the investors. More importantly the “other party” had no risk, made no money advance and was otherwise simply providing an illegal service to disguise a table funded loan that is “predatory per se” as per REG Z.

And THAT is why the originator received no money from successors in most cases — they didn’t ask for any money because the loan had cost them nothing and they received a fee for their services.

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