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Did you take a loan? Did you sign that note?
Editor’s Comment: The question from the bench is always the same and either pro se litigant or the attorney is too skittish to take a stand. The question is something like “Did you take a loan?” And the answer could be “Judge I have taken lots of loans, but I never took any money from these people or any of the their predecessors. I deny the loan, I deny the debt, I deny the default. I deny the note, I deny the mortgage. I deny their right to collection or enforcement of the note or mortgage because I never did any business with them.” If they want to plead and prove otherwise, let them. [This of course ONLY applies to loans that are subject to claims of securitization, which we all know now were routinely ignored by the investment banker just as the assignments into the non-existent pools were routinely ignored, just as the attempt to get a foreclosure judge to rule that an investor without knowing anything about these proceedings is about to get stuck with a bad loan in which there is no value, improperly originated, and never properly assigned or delivered years after the 90 day cutoff period expired.]
The other questions is “Is that your signature on the note? Is that your signature on the mortgage (or Deed of Trust)?” And your answer could be “I don’t know which documents have my actual signature or which ones have been Photoshopped. Therefore I deny and demand they prove that this was my signature on that document. I do know that if they procured my signature on any document it was by trickery, deceit and fraud.” If they want to plead and prove otherwise, let them. But all you are going to see is paper. You will never see a financial transaction between me and them or any of their affiliates or predecessors because no such transaction ever took place.
If the Judge or anyone else asks you anymore questions, and frankly if you are bold enough, if you are asked any questions, your answer could be, “Judge, this is not an evidentiary hearing. If an allegation is being made against me I have a right to know who is making the allegation and what they are accusing me of doing. Then you have a right to your answers once I have examined the books of records of all servicers — not just the ones that they want to show you, and all depositories wherein documents were supposedly stored. You will not find any record of any kind in which I entered into a financial transaction, loan or otherwise, with these people or any of their predecessors.
CONTRIBUTION: Many payments were made to the creditor that advanced you money. You must remember that they did not advance you money through the securitization chain but instead advanced you money directly from an escrow account, a Superfund, that commingled the money of all investors without regard to REMICS, trusts or any of those niceties and the people to whom the note was made payable and for which the mortgage secured an interest in your property never consummated any financial transaction with you. If they made a payment to the creditors (investors in parternship with each other at the time of the funding) THEN the money received by the agents of the those investors should have been credited against the money owed to those creditors. And part of that allocation should have been applied against the balance due on your loan, meaning your loan balance, unsecured, would be correspondingly reduced or eliminated. End of mortgage, no matter how you approach it. The obligation that originally gave rise to the supposedly secured debt has been satisfied either in part or more likely entirely.
That leaves a new debt replacing the old debt, which is undocumented and unsecured — and a creditor with an action for contribution because they were obviously a co-obligor. If they say they are not the co-obligor then they are saying the PSA doesn’t apply. If the PSA doesn’t apply then they are not the authorized the servicer or whoever they are pretending to be because there was not actual securitization process.
I’ve been writing about this for years specifically in relation to payments by the servicer and assignments to the servicer or to the REMIC which would in fact extinguish the old debt and originate a new obligation that was neither memorialized by a promissory note from the borrower (because it had been extinguished) nor of course a mortgage or Deed of Trust that secured the extinguished note.
The new obligation may arise between the original borrower and the Assignee or between the original borrower and the payee (where the servicer continued to make payments) but only if the contributor could establish that portion of the claim to which they were entitled. In other words, an assignment of the entire obligation to a co-obligor would extinguish the entire obligation. The partial payment by a co-obligor would extinguish the old obligation only to the extent of the payment.
The problem with getting traction on this is obvious. It is a frontal assault on the obligation itself leaving the original creditor (if there ever was one) without a claim or with a partial claim, in the event of a partial payment giving rise to an action for contribution. This is only a problem though to the extent that you are asking the court to extinguish an existing obligation between you and the actual creditor — and the only way you can know that is by getting full and complete discovery from the Master Servicer and the Creditor. It’s only a problem if it looks like you are trying to get out of the debt altogether instead of just attacking the the fact that the new debt could not possibly be recorded.
Complicating issues include establishment of a party as a co-obligor and perhaps even more so, the fact that the promissory note does not actually describe the financial transaction, as we have discussed. Since the originator of the note did not actually consummate a financial transaction with the borrower, the note is either void or voidable for lack of consideration.
Further complications arise when the borrower makes payment on the note thus “ratifying” the terms expressed in the note. But this only occurs because the borrower was the only one at the closing table who did not know the payee, lender and beneficiary were all naked nominees who neither control nor their finances involved in the financial transaction between the borrower and the actual source of funds.
If the would-be forecloser wants to rely on the PSA then they must accept the WHOLE PSA, which means that a loan in default does not qualify to be assigned, even if in proper form and the trustee or manager of the “pool” has no authority to accept it. If the Judge in foreclosure court says the trustee or manager MUST accept it then he is adjudicating the rights of investors who explicitly agreed to advance money for performing loans that would be put in a pool within 90 days to satisfy the requirements of the Internal Revenue Code and the provisions of the PSA which merely recite the REMIC provisions of the IRC. They can’t have it both ways. They can’t say that those provisions don’t apply to the assignment and say that the OTHER PSA provisions giving them the right to service the loans and manage the portfolio also apply.
The fact that the borrower made a payment to a servicer under directions from a representative within the false securitization scheme should not give rise to an obligation to continue such payments; this is because the obligation arose with the actual financial transaction that was consummated between the borrower and the source of funds. The source of funds was a stranger to the documentation that the borrower signed. Since the actual handling of the money involved an escrow Superfund (or at least it appears that this is the case) we do not know if the “lender” is or could be identified from the larger group of investors whose money was intermingled and combined into a single escrow account.
The problem with the relationship of loans in “the pool” is that there doesn’t appear to have been a pool in which such a relationship could exist. The co-mingling of funds in the accounts held by the investment banker might make all of the investors general partners in a common law general partnership. We have found NO EVIDENCE OF SEPARATE ACCOUNTS for the individual REMICS. And the investment banker, sub-servicer and Master servicer are fighting us tooth and nail in discovery requests to get that information. IF they had a legitimate claim, they would have produced it as exhibits to their own pleading. Instead they are trying to hide those facts and including the flow of funds starting from before the actual origination of the loan. Too many cases, we see Ginny or Fannie report ownership of a loan that has not even closed in the false sense , much less in the true sense where the borrower and lender are properly disclosed and the terms of repayment are known by both sides of the transaction.
However, this wouldn’t be the first time that we were correct and the judge did not follow the law. It is for that reason that I have largely abandoned the argument about contribution and I have now started writing about the fact that if the assignment of the note was in fact an assignment of the obligation, the assignment was merely one element out of three required for a valid contract (offer, acceptance, consideration). And while many people have now picked up on the fact that the trustee of the pool did not have the right to accept a loan which has been declared in default years after the cut off period expired, I have been going a little further suggesting that the state and federal judges are making decisions adverse to the investors by forcing them to accept a loan that they obviously wanted to avoid, and the acceptance of which would violate the terms under which they loaned the money.
This is a tricky area to navigate because on the one hand you’re saying that the loan never made it into the pool but on the other you’re saying maybe it did get into the pool but if the only vehicle by which it made entry into the pool was a judicial order declaring in effect that the loan became part of the pool and therefore the entity representing the pool had a right to foreclosure, that order would constitute a judicial determination of the rights of investors who did not receive any notice of the proceeding nor any opportunity to be represented or heard before such an order could be entered. These are difficult waters to navigate.
Considerable thought should be given as to which strategy will be used. There is an old adage that basically says you have approximately 30 seconds to get the judge’s attention (at most) and perhaps 5 minutes to make your point (at most). Thus if you’re going to proceed along any of the tracks stated or discussed in this email you must be prepared to be limited to a ruling on that track alone. If you have 20 other tracks that you think have validity, then make sure they are in the record by way of pleadings, affidavits and a memorandum of law before the hearing in which you raise one of the above defenses. It is a good idea to bring up defenses for which the other side is unprepared and which the judge has not yet heard. It diminishes the appearance of making a decision that will affect 5 million other mortgages. Ultimately though the decision is between you and your lawyer.
This article was prompted by a very reasoned argument presented by CA Attorney Dan Hanacek:
Even In the Event the Court Finds the “Assignment” Valid, the Assigning of the Note to a Co-Obligor Makes it Functus Officio
“It has long been established in California that the assignment of a joint and several debt to one of the co-obligors extinguishes that debt.” (Gordon v. Wansey (1862) 21 Cal. 77, 79.) “The assignment amounts to payment and consequently the evidence of that debt, i.e., the note or judgment, becomes functus officio (of no further effect)”-and precludes any further action on the note itself. Any action would not be on the note itself, but rather one for contribution. (Id.; Quality Wash Group V, Ltd. V. Hallak (1996) 50 Cal.App.4th 1687, 1700; Civ. Code §1432.) In the instant case, even if the alleged assignment is seen to be valid, then a co-obligor was assigned the note and the debt has been extinguished.
Note: the trustee of the securitized trust is a co-obligor.
Note: Fannie Mae, Freddie Mac and Ginnie Mae are co-obligors.
Note: the servicer is almost always a co-obligor.
Questions for Neil:
Have they extinguished this debt by endorsing it and/or assigning it to the transaction parties?
Does this only apply in CA? I cannot believe that this would be the case.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: co-obligor, commingled money, contract, creditors, escrow superfund, evidentiary hearing, judge, Master Servicer, naked nominees, pool, PSA, REMICS, securitization, signature, subservicer | 37 Comments »