Courts and lawyers are continually ignoring the obvious. By zeroing in on the NOTE, they are ignoring the documents that allow the person in possession of the note to be in court. That results in elimination of critical elements of a prima facie case in which the Defendant borrower lacks the superior knowledge and resources of the Plaintiff and its co-venturers that would show the truth about his loan ownership and balance.
Chronologically the document trail starts with the securitization documents. Without the securitization documents there is no privity or nexus between the borrowers and the lenders. Neither one of them signed the deal that the other signed. Without the Assignment and Assumption Agreement, the Prospectus and the Pooling And Servicing Agreement, the trust does not exist, the servicer has no powers, the trustee has no powers, and there is no right of representation or agency between any of those parties as it relates to either the lender investors or the homeowner borrowers.
The Assignment and Assumption Agreement between the originator and the aggregator sets forth all the rules and actions preceding, during and after the loan”closing”, including the underwriting by parties other than the originator and the ownership of the loan by parties other than the originator. It is a contract to violate public policy, the Federal Truth in Lending Law prohibiting table funded loans designed to withhold disclosure, and usually state deceptive and predatory lending statutes.
The Assignment and Assumption Agreement was an agreement to commit illegal acts that were in fact committed and which strictly governed the conduct of the originator, the closing agent, the document processing, the delivery of documents, the due diligence, the underwriting, the approval by parties other than the originator and the risk of loss on parties other than the originator. The Assignment and Assumption Agreement is essential to the Court’s knowledge of the intent and reality of the closing, intentionally withheld from the borrower at closing. It cannot be anything other than relevant in any action sought to enforce the documents produced at a loan closing that was conducted in strict adherence to the illegal Assignment and Assumption Agreement.
The other closing is with the investors who were accepting a proposed transaction to lend money for the origination or acquisition of loans through a trust. Those documents and records (Prospectus, Pooling and Servicing Agreement, Distribution reports, etc) provide for the creation and governance of the trust, the appointment of a trustee and the powers of the trustee, and the appointment and the powers of the Master Servicer and subservicers. Those documents also provide for there requirements of reporting and record keeping, including the physical location and custody of actual loan documents. Without those documents, there is no power or authority for the trustee, the trust, the Master Servicer, the subservicer, the Depository, the Securities Administrator the purchase of insurance, credit default swap trading, funding the origination or acquisition of loans, or collection and enforcement of loan documents. without those documents the Court cannot know what records should be kept and thus what records need to be produced to show the status of the obligation in the books and records of the creditor — regardless of whether the loan was actually securitized or just claimed to be securitized.
Procedure and UCC
In Judicial States, the Plaintiff is bringing suit alleging a default by the Defendant on a promissory note and for enforcement of a mortgage. The name of the payee on the note is different from the name of the Plaintiff in the lawsuit. The name of the mortgagee is different from the the name of the Plaintiff. The suit is bought by (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised.
In Non-Judicial States, the name of the “new” beneficiary is different from the name of the payee on the promissory note and the name of the beneficiary on the Deed of Trust. The “new beneficiary” files a “Substitution of Trustee”, the Trustee sends a notice of default, notice of sale and notice of acceleration based upon “representations” from the “new beneficiary.” This process allows a stranger to the transaction to assert its position outside of a court of law that it is the new beneficiary and even allows the new beneficiary to name a company as the “new trustee” in the Notice of Substitution of Trustee. The foreclosure is initiated by the new trustee on the deed of trust on behalf of (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised. In these cases it is the burden of the borrower to timely file a motion for Temporary Injunction to stop the trustee’s sale of the property.
By failing to assert with clarity the identity of the creditor on whose behalf they are “holding” the note and mortgage (or deed of trust) and failing to assert the presence of the actual creditor (holder in due course) the parties initiating foreclosure have (a) failed to assert the essential elements to enforce a note and mortgage and (b) have failed to establish a prima facie case in which the burden should shift to the borrowers to defend. The present practice of challenging the defenses first is improper and contrary to the requirements of due process and the rules of civil procedure. If the Plaintiff in Judicial states or beneficiary in non-judicial states is unable to sustain their burden of proof for a prima facie case, then Judgment should be entered for the alleged borrower.
Virtually all loans initiated or originated or acquired between 1996 and the present are subject to claims of securitization, which is the first reason why the securitization documents are relevant and must be introduced as evidence along with proof of compliance with those documents because they are almost all governed by New York State law governing common law trusts. Any act not permitted by the trust instrument (Pooling and Servicing Agreement) is void, which means for purposes of the case narrative, the act or event never occurred.
If the Plaintiff or beneficiary is alleging that it is a holder and not alleging it is a holder in due course then there is a 96% probability that the creditor is either a trust or a group of investors who paid money to a broker dealer in an IPO where securities were issued by the trust and the investors money should have been paid to the trust. In all events, the assertion of “holder” status instead of “Holder in Due Course” means by definition that one of two things is true: (1) there is no holder in due course or (2) there is a Holder in Due Course and the party initiating the foreclosure and collection proceedings is asserting authority to represent the holder in due course. In all events, the representation of holder rather than holder in due course is an admission that the party initiating the foreclosure proceeding is there in a representative capacity.
THE FORECLOSER HAS NO RIGHT TO BE IN COURT WITHOUT THE SECURITIZATION DOCUMENTS:
If the proceeding is brought by a named trust, then the existence of the trust, the authority of the trust, the manner in which the trust may acquire assets, and the authority of the servicer, Master servicer, trustee of the trust, depository, securities administrator and others all derive from the trust instrument. If there is a claim of securitization and the provisions of the securitization documents were not followed then in virtually all foreclosure cases the wrong parties are initiating the foreclosures — because the money of the investors went direct to the origination and purchase of loans rather than through the SPV Trust which for tax purposes was designed to be a REMIC pass through trust.
If the foreclosing party identifies itself as a servicer and as a holder it is admitting that it is there in a representative capacity. Their prima facie case therefore includes the documents and events in which acquired the right to represent the actual creditor. Those are only the securitization documents.
If the foreclosing party identifies itself as a holder but does not mention that it is a servicer, the same rules apply — the right to be there is a representative capacity must derive from some written instrument, which in virtually cases is the Pooling and Servicing Agreement.
Representations that the loan is a portfolio loan not subject to securitization are generally untrue. In a true portfolio loan the UCC would not apply but the rules governing a holder in due course can be used as guidance for the alleged transaction. The “lender” must show that it actually funded the loan, in good faith (in accordance with the requirements of Federal and State law governing lending) and without knowledge of the borrower’s defenses. They would be able to show their underwriting committee notes, reports and correspondence, the verification of the loan, the property value, the ability of the borrower to repay and all other national standards for underwriting and appraisals. These are only absent when there is no risk of loss on the alleged loan, because if the borrower doesn’t pay, the money was never destined to be received by the originator anyway.
In addition, the Prospectus offering to the investors combined with the Pooling and Servicing Agreement constitute the “indenture” describing the manner in which the investment will be returned to the investors, including interest, insurance proceeds, proceeds of credit default swaps, government and non government guarantees, etc. This specifies the duties and records that must be kept, where they must be kept and how the investors will receive distributions from the servicer. Proof of the balance shown by investors is the only relevant proof of a dealt and the principal balance due, applicable interest due, etc. The provisions of the contract between the creditors and the trust govern the amount and manner of distributions to the creditor. Thus it is only be reference to the creditors’ records that a prima facie case for default and the right to accelerate can be made. The servicer records do not include third party payments but do include servicer advances. If records of servicer advances are not shown in court, and the provision for servicer advances is in the prospectus and/or pooling and servicing agreement, then the Court is unable to know the balance and whether any default occurred as a result of the borrower ceasing to make payments to the servicer.
In short, it is the prospectus and pooling and servicing agreement that provide the framework for determining whether the creditors got paid as per their expectations pursuant to their contract with the Trust. It is only by reference to these documents that the distribution reports to the investors can be used as partial evidence of the existence of a default or “credit event.” Representations that the borrower did not pay the servicer are not conclusive as to the existence of a default. Only the records of the creditor, who by virtue of its relationships with multiple co-obligors, can establish that payments due were paid to the creditor. Servicer records are relevant as to whether the servicer received payments, but not relevant as to whether the creditor received those payments directly or indirectly. The servicer and creditors’ records establish servicer advance payments, which if made, nullify the creditor default. The creditors’ records establish the amount of principal or interest due after deductions from receipt of third party payments (insurance, credit default swaps, guarantees, loss sharing etc.).
For more information call 954-495-9867 or 520-405-1688.
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