Quiet Title Revisited: Not Quite a Dead End

Void means that the instrument meant nothing when it was filed, not that it is unenforceable now.

 

I know how hard it is to let go of something that you really want to believe in. But for practical reasons I consider it unwise to continue on the QT path until we can find a way to get rid of the void assignment. That unto itself might a form of quiet title action and it is far easier to do. The allegation need only be that neither the assignor nor the assignee (a) had any right, justification or excuse to claim an interest in the recorded mortgage and (b) neither one was ever party to a completed transaction in which either of them had paid value for any interest in the recorded mortgage. Hence the assignment is void and should be removed from the chain of title reflected in the county records. So that takes care of one of several problems and the attack does not seek to remove the mortgage — yet.

 

Quiet title is a very limited remedy. In nearly all cases if the facts are contested it almost automatically means that there is no quiet tile relief available. It is meant to remove wild deeds or any other void (not voidable) instrument. Void means that the instrument meant nothing when it was filed, not that it is unenforceable now.

I contributed to the mystery of quiet title because it was apparent that the mortgage was void because it never named the true lender. In fact the existence and identity of the true source of funds for the transaction was intentionally withheld from the borrower leaving the mortgage with only one party instead of two.

 

The problem many courts are having with this is that the mortgage might still be subject to reformation that would insert the correct name of the actual lender (theoretically, potentially reformation). The fact that there is no such creditor whose name can be inserted does not make the mortgage void. It makes it voidable. Actually proving that there is no such creditor won’t be easy since only the banks have the information that shows that.

 

If there are any future events that could revive the mortgage deed, then quiet title can’t work. Add to that the fact that judges are not treating these attacks seriously and routinely ruling for the banks and you have a what appears to be a dead end.

 

All that said, there ARE causes of action that could attack the void assignment and the voidable mortgage in which the court could theoretically declare that in the absence of information sought from the defendants, who appear to be the only potential claimants, the mortgage is THEN declared void by court order, THEN a second count in quiet title would be in order. I cannot emphasize enough the fact that Judges are going to be very resistant to this but I think that appellate courts are starting to understand what happened with false claims of securitization.

 

Essentially, the Court must state that:

  1. The mortgage failed to name the correct party as lender.
  2. That failure makes the mortgage voidable.
  3. Despite publication and notice, there are no parties who could answer to the description of the creditor whose name should have been on the mortgage.
  4. The mortgage is therefore void
  5. Court declares title to be vested in the name of Smith and Jones without any encumbrance arising out of the mortgage recorded at Page 123 Book 456 of the public records of XXXX County, Florida.
 This of course directly challenges the judicial notion that once the homeowner receives money, it is a loan, it is enforceable and it doesn’t matter who comes into court to enforce it. To say that this judicial “law” opened the door to mayhem and moral hazard would be an understatement. Using the opinions written by trial judges, appellate judges and even Supreme Court justices, people who like to “leverage the system” have seized on this obvious opening to steal receivables from the rightful recipient — with no negative consequences. They write a letter that appears on its face to be correct and valid. According to current practices this raises the presumption that the contents of the letter are true.
 Hence the self-serving letter creates the legal presumption that the writer is authorized to tell the debtor that the writer is now the owner of the debt and to direct payments to the “new owner.” This isn’t speculation. Starting in California this business plan is spreading across the country. By the time the rightful owner of the debt wakes up the Newco Debt Servicing company has collected or settled the account.
Since the presumption is raised that the thief writing the letter is authorized, the real party in interest cannot beat the defense of payment by a debtor who thought they were doing the right thing. Reasonable reliance by the borrower is presumed since the authority and the validity of the letter was presumed. And that is not just a description of some dirty rag tag gangsters; it is a verifiable description of what the banks have been doing for years with mortgage debt, credit card debt, student loan debt and every other kind of debt imaginable.
By the time the investors wake up and find out their money was not used to fund a trust or real business entity, their money is gone and they are at the mercy of the big time banks who will offer settlements of claims that should have resulted in jail time for the bankers. Instead we have literally authorized small time crooks to emulate the behavior of the banks thus throwing the marketplace into further chaos.
So if you start off knowing that the banks can never come up with the name and contact information of a creditor, then you begin to see how there are some attacks on the position of banks that could have enormous traction even though on their face those strategies look like losers.

Yale Law Review: “In Defense of “Free Houses”

MEGAN WACHSPRESS, JESSIE AGATSTEIN & CHRISTIAN MOTT published an article that takes dead aim at the “free house” controversy. In the Yale Law Review they come to the conclusion that (1) the house isn’t free to any homeowner even if they escape the mortgage and (2) the projected social cost of  market values are wrong. But probably the most stinging criticism of the judicial system is that judges are abandoning the rule of law for ad hoc rulings whose only purpose is to avoid a result the judge doesn’t like.

Unfortunately, the article does not fully address the issue of why the banks are failing to prove what is ordinarily a slam dunk case. The authors seem to assume that the debt is legitimate and that it is mainly a paperwork problem. I would add my usual comment: if the banks simply had continued with the standard procedures they would not have had any paperwork problems no matter how many times the loan was sold. The greater evil that is not addressed in case decisions and law review articles is that this was all part of fraudulent scheme and THAT is why the banks had to resort to more fraud (in documentation).

We should remember that banks basically drafted the statutes and are the source of all paperwork on consumer loans, especially mortgage loans. For hundreds of years they knew how to do it, knew how to keep it and rarely misplaced anything. It strains belief to think that suddenly the banks  forgot what took hundreds of years to develop. The more insidious reason is what is feared to be the nuclear option — that the mortgages, notes and loan contracts were all an illusion, even if the money was real.

In the end, for reasons other than those expressed on these pages, the authors come to the same conclusion that I did — the “free house” is going to the banks every time a foreclosure is granted.

Here are some quotes from their article that I think are self-explanatory.

When addressing faulty foreclosures, courts are afraid to bar future attempts to foreclose—that is, afraid of giving borrowers “free houses.” While courts rarely explain the reasoning behind this aversion, it seems to arise from a reflexive belief that such an outcome would be unjust. Courts are therefore quick to sidestep well-established principles of res judicata in favor of ad hoc measures meant to protect banks against the specter of “free houses.” [e.s.]

This Comment argues that this approach is misguided; courts should issue final judgments in favor of homeowners in cases where banks fail to prove the elements required for foreclosure. Furthermore, these judgments should have res judicata effect—thus giving homeowners “free houses.” This approach has several benefits: it is consistent with longstanding res judicata principles in other forms of civil litigation, it provides a necessary market-correcting incentive to promote greater responsibility among foreclosure litigators, and it alleviates the tremendous costs of successive foreclosure proceedings.

In a foreclosure suit, the bank must generally prove the following: (1) the homeowner has signed both the note (the underlying loan) and the mortgage assigning the house as collateral for that note; (2) the bank owns the note and mortgage; (3) the homeowner still owes a debt to the bank; (4) the homeowner is behind on that debt; and (5) the bank has accelerated that remaining debt in accordance with the terms of the note itself. When a bank fails to prove these elements, a judge is legally required to rule in favor of the homeowner.

Recently, courts have been inundated with suits where homeowners question the bank’s ability to prove the second element. Litigation over “proof- of-ownership” issues in foreclosures is a growing nationwide problem; sampling suggests a ten-fold increase between the periods immediately preceding and following the 2007 collapse of the housing market.

To demonstrate ownership without expending more resources than pooling and servicing agreements allotted, bank employees signed hundreds of thousands of affidavits asserting that they had seen and could attest to the contents of original documents demonstrating ownership of the underlying mortgage. Although such affidavits were a legally acceptable means of demonstrating such ownership, a significant number of them were actually fraudulent.

…ethical transgressions have affected hundreds of thousands of foreclosures.

Judge Schack, a trial judge sitting in the New York Supreme Court for Kings County, has repeatedly sanctioned law firms for bringing improper foreclosure suits when he has independently discovered the inadequacy of the plaintiffs’ evidence as to defendants’ indebtedness or plaintiffs’ ownership of the note. See, e.g., Argent Mortg. Co. v. Maitland, 958 N.Y.S.2d 306 (Sup. Ct. 2010); Wells Fargo Bank v. Hunte, 910 N.Y.S.2d 409 (Sup. Ct. 2010); NetBank v. Vaughn, 841 N.Y.S.2d 827 (Sup. Ct. 2007).

By focusing on the immediate consequence of a ruling for homeowners, the courts ignore perverse incentives created by allowing banks to continue to externalize the costs of their mistakes.

…one approach—that taken by the Florida and Maine Supreme Courts—is to bend the rules of res judicata to avoid a windfall for homeowners. This approach creates few benefits and significant economic problems. In this Part, we argue that further subsidizing banks’ poor litigation practices results in deadweight loss by contributing to negative public-health outcomes and by disincentivizing banks from improving their servicing and litigation techniques. We also explain how granting winning homeowners “free houses” will not negatively affect the mortgage market.

…broader social subsidization of irresponsible [bank] behavior.

…prolonged foreclosure proceedings create negative social externalities, depressing surrounding homes’ resale value, reducing local governments’ tax revenues, and increasing criminal activity.44 Foreclosures also appear to have significant effects on community members’ physical and mental health, and correlate with increased rates of depression, anxiety, suicide, cardiovascular disease, and emergency-care treatment.

…although judges have expressed concern about homeowner windfalls, the alternative creates a windfall for banks that cut corners in managing and prosecuting foreclosures. The risk and costs of losing foreclosures should already be internalized in the price of current mortgages. Empirical studies suggest that greater protection for mortgagors historically corresponds to slightly higher mortgage rates among lenders. These studies indicate that lenders adjust the price of mortgages based on what they anticipate the cost, and not just the likelihood, of foreclosures will be.

 

The Money Trail: Does anyone meet the definition of a creditor?

WE HAVE REVAMPED OUR SERVICE OFFERINGS TO MEET THE REQUESTS OF LAWYERS AND HOMEOWNERS. This is not an offer for legal representation. In order to make it easier to serve you and get better results please take a moment to fill out our FREE registration form https://fs20.formsite.com/ngarfield/form271773666/index.html?1453992450583 
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THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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I speak to people across the country. As I discuss the issues that get increasingly complex, we reach areas in which there are differences of opinion which is why you need to consult with someone who is licensed in your state and who has done the heavy research (no skimming allowed). The issue is what payments should be credited to whom. And the answer really is you should be asking an accountant and a lawyer. This is why my team is reaching out to accountants and auditors to round out what is needed in cases.

The problem is that this is a grey area. Payments made to the beneficiaries of the trust were never intended to discharge the debt from the “borrower.” That’s obvious. But payments were made on account of this debt. So we go back to the law of presumptions. If the creditor receives a payment and the payment is on account of a particular debt due from a particular debtor, then it is discharged to the extent of the payment — regardless of the stated “intent” of the payor after the fact. So servicer advances definitely fall into that category. But in addition, if the entire debt has been discharged by the replacement of the obligation with another obligation from another party, then you have similar issues.

So first of all, the beneficiaries agreed to take payments from the REMIC Trust — not the “borrowers”. There is no relationship between the beneficiaries of a trust and any single “borrower” or group of “borrowers.” The REMIC Trust doesn’t pay the beneficiaries despite the paperwork to the contrary. The REMIC Trust is inactive with no assets, bank accounts, business activity etc.

It is the Master Servicer that pays the beneficiaries. And the Master Servicer makes those payments regardless of whether it has received payments from the beneficiaries. (servicer advances). The note and mortgage name a specific payee that is neither the Trust (or Trustee) nor the Master Servicer. So the first real legal question that I raised back in 2007 was the issue of who was the owner of the debt or the holder in due course?

The debt arose when the “borrower” accepted the benefits of funding that came from an unidentified source. It is presumed not to be a gift. The “borrower” has signed a note and mortgage in favor of a party that never loaned him any money — hence there is no loan contract and the signed note and mortgage should have been destroyed or released back to the “borrower.” Such a loan is table-funded and is almost certainly “predatory per se” as described in REG Z.

Since there is no privity between the “originator” and the Trust or Master Servicer the loan documents cannot be said to be useful, much less enforceable. Those documents should be considered void, not voidable, when the payee and mortgagee failed to fund the loan. The repeated transfers of the loan documents without anyone ever paying for them clearly means that the consideration at the base “closing” was absent. Hence there is no consideration at either the origination or acquisition of the loan documents. Acquisition of the loan documents does not mean acquisition of the loan. If there was no valid loan contract or there is no valid loan contract (rescission) executing endorsements, assignments and powers of attorney are meaningless.

So there is a serious question about whether there is a legal creditor involved in any of these loans. There are parties with equitable and legal claims, but not with respect to the loan documents that should have been shredded at the very beginning. All those claims are unsecured. And the foreclosures, in truth, are for the benefit of parties who have no relationship with the actual money that was used to the benefit of the alleged “borrower” who is looking more and more like a party who is not a borrower but who could be debtor if there is anyone answering to the description of “creditor.” No party in this scenario seems to answer to that description.

And THAT would explain why NO PARTY steps forward to challenge rescissions as a creditor and instead they attempt to retain their status of having apparent “Standing” and attack the rescission through arguments that require the court to interpret the TILA Rescission Statute, 15 USC §1635. But the US Supreme Court has already declared that it is the law of the land that this statute is not subject to interpretation by the courts because it is clear on its face. So such parties are seeking relief they didn’t ask for (vacating the rescission) using the void note and void mortgage as their basis for standing.

Thus without someone filing an equitable claim showing that their money is tied up in the money given to the “borrower” there does not seem to be a creditor at law.

Add that to the fact that most of the “Trusts” were resecuritized by more empty trusts and you have the original beneficiaries completely out of the picture as to any particular loan and the so-called REMIC Trust being completely out of the picture with respect to the loan or loan documents that were originated, even if they were not consummated.

BIAS IN THE COURTS: UCC and TILA REVIEW

Our legal history has many examples of enormous errors committed by the Courts that were obvious to some but justified by many. The result is usually mayhem. The cause is a bias toward some underlying fact that was untrue at the time. Some examples include
  1.  the infamous Dred Scott decision where the Supreme Court ruled that a black man is not a person within the meaning of the constitution and therefore could not sue to protect his rights because he was not a citizen by virtue of the FACT that his ancestors had been brought to America as slaves. The underlying bias was considered axiomatically true: that “negroes” were fundamentally subhuman. It took a civil war that took 500,000 casualties and a constitutional amendment to change the results of that decision. We are still dealing with lingering thoughts about whether the color of one’s skin is in any way related to our status as humans, persons and citizens.
  2. the internment of Japanese Americans during World War II. The Supreme Court upheld that decision on the basis of national security. The underlying bias was considered axiomatically true: that people of Japanese descent would have loyalty to the Empire of Japan and not the United States. People of German descent were not interred, probably because they looked more like other Americans. As the war progressed and the military realized that people of Japanese descent were resources rather than enemies, the government came to realize that acknowledging these people as citizens with civil rights was more important than the perception of a nonexistent threat to national security. Americans of Japanese descent proved invaluable in the war effort against Japan.
  3. the Citizens United decision in which the Supreme Court gave the management of corporations a “Second vote” in the court of public opinion. The underlying bias was considered axiomatically true: that entities created on paper were no less important than the rights of real people as citizens. The additional underlying bias was that corporations are better than people.
  4. the hundreds of thousands of decisions from thousands of courts that relied on the fictitious power of the court to rewrite legislation that Judge(s) didn’t like. A current perfect example was reading common law (inferior, legally speaking) precedent to override express statutory procedures for the exercise and effect of statutory rescission under the Federal Truth in Lending Act. Over many years and many courts at the trial and appellate level the Judges didn’t like TILA rescission so they changed the wording of the statute to mean that common law procedures and principles apply — thus requiring the homeowner to file suit in order to make rescission effective, and requiring the tender of money or property to even have standing to rescind. This was contrary to the express provisions of the TILA rescission statute. Approximately 8 million+ people were displaced from their homes because of those decisions and the property records of thousands of counties have been forever debauched, likely requiring some legislative action to clear title on some 80+ million transactions involving tens of trillions of dollars. The underlying bias was considered axiomatically true: that the legislature could not have meant that individuals have as much power as big corporation and they should not have such power. Then the short Supreme Court decision from a unanimous court in Jesinoski v Countrywide made the correction, effectively overturning hundreds of thousands of incorrect decisions. A court may not interpret a statute that is clear on its face. A court may not MAKE the law.
  5. the millions of foreclosures that have been allowed on the premise that the “holder” of a note should get the same treatment as a “holder in due course.” More than 16 million people have been displaced from their homes as a result of an underlying bias that was and often remains axiomatically true: decisions in favor of homeowners would give them a free house and decisions that allow foreclosure protect legitimate creditors. Both “axioms” are as completely wrong as the decisions about TILA Rescission.
It is the last item that I address in this article. A holder in due course is allowed to both plead and prove only the elements of Article 3 of the UCC. Article 3 of the UCC states that a party who purchases negotiable paper in good faith without knowledge of the maker’s defenses and before the terms are breached is presumed to be entitled to relief upon making their prima facie case — which are the elements already listed here. Even if there were irregularities or even fraud at the time of the origination of the loan or at a later time but before the HDC purchased the paper, the HDC will get judgment for the relief demanded. A “holder” (on the other hand) comes in many flavors under Article 3 but they all have one thing in common: they are not holders in due course.
The fundamental error of the courts has been to treat the “holder” as a “holder in due course” at the time of trial. It is true that the holder may survive a motion to dismiss merely by alleging that it is a holder — but fundamental error is being committed at trial where the holder must prove its underlying prima facie case. It should be noted that the requirement of consideration is repeated in Article 9 where it states that a security instrument must be purchased by a successor not merely transferred. So regardless of whether one is proceeding under Article 3 or Article 9, no foreclosure can be allowed without paying real money to a party who actually owned the mortgage. The Courts universally have ignored these provisions under the bias that it is axiomatically true that the party seeking to enforce the paper is so sophisticated and trustworthy that their mere request for relief should result in the relief demanded. This bias is “supported” by an additional bias: that failure to enforce such documents would undermine the entire economy of the country — a policy decision that is not within the province of the courts. And deeper still the bias is that it is axiomatically true that the paper would not exist without the actual existence of monetary transactions for origination and transfer of the paper. These “axioms” are not true.
As a result, courts have regularly rubber-stamped the extreme equitable remedy of foreclosure in favor of a party who has no financial interest in the alleged paper, nor any risk of loss or actual loss. The foreclosures are part of a scheme to make money at the expense of the actual people who are losing money. If this was not true, there would have been thousands of instances in which the “holder” presented the money trail that supposedly was the foundation for the paper that was executed and delivered, destroyed or lost. They never do. If they did, the volume of litigated foreclosure cases would drop to a drizzle. And these parties fight successfully to avoid not only the burden of proof but even the ability of the homeowner to inquire (discovery) about the “transactions” about which the paper is referring — either at origination or in purported transfers. Backdating assignments and endorsements would be unnecessary. “Robo-signing” would also be unnecessary. And the constant flux of new servicer and new trustees would also be unnecessary. Many of these events consist of illegal acts that are routinely ignored by the courts for reasons of bias rather than judicial interpretation.
A holder in due course proves their prima facie case by
a) proffering a witness with personal knowledge
b) proffering testimony that allows the commercial paper to be admitted as evidence (the note). This evidence need only be to the effect that the witness, or his company, physically has possession of the original note and presents it in court.
c) proffering testimony and records showing that the paper (the note) was purchased for good and valuable consideration by the party seeking to enforce it. This means showing proof of payment for the paper like a wire transfer receipt or a cancelled check.
d) proffering testimony and records showing that the mortgage, which is not a negotiable instrument, was purchased withe the note.
e) proffering testimony and records that the transactions were real and in good faith
f) proffering testimony that the purchaser of the paper had no knowledge of the maker’s defenses
g) proffering testimony that no default existed at the time of purchase of the paper.
Because of bias, the Courts, just as they did with TILA rescission, have mostly committed fundamental error by allowing to alleged “holders” a lesser standard of proof than the party who is legitimately in a superior position of being a holder in due course. It starts with a correct decision denying the homeowner’s motion to dismiss but ends up in fundamental error when the court “forgets” that the enforcing party has a factual case to prove beyond mere possession of an instrument they say is the original note.
The holder, in contrast to the holder in due course, is not entitled to any such presumptions at trial, except that they hold with rights to enforce. They don’t hold with automatic rights to win the case however.
A holder proves its prima facie case by
a) proffering a witness with personal knowledge
b) proffering testimony and records that allow the commercial paper to be admitted as evidence (the note). This evidence need only be to the effect that the witness, or his company, physically has possession of the original note and presents it in court.
c) proffering testimony and evidence as to the chain of custody of the paper the party seeks to enforce.
d) proffering testimony and records together with proof of payment of the original transaction (a requirement generally ignored by the courts). This means proof that the original party in the “chain” relied upon by the party seeking to enforce actually funded the alleged “loan” with funds of its own or for which it is responsible (e.g., a real warehouse credit arrangements where the originator bears the risk of loss).
e) proffering testimony and records showing that the paper (note) was purchased for good and valuable consideration by the creditor on whose behalf the party is seeking to enforce it. This means showing proof of payment for the paper like a wire transfer receipt or a cancelled check.
f) proffering testimony and records showing that the mortgage was also purchased by the creditor for good and valuable consideration. This means showing proof of payment for the paper like a wire transfer receipt or a cancelled check.
g) proffering testimony and records that the transactions was real and in good faith
h) proffering testimony that no default existed at the time of purchase of the paper. Otherwise, it wouldn’t be commercial paper and the party seeking to enforce would need to allege and prove  its standing and its prima facie case without benefit of the note or mortgage.
It should be added here that the non-judicial foreclosure states essentially make it even easier for an unrelated party to force the sale of property. Those statutory procedures are wrongly applied leaving the burden of proof as to UCC rights to enforce squarely on the homeowner who in most cases is not even a “borrower” in the technical sense. Such states are allowing parties to obtain a forced sale of property in cases where they would not or should not prevail in a judicial foreclosure. The reason is simple: the procedure for realignment of the parties has been ignored. When a homeowner files an action against the “new trustee” (substituted by virtue of the self proclaimed and unverified status of a third party beneficiary under the note and mortgage), the homeowner is somehow seen as the party who must prove that the prima facie case is untrue (giving the holder the rights of a holder in due course); the homeowner is being required to defend a case that was never filed or alleged. Instead of immediately shifting the burden of proof to the only party that says it has the rights and paperwork to justify the forced sale. This is an unconstitutional aberration of the rights of due process. The analogy would be that a defendant accused of murder must prove he did not commit the crime before the State had any burden to accuse the defendant or put on evidence. Realignment of the parties would comply with the constitution without changing the non-judicial statutes. It would require the challenged party to prove it should be allowed to enforce the forced sale of the property. Any other interpretation requires the the homeowner to disprove a case not yet alleged, much less proven in a prima facie case.

Rockwell P. Ludden, Esq. — A Lawyer who gets it on Securitization and Mortgages

see FORECLOSURE, SECURITIZATION DON’T MIX ROCKY&#39S+ARTICLE+in+the+CAPE+COD+TIMES+February+21,+2015

As I write this, I have no recall of Mr. Ludden before today. BUT his article in of all places, the Cape Cod Times, struck me as astonishing in its concise description of the illegal foreclosures that are skimming past Judges desks with hardly a look much less the usually required judicial scrutiny. He says

No one should have the legal right to take your home merely by winking and nodding their way around a significant flaw in the securitization model and whatever burrs it may leave on the industry’s saddle. …

Is there anyone with a present contractual connection to you or the loan who has actually suffered a default? If not, any… foreclosure begins to bear an uncanny resemblance to double dipping.

It is time for Judges to dust off the principle of fundamental fairness that lies at the heart of our legal system, demand a level playing field, and stand behind alternatives to foreclosure that serve the legitimate interests of homeowner and industry alike.

His article is both insightful and concise, which is more than I can say for some of the things that I have written at length. And I guess if you are in the Cape Cod area it probably would be a good idea to contact him at rpl@luddenkramerlaw.com. He pierces through layers upon layers of subterfuge by the financial industry and comes up with the right conclusion — separation not just of note and mortgage — but more importantly the separation between the note and the ultimate certificate that spells out the rights of a creditor to repayment and the rights of anonymous individuals and entities to foreclose. In securitization practice the note ceases to exist.

He correctly concludes that the assignments (and I would add endorsements and powers of attorney) are a sham, designed to conceal basic flaws in the entire securitization model. The only thing I would add is something that has not quite made it to the surface of these chaotic waters — that the money from the investors never made it into the trust — something that is perfectly consistent with ignoring the securitization model and the securitization documents.

The ‘assignment’ creates the appearance of [the] missing connection. But it is all hogwash, the only discernible purpose of which is to grease the skids for an illegal foreclosure. It is done long after the Trust has closed its doors. [referring to both the cutoff date and the fact that the trust actually does not ever get to own the debt, loan, note or mortgage]

The banks kept the money and assigned the losses to the investors. Then they bet on the losses and kept the profits from their intentionally watered down underwriting practices. Then they stole the identity of the borrowers and the investors and bought insurance that covered “losses” that were never incurred by the named insured — the Banks. The family resemblance to Ponzi scheme seems closer than mere double dipping in an infinite scheme of dipping into the funds of thousands of institutional investors and into the lives of millions of homeowners.

see also A 21st Century Trust Indenture Act?

posted by Adam Levitin

Two Different Worlds — Note and Mortgage

Further information please call 954-495-9867 or 520-405-1688

No radio show tonight because of birthday celebration — I’m 68 and still doing this

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The enforcement of promissory notes lies within the context of the marketplace for currency and currency equivalents. The enforcement of mortgages on real property lies within the the context of the marketplace for real estate transactions. While certainty is the aim of public policy in those two markets, the rules are different and should not be ignored.

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see http://www.uniformlaws.org/Shared/Committees_Materials/PEBUCC/PEB_Report_111411.pdf

This article is not a substitute for getting advice from an attorney licensed to practice in the jurisdiction in which your property is or was located.

Back in 2008 I had some correspondence and telephone conversations with an attorney in Chicago, Robert Wutscher when I was writing about the reality of the way in which banks were doing  what they called “securitization of mortgages.” Of course then they were denying that there were any trusts, denying that any transfers occurred and were suing in the name of the originator or MERS or anyone but the party who actually had their money used in loan transactions.  It wasn’t done the right way because the obvious intent was to play a shell game in which the banks would emerge as the apparent principal party in interest under the illusion created by certain presumptions attendant to being the “holder” of a note. For each question I asked him he replied that Aurora in that case was the “holder.” No matter what the question was, he replied “we’re the holder.” I still have the letter he sent which also ignored the rescission from the homeowner whose case I was inquiring about for this blog.

He was right that the banks would be able to bend the law on rescission at the level of the trial courts because Judges just didn’t like TILA rescission. I knew that in the end he would lose on that proposition eventually and he did when Justice Scalia, in a terse opinion, simply told us that Judges and Justices were wrong in all those trial court decisions and even appellate court decisions that applied common law theories to modify the language of the Federal Law (TILA) on rescission. And now bank lawyers are facing the potential consequences of receiving notices of TILA rescission where the bank simply ignored them instead of preserving the rights of the “lender” by filing a declaratory action within 20 days of the rescission. By operation of law, the note and mortgage were nullified, ab initio. Which means that any further activity based upon the note and mortgage was void. And THAT means that the foreclosures were void.

Is discussing the issue of the “holder” with lawyers and even doing a tour of seminars I found that the confusion that was apparent for lay people was also apparent in lawyers. They looked at the transaction and the rights to enforce as one single instrument that everyone called “the mortgage.” They looked at me like I had three heads when I said, no, there are three parts to every one of these illusory transactions and the banks fail outright on two of them.

The three parts are the debt, the note and the mortgage. The debt arises when the borrower receives money. The presumption is that it is a loan and that the borrower owes the money back. it isn’t a gift. There should be no “free house” discussion here because we are talking about money, not what was done with the money. Only a purchase money mortgage loan involves the house and TILA recognizes that. Some of the rules are different for those loans. But most of the loans were not purchase money mortgages in that they were either refinancing, or combined loans of 1st mortgage plus HELOC. In fact it appears that ultimately nearly all the outstanding loans fall into the category of refinancing or the combined loan and HELOC (Home Equity Line of Credit that exactly matches the total loan requirements of the transaction (including the purchase of the home).

The debt arises by operation of law in favor of the party who loaned the money. The banks diverged from the obvious and well-established practice of the lender being the same party as the party named on the note as payee and on the mortgage as mortgagee (or beneficiary under a Deed of Trust). The banks did this through a process known as “Table Funded Loans” in which the real lender is concealed from the borrower. And they did this through agreements frequently called “Assignment and Assumption” Agreements, which by contract called for both parties (the originator and the aggregator to violate the laws governing disclosure (TILA and frequently state law) which means by definition that the contract called for an illegal act that is by definition a contract in contravention of public policy.

A loan contract is created by operation of law in which the borrower is obligated to pay back the loan to the source of the funds with or without a written instrument. If the loan contract (comprised of offer, acceptance and consideration) does not exist, then there is nothing to enforce at law although it is possible to still force the borrower to repay the money to the actual source of funds through a suit in equity — mainly unjust enrichment. The banks, through their lawyers, argue that the Federal disclosure requirements should be ignored. I think it is pretty clear that Justice Scalia and a unanimous United States Supreme Court think that argument stinks. It is the bank’s argument that should be ignored, not the law.

Congress passed TILA specifically to protect consumers of financial products (loans) from the overly burdensome and overly complex nature of loan documents. This argument about what is important and what isn’t has already been addressed in Congress and signed into law against the banks’ position that it doesn’t matter whether they really follow the law and disclose all the parties involved in the transaction, the true identity of the lender, the compensation of all the parties that made money as a result of the origination of the loan transaction. Regulation Z states that a pattern of behavior (more than 5) in which loans are table funded (disclosure of real lender withheld from borrower) is PREDATORY PER SE.

If it is predatory per se then there are remedies available to the borrower which potentially include treble damages, attorneys fees etc. Equally important if not more so is that a transaction, whether illusory or real, that is predatory per se, is therefore against public policy and the party seeking to enforce an otherwise enforceable document cannot do so because of the doctrine of unclean hands. In fact, if the transaction is predatory per se, it is dirty hands per se. And this is where Judges get stuck and so do many lawyers. The outcome of that unavoidable analysis is, they say, a free house. And their remedy is to give the party with unclean hands a free house (because they paid nothing for the origination or acquisition of the loan). I think the Supreme Court will not look kindly upon this “legislating from the bench.” And I think the Court has already signaled its intent to hold everyone to the strict construction of TILA and Regulation Z.

So there are two reason the debt can’t be enforced the way the banks want. (1) There is no loan contract because the source of the money and the borrower never agreed to anything and neither one knew about the other. (2) the mortgage cannot be enforced because it is an action in equity and the shell game of parties tossing the paperwork around all have unclean hands. And there is a third reason as well — while the note might be enforceable based merely on an endorsement, the mortgage is not enforceable unless the enforcer paid for it (Article 9, UCC).

And THAT is where the confusion really starts — which bank lawyers depend on every time they go to court. Bank lawyers add to the confusion by using the tired phrase of “the note follows the mortgage and the mortgage follows the note.” At one time this was a completely true presumption backed up by real facts. But now the banks are asking the courts to apply the presumption even when the courts actually know that the facts presumed by the legal presumption are untrue.

Notes and mortgages exist in two different marketplaces or different worlds, if you like. Public policy insists that notes that are intended to be negotiable remain negotiable and raise certain presumptions. The holder of a note might very well be able to sue and win a judgment ON THE NOTE. And the judgment holder might be able to record a judgment lien and foreclose on it subject to homestead exemptions.

But it isn’t as simple as the banks make it out to be.

If someone pays for the note in good faith and without knowledge of the borrower’s defenses when the note is not in default, THAT holder can enforce the note against the signor or maker of the note regardless of lack of consideration or anything else unless there is a provable defense of fraud and perhaps conspiracy. But any other holder steps into the shoes of the original lender. And if there was no consummated loan contract between the payee on the note and the borrower because the payee never loaned any money to the borrower, then the holder might have standing to sue but they don’t have the evidence to win the suit. The borrower still owes the money to whoever was the source, but the “holder” of the note doesn’t get a judgment. There is a difference between standing to sue and a prima facie case needed to win. Otherwise everyone would get one of those mechanical forging machines and sign the name of someone with money and sue them on a note they never signed. Or they would promise to loan money, get the signed note and then not complete the loan contract by making the loan.

So public policy demands that there be reasonable certainty in the negotiation of unqualified promises to pay. BUT public policy expressed in the UCC Article 9 says that if you want to enforce a mortgage you must not only have some indication that it was transferred to you, you must also have paid valuable consideration for the mortgage.

Without proof of payment, there is no prima facie case for enforcement of the mortgage, but it does curiously remain on the chain of title of the property (public records) unless nullified by the fact that the mortgage was executed as collateral for the note which was NOT a true representation of the loan contract based upon the real debt that arose by operation of law. The public policy is preserve the integrity of public records in the real estate marketplace. That is the only way to have reasonable certainty of title and encumbrances.

Forfeiture, an equitable remedy, must be done with clean hands based upon a real interest in the alleged default — not just a pile of paper that grows each year as banks try to convert an assignment of mortgage into a substitute for consideration.

Hence being the “holder” might mean you have the right to sue on the note but without being a holder in due course or otherwise paying fro the mortgage, there is no automatic basis for enforcing the mortgage in favor of a party with no economic interest in the mortgage.

see also http://knowltonlaw.com/james-knowlton-blog/ucc-article-3-and-mortgage-backed-securities.html

Adam Levitin on Backdating: A Pattern of Conduct at Ocwen and Other Players in the Foreclosure Frenzy

see also http://themreport.com/news/government/01-13-2015/california-moving-suspend-ocwens-mortgage-license

Adam Levitin has definitely established himself as one of the more respected figures in analyzing and commenting on mortgage and foreclosure practices. In this article below, he reveals the fraudulent nature of even the most benign looking foreclosures. Various parties, including Ocwen which he cites in particular, regularly backdated denials of modification and backdated ownership paperwork.

His emphasis is on the pattern of conduct dating back many years which continues unabated despite administrative findings of wrongdoing, and settlements in which they agreed to correct these practices. If you look at Select Portfolio Servicing, formerly Fairfield Capital, (and now owned by Credit Suisse) you will see that they were guilty of fraudulent servicing practices as far back as 2003.In a recent case where Patrick Giunta and I represented the homeowners the court found that there was no authority of the servicer and no loan transfer to the alleged Trust. The Judge specifically expressed her displeasure with the obvious indications of backdating and fabrication of endorsements, assignments and the attempt at using Powers of Attorney that were a fabricated work-around

Levitin is right in his conclusion. And I would add that any “presumption” rebuttable or otherwise, should not be allowed regarding any paperwork that is produced by these players. Levitin should be a regular read for those of you who are following this evolving mess.

http://www.creditslips.org/creditslips/

Corporate Recidivism? Ocwen’s Charter Problems

posted by Adam Levitin
Last month mortgage servicer Ocwen (that’s NewCo backwards) was mauled by the NY State Department of Financial Services. Now the California Department of Corporations is seeking to revoke Ocwen’s license to do business in that state.
Here’s the thing that is often forgotten: this ain’t the first time! Ocwen used to be a federal thrift. In 2005, however, Ocwen “voluntarily” surrendered its thrift charter in the face of predatory lending/servicing investigation. And here we are, a decade later. What’s changed? By the NY and California allegations, not much. In other words, we’re looking at a potential case of corporate recidivism. I’ll refrain from commenting on the merits of the allegations, but there should be zero tolerance for corporate recidivism.
While I’m at it, a word about the substance of the NY allegations and remedy. NYDFS accused Ocwen of backdating loan modification denial letters to borrowers facing foreclosure (and thereby depriving the borrowers of a chance to timely appeal the denial). Sadly, this isn’t the first time backdating has reared its head in the servicing business. Remember how the robo-signing story broke? A GM/Ally employee named Jeffrey Stephan stated in a deposition that he personally signed some 10,000 foreclosure affidavits a month. That was the story that the media glommed onto. But the 10,000 affidavits/month was an unexpected deposition by-product. The real issue uncovered in that deposition was that GM/Ally had been backdating foreclosure documents to show that it had standing at the time it filed foreclosure suits, despite not actually being the noteholder and mortgagee until a subsequent date. Loans were supposedly transferred on Christmas Day, Easter, New Year’s Day, etc. So it would seem that backdating may not be an isolated problem to Ocwen. Lastly, it’s worth comparing the NYDFS remedy with the National Mortgage Settlement. NYSDFS got $150 million in “hard dollar” loan mods (not mods paid for on investors’ dime). Ocwen is subject to an independent monitor’s supervision for three years and cannot acquire any more mortgage servicing rights (MSRs). And, Ocwen’s Chairman must resign and two additional independent board members must be added.
In contrast, the National Mortgage Settlement (NMS) was largely based on “soft dollar” mods, rather than real borrower relief. It did come with an independent monitor, but the NMS monitor isn’t able to be in the banks’ face the way the Ocwen monitor can. The NMS didn’t limit acquisition of MSRs. And it didn’t touch existing bank management or board structure. Put it this way: if the federal government and state AGs had as much spine as Ben Lawsky, Mssrs. Dimon, Moynihan, and Stumpf would be looking for new jobs (or enjoying their retirement). Of course, Ocwen is a scrappy, non-bank, non-SIFI. So it doesn’t enjoy the kid glove treatment.
The NYDFS Ocwen settlement sets out a new potential paradigm for mass consumer financial abuse settlements: real money, serious monitoring, and heave-ho to the old management. If senior management thinks that their job security is at risk for consumer abuse, they might well be more proactive at preventing it in the first place.
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