“Credit Bid” Comes Under Scrutiny in 9th Circuit

As I have been writing and talking about the forced judicial sales, my opinion has always been that in most cases there is an absence of evidence that the party making the credit bid was in fact the creditor thus entitled to make a “credit bid” at the auction. The credit bid is an allowance for the creditor to bid up to the amount of the debt owed to them without paying cash at the sale. This has been ignored since I first started writing about it. I think the credit bid is void and fraudulent if a non-creditor submits a credit bid when it is not the creditor. In nonjudicial states this is an easier proposition than in judicial states where a Final Judgment has been rendered.

This case is also notable because it finally addresses the issue of the liability of the Trustee on a deed of trust, concluding that if the party claiming to be the beneficiary was in fact not the beneficiary, and there is no evidence to suggest otherwise, the trustee is potentially liable. It would be helpful to pursue discovery against the Trustee, since it is always a “substituted trustee” that is in fact under the thumb or owned by the parties who are making self-serving declarations of their status as “beneficiaries” under the deed of trust. THAT of course provides grounds to object and challenge the substitution of trustee and everything that follows. If the self-proclaimed beneficiary is a nonexistent entity or otherwise does not conform to the statutory definition of a beneficiary, then it has no power to substitute a new trustee. And everything that the trustee does after that point is void. In discovery look for the agreement that says the new Trustee is indemnified and held harmless for all claims, violations etc. It’s there — but you need to force the issue.


Get a consult! 202-838-6345

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see 9th Circuit decision, Jacobsen v. Aurora Loan Services, Case No. 12-17021

Wrongful foreclosure. We reverse the district court’s grant of summary judgment in favor of Aurora on the wrongful foreclosure claim. In California, the elements of a wrongful foreclosure action are (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering. Sciarratta v. U.S. Bank Nat’l Ass’n, 202 Cal. Rptr. 3d 219, 226 (Ct. App. 2016). The district court erred by granting summary judgment on the ground that it found nothing wrong with the foreclosure sale.
First, the district court failed to review the record in the light most favorable to the non-movants when the district court assumed that the form of Aurora’s bid at the foreclosure sale was a cash bid. On appeal, the parties now agree that the form of the bid was a credit bid.
Second, a genuine dispute of material fact remains regarding whether Aurora properly made a credit bid. California law permits “present beneficiary of the deed of trust” to credit bid at the foreclosure sale. Cal. Civ. Code § 2924h(b). However, it is not uncontroverted that Aurora was the present beneficiary of the deed of trust. A deed of trust is “inseparable from the note it secures.” Yvanova v. New Century Mortg. Corp., 365 P.3d 865, 850 (Cal. 2016); see also Domarad v. Fisher & Burke, Inc., 76 Cal. Rptr. 529, 536 (Ct. App. 1969) (“[A] deed of trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the deed of trust without a transfer of the debt is without effect.”). The record contains evidence that Aurora did not “own” O’Brien’s loan before the foreclosure. ER 19-20, 136-38, 181. However, the record also contains evidence that Aurora is “currently in possession” of the original promissory note, which was endorsed in blank, although it is not clear from Aurora’s declaration when Aurora became the holder of the note.[4] [ER 179-80; 185-195]. It appears that there remains a question of fact whether Aurora was the “beneficiary” of the deed of trust at the time of the foreclosure and thus whether it was entitled to make a credit bid at the foreclosure sale, and we remand for the district court to address this issue in the first instance.
Moreover, in order to prevail on their claim of wrongful foreclosure, Plaintiffs must also show that they suffered prejudice or harm as a result of irregularities or illegalities in the foreclosure sale. Sciarratta, 202 Cal. Rptr. 3d at 226. Because the district court granted summary judgment to Aurora on a different ground, the court did not address the element of prejudice or harm. In the circumstances, we also deem it prudent to remand this claim to the district court to consider the prejudice question in the first instance. We therefore reverse the district court’s grant of summary judgment on the wrongful foreclosure claim and remand for further proceedings.[5]
AFFIRMED IN PART AND REVERSED AND REMANDED IN PART. The parties shall bear their own costs on appeal.
[**] The Honorable James V. Selna, United States District Judge for the Central District of California, sitting by designation.
[*] This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.
[1] The district court did not address standing. However, “[w]e may affirm on any ground supported by the record, even it if differs from the rationale used by the district court.” Buckley v. Terhune, 441 F.3d 688, 694 (9th Cir. 2006) (en banc).
[2] We GRANT both parties’ requests for judicial notice.
[3] In their reply, Plaintiffs suggest that their cancellation of instruments claim survives their contention that the note and deed of trust were void ab initio. Because this argument was first raised in the reply brief, we deem it waived. Delgadillo v. Woodford, 527 F.3d 919, 930 n.4 (9th Cir. 2008).
[4] Note that in today’s modern mortgage world, the “owner” of the underlying debt (that is, the entity who will receive the ultimate economic benefit of payments from the note, less a servicing fee) and “holder” of the note (the party legally entitled to enforce the obligations of the note) are not always one and the same. See, e.g., Brown v. Wash. State Dep’t of Commerce, 359 P.3d 771, 776-77 (Wash. 2015) (discussing modern mortgage practices and the secondary market for mortgage notes; “Freddie Mac owns [borrower’s] note. At the same time, a servicer . . . holds the note and is entitled to enforce it.“)(emphasis added). It thus appears possible that the “beneficiary” under the deed of trust would follow with the note (and with the entity “currently entitled to enforce [the] debt”), rather than the income stream. See Yvanova, 365 P.3d at 850-51; see also Hernandez v. PNMAC Mortg. Opp. Fund Investors, LLC, 2016 WL 3597468, *6 (Cal. Ct. App. June 27, 2016) (unpublished) (if the foreclosing party “could properly and conclusively establish . . . that it did hold the Note at the [time of foreclosure], that would be dispositive and preclude a wrongful foreclosure cause of action because a deed of trust automatically transfers with the Note it secures—even without a separate assignment.”)(citing Yvanova).
[5] We also reverse the district court’s grant of Cal-Western’s motion to dismiss the wrongful foreclosure claim. The trustee must conduct the foreclosure sale “fairly, openly, reasonably, and with due diligence” “to protect the rights of the mortgagor and others.” Hatch v. Collins, 275 Cal. Rptr. 476, 480 (Ct. App. 1990). Here, the complaint alleges that Cal-Western’s acceptance of a void credit bid was unlawful. If the credit bid was void and the acceptance of the credit bid was unlawful, Cal-Western failed to conduct the foreclosure sale with due diligence, and thus the complaint states a claim against Cal-Western.


Now You See Them, Now You Don’t


It is a chaotic circular round of documents emanating ultimately by, for and from the same parties. And somehow it is becoming custom and practice to allow law firm employees to sign important documents that transfer possession, delivery, ownership and servicing rights from one party to another while those parties themselves sign nothing.



I can’t help thinking about whether there is a motion in California and other nonjudicial states that allows you to challenge the right of the attorney to be the attorney of record when the law firm is a fact witness on issues that are central to the case. Having signed the proof of claim, being the trustee (who supposedly represents the party who signs a proof of claim), etc., the question is whether they are acting on their own behalf or on behalf of a third party who might indeed have some objections against the law firm representing the interests of parties whose interests might be antithetical to their own.

In a deed of trust you have the trustor (homeowner) and the Trustee in the middle between the trustor and the beneficiary who presumably is the creditor. By now we know that original beneficiary probably did not make the loan and that the alleged new beneficiary didn’t buy it. The beneficiaries’ claims are only as good as the words on the fabricated paper on which they are written and certain legal presumptions that are routinely misapplied.

So the first sign of trouble is the “Substitution of Trustee” wherein a “New” beneficiary executes a document appointing a new Trustee on the Deed of Trust. Why? What was wrong with the old one if everything was on the up and up? They substitute because they know the original Trustee won’t accept the instructions from the new party because the original Trustee has no objective reason to believe that the new “party” is a “beneficiary”. Who signs that “substitution of Trustee”?

It is usually someone who has been given instructions to sign it on the promise and premise that they have been appointed attorney in fact for the “new beneficiary.” In fact, in many cases their only job is signing documents that they have received instructions to sign. But the actual person signing knows absolutely nothing about the deal and has no knowledge about the facts behind the business of signing such documents — assuming their signature was not forged or robo-signed.

So in this and many if not nearly all cases, the actual signature is supplied by a third party who will then fabricate a power of attorney to do it — still without any facts about why the Trustee needs to be replaced. In most cases it is an employee of the law firm who by definition (?) has no actual interest in the loan, the debt, the note or the mortgage (Deed of Trust). This makes the person who signed it a fact witness and watch how the law firm fights to prevent that person from testifying at deposition or trial. In many cases they will assert that the person is no longer employed and they don’t know where he or she is now located.

And then you have the new Trustee who often turns out to be the same law firm who signed the Substitution of Trustee, making it a double self-serving document for which no legal presumptions should apply since there is no foundation in evidence that establishes the law firm as a real party in interest — and if such evidence existed the law firm would be disqualified from representing the allegedly new beneficiary and from being the Trustee AND advocate against the Trustor. If the legislature meant to allow that sort of thing they would have been violating the due process clause of the U.S. Constitution making the entire nonjudicial statutory scheme unconstitutional.

Who signs the power of attorney once it is fabricated? It is either the law firm employee or an employee who works for a “servicer” who in most cases is not named in any document as servicer. Who signs the validation of the foreclosure? Same person. It is a chaotic circular round of documents emanating ultimately by, for and from the same parties. And somehow it is becoming custom and practice to allow law firm employees to sign important documents that transfer possession, delivery, ownership and servicing rights from one party to another while those parties themselves sign nothing.

That is what they are talking about when they refer to “remote” vehicles. It is a situation where actions are taken and the people for whom the action was taken cannot be tied into the transaction in case someone needs to go to jail, or pay a fine or sanctions. But somehow the Courts have twisted this into meaning that what is good for the goose is not good for the gander. The banks can distance themselves from liability for a fabricated transaction but they also can receive the benefits of the fabrication as though they were present.

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How “Standing” Is Causing the Longest Economic Recovery Since the Great Depression



HOW? It is simple: since the perpetrators ignored the REMIC trust, didn’t fund them and never intended to actually have the REMIC trusts own the loans, the investors can go directly to homeowners or through their own servicers to settle and modify mortgages. This would leave the investors with claims against the investment banks for the balance of the losses, plus punitive damages, interest and court costs. It is the same logic as piercing the corporate veil — if you pay your grocery bills using the account of your limited liability corporation, the corporate entity is ignored.

Vasquez v Saxon (Arizona supreme Court) revisited

Assume the following facts for purposes of analogy and analysis:

  1. John Jones is a Scammer, previously found to have operated outside the law several times. He conceives of yet another PONZI scheme, but with the help of lawyers he has obscured the true nature of his next scheme. He creates a convoluted scheme that ultimately was never understood by regulators.
  2. The first part of his scheme is to offer shares in a company where the money will be held in trust. The money will be disbursed based upon standards that are promised to incoming investors.
  3. The new company will issue the shares based upon the receipt of money from investors who are buying those shares.
  4. Jones approaches Jason Smartguy, who manages a pension fund for 3,000 employees of ABC Company, a Fortune 500 company.
  5. Jason Smartguy manages the pension funds under strict restrictions. A pension fund is a “stable managed fund” whose investments must be at the lowest risk possible and whose purpose is capital preservation.
  6. John Jones promises Jason Smartguy that the new company will invest in assets that are valuable and stable, and that these investments will pay a return on investment higher than what Jason Smartguy is getting for the pension fund under his management. Jason likes the idea because it gives him employment security and probably bonuses for increasing the rate of return on the funds managed for the pension fund.
  7. The lawyers for John Jones have concealed the PONZI nature of the scheme (paying back investors with their own money and with money from new investors) by disclosing the existing of a reserve fund — consisting entirely of money from Jason Smartguy.
  8. Jason advances $100 Million to John Jones who says he is acting as a broker between the new Company (the one issuing the shares) and the Pension fund managed by Jason Smartguy.
  9. The new Company never receives the money. Instead the money is placed in accounts controlled by people who have no relationship with the new Company.
  10. The new Company never receives title or any documentation showing they own shares of the money pool now controlled by John Jones when it should be controlled by the new Company.
  11. John Jones uses the money to bet against the new Company, insurance on the value of the shares of the new Company, and the proceeds of other convoluted transactions — mostly based on the assumption that John Jones owns the money in the pool and based entirely on the assumption that any assets of the pool therefore belong to John Jones — not the new Company as promised.
  12. John Jones also uses the money to buy assets, so everything looks right as long as you don’t get too close.
  13. The assets Jones buys are designed to look good on paper but are pure trash — which is why John Jones bet against the pool and shares in the pool.
  14. Everyone is fooled. The investors get monthly statements from John Jones along with a check showing that the investment is working just as was planned. They don’t know that the money they are receiving comes entirely from the reserve pool and the meager actual returns from the assets. The insurance company believes that Jones is the owner of the money and the assets purchased with money from the pool created by Jason Smartguy’s advance from the pension fund.
  15. John Jones goes further. He pretends to own the shares of the new Company that actually belong to the pension fund managed by Jason Smartguy. He insures those shares naming himself as the insurance beneficiary and naming himself as the receiver of proceeds from his bets that the shares in the new Company would crash, just as he planned.
  16. While the assets are proving as worthless as John Jones had planned, Jason Smartguy receives payments to the pension fund exactly as outlined in the Prospectus and the Operating Agreement for the New Company. Unknown to Jason, the assets are increasingly proving worthless, as a whole and the income is declining. So Jason buys more shares in the new Company, thus providing Jason with a larger “reserve” fund and more “assets” to bet against and more “shares’ to bet against.
  17. John Jones sets out to “acquire” assets that will fail, so his bets will pay off. He buys assets whose value is low (and getting worse) and he creates fictitious transactions in which it appears as though the new Company has bought the assets at a much higher price than their value. The “sales” to the Company are a sham. The Company has no money because Jason Smartguy’s pension money never was made to the new Company in exchange for the new Company issuing shares of the company to Jason’s pension fund.
  18. The difference between the real value of the assets and the price “sold” to the pool is huge. In some cases it is 2-3 times the actual value of the asset. John Jones treats these sales as “proprietary trading profits” for John Jones,when in fact it is an immediate loss to Jason’s pension fund. The shares of the new Company are worthless because it never received any money nor title to any assets. John Jones as “broker” took all the money and assets.
  19. Meanwhile John Jones continues to pay Jason’s pension fund along with distribution reports showing the assets are in great shape and the income is just fine. In reality the assets are virtually worthless and the income is declining just as John Jones planned. John Jones is taking money hand over fist and calling it his own. His bets on the whole thing crashing are paying off handsomely and he is not reporting to Jason how much he is making by taking Jason’s managed money and calling part of it proprietary profits.
  20. The beauty of John Jones PONZI scheme is in the BIG LIE told not only to Jason Smartguy but also to Henry Homebody, who owns a home in Tucson Arizona. Henry is easier to sell on a stupid scheme than Jason Smartguy because Jason requires proof of independent appraisals (ratings), proof of insurance and various other aspects of the investment. Henry Homebody trusts the “lenders” and considers them to be banks, some with reputations and brands that go back 150 years.
  21. Henry Homebody’s house has been in the family for 6 generations and is fully paid off. He pays only insurance and taxes. Unknown to him, he is a special target for scammers like Merendon Mining, whose operators are now in jail. Merendon got homeowners with unencumbered houses to “invest” in a mirage (gold shares) thus putting the fantastic equity in their homes to work. Henry is flown to Canada, wined and dined, and has a very good time, just before he agrees to take out a loan using his family home as collateral, which will provide an income to him of $16,000 over month (which is about ten times his current income).
  22. Henry is approved for a loan equal to twice the value of the property and in which the mortgage broker (now on the run from the law) used projected income from the speculative investment in Merendon mining. This act by the mortgage broker was illegal but worth the risk because the broker was part of the Merendon Mining scam. (look up Merendon Mining and First Magnus Funding).
  23. Henry makes Payments on the mortgage principal, interest, taxes and insurance (all higher because of the false appraisal that was used for the property). He is able to do this because some of the money from the “loan” was given to him and he was able to make payments until the magnificent returns started to come in from his Merendon Mining shares. But those shares were worded in such a way that they were not exactly the ownership of gold that Henry thought he was getting. In fact, it was another pool with options on gold. And of course the money never materialized and neither did the gold. (Note 1996-2014: more than 50% of all loans were “refi’s” in which the home was fully paid or nearly so).
  24. Henry’s lender turned out to be a party pretending to lend him money, using MERS as a nominee for trading purposes, and naming the originator as lender when in fact they were also just a nominee.
  25. Henry’s mortgage and note recite terms that are impossible to meet unless Merendon Mining pays off.
  26. Henry believes at closing that First Magnus was the lender and that some entity called MERS is hanging in the background. Nobody explains anything to him about the lender or MERS. And of course he was told not to get an attorney because nothing can be changed anyway.
  27. Henry did not know that John Jones had spread out Jason’s money into several entities and then used Jason’s money to fund the origination of Henry’s loan.
  28. Jason does not know that the note and mortgage were never executed in the name of the pension fund or the new Company that was supposed to own the loan as an asset.
  29. Eventually the truth starts coming out, the market crashes and prices of homes return to actual value. Merendon Mining is of course a bankrupt entity as is First Magnus, whose operator appears to be on the run.
  30. Henry can’t make the payments after the extra money they gave him runs out. He has $2 million in loans and the “guaranteed” investment in Merendon Mining has left him penniless.
  31. John Jones fabricates and forges dozens of documents to piece together a narrative wherein an “independent” company would claim ownership of Henry’s loan despite the complete absence of any real transactions between any of the companies because the loan was fully funded using Jason Smartguy’s pension money.
  32. Henry knows nothing about the scam John Jones pulled on Jason Smartguy and certainly doesn’t know that the new Company was involved in his loan (because it wasn’t). Henry doesn’t understand that First Magnus and MERS never loaned him any money and that he never owed them money. And Henry knows nothing about John Jones, whose name appears on nothing.
  33. John Jones, the PONZI operator goes about the business of finishing the deal and making sure that the multiple people who bought into Henry’s loan (without knowing of the other sales and bets placed by John Jones) don’t start asking for refunds.
  34. John Jones MUST get a foreclosure or there will be auditing and reporting requirements that most everyone will overlook as long as this looks like just another loan gone bad. His PONZI scheme will be revealed if the true facts become known so he makes sure that nobody sees the actual money trail except him. He might go to jail if the truth is discovered.
  35. The lawyers for John Jones have told him that even fabricated, forged, non-authentic, falsely signed, and falsely notarized documents carry a presumption of validity. Thus the lawyers and Jones concocted a PONZI scheme that would most likely succeed because even the borrower, Henry, still thinks he owes money to First Magnus or its “successors”, whose identity he doesn’t really care about because he knows he took the loan. He doesn’t know that First Magnus and several other entities were involved in collecting fees and making profits the moment he signed the papers, and possibly before.
  36. Meanwhile Jason Smartguy, manager of the pension fund is starting to get disturbing reports about the assets that were purchased. Jason still doesn’t know that the money he gave John Jones never went into the New Company, that the Company never engaged in any transactions, and that John Jones was claiming “losses” that were really Jason’s losses (the pension fund).
  37. John Jones was collecting money from multiple sources without any of them knowing about each other and that he had no losses, he had only profits, and even got the government to lend him more money so he wouldn’t go out of business which might ruin the economy.
  38. Most of all John Jones never made a loan to Henry Homeowner; but that didn’t stop him from saying he did make the loan, and that the paperwork between John Jones and Jason Smartguy’s pension fund was irrelevant — the borrower got a loan and stopped paying. Thus judicial or non judicial process was available to sell the home that had been in Henry’s family for 6 generations.
  39. But the weakness in John Smith’s PONZI scheme is that his entire strategy is based upon presumptions of validity of his false documentation. If courts start applying normal rules and require Jones to disclose the money trail, he is cooked. There can be no foreclosure if a non-creditor initiates it by simply declaring that they are the creditor and that they have rights to enforce the debt — when the only proof of that is that Jason Smartguy, manager of the pension fund, has not yet put the pieces together and demanded ownership of the loan, settled the cases with modifications and went after John Jones for the balance of the money that was skimmed off the deal.
  40. And since Henry’s house is in Tucson, Az, he is subject to non-judicial foreclosure and he is in big trouble. He has no reason to believe the “servicer” is unauthorized, that the debt that is subject to correspondence and monthly statements does not exist, nor that the mortgage or deed of trust was void for lack of consideration — none of the “lenders” at closing ever loaned him a dime. The money came from Jason but Henry didn’t, and possibly still doesn’t know it.
  41. John Jones files a document called “Substitution of Trustee.” In this false document Jones declares that one of his many entities is the “new beneficiary” (mortgagee). Jones holds his breath. If Henry objects to the substitution of trustee he might have to reveal that the new trustee is not independent, it is a company controlled by John Jones.
  42. John Jones has made himself the new trustee. If the substitution of trustee is nullified in a court proceeding, NOTHING can be done by John Jones or his controlled companies.
  43. If the old trustee realizes that they have received no information on the validity of the claim and might still be the trustee, they might file an “interpleader” action in which they say they have received competing claims, demand attorney fees and costs along with their true statement that as the trustee named on the deed of trust, they have no stake in the outcome.
  44. If that happens Jones is cooked, broiled and boiled. He would be required to allege and prove that the “new beneficiary” is in fact the creditor in the transaction by succession, purchase or otherwise. he can’t because it was Jason who gave the money, it was Jason who was supposed to get evidence of ownership of the loan, and it is Jason who should be deciding between foreclosure (which John Jones MUST have to escape enormous civil and criminal liability).
  45. Jones doesn’t file documents for recording unless and until the case goes into foreclosure. That is because he continuing to trade and make claims of losses on “bad loans.”
  46. In fact, just to be on the safe side, he doesn’t file the fabricated, forged perjurious assignment of the loan at all if nobody makes him. He only files the assignment when he absolutely must do so, because he knows each filing is false and potentially proof of identity theft from the pension fund and from the homeowner.
  47. So it often happens that despite laws in each state requiring the filing of any transfer of an interest in real property for recording, Jones files the assignment when there is the least probability and least likelihood that the PONZI scheme will be revealed. Jones knows the mortgage is void and should never have been recorded, as a matter of law.
  48. Henry brings suit against Jones seeking justice and relief. But he really doesn’t know enough to get traction in court. Jones filed the assignment after the notice of default, after the notice of sale, and after the notice of substitution of trustee.
  49. The Judge who knows nothing about the presence of Jason, who still does not know this is going on, rules for Jones saying that it is irrelevant when the assignment was recorded because it is still a valid assignment between the parties to the assignment.
  50. Jason knows nothing about how the money from his pension fund was handled.
  51. Jason knows nothing about how each foreclosure seals the doom and affirms the illegal windfall to intermediaries who were always playing with OPM (other people’s money).
  52. The Court doesn’t know that that the assignment was just on paper, that there was no business reason for it to be executed, that there was no purchase of the loan from Jason’s pension fund, to whom the actual loan was payable. Thus the Judge sees this as much ado about nothing.
  53. Starting from the premise that Henry owed the money anyway, that there were no real defenses, and that since nobody else was making a claim it was obvious that Jones was the creditor, the Arizona Supreme Court says that anyone can can foreclose on an undated, backdated fabricated assignment forged and robo-signed with no real transaction; and they can execute a substitution of trustee even if they are complete strangers to the loan transaction and once they file that, they can foreclose on property that was never used as collateral for the real loan.

Because there are hundreds of John Jones characters in this tragedy, the entire marketplace has been decimated. The middle class is permanently stalled because their only net worth has been stolen from them The borrowers would gladly execute a real mortgage for real value with real terms that make sense 95% of the time, but they need to do it with the owner of the debt — the pension fund. The pension fund the borrower need to be closely aligned on the premise that the loans can be modified for better terms that forced sales, the housing market could recover, and money would start flowing back to the middle class who drives 70% of our consumer based economy.

They are all wrong and are opening the door for more PONZI schemes and even better ways to steal money and get away with it. The Arizona Supreme Court in Vasquez as well as all other decisions from the trial bench, appellate courts, regulators and law enforcement are all wrong. The burden of proof in due process is on the party seeking affirmative relief. Anyone who wants the death penalty equivalent in civil litigation (forfeiture of homestead), should be required to prove beyond all reasonable doubt or by clear and convincing evidence that the mortgage was valid and should have been recorded.

If they didn’t make the loan they had no right to record the mortgage or do anything with the note or mortgage except give it back to the borrower for destruction. If they didn’t make disclosure of the real nature of the loan and all the profits that would arise from the borrower signing an application and the loan documents, those profits are due back to the borrower.

Each time the assumption is made that there are no valid defenses for the borrower, we are cheating investors and screwing the homeowners. And as for the windfall proposition we know who gets it — the John Jones PONZI operating banks that started all of this. Exactly how can this lead anyway other than a continued drag on our economy?

Vasquez v saxon Az S Ct CV110091CQ

For more information call 954-495-9867 or 520-405-1688

Here it is: Nonjudicial Foreclosure Violates Due Process in Complex Structured Finance Transactions

No, there isn’t a case yet. But here is my argument.

The main point is that we are forced to accept the burden of disproving a case that had not been filed — the very essence of nonjudicial foreclosure. In order to comply with due process, a simple denial of the facts and legal authority to foreclosure should be sufficient to force the case into a courtroom where the parties are realigned with the so-called new beneficiary is the Plaintiff and the homeowner is the Defendant — since it is the “beneficiary” who is seeking affirmative relief.

But the way it is done and required to be done, the Plaintiff must file an attack on a case that has never been alleged anywhere in or out of court. The new beneficiary anoints itself, files a fraudulent substitution of trustee because the old one would never go along with it, and then files a notice of default and notice of sale all on the premise that they have the necessary proof and documents to support what could have been an action in foreclosure brought by them in a judicial manner, for which there is adequate provision in California law.

Instead nonjudicial foreclosure is being used to sell property under circumstances where the alleged beneficiary under the deed of trust could never prevail in a court proceeding. Nonjudicial foreclosure was meant to be an expedient method of dealing with the vast majority of foreclosures when the statute was passed. In that vast majority, the usual procedure was complaint, default, judgment and then sale with at least one hearing in between. Nearly all foreclosures were resolved that way and it become more of a ministerial act for Judges than an actual trier of fact or judge of procedural rights and wrongs.

But the situation is changed. The corruption on Wall Street has been systemic resulting in whole sale fraudulent fabricated forged documents together with perjury by affidavit and even live testimony. Contrary to the consensus supported by the banks, these cases are complex because the party seeking affirmative relief — i.e., the new “beneficiary” is following a complex script established long before the homeowner ever applied for a loan or was solicited to finance her property.

The San Francisco study concluded, like dozens of other studies across the country that most of the foreclosures were resolved in favor of “strangers to the transaction.” By definition, the use of several layers of companies and multiple sets of documents defining two separate deals (one with the investor lenders and one with the borrower, with the only party in common being the broker dealer selling mortgage bonds and their controlled entities) has turned the mundane into highly complex litigation that has no venue. In non-judicial foreclosures the Trustee is the party who acts to sell the property under instructions from the beneficiary and does so without inquiry and without paying any attention to the obvious conflict between the title record, the securitization record, the homeowner’s position and the prior record owner of the loan.

The Trustee has no power to conduct a hearing, administrative or judicial, and so the dispute remains unresolved while the Trustee proceeds to sell the property knowing that the homeowner has raised objections. Under normal circumstances under existing common law and statutory authority, the Trustee would simply bring the matter to court in an action for interpleader saying there is a dispute that he doesn’t have the power to resolve. You might think this would clog the court system. That is not the case, although some effort by the banks would be made to do just that. Under existing common law and statutory law, the beneficiary would then need to file a complaint, verified, sworn with real exhibits and that are subject to real scrutiny before any burden of proof would shift to the homeowner. And as complex as these transactions are they all are subject to simple rules concerning financial transactions. If there was no money in the alleged transaction then the allegation of a transaction is false.

It was and remains a mistake to allow such loans to be foreclosed through any means other than strictly judicial where the “beneficiary” must allege and prove ownership and the balance due on the loan owed to THAT beneficiary. Requiring homeowners with zero sophistication in finance and litigation to bear the initial burden of proof in such highly complex structured finance schemes defies logic and common sense as well as being violative of due process in the application of the nonjudicial statutes to these allegedly securitized loans.

By forcing the parties and judges who sit on the bench to treat these complex issues as though they were simple cases, the enabling statutes for nonjudicial foreclosure are being applied unconstitutionally.

Vacate the Substitution of Trustee

“The Bottom Line is that if the REMIC transactions were real, they would have been named on the note and mortgage. The fact that they never were named or disclosed demonstrates clearly that something else was going on besides funding mortgages with REMIC money from investors. Nobody would loan money without putting their name as payee on the note, their name as lender on the note and mortgage and their name as beneficiary. The Wall Street explanation that MERS and other obscurities were necessary to securitize the loans is in fact directly contrary to the fact that the loans were never securitized, that the mortgage bonds were bogus obligations from empty REMICs with no bank account and no active manager or trustee.” Neil F Garfield, livinglies.me

A recent case I reviewed, resulted in a full analysis, and my suggestions for strategy, tactics, pleading and oral argument. It involved Bank of America,  Recontrust and BONY/Mellon.

What is again so interesting is that we are dealing with BOA in SImi Valley, CA (supposedly) with Reconstrust in in in Richardson, TX. What is interesting is that the response to my letter which was addressed only to Recontrust came from BOA. This is evidence of the fact that Recontrust are one and the same entity. It doesn’t prove it but it is evidence of it. Thus the challenge to the substitution of trustee comes under the heading that a beneficiary cannot name itself as the trustee. The statute says the TRUSTOR names the trustee on the deed of trust not the beneficiary. And while the beneficiary may change the trustee there is nothing in the statute that even suggests that a beneficiary could name itself as the new trustee. The statute says that the trustee is to substitute for a court of law and that it is to exercise (See Hogan decision and others) a fiduciary duty toward both the Trustor and the beneficiary.

In most cases, the appearance of Bank of America as a beneficiary is via “merger with BAC” which was created to take the servicing rights from Countrywide (not the ownership of the loan). Yet the debt validation letter causes a response to show that the creditor is Bank of America while the Notice of Default shows as having a REMIC as the creditor, which would make the REMIC the beneficiary. So we have a conflict of creditors that comes from the same source.

Since the REMIC is required by law and contract to be closed out within 90 days with the loans in it, and since we know they didn’t do that, the money from the investors was beyond any reasonable doubt channeled through  conduits controlled by the investment banker and not the account of the REMIC because there was no trust account, bank account or any account through which the investor money was channeled and then sued to fund or buy loans. This leads to the inevitable conclusion that the entire scheme is a smoke screen for what really occurred.

Based upon what we know, the REMIC structure was actually ignored when it came to the movement of money. Based upon what we know, Quicken Loans and others acted as “originators”, which is a word that is not really defined legally but it would imply that it was the sales entity to reel in borrowers for a deal. While Quicken Loans was shown as payee on the note and lender on the note and mortgage (deed of trust), Quicken had neither loaned any money nor secured the loan through any legal nexus between Quicken and the investors. MERS was inserted as a placeholder for title purposes. Quicken was thus inserted as a placeholder for payment purposes — all without ad  equate disclosure of the compensation received by MERS or QUICKEN in the deal (a clear violation of TILA and RESPA).

Immediately after the closing of the loan the borrower was informed that the servicing rights had been transferred to Countrywide, and thereafter BAC emerged as the servicer. BAC was formed as a wholly owned subsidiary of bank of America and then merged with Bank of America for unknown reasons, and thus the servicing of the loan was assumed to be the right of Bank of America. But what was there to service?

If Quicken did not advance the funds for the loan nor did Quicken or any of its “successors” advance money for the purchase of a perfectly performing loan, then who did? The answer comes from irrefutable logic. We know the REMIC was ignored so the money didn’t come from the REMIC. If there was an intermediary who was acting as agent for the REMIC it had to be the Trustee for the REMIC who has no trust account or bank account to show for it. Thus the money came from another source and the money taken from investors may or may not have been used to fund the borrower’s loan in this case or more likely, a larger pool of investor funds was used as the source of funding but was NOT documented with the usual promissory note and mortgage (deed of trust) signed by the borrower.

The legal conclusion I reach is that the mountain of paperwork starting with the “origination” of the loan is worthless paper unsupported by either consideration (funding the loan) and whose recitations of facts are at variance with (1) the actual trail of money and (2) the provisions of the documents upon which Bank of America now relies requiring assignment of the loan in recordable form into the REMIC within 90 days while it was still performing. But they couldn’t assign it into the trust because (1) the trust had no money or account with which to pay for the loan and (2) this would have prevented the investment bank from trading the loan and the loan portfolios as if it were the property of the investment bank.

Thus Bank of America is attempting to appear as the new beneficiary based upon a complete lack of any chain of transactions that would make it so. And they are using the cover of BONY as “trustee” as cover for their false and fraudulent representations knowing full well that neither BONY nor the REMIC ever received a dime from investors, borrowers or anyone else and that instead the flow of money was entirely outside the sham paper transactions upon which BOA now relies.

Having covered up an incomplete unexecuted contract without funding the loan, the securitization participants proceeded to act as though the loan transaction with Quicken was real. If they relied upon the original trustee, the original trustee would have required sufficient title and other information from BOA before taking any action against the Trustor borrower.

Thus Bank of America names Reconstrust as the substitute trustee, that will “play ball” with them because Recontrust is owned and controlled by Bank of America. The challenge, as we have said, should be to the substitution of trustee as not having named an objective third party and instead being the equivalent of the beneficiary naming itself as trustee. BY definition, the new trustee is neither likely nor able to exercise due diligence and act in a responsible manner with a  fiduciary duty to the trustor and beneficiary, if they can determine the  identity of the beneficiary.

Thus any TRO or other action should be directed against the substitution of trustee as being outside the intent of the statute and violative of due process since it provides the beneficiary with unfettered ability to sell property merely on a whim.  In order to demonstrate compliance with the requirements of constitutional dude process the legislature had to show that there was a different procedure in place that would allow for the claims of all stakeholders to be heard. Even if the substitution of trustee was valid, the mere denial of the claims of the beneficiary and accusations of fraud, false assignments, and a closing at which the mortgage lien was not perfected, on a note that did not  name the proper payee nor state the same terms of repayment that the investors received when they “bought” the bogus mortgage bonds.

Bottom Line: The Pile of paperwork is worthless and does not create nor provide evidence of an actual transaction that took place wherein the named payee and lender ever fulfilled its part of the bargain — lending money to the borrower. Nor does it present even the possibility of a perfected mortgage lien. Thus foreclosure is impossible. The trustee was and is under an obligation in contested cases to file an interpleader action where the stakeholders’ claims may be heard on the merits. The primary trustee on the deed of trust may have violated its fiduciary duties by allowing the practice that it, of all entities, would or should have known was both illegal and improper. For both procedural and substantive reasons, the notice of default and notice of sale should be vacated and purged from the county records.

Cancellation of Void Instrument

Consider this an add-on to the workbook entitled Whose Lien is It Anyway also known as Volume II Workbook from Garfield Continuum Seminars.

Several Attorneys, especially from California are experimenting with a cause of action in which an instrument is cancelled — because it throws the burden of proof onto the any party claiming the validity or authenticity of the instrument.

I have been researching and analyzing this, and I think they are onto something but I would caution that your pleadings must adopt the deny and discover strategy and that you must be prepared to appeal. There is also a resurgence of tacit procuration doctrines, in which the receiver of communication has a definite duty to respond.

Here is Part I of the analysis: There will be at least one more installment:

Cancellation of Void Instrument

In most cases loans that are later subject to claims of securitization (assignment) are equally subject to cancellation. There are potential defenses to the motion or pleading demanding cancellation of the instrument; but if framed properly, the motion or pleading could be utilized as an advanced discovery tool leading to a final order. This is particularly true if a RESPA 6 (Qualified Written Request) precedes the motion or pleading.

Cancellation of a void instrument is most often directed at a Mortgage or Deed of Trust that is recorded. The elements of cancellation of an instrument include that the document is void (not just the recording). That means that what you are saying is that there is nobody in existence with any legal right, justification or excuse to attempt to use or enforce the document.

I believe that it requires the pleader to allege that the parties on the instrument are unknown to the Pleader in that there never was a financial transaction between the pleader and the the other parties mentioned and accordingly the recording of the document is at best a mistake and at worst, fraud. The element of fraud usually is involved whether you plead it or not.  However the same principles and elements might well apply to the following:

Substitution of Trustee
Notice of Default
Notice of Sale
Deed recorded as a result of foreclosure auction
Judgment for Eviction or Unlawful Detainer
Mortgage Bond
Unrecorded instruments like promissory notes, pooling and servicing agreements, and mortgage bonds, credit default swaps etc.

Another word of caution: an existing document carries a certain amount of the appearance of authenticity and validity. That appearance may rise to an informal presumption by a Judge who believes he understands the “facts” of the case. The informal presumption might be elevated by state or federal statute that may describe the presumption as rebutable, or presumed to be rebuttable. In some cases, the rebutable presumption could be elevated to an irrebutable presumption, which might mean that nobody is permitted to challenge the validity or authenticity of the document. But even irrefutable presumptions are subject to challenge if they are procured by deceit or fraud in the inducement, or fraud in the execution.

The scenario assumed here is that no loan receivable was legally created because there was no financial transaction between the homeowner and whoever is on the note, mortgage or whatever document you are seeking to cancel. Where appropriate, the pleader can allege that they deny ever having signed the instrument to that it was signed with expectation that the parties designated as lender, beneficiary or payee never completed the transaction by funding.

It is probably fair to say that presumptions are only successfully challenged if the allegations involve fraud or at least breach of presumed facts or promises. A note is evidence of an obligation and is presumed to validly recite the terms of repayment of a legitimate debt. But it also possible that the note might be evidence of the amount of the obligation, but not its terms of repayment if the facts and circumstances show that the offer was unclear or the acceptance was unclear. In the case of so-called securitized loans, accepting the allegations made by foreclosers, the offer of the loan contained terms that were never communicated to the borrower. This is because an instrument containing the terms of repayment was at material variance with the terms recited in the note. The instrument received by the lender was a mortgage bond. And most importantly the lender and the borrower were never in direct communication with one another.

The interesting effect of the substitution of the mortgage bond for a loan receivable is that the mortgage bond is NOT signed by the homeowner and is no payments of principal and interest are due to the investor except from the REMIC issuing entity that never received any enforceable documents from the homeowner.

Nor were the terms for repayment ever disclosed to the homeowner. And the compensation of the intermediaries was not disclosed as required under TILA. This constellation of factors throws doubt, at the very least, as to whether the closing was ever completed even without the the funding. The fact that the funding never took place from the designated payee or “lender” more or less seals the deal.

You must have at the ready your clear argument that if the “trust” was the lender or any of its investors then the note should have said so and there would be no argument about funding, or whether the note or mortgage were valid instruments. But Wall Street had other plans for “ownership” of the loan and substituted a series a naked nominees or straw-men for their own financial benefit and contrary to the terms expressed to the investor (pension fund) and the homeowner (borrower).

Wire Transfer instructions to the closing agents tell another story. They do not show any indication that the transfer to the closing agent was for the benefit of the designated lender, whose name was simply borrowed by Wall Street banks in order to trade the “loans” as if they were real and as if the banks owned the bonds instead of the trusts or the investors. This could only have been accomplished by NOT having the investors money travel through the REMIC trust. Hence the moment of origination of the obligation took place when the homeowner received the money from the investors through accounts that were maintained by the banks not for the REMICS but for the investors. This means that investors who believe their rights emanate from the origination documents of the trust are mistaken because of the false statements by the banks when they sold the bogus mortgage bonds.

If that is the case, their is no perfected lien, because the only mortgage or deed of trust recorded shows that it is to protect the payee “lender” (actually a naked nominee) in the vent the borrower fails to make payments and otherwise comply with the terms of the note and mortgage. But the note and mortgage relate to an unfunded transaction in which at not time was any party in the alleged securitization chain the source of funds for origination, and at not time was there ever “value received” for any assignments, bogus or otherwise, robo-signed or otherwise.

It also means that the investors must be disclosed and that for the first time the homeowners and pension funds who actually were involved in the transaction, can compare notes and decide on the balance of the obligation, if any, and what to do about it. Allowing the banks to foreclose as servicer, trustee of an asset-backed trust, or in any other capacity is unsupported by the evidence. The homeowner, as in any mortgage foreclosure, is entitled to examine the loan receivable account from the item of origination through the present. If there is agreement, then the possibility of a HAMP or other modification or settlement is possible.

Allowing the servicers to intermediate between the investors and the homeowners is letting the fox into the hen-house. If any deal is struck, then all the money they received for credit de fault swaps and insurance might be due back to the payors, since the mortgages declared in default are actually still performing loans AND at present are not secured by any perfected lien.

Cancellation of the note does not cancel the obligation. In most cases it converts the obligation from one that provided for periodic payments to a demand loan. Success of the borrower could be dangerous and lead the borrower to adopt portions of the note as evidence of the terms of repayment while challenging other parts of the recitals of the note. Cancellation of the note would also eviscerate the promise of collateral which is a separate agreement that offers the home as collateral to secure the faithful performance  of the terms of the note. Hence the mortgage or deed of trust would be collaterally canceled merely by canceling the note.

If the note is cancelled, the action can move on to cancel the mortgage instrument. In the context of securitized loans it seems unlikely that there could be any success without attacking both the mortgage, as security, and the note, as evidence of an obligation. In its simplest form, the attack would have the highest chance of success by successfully attacking the obligation. If a lender obtains a note from a borrower and then fails to fund the loan, no obligation arises. It follows logically that the recitals of the note would then be meaningless as would the recitals in the mortgage. Having achieved the goal of proving the instrument as invalid or meaningless, the presence of the instrument in the county recorder’s office would naturally cause damage to other stakeholders and should be cancelled.

If the mortgage is in fact cancelled, then the next logical step might be a quiet title action that would have the court declare the rights and obligations of the stakeholders, thus eliminating any further claims based upon off-record transactions or the absence of actions presumed to be completed as stated in the instrument itself.

It must be emphasized that this is not a collateral attack or a flank attack on the obligation based upon theories of securitization, the pooling and servicing agreement or the prospectus. cancellation of an instrument can only be successful if the party who would seek to use the instrument under attack cannot substantiate that the instrument is supported by the facts.

The facts examined usually include the issues of offer, acceptance and consideration at the time of origination of the instrument under attack. A later breach will most likely not be accepted as reasons for cancellation unless the later event is payment of a debt. Failure to return the cancelled note would be a proper subject of cancellation if the allegation was made that the the obligation was completely satisfied. The presence of the original note after such payment and refusal or inability to return the note as cancelled is reason enough for the court to enter an order canceling the note. Any attempt to sell the note or assign it would be ineffective as against the maker of the note and could subject the assignor to both civil and criminal penalties.

Both payment and origination issues arise in connection with the creation of loan documents. The originator (and any successors) must be able to establish offer, acceptance and consideration. The signature element missing from most of the document chains subjecting all deeds of trusts, notes, mortgages and assignments to cancellation is the lack of consideration.

In a money transaction, consideration means money. If money was not tendered by the originator of the documents despite the requirements to do so as set forth in the documents, the putative borrower or debtor who executed the documents is entitled to cancellation.
In the case of securitized loans, the appearance of propriety is created by reams of documents that cover up the origination documents, giving the appearance that numerous parties agreed that the proper elements were present at the time of the origination of the loan. This has successfully been used by banks to create the informal presumption that the essential elements were present at origination — offer, acceptance and consideration.

The originator (or its successors) can easily avoid cancellation by simply establishing the identity of itself as the lender, the signature of the borrower, and the proof of a cashed check, wire transfer or ACH confirmation showing the payment by the originator to the borrower. In loans subject to claims of securitization and multiple assignments, they cannot do this because the original transaction was never completed.

The issue in securitized loans is that while wire transfer instructions exist and might even mention the borrower by name and could even make reference to the originator, the instructions always include directions on where to send the surplus funds, if any exist. Those funds are clearly not to be given or sent to the originator but rather back to the undisclosed lender, which makes the transaction a table funded loan defined as illegal predatory practices under the Federal Truth in Lending Act.

If the documents named the actual lender, then the offer, acceptance and consideration could be shown as being present. Originators may not “borrow” consideration from a deal between the borrower and another party and use it to establish the consideration for the closing loan documents with the originator. That would create two obligations — the one evidenced by the note and the other evidenced by the mortgage bond, that asserts ownership of the obligation.

Borrowers and creditors are restricted by one simple fact. For every dollar of principal borrowed there must be a dollar paid on that obligation. Putting aside the issue of interest on the loan, the creditor is entitled only to one dollar for each dollar loaned, and the borrower is only required to make a payment on an obligation that is due. The obligation becomes due the moment the borrower accepts the money or the benefits of the money, regardless of whether any documents are drafted or executed. The converse is also true — the creation, and even execution of documents does not create the obligation. It is only the actual money transaction that creates the obligation.

Stripping away all other issues and documentation at the time of origination of the loan, it can fairly assumed that in most of the subject cases of “securitization” that the originator was either not a depository institution or was not acting under its charter as a depository or lending institution. If it was not a lending institution, then it loaned money to the borrower out of its borrowed or retained capital — with the source of funds coming from their own bank account. Based upon a review of hundreds of wire transfer instructions, none of the non-lending institutions was the source of funds, yet their name was used specifically recited in the note as “lender.” The accompanying disclosure documents and settlement statement describes the “lender” as being the named originator. Hence, without funds, no consideration was present. If there was an absence of consideration for the documents that were putatively executed, then the documents are worthless.

The originator in the above scenario lacked two capacities: (1) it could not enforce the note or mortgage because it lacked a loan receivable account that would suffer financial damage and (2) it could not legally execute a satisfaction, cancellation or release of the obligation or the putative lien.  Such an originator at the moment of closing is therefore missing the necessary elements to survive a request to cancel the instrument at that time or any other time. No assignments, allonges, indorsements, or even delivery of the loan documents can improve the survival of the loan documents originated, even if some assignee up the chain paid for it.

Yet at the same time that there was no consideration from the originator, there was a loan received by the borrower. If it didn’t come from the originator, and the money actually arrived, the question is properly asked to identify the source of funds and whether that party had the capacity to enforce collection of the loan and could execute a release or satisfaction or cancellation of the note and mortgage. Here is where the hairs split. The source of funds is owed the money regardless of whether there was a note or mortgage or settlement documents or disclosures — simply because they do have a loan receivable that would be damaged by non-payment. But that loan receivable is not supported by any documentation that one would ordinarily find in a mortgage loan.

The creation of documents reciting a false transaction, “borrowing” the fact that the homeowner did receive funds from another source, does NOT create a second obligation. Hence the note, mortgage (Deed of trust) and obligation presumed in favor of the named originator must be cancelled.

Since the sources of funds are neither the owner of the loan, the payee on the note, the lender identified on the note, mortgage and settlement documents, they lack the power to enforce any of those documents and secondly, lack the power to cancel, release or satisfy a note or mortgage on which they are not the payee or secured party. Hence the fact that the borrower received funds gives rise to a demand obligation against the borrower to repay the loan. All the funding source needs is evidence of the payment from their bank account and the receipt by the borrower.

Still Pretending the Servicers Are Legitimate

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Editor’s Comment:

I keep waiting for someone to notice. We all know that the foreclosures were defective. We all know that in many cases independent auditors found that strangers to the transaction submitted credit bids that were accepted by the auctioneer, and that in the non-judicial states where substitutions of trustees are always used to replace an independent trustee with one owned or controlled by the “new creditor” the “credit bid” is accepted by the creditor’s agent even if the trustee has notice from the borrower that neither the substitution of trustee nor the foreclosure are valid, that the borrower denies the debt, denies the default and denies the right of the “new creditor” to do anything.

In the old days when we followed the law, the trustee would have only one option: file an interpleader lawsuit in court claiming two stakeholders and that the trustee is not a stakeholder and should be reimbursed for fees and costs. Today instead of an interpleader, it is a foreclosure because the “creditor” is holding all the cards.

So why is anyone surprised that modifications are rejected when in the past the debtor and borrower always worked things out because foreclosure was not as good as a work-out?

Why do the deeds found to be lacking in consideration with false credit bids still remain on the books? Why hasn’t the homeowner been notified that he still owns the property and has the right to possession?

And why are we so sure that the original mortgage has any more validity than the false documents to support fraudulent foreclosures? Is it because the borrower’s signature is on it? OK. If we are going to look at the borrower’s signature then why do we not look at the rest of the document and the facts alleged to have occurred in those documents. The note says that the payee is the lender. We all know that isn’t true. The mortgage says the property is collateral for payment to the payee on the note. What first year law student would fail to spot that if the note recited a loan transaction that never occurred, then the mortgage securing the payments on the false transaction is no better than the note?

So if the original transaction was defective and the servicer derives its status or power from the origination documents, then who is the servicer and why is he standing in your living room demanding payment and declaring you in default?

If any reader of this blog somehow convinced another reader of the blog to sign a note and mortgage, would the note and mortgage be valid without any actual financial transaction. No. In fact, the attempt to collect on the note where I didn’t make the loan might be considered fraud or even grand theft. And rightfully so. I am told that in some states the Judges say it is the absence of anyone else making an effort to collect on the note that proves the standing of the party seeking to enforce it. Really?

This sounds like a business plan. A lends B money. B signs papers indicating the loan came from C and C gets the mortgage. B is delinquent by a month and having lost his job he abandons the property. D comes in and seeks to enforce the mortgage and note and nobody else is around. The title record is still clear of any foreclosure activity. D says he has an assignment and produces a false forged assignment. Nobody else shows up. THAT is because the parties in the securitization chain are using MERS instead of the public record title registry so they didn’t get any notice. D gets the foreclosure after substituting trustees in a non-judicial state or doing absolutely nothing in a judicial state. The property is auctioned and D submits a credit bid which is accepted by the auctioneer. The clerk or trustee issues D a deed upon foreclosure and D immediately transfers the property to XYZ corporation that he formed the day before. XYZ sells the property to E for $300,000. E pays D $60,000 down payment and gets a mortgage from ABC Lending Corp. for the other $240,000. ABC Lending Corp. sells the note and mortgage into the secondary market where it is sliced and diced into parcels that are allocated into one or more REMIC special purpose vehicles.

Now B comes back and finds out that he was never foreclosed on by his lender. C wakes up and says they never released the mortgage. D took the money and ran, never to be heard from again. The investors in the REMIC trusts are told they bought an invalid mortgage or one in which the mortgage has second priority instead of first priority. E, who bought the property with $60,000 of his own money is now at risk, and when he looks at his title policy and makes a claim he is directed to the schedules of exclusions and exceptions that specifically cover this event. So no title carrier is going to pay. In fact, the title company might concede that B still owns the property and that C has the first mortgage on it, but that leaves E with two mortgages instead of one. The two mortgages together total around $500,000, a price that E’s property will never reach in 20 years. Sound familiar?

Welcome to USA property law as it was summarily ignored, changed and enforced for the past 10 years? Why? Especially when it turns out that the investment broker that sold the mortgage bonds of the REMIC knew about the whole story all along. Why are we letting this happen?

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