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SEE 2015-08-10-0001


On February 25, 2015 the Minnesota Supreme Court considered several of the conventional theories advanced by the banks in favor of their right to foreclose. And the Court also considered the procedural and substantive issues surrounding rescission in Minnesota whose statutes closely resemble rescission under the Federal Truth in Lending Act.

The court rejected the bank’s arguments and points out that even the dissent on the court made the same mistakes as the lower courts, which were obviously in a state of utter confusion. It should be noted that this decision was rendered approximately 1 month after the Jesinoski v. Countrywide decision. It is apparent that the Supreme Court of Minnesota was heavily influenced by the unanimous Supreme Court decision governing rescission under the Truth in Lending Act.

In the nearly 8 million foreclosures that have been allowed by the judicial system using deeply flawed reasoning, the banks have convinced the courts that piling up paperwork essentially creates rights even if none existed before. The Minnesota Supreme Court simply stated that nothing plus nothing equals nothing. If you start with nothing then any successor to any paperwork that was executed also gets nothing. This is well settled law.

The court also considered the issue of cancellation or rescission of a transaction in the light of a statute that is clear on its face. Since there are few appellate decisions since the Jesinoski was rendered in January, we must refer to the Supreme Court of Minnesota in this case as at least a starting point.

Starting with the fact that the statute was clear, the court concludes that no court had the authority or jurisdiction to “interpret” the statute. For at least 8 years before Jesinoski the banks convinced thousands of judges in hundreds of thousands of decisions to ignore a rescission or cancellation of the loan documents that was, according to the statute, effective upon mailing.

The banks convinced the courts to read into that statute the rules governing common law rescission, which clearly conflict with the statute. If the statute is clear then it is by definition not ambiguous. And if there is no finding of ambiguity in the statute, the court has established, whether it likes it or not, that it has no power or jurisdiction to change the outcome based upon the opinion of the judge as to which party should win. If the judge proceeds to interpret the statute anyway, it is a nullity. Here again we have the application of the simple formula proposed by the Supreme Court of Minnesota, to wit: nothing plus nothing equals nothing. In the case of TILA Rescission the issue is closed, to wit: the unanimous decision of the US Supreme Court in Jesinoski was that the statute is not ambiguous and thus not subject to interpretation by ANY judge.


The third line of defense by the banks slight of hand — they make the transaction so complex and convoluted that it is impossible for the judge or even the homeowner or his attorney to follow it. The judge then relies upon the more sophisticated party (the bank) to clear up the complexity. But as we have recently seen in several Florida cases, and now as we see in the Minnesota Supreme Court, the judicial system has made an about-face and is now questioning whether there is any substance behind the paperwork and the complexity raised by claims of securitization which have been revealed in most cases to be false. Like the unanimous US Supreme, there is unanimity of findings and conclusions by regulators, legal scholars, economists, financial experts, and litigators, with tens of billions of dollars in settlements that were made public and hundreds of billions of dollars in private settlements. The conclusion is that the securitization failed — i.e., that it never really happened.

The Minnesota Supreme Court plunged into the midst of the complexity offered up by the various transactions involved in this particular case. The court succeeded in simplifying the matter by applying well settled law with no need to interpret anything or redefine anything.

While the facts of this case vary from the usual rescission issues under the Federal Truth in Lending Act, the principles applied remain the same.

However, the court places heavy emphasis on the time limits imposed by the statute for the exercise of the cancellation or rescission of a transaction. It may be expected that most courts will do the same. But it is also true that both the majority and the dissent seem to be in agreement that if the rescission was recorded the issue would have been less in doubt than it appeared in the court record.

Because it wasn’t in issue. this court has not addressed procedural issues, to wit: who has the burden of proof on the issue of timeliness? Under TILA Rescission it is the real creditor (the only one with standing). How do we know that? We know it because the borrower is not required to prove or allege timeliness. The rescission is effective when mailed. Practice Hint: In an action to enforce the rescission, the grounds for rescission need not and should not be in the allegations — the issue is limited to the sending of the rescission letter and the fact that the party being sued is attempting to use the void note and mortgage.

Perhaps counter-intuitively, the party being sued (servicer, Trustee etc) for permanent injunction from using the void note and void mortgage may NOT raise issues of timeliness of the rescission because they have no standing to do so. The actual creditor, if there is one, would be the only party able to do that. That would be an action for wrongful rescission. Note that in Jesinoski, Justice Scalia makes the point that the statute makes no distinction between disputed and undisputed rescissions. Hence “effective when mailed” means exactly that and the loan contract, note and mortgage are all canceled and void. If the issue of timeliness was still “out there”, then the rescission would not be effective upon mailing — which is exactly the point Justice Scalia was making. He didn’t say that the creditor could not file a lawsuit to vacate the rescission based upon timeliness. But that lawsuit would need to allege, first and foremost that the pleader had standing as a party who is being financially injured by the rescission. As I see it, no other party could raise those issues because they lack standing.

The most interesting point about this is that the lawsuit for enforcement of the rescission will not likely be against the creditor because the creditor is unknown. We only have access to the information given to us by self-appointed intermediaries who are claiming a right to enforce the note and mortgage. But since the rescission is effective upon mailing by operation of law, the effect is to make the note and mortgage void (as well as canceling the loan contract — if there is one). So the only defense from intermediary parties sued (to prevent them from using the note and mortgage) to the lawsuit for injunction or enforcement of the rescission is that the rescission was already vacated by a court of competent jurisdiction, which is essentially never the case. This is why rescission is such an effective discovery tool as well, to wit: in order to challenge the “wrongful” rescission the challenge must be made by the party who has something to lose — like the current liability to disgorge all the money paid by the borrower, deduct all finance charges, and pay to the borrower all the money paid to third parties as compensation for origination of the loan.

Hence the lesson drawn from this case is that the rescission should probably be recorded in the county property records as quickly as possible. In Florida it would appear that this would be done by attaching a copy of the rescission letter to the notice of interest in real property and then recording the entire instrument with the exhibit. Combining the two issues of timing and recording, it would appear that if anything in the notice of rescission or cancellation of the transaction refers to the date of consummation of the transaction, that the rescission could be void on its face for not complying with the statutory time periods for action by the borrower. A reference to the date of consummation in the letter giving notice of the rescission or cancellation of the transaction would also appear to be an admission that the transaction was in fact consummated.

The lesson to take away from that analysis is that the date on which the documents were signed is not necessarily the date of consummation. The date of consummation would be when the loan was funded and the liability of the borrower first arose as a result of the funding. IN our first year of law school we are taught that the liability of the borrower does not commence when he signs paperwork; the liability arises when the borrower gets the money. If the funding didn’t come from the party claiming to have rights to enforce the loan by virtue of what was written on the note or the mortgage or deed of trust, then we go back to nothing plus nothing equals nothing. No loan plus assignment of loan equals no successor, no servicer and no owner of the loan.

That would mean that the borrower would prevail under either one of two theories, which you see developed in this case in Minnesota. It is either No Consummation or Rescission. Either the borrower is entitled to nullification of the entire transaction and nullification of the instruments that should never have been released from the closing table and were procured by at best a failure to disclose and at worst an intentional misrepresentation, or the borrower would prevail for having cancelled or rescinded the transaction.

The forth line of defense from the banks has always been that the borrower is seeking a “free house.” No such thing occurs in the event of either nullification of the original instruments or cancellation of rescission of the original instruments. The party to whom the money is actually owed still has claims and might even have claims for an equitable interest in the mortgage that was recorded. But it does not have claims to simply exercise the rights of the creditor as expressed in the note and mortgage because the actual creditor has no legal interest in the note or in the mortgage. AND THAT would require a court order AFTER a party enters the picture and alleges that it is the actual creditor and can prove it.

No money plus note plus mortgage equals no valid lien and no foreclosure. It is positively astounding that after 8 million foreclosures we are still arguing about a well settled principle of law, fairness, equity and justice — in order for the paper to be used there had to be an actual transaction with the parties IN THAT CHAIN.


The banks have bootstrapped their misuse of investor money together with false claims of securitization to create the illusion that some or all of them had some actual rights; but nowhere have they ever come forward and done what any creditor would do when challenged about the transactions: “here they are, with canceled checks and wire transfer receipts. Next question?”

A fifth issue emerges which the court could have avoided but instead met the issue head on. “It is of course elementary that delivery of a deed is essential to a transfer of title…Delivery of a deed is complete only when the grantor has put it beyond his power to revoke or reclaim it…An undelivered deed cannot transfer legal title even to a bona fide purchaser, because lack of delivery renders the deed void…In this case, although Graves physically transferred a quick claim deed to Wayman, delivery did not occur because Graves never put the deed beyond his power to revoke or reclaim it.”

The court concluded that since “Graves retained the power to revoke or reclaim the deed during the statutory cancellation period…which made deliver impossible during the cancellation period,” that delivery was never completed. The court concluded “without delivery of the deed to Wayman, the common law treats the quick claim deed as void.”


The reason this is important is that it is a hidden issue in all of the closings that have occurred, especially over the last 10 years, where loans were ostensibly approved and funded. The note is released for anyone to do anything they want to do with it usually within a few days or a few weeks from the date that the borrower executed the mortgage instruments. The mortgage itself is not only released but it is recorded. The problem with that is that it is incontestable that the borrower retains a right to rescind for the first 3 days on any grounds at all, and that the 3 days starts to run from the date of consummation.

If the party on the note as payee and on the mortgage as mortgagee did not consummate the transaction with the borrower and instead was a sham nominee or party to a table funded loan, then it would follow that the 3‑day period under the Truth in Lending Act had not commenced running. It would also follow that the 3‑year limitations in the Truth in Lending Act had also not commenced running. And the reason is the Minnesota court’s statement that “nothing plus nothing equals nothing.” It is obvious to the Minnesota Supreme Court, and should be obvious to the rest of us, that it would be completely inappropriate for a third party to the transaction to act as though the endorsements and assignments of improperly executed and improperly drafted instruments would somehow create rights that did not exist before.

If the banks would want to assert rights in connection with the meeting at which the borrower executed the usual pile of documents it would first need to acknowledge the fact that it was the real party in interest and to prove that fact. This would amount to an admission of a pattern of conduct that is described by Regulation Z as predatory per se. Anything that is predatory per se, is obviously against public policy. Anything that is against public policy is obviously evidence of unclean hands. A party with unclean hands may not obtain equitable relief. Since foreclosure is the most extreme remedy under civil law, and is a remedy generally considered to be equitable in nature, then it follows that no party with unclean hands should be allowed to foreclose.

The idea that any of this produces a free house for the borrower is wrong. In the first place, the borrower has invested a great deal of money usually in connection with the property on which there is a claim of an encumbrance. In many cases the property has been in the family for generations and would not be subject to mortgage but for the knock on the door from one of the tens of thousands of loan agents that were selling loan products from door to door. But assuming that the current system of foreclosures becomes subject to the conclusions of the courts in the judicial system that foreclosure is impossible, that does not mean that the source of funding may not make a claim upon the homeowner for repayment of the money that was used to fund the origination or acquisition of the loan.

In fact it is quite obvious now that we know that at least half of all the people who went into foreclosure were asking for modifications, that the losses attendant to the actual loans could have been minimized at the same time as keeping homeowners in the homes and enabling them to recapture over time their equity. In fact the evidence is clear that most homeowners would be happy to execute entirely new and valid paperwork with a party who was in fact the real creditor.

The Minnesota court decides that even if you are a bona fide purchaser because you paid valuable consideration for the mortgage in reliance on what appeared to be the facts, you still get nothing if you paid for something where the grantor did not possess an interest that could be conveyed. This is bad news for the banks. They introduce undated endorsements and undated assignments and powers of attorney and various other instruments in court laying paper upon paper upon paper making it appear, that the greater weight of the evidence shows that they are in fact possessed of the claim to enforce the note and mortgage.

Nothing could be further from the truth. If their chain upon which they are relying in their foreclosure is based on a non‑existent transaction or an incomplete transaction, then they have no power to do anything anymore than the original party did. The only exception to this might be in the event that a party was introduced as a holder in due course. But that would mean that the party described as a holder in due course paid real value for the rights expressed in the note, under circumstances where it was acting in good faith and without knowledge of the borrower’s defenses. Such an allegation might be made, but appears impossible for the banks to prove.

UNANIMOUS SCOTUS: TILA Rescission Effective on Notice: No Borrower Lawsuit Required

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see TILA Rescission

The decision is merely a statement of the obvious. Scalia, writing for a UNANIMOUS court said that the statute means what it says. All the decisions in all the states requiring the borrower to file suit to enforce rescission are wrong. The court says the rescission is effected upon notice to the “lender.” What that means to me is that the subsequent foreclosure, non-judicial or judicial is void because there is no mortgage. TILA says that unless the “lender” files suit within a specified period of time the rescission is effective as of the date of notice. It goes on to say that the “lender” just send back all payments and a satisfaction of mortgage and canceled note.

The three year statute of limitations applies to notice — not a lawsuit filed by borrower. The burden is on the lender to contest the rescission and failing to do so within the 20 days (the time varies depending upon when you sent your notice of rescission) the deal is over.

What you have left is an unsecured debt that can be discharged in bankruptcy because TILA says the mortgage is gone. What effect this will have on the thousands of cases in which borrowers sent notices of rescission and were foreclosed remains to be seen, but it sure will be interesting to see what the courts do.


“Held: A borrower exercising his right to rescind under the Act need only provide written notice to his lender within the 3-year period, not file suit within that period. Section 1635(a)’s unequivocal terms—a borrower “shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so” (emphasis added)—leave no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. This conclusion is not altered by §1635(f), which states when the right to rescind must be exercised, but says nothing about how that right is exercised. Nor does §1635(g)—which states that “in addition to rescission the court may award relief . . . not relating to the right to rescind”—support respondents’ view that rescission is necessarily a consequence of judicial action. And the fact that the Act modified the common-law condition precedent to rescission at law, see §1635(b), hardly implies that the Act thereby codified rescission in equity. Pp. 2–5.”

729 F. 3d 1092, reversed and remanded.

SCALIA, J., delivered the opinion for a unanimous Court.

While there are certain parts of this statute that are not completely clear, I have always felt that this law would eventually be the downfall of the entire foreclosure mess.

As for the statute of limitations it is not yet determined when the “transaction” has been “Consummated.” But one thing is clear — the three year period and the more narrow three day period for rescission is not “fixed.” The framers of this law understood that there might be defective disclosures that would and should defeat the claim of the “lender” that the transaction was consummated on the date that the documents were signed. If the disclosures were incomplete or just plain wrong, it appears that the framers did not want the time limit running on borrowers until the disclosures were correct and proper.

If the disclosures had the wrong numbers (more than $35 deviation from true numbers) then delivery of the disclosures has not yet occurred. And the statute is very specific in stating that the “closing” is not complete until those disclosures have been made to the borrower and accepted by the borrower.

There remains many questions that will need to be answered in the Courts. Probably the biggest one is what happens in cases where the borrower properly gave notice of rescission, and where some entity initiated foreclosure after the notice of rescission. Since TILA says that the mortgage no longer exists, the foreclosure would logically be void. Any sales of the property pursuant to the foreclosure of a nonexistent mortgage would also be void.

And any claim for quiet title directed against the parties who claim interests in the recorded mortgage would appear to be a slam dunk in cases where the notice of rescission is effective. The right to receive a satisfaction of mortgage, which TILA calls for, means that the mortgage should not be in the chain of title of the owner of the property.

But that doesn’t clear up the question of what to do about events that have long since passed. There is no statute of limitations (except perhaps adverse possession) on title defects. If the title defect exists, it is there, by law, for all time. People who have purchased property that was involved in foreclosure and where the former owner canceled the mortgage by giving notice of rescission have a built in title defect. None of the sales of such property either through forced sale in foreclosure or third party sales would be anything more than a wild deed.

For more free information about TILA Rescission use the search engine on this blog going back to 2007-2008. The Supreme Court has unanimously confirmed what I wrote back when I was the sole voice in the wilderness. Opinions ranging from scathing orders from trial judges to lofty opinions from appellate courts in the state court and federal system unanimously stated that I was wrong. Now the U.S. Supreme Court — the final stop in any dispute — has also been unanimous, stating that all those orders, opinions and judgments were wrong on this issue. As a result millions of homes were subject to foreclosure actions on mortgages that no longer existed. And millions more, hearing advice from attorneys, failed to send the notice of rescission to take advantage of this important remedy.

New Mexico Supreme Court Wipes Out Bank of New York


There are a lot of things that could be analyzed in this case that was very recently decided (February 13, 2014). The main take away is that the New Mexico Supreme Court is demonstrating that the judicial system is turning a corner in approaching the credibility of the intermediaries who are pretending to be real parties in interest. I suggest that this case be studied carefully because their reasoning is extremely good and their wording is clear. Here are some of the salient quotes that I think it be used in motions and pleadings:

We hold that the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action. We also hold that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the New Mexico Home Loan Protection Act, NMSA 1978, §§ 58-21A-1 to -14 (2003, as amended through 2009) (the HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower. Finally, we hold that the HLPA is not preempted by federal law. We reverse the Court of Appeals and district court and remand to the district court with instructions to vacate its foreclosure judgment and to dismiss the Bank of New York’s foreclosure action for lack of standing.

The Romeros soon became delinquent on their increased loan payments. On April 1, 2008, a third party—the Bank of New York, identifying itself as a trustee for Popular Financial Services Mortgage—filed a complaint in the First Judicial District Court seeking foreclosure on the Romeros’ home and claiming to be the holder of the Romeros’ note and mortgage with the right of enforcement.

The Romeros also raised several counterclaims, only one of which is relevant to this appeal: that the loan violated the antiflipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).[They were lured into refinancing into a loan with worse provisions than the one they had].

Litton Loan Servicing did not begin servicing the Romeros’ loan until November 1, 2008, seven months after the foreclosure complaint was filed in district court.

At a bench trial, Kevin Flannigan, a senior litigation processor for Litton Loan Servicing, testified on behalf of the Bank of New York. Flannigan asserted that the copies of the note and mortgage admitted as trial evidence by the Bank of New York were copies of the originals and also testified that the Bank of New York had physical possession of both the note and mortgage at the time it filed the foreclosure complaint.

{9} The Romeros objected to Flannigan’s testimony, arguing that he lacked personal knowledge to make these claims given that Litton Loan Servicing was not a servicer for the Bank of New York until after the foreclosure complaint was filed and the MERS assignment occurred. The district court allowed the testimony based on the business records exception because Flannigan was the present custodian of records.

{10} The Romeros also pointed out that the copy of the “original” note Flannigan purportedly authenticated was different from the “original” note attached to the Bank of New York’s foreclosure complaint. While the note attached to the complaint as a true copy was not indorsed, the “original” admitted at trial was indorsed twice: first, with a blank indorsement by Equity One and second, with a special indorsement made payable to JPMorgan Chase.

the Court of Appeals affirmed the district court’s rulings that the Bank of New York had standing to foreclose and that the HLPA had not been violated but determined as a result of the latter ruling that it was not necessary to address whether federal law preempted the HLPA. See Bank of N.Y. v. Romero, 2011-NMCA-110, ¶ 6, 150 N.M. 769, 266 P.3d 638 (“Because we conclude that substantial evidence exists for each of the district court’s findings and conclusions, and we affirm on those grounds, we do not addressthe Romeros’ preemption argument.”).

We have recognized that “the lack of [standing] is a potential jurisdictional defect which ‘may not be waived and may be raised at any stage of the proceedings, even sua sponte by the appellate court.’” Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M. 734, 31 P.3d 1008 (citation omitted). While we disagree that the Romeros waived their standing claim, because their challenge has been and remains largely based on the note’s indorsement to JPMorgan Chase, whether the Romeros failed to fully develop their standing argument before the Court of Appeals is immaterial. This Court may reach the issue of standing based on prudential concerns. See New Energy Economy, Inc. v. Shoobridge, 2010-NMSC-049, ¶ 16, 149 N.M. 42, 243 P.3d 746 (“Indeed, ‘prudential rules’ of judicial self-governance, like standing, ripeness, and mootness, are ‘founded in concern about the proper—and properly limited—role of courts in a democratic society’ and are always relevant concerns.” (citation omitted)). Accordingly, we address the merits of the standing challenge.[e.s.]

the Romeros argue that none of the Bank’s evidence demonstrates standing because (1) possession alone is insufficient, (2) the “original” note introduced by the Bank of New York at trial with the two undated indorsements includes a special indorsement to JPMorgan Chase, which cannot be ignored in favor of the blank indorsement, (3) the June 25, 2008, assignment letter from MERS occurred after the Bank of New York filed its complaint, and as a mere assignment

of the mortgage does not act as a lawful transfer of the note, and (4) the statements by Ann Kelley and Kevin Flannigan are inadmissible because both lack personal knowledge given that Litton Loan Servicing did not begin servicing loans for the Bank of New York until seven months after the foreclosure complaint was filed and after the purported transfer of the loan occurred. 

(“[S]tanding is to be determined as of the commencement of suit.”); accord 55 Am. Jur. 2d Mortgages § 584 (2009) (“A plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable interest.”). One reason for such a requirement is simple: “One who is not a party to a contract cannot maintain a suit upon it. If [the entity] was a successor in interest to a party on the [contract], it was incumbent upon it to prove this to the court.” L.R. Prop. Mgmt., Inc. v. Grebe, 1981-NMSC-035, ¶ 7, 96 N.M. 22, 627 P.2d 864 (citation omitted). The Bank of New York had the burden of establishing timely ownership of the note and the mortgage to support its entitlement to pursue a foreclosure action. See Gonzales v. Tama, 1988-NMSC- 016, ¶ 7, 106 N.M. 737, 749 P.2d 1116


(“One who holds a note secured by a mortgage has two separate and independent remedies, which he may pursue successively or concurrently; one is on the note against the person and property of the debtor, and the other is by foreclosure to enforce the mortgage lien upon his real estate.” (internal quotation marks and citation omitted)).

3. None of the Bank’s Evidence Demonstrates Standing to Foreclose

{19} The Bank of New York argues that in order to demonstrate standing, it was required to prove that before it filed suit, it either (1) had physical possession of the Romeros’ note indorsed to it or indorsed in blank or (2) received the note with the right to enforcement, as required by the UCC. See § 55-3-301 (defining “[p]erson entitled to enforce” a negotiable instrument). While we agree with the Bank that our state’s UCC governs how a party becomes legally entitled to enforce a negotiable instrument such as the note for a home loan, we disagree that the Bank put forth such evidence.

a. Possession of a Note Specially Indorsed to JPMorgan Chase Does Not Establish the Bank of New York as a Holder

{20} Section 55-3-301 of the UCC provides three ways in which a third party can enforce a negotiable instrument such as a note. Id. (“‘Person entitled to enforce’ an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the [lost, destroyed, stolen, or mistakenly transferred] instrument pursuant to [certain UCC enforcement provisions].”); see also § 55-3-104(a)(1), (b), (e) (defining “negotiable instrument” as including a “note” made “payable to bearer or to order”). Because the Bank’s arguments rest on the fact that it was in physical possession of the Romeros’ note, we need to consider only the first two categories of eligibility to enforce under Section 55-3-301.

{21} The UCC defines the first type of “person entitled to enforce” a note—the “holder” of the instrument—as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” NMSA 1978, § 55-1-201(b)(21)(A) (2005); see also Frederick M. Hart & William F. Willier, Negotiable Instruments Under the Uniform Commercial Code, § 12.02(1) at 12-13 to 12-15 (2012) (“The first requirement of being a holder is possession of the instrument. However, possession is not necessarily sufficient to make one a holder. . . . The payee is always a holder if the payee has possession. Whether other persons qualify as a holder depends upon whether the instrument initially is payable to order or payable to bearer, and whether the instrument has been indorsed.” (footnotes omitted)). Accordingly, a third party must prove both physical possession and the right to enforcement through either a proper indorsement or a transfer by negotiation. See NMSA 1978, § 55-3-201(a) (1992) (“‘Negotiation’ means a transfer of possession . . . of an instrument by a person other than the issuer to a person who thereby becomes its holder.”). [E.S.] Because in this case the Romeros’ note was clearly made payable to the order of Equity One, we must determine whether the Bank provided sufficient evidence of how it became a “holder” by either an indorsement or transfer.

Without explanation, the note introduced at trial differed significantly from the original note attached to the foreclosure complaint, despite testimony at trial that the Bank of New York had physical possession of the Romeros’ note from the time the foreclosure complaint was filed on April 1, 2008. Neither the unindorsed note nor the twice-indorsed


note establishes the Bank as a holder.

{23} Possession of an unindorsed note made payable to a third party does not establish the right of enforcement, just as finding a lost check made payable to a particular party does not allow the finder to cash it. [E.S.]See NMSA 1978, § 55-3-109 cmt. 1 (1992) (“An instrument that is payable to an identified person cannot be negotiated without the indorsement of the identified person.”). The Bank’s possession of the Romeros’ unindorsed note made payable to Equity One does not establish the Bank’s entitlement to enforcement.

We are not persuaded. The Bank provides no authority and we know of none that exists to support its argument that the payment restrictions created by a special indorsement can be ignored contrary to our long-held rules on indorsements and the rights they create. See, e.g., id. (rejecting each of two entities as a holder because a note lacked the requisite indorsement following a special indorsement); accord NMSA 1978, § 55-3-204(c) (1992) (“For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.”).


the Bank of New York relies on the testimony of Kevin Flannigan, an employee of Litton Loan Servicing who maintained that his review of loan servicing records indicated that the Bank of New York was the transferee of the note. The Romeros objected to Flannigan’s testimony at trial, an objection that the district court overruled under the business records exception. We agree with the Romeros that Flannigan’s testimony was inadmissible and does not establish a proper transfer.

Litton Loan Servicing, did not begin working for the Bank of New York as its servicing agent until November 1, 2008—seven months after the April 1, 2008, foreclosure complaint was filed. Prior to this date, Popular Mortgage Servicing, Inc. serviced the Bank of New York’s loans. Flannigan had no personal knowledge to support his testimony that transfer of the Romeros’ note to the Bank of New York prior to the filing of the foreclosure complaint was proper because Flannigan did not yet work for the Bank of New York. See Rule 11-602 NMRA (“A witness may testify to a matter only if evidence is introduced sufficient to support a finding that the


witness has personal knowledge of the matter. [E.S.] Evidence to prove personal knowledge may consist of the witness’s own testimony.”). We make a similar conclusion about the affidavit of Ann Kelley, who also testified about the status of the Romeros’ loan based on her work for Litton Loan Servicing. As with Flannigan’s testimony, such statements by Kelley were inadmissible because they lacked personal knowledge.


When pressed about Flannigan’s basis of knowledge on cross-examination, Flannigan merely stated that “our records do indicate” the Bank of New York as the holder of the note based on “a pooling and servicing agreement.” No such business record itself was offered or admitted as a business records hearsay exception. See Rule 11-803(F) NMRA (2007) (naming this category of hearsay exceptions as “records of regularly conducted activity”).

The district court erred in admitting the testimony of Flannigan as a custodian of records under the exception to the inadmissibility of hearsay for “business records” that are made in the regular course of business and are generally admissible at trial under certain conditions. See Rule 11-803(F) (2007) (citing the version of the rule in effect at the time of trial). The business records exception allows the records themselves to be admissible but not simply statements about the purported contents of the records. [E.S.] See State v. Cofer, 2011-NMCA-085, ¶ 17, 150 N.M. 483, 261 P.3d 1115 (holding that, based on the plain language of Rule 11-803(F) (2007), “it is clear that the business records exception requires some form of document that satisfies the rule’s foundational elements to be offered and admitted into evidence and that testimony alone does not qualify under this exception to the hearsay rule” and concluding that “‘testimony regarding the contents of business records, unsupported by the records themselves, by one without personal knowledge of the facts constitutes inadmissible hearsay.’” (citation omitted)). Neither Flannigan’s testimony nor Kelley’s affidavit can substantiate the existence of documents evidencing a transfer if those documents are not entered into evidence. Accordingly, Flannigan’s trial testimony cannot establish that the Romeros’ note was transferred to the Bank of New York.[E.S.]


We also reject the Bank’s argument that it can enforce the Romeros’ note because it was assigned the mortgage by MERS. An assignment of a mortgage vests only those rights to the mortgage that were vested in the assigning entity and nothing more. See § 55-3-203(b) (“Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course.”); accord Hart & Willier, supra, § 12.03(2) at 12-27 (“Th[is] shelter rule puts the transferee in the shoes of the transferor.”).


As a nominee for Equity One on the mortgage contract, MERS could assign the mortgage but lacked any authority to assign the Romeros’ note. Although this Court has never explicitly ruled on the issue of whether the assignment of a mortgage could carry with it the transfer of a note, we have long recognized the separate functions that note and mortgage contracts perform in foreclosure actions. See First Nat’l Bank of Belen v. Luce, 1974-NMSC-098, ¶ 8, 87 N.M. 94, 529 P.2d 760 (holding that because the assignment of a mortgage to a bank did not convey an interest in the loan contract, the bank was not entitled to foreclose on the mortgage); Simson v. Bilderbeck, Inc., 1966-NMSC-170, ¶¶ 13-14, 76 N.M. 667, 417 P.2d 803 (explaining that “[t]he right of the assignee to enforce the mortgage is dependent upon his right to enforce the note” and noting that “[b]oth the note and mortgage were assigned to plaintiff.


(“A mortgage securing the repayment of a promissory note follows the note, and thus, only the rightful owner of the note has the right to enforce the mortgage.”); Dunaway, supra, § 24:18 (“The mortgage only secures the payment of the debt, has no life independent of the debt, and cannot be separately transferred. If the intent of the lender is to transfer only the security interest (the mortgage), this cannot legally be done and the transfer of the mortgage without the debt would be a nullity.”). These separate contractual functions—where the note is the loan and the mortgage is a pledged security for that loan—cannot be ignored simply by the advent of modern technology and the MERS electronic mortgage registry system.


Failure of Another Entity to Claim Ownership of the Romeros’ Note Does Not Make the Bank of New York a Holder

{37} Finally, the Bank of New York urges this Court to adopt the district court’s inference that if the Bank was not the proper holder of the Romeros’ note, then third-party-defendant Equity One would have claimed to be the rightful holder, and Equity One made no such claim.


{38} The simple fact that Equity One does not claim ownership of the Romeros’ note does not establish that the note was properly transferred to the Bank of New York. In fact, the evidence in the record indicates that JPMorgan Chase may be the lawful holder of the Romeros’ note, as reflected in the note’s special indorsement.


Because the transferee is not a holder, there is no presumption under Section [55-]3-308 [(1992) (entitling a holder in due course to payment by production and upon signature)] that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it.


B. A Lender Must Consider a Borrower’s Ability to Repay a Home Mortgage Loan in Determining Whether the Loan Provides a Reasonable, Tangible Net Benefit, as Required by the New Mexico HLPA

{39} For reasons that are not clear in the record, the Romeros did not appeal the district court’s judgment in favor of the original lender, Equity One, on the Romeros’ claims that Equity One violated the HLPA. The Court of Appeals addressed the HLPA violation issue in the context of the Romeros’ contentions that the alleged violation constituted a defense to the foreclosure complaint of the Bank of New York by affirming the district court’s favorable ruling on the Bank of New York’s complaint. As a result of our holding that the Bank of New York has not established standing to bring a foreclosure action, the issue of HLPA violation is now moot in this case. But because it is an issue that is likely to be addressed again in future attempts by whichever institution may be able to establish standing to foreclose on the Romero home and because it involves a statutory interpretation issue of substantial public importance in many other cases, we address the conclusion of both the


Court of Appeals and the district court that a homeowner’s inability to repay is not among “all of the circumstances” that the 2003 HLPA, applicable to the Romeros’ loan, requires a lender to consider under its “flipping” provisions:

No creditor shall knowingly and intentionally engage in the unfair act or practice of flipping a home loan. As used in this subsection, “flipping a home loan” means the making of a home loan to a borrower that refinances an existing home loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan and the borrower’s circumstances.

Section 58-21A-4(B) (2003); see also Bank of N.Y., 2011-NMCA-110, ¶ 17 (holding that “while the ability to repay a loan is an important consideration when otherwise assessing a borrower’s financial situation, we will not read such meaning into the statute’s ‘reasonable, tangible net benefit’ language”).


We have been presented with no conceivable reason why the Legislature in 2003 would consciously exclude consideration of a borrower’s ability to repay the loan as a factor of the borrower’s circumstances, and we can think of none. Without an express legislative direction to that effect, we will not conclude that the Legislature meant to approve mortgage loans that were doomed to end in failure and foreclosure. Apart from the plain language of the statute and its express statutory purpose, it is difficult to comprehend how an unrepayable home mortgage loan that will result in a foreclosure on one’s home and a deficiency judgment to pay after the borrower is rendered homeless could provide “a reasonable, tangible net benefit to the borrower.”

[LENDER’S OBLIGATION TO MAKE SURE IT IS A VIABLE TRANSACTION] a lender cannot avoid its own obligation to consider real facts and circumstances [E.S.] that might clarify the inaccuracy of a borrower’s income claim. Id. (“Lenders cannot, however, disregard known facts and circumstances that may place in question the accuracy of information contained in the application.”) A lender’s willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower’s circumstances that cannot be disregarded.

if the inclusion of such boilerplate language in the mass of documents a borrower must sign at closing would substitute for a lender’s conscientious compliance with the obligations imposed by the HLPA, its protections would be no more than empty words on paper that could be summarily swept aside by the addition of yet one more document for the borrower to sign at the closing.


Borrowers are certainly not blameless if they try to refinance their homes through loans they cannot afford. But they do not have a mortgage lender’s expertise, and the combination of the relative unsophistication of many borrowers and the potential motives of unscrupulous lenders seeking profits from making loans without regard for the consequences to homeowners led to the need for statutory reform. See § 58-21A-2 (discussing (A) “abusive mortgage lending” practices, including (B) “making . . . loans that are equity-based, rather than income based,” (C) “repeatedly refinanc[ing] home loans,” rewarding lenders with “immediate income” from “points and fees” and (D) victimizing homeowners with the unnecessary “costs and terms” of “overreaching creditors”).



While the Bank is correct in asserting that the OCC issued a blanket rule in January 2004, see 12 C.F.R. § 34.4(a) (2004) (preempting state laws that impact “a national bank’s ability to fully exercise its Federally authorized real estate lending powers”), and that the New Mexico Administrative Code recognizes this OCC rule, neither the Bank nor our administrative code addresses several actions taken by Congress and the courts since 2004 to disavow the OCC’s broad preemption statement.


Applying the Dodd-Frank standard to the HLPA, we conclude that federal law does not preempt the HLPA. First, our review of the NBA reveals no express preemption of state consumer protection laws such as the HLPA. Second, the Bank provides no evidence that conforming to the dictates of the HLPA prevents or significantly interferes with a national bank’s operations. Third, the HLPA does not create a discriminatory effect; rather, the HLPA applies to any “creditor,” which the 2003 statute defines as “a person who regularly [offers or] makes a home loan.” Section 58-21A-3(G) (2003). Any entity that makes home loans in New Mexico must follow the HLPA, regardless of whether the lender is a state or nationally chartered bank. See § 58-21A-2 (providing legislative findings on abusive mortgage lending practices that the HLPA is meant to discourage).

CAl. S. Ct: You can’t Fool All the People All the Time

“The Pendergrass limitation finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud. It is difficult to apply. It conflicts with the doctrine of the Restatements, most treatises, and the majority of our sister-state jurisdictions. Furthermore, while intended to prevent fraud, the rule established in Pendergrass may actually provide a shield for fraudulent conduct. Finally, Pendergrass departed from established California law at the time it was decided, and neither acknowledged nor justified the abrogation. We now conclude that Pendergrass was ill- considered, and should be overruled.”


What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Analysis and Practice Tips: In the decision Riverside Cold v Fresno-Madera the California Supreme Court stopped the banks dead in their tracks. Whereas they were able to prevent the borrower from introducing parole evidence (events outside the four corners of a document) the banks are now to be confronted in California and other states that will follow with the probability that their lies and illegal steering people into foreclosure are going to haunt them and defeat them.

We have heard for years how servicers and banks told homeowners to stop making their mortgage payments in order to qualify for mortgage modification. Then comes the lost papers 4-5 times and then comes the inevitable denial of a the mortgage modification — as though anyone had ever considered it and as though the investors were contacted for feedback. The fact is, as the future litigation will point out and reveal in all its splendor, the foreclosers were out to foreclose — not to settle, modify or otherwise resolve the situation.

They would string the borrower along until so many months of non-payment had  piled up that between principal interest, taxes and insurance all but the most frugal borrower would be short on money and unable to reinstate. The result has been far lower proceeds from foreclosure than any other means of mitigating damages, and far more foreclosures than there needed to be. And it all started with misrepresentation, lies, deceit and fraud at closing, during he foreclosure process, during the so-called modification process and during the sale at auction, which prevented the homeowner from redeeming the property because the true balance was never disclosed.

All that changes with this very well-reasoned opinion. The Court clearly is beginning to see that the the without strict adherence to all the rules and all considerations of due process, the court system is being used as a vehicle for theft, fraud, forgery, fabrication and the destruction of people’s lives and livelihood.

Banks Trying to Get Bill Through Congress Protecting MERS

Editor’s Comment: It is no small wonder that the banks are scared. After all they created MERS and they control MERS and many of them own MERS. The Washington Supreme Court ruling leaves little doubt that MERS is a sham, leaving even less doubt that an industry is sprouting up for wrongful foreclosure in which trillions of dollars are at stake.

The mortgages that were used for foreclosure are, in my opinion, and in the opinion of a growing number of courts and lawyers and regulatory agencies around the country, State and Federal, were fatally defective and that leads to the conclusion that (1) the foreclosures can be overturned and (2) millions of dollars in damages might be payable to those homeowners who were foreclosed and evicted from homes they legally owned.

But the problem for the megabanks is even worse than that. If the mortgages were defective (deeds of trust in some states), then the money collected by the banks from insurance, credit default swaps, federal bailouts and buyouts and other hedge instruments pose an enormous liability to the large banks that promulgated this scam known as securitization where the last thing they had in mind was securitization. In many cases, the loans were effectively sold multiple times thus creating a liability not only to the borrower that illegally had his home seized but a geometrically higher liability to other financial institutions and governments and investors for selling them toxic waste.

There is a reason that that the bailout is measured at $17 trillion and it isn’t because those are losses caused by defaults in mortgages which appear to total less than 10% of that amount. The total of ALL mortgages during that period that are subject to claims of securitization (false claims, in my opinion) was only $13 trillion. So why was the $17 trillion bailout $4 trillion more than all the mortgages put together, most of which are current on their payments?

The reason is that some bets went well, in which case the banks kept the profits and didn’t tell the investors about it even though it was investor with which money they were betting.

If the loan went sour, or the Master Servicer, in its own interest, declared that the value of the pool had been diminished by a higher than expected default rate, then the insurance contract and credit default contract REQUIRED payment even though most of the loans were intact. Of course we now know that the loans were probably never in the pools anyway.

The bets that ended up in losses were tossed over the fence at the Federal Government and the bets that were “good” ended up with the insurers (AIG, AMBAC) having to pay out more money than they were worth. Enter the Federal Government again to make up the difference where the banks collected 100 cents on the dollar, didn’t tell the investors and declared the loans in default anyway and then proceeded to foreclose.

The banks’ answer to this knotty problem is predictable. Overturn the Washington Supreme Court case and others like it appellate and trial courts around the country by having Congress declare that the MERS transactions were valid. The biggest hurdle they must overcome is not a paperwork problem —- it is a money problem.

In many if not most cases, neither MERS nor the named payee on the note nor the “lender” identified on the note and mortgage had loaned any money at all. Even the banks are saying that the loans are owned by the “Trusts” but it now appears as though the trusts were never funded by either money or loans and that there were no bank accounts or any other accounts for those pools.

That leaves nothing but nominees for unidentified parties in all the blank spaces on the note and mortgage, whose terms were different than the payback provisions promised to the investor lenders. And THAT means that much of the assets carried on the books of the banks are simply worthless and non-existent AND that there is a liability associated with those transactions that is geometrically higher than the false assets that the banks are reporting.

So the question comes down to this: will Congress try to save MERS? (I.e., will they try to save the banks again with a legal bailout?). Will the effort even be constitutional since it deals with property required to be governed under States’ rights under the constitution or are we going to forget the Constitution and save the banks at all costs?

When you cast your ballot in November, remember to look at the candidates you are considering. If they are aligned with the banks, we can expect slashed pension benefits next year along with a whole new round of housing and economic decline.




COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

EDITOR’S COMMENT: While finding that the affidavits were false and agreeing the conduct was disturbing and reprehensible the Court held that GMAC should not be held in contempt. What? The dissenting opinion is correct. Neither the trial Judge nor the Supreme Court should have even considered the question without a hearing in which evidence was submitted.

Nevertheless the Court’s opinion is further ratification of what we have been saying on these pages. The fraudulent foreclosures (26,000 of them in Essex County, Mass alone) are a cancer growing on our society. The corruption of title registries is already taking its toll, but we have only seen the tip of the iceberg.

The interesting thing about this case is off the record. GMAC dropped the foreclosure and the homeowner is still in her home. It goes without saying that her title is corrupted by the fraudulent foreclosure. Perhaps she has a cause of action for slander of title, quiet title and other claims? The point is that by paying attention to details it was obvious that the papers being used to foreclose were false and GMAC couldn’t fix it because they were simply not true.

Third party reports and analyses will help you get your point across. That is why I created the COMBO TITLE and SECURITIZATION REPORT. (see above for link)

Maine high court declines to hold GMAC in contempt over ‘robo-signing’ of foreclosure records


PORTLAND, Maine — Maine’s highest court has declined to find GMAC Mortgage in contempt for signing off on home foreclosures without first verifying documents — a practice referred to as “robo-signing.”

In a 5-1 decision, the Supreme Judicial Court upheld a decision by a lower court last year. A district judge stopped short in that ruling of finding GMAC in contempt, though he did find that the company submitted a foreclosure affidavit on behalf of Fannie Mae in bad faith.

The case involved a Maine woman who fell behind on mortgage payments after losing her job.

During the lawsuit, her attorneys deposed a GMAC employee in Florida who testified that he signed 8,000 documents a month without personally verifying the mortgage information.

The deposition helped to spur investigations by all 50 states into allegations that mortgage companies mishandled documents and broke laws in thousands of foreclosures.

Writing for the majority, Justice Ellen Gorman didn’t mince words in her criticism, but she noted that there’s no precedent for a contempt finding under the circumstances.

“The affidavit in this case is a disturbing example of a reprehensible practice. That such fraudulent evidentiary filings are being submitted to courts is both violative of the rules of court and ethically indefensible,” she wrote in Tuesday’s ruling. The conduct, she added, “displays a serious and alarming lack of respect for the nation’s judiciaries.”

One of the justices, Jon Levy, issued a dissenting opinion, writing that the district judge should have conducted a full hearing into the contempt issue before rendering his decision.

Thomas Cox, who represented the woman who nearly lost her home, said it was satisfying to shed light on GMAC’s practices but disappointing that the court didn’t require a fuller inquiry and whether those practices were egregious enough to warrant a contempt finding.

“The issue has been exposed and it’s out in the open but to have the supreme court not act more strongly is a disappointment,” Cox said Wednesday.

As for the plaintiff, GMAC ultimately dropped its foreclosure action against Nicolle Bradbury, who remains in her Denmark, Maine, home, Cox said.

GMAC’s lawyer, John J. Aromando, had no immediate comment Wednesday. Gina Proia, spokeswoman for GMAC’s parent company, Ally Financial in New York, said the company is pleased with the court ruling but had no further comment. The company remains the target of a separate class-action lawsuit brought on behalf of Maine homeowners.



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