Fla 2d DCA: HELOC Instrument Not Self-Authenticating Article 3 Note

Just because an instrument is not self-authenticating doesn’t mean it can’t be authenticated. Here the Plaintiff could not authenticate the note without the legal presumption of self-authentication and all the legal presumptions that follow.  And that is the point here. They came to court without evidence and in this case the court turned them away.

Florida courts, along with courts around the country, are gradually inching their way to the application of existing law, thus eroding the dominant premise that if the Plaintiff is a bank, they should win, regardless of law.


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see HELOC Not Negotiable Instrument and Therefore Not Self Authenticating

This decision is neither novel nor complicated. A note can be admitted into evidence as self-authenticating without extrinsic evidence (parol evidence) IF it is a negotiable instrument under the State adoption of the UCC as State Law.

The inquiry as to whether a promissory note is a negotiable instrument is simple:

  • Does the body of the note claim to memorialize an unconditional promise
  • to pay a fixed amount
  • (editor’s addition) to an identified Payee? [This part is assumed since the status of the “lender” depends upon how and why it came into possession of the note.]

A note memorializing a line of credit is. by definition, not a fixed amount. Case closed, the “lender” lost and it was affirmed in this decision. There was no other choice.

The only reason why this became an issue was because counsel for the homeowner timely raised a clearly worded objection to the note as not being a negotiable instrument and therefore not being self-authenticating. And without the note, the mortgage, which is not a negotiable instrument, is meaningless anyway.

This left the foreclosing party with the requirement that they prove their case with real evidence and not be allowed to avoid that burden of proof using legal presumptions arising from the facial validity of  a negotiable instrument.

The typical response from the foreclosing party essentially boils down to this: “Come on Judge we all know the note was signed, we all know the payments stopped, we all know that the loan is in default. Why should we clog up the court system using legal technicalities.”

What is important about this case is the court’s position on that “argument” (to ignore the law and just get on with it). “This distinction is not esoteric legalese. Florida law is clear that a “negotiable instrument” is “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.”§ 673.1041(1), Fla. Stat. (2012) (emphasis added).”

So THAT means that if the trial court is acting properly it will apply the laws of the state and THAT requires the court to rule based upon the UCC and cases involving
negotiable instruments.

But none of that invalidated the note or mortgage, nor should it. THAT is where it gets interesting. By denying the note as a self authenticating instrument the court was merely requiring the foreclosing party to proffer actual evidence regarding the terms of the note, including the manner in which it was acquired and how the foreclosing party is an injured party — a presumption that is no longer present when the note is denied admission into evidence as a self authenticating negotiable instrument.

The foreclosing party was unable to produce any testimony or exhibits demonstrating the prima facie case. Why? Because they are not and never were a creditor nor are they agent or representative of the actual party to whom the subject underlying DEBT was owed.


Florida law requires the authentication of a document prior to its admission into evidence. See § 90.901, Fla. Stat. (2012) (“Authentication or identification of evidence is required as a condition precedent to its admissibility.”); Mills v. Baker, 664 So. 2d 1054, 1057 (Fla. 2d DCA 1995); see, e.g., DiSalvo v. SunTrust Mortg., Inc., 115 So. 3d 438, 439-40 (Fla. 2d DCA 2013) (holding that unauthenticated default letters from lender could not be considered in mortgage foreclosure summary judgment). Proffered evidence is authenticated when its proponent introduces sufficient evidence “to support a finding that the matter in question is what its proponent claims.” § 90.901; Coday v. State, 946 So. 2d 988, 1000 (Fla. 2006) (“While section 90.901 requires the authentication or identification of a document prior to its admission into evidence, the requirements of this section are satisfied by evidence sufficient to support a finding that the document in question is what its proponent claims.”).

There are a number of recognized exceptions to the authentication requirement. One, as relevant here, relates to commercial paper under the Uniform Commercial Code, codified in chapters 678 to 680 of the Florida Statutes. “Commercial papers and signatures thereon and documents relating to them [are self-authenticating], to the extent provided in the Uniform Commercial Code.” § 90.902(8); see, e.g., U.S. Bank Nat’l Ass’n for BAFC 2007-4 v. Roseman, 214 So. 3d 728, 733 (Fla 4th DCA 2017) (reversing the trial court’s denial of the admission of the original note in part because the note was self-authenticating); Hidden Ridge Condo. Homeowners Ass’n v. Onewest Bank, N.A., 183 So. 3d 1266, 1269 n.3 (Fla. 5th DCA 2016) (stating that because the endorsed note was self-authenticating as a commercial paper, extrinsic evidence of authenticity was not required as a condition precedent…

We cannot bicker with the proposition that “for over a century . . . the Florida Supreme Court has held [promissory notes secured by a mortgage] are negotiable instruments. And every District Court of Appeal in Florida has affirmed this principle.” HSBC Bank USA, Nat’l Ass’n v. Buset, 43 Fla. L. Weekly D305, 306 (Fla. 3d DCA Feb. 7, 2018) (citation omitted). That is as far as we can travel with Third Federal.

The HELOC note is not a self-authenticating negotiable instrument. By its own terms, the note established a “credit limit” of up to $40,000 from which the Koulouvarises could “request an advance . . . at any time.” Further, the note provided that “[a]ll advances and other obligations . . . will reduce your available credit.” The HELOC note was not an unconditional promise to pay a fixed amount of money. Rather, it established “[t]he maximum amount of borrowing power extended to a borrower by a given lender, to be drawn upon by the borrower as needed.” See Line of Credit, Black’s Law Dictionary, 949 (8th ed. 1999).

This distinction is not esoteric legalese. Florida law is clear that a “negotiable instrument” is “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.”§ 673.1041(1), Fla. Stat. (2012) (emphasis added).


Judges may be biased in favor of “national security” (i.e., protecting the banks), but they have a surprisingly low threshold of tolerance when they are confronted by the bank’s argument that they don’t have to accept the money and that it is the bank’s option as to whether to accept the money or proceed with the foreclosure. To my knowledge that argument has lost 100% of the time. And THAT means the homeowner was able to get the proverbial free house or otherwise settle under seal of confidentiality (which might include the “free house.”)

all too often the Golden Rule of Mortgage Foreclosure is simply ignored and the foreclosure goes ahead as if the rule were not the statutory law of every jurisdiction in the United States — Douglas Whaley

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The article below demonstrates (with edits from me) just how “hairy” these issues get. Things that laymen presume to be axiomatic don’t even exist in the legal world. I just sent my son a mug that says “Don’t confuse your Google search with my medical degree.” The same could be said for law. You might have discovered something that appears right to you but only a lawyer with actual experience can tell you if it will fly — remember that the bumblebee, according to the known laws of aerodynamics — is incapable of flying. Yet it flies seemingly unconcerned about our laws of aerodynamics. Similar to the lack of concern judges have, as if they were bumblebees, for the laws of contract and negotiation of instruments.

“Be careful what you wish for.” We must not give the banks a condition that they can satisfy with a fake. If the statute says that they must come up with the original promissory note, or the encumbrance is automatically lifted by a Clerk’s signature, then that means that (a) the debt still exists (b) the note could still be enforced with a lost note affidavit (which lies about the origination of the “loan” and subsequent nonexistent transactions), and (c) the debt can still be enforced.

A suit on the note or the debt that is successful will yield a Final Judgment, which in turn can be recorded in the county records. A further action for execution against the property owner will cause execution to issue — namely the judgment becomes a judgment lien that can now be foreclosed with no note whatsoever. The elements of a judgment lien foreclosure are basically (I have the Judgment, the statute says I can record it and foreclose on it).

There are homestead exemptions in many states. Whereas Florida provides a total homestead exemption except in bankruptcy court (up to $125,000 value), Georgia provides very little protection to the property owner which means that Georgia property owners are vulnerable to losing their homes if they don’t pay a debt that has been reduced to a Final Judgment and filed as a Judgment lien.

So the upshot is this: if you ask for the original note they might simply change their routines so that they produce the fabricated original earlier rather than later. Proving that it is a fake is not easy to do, but it can be done. The problem is that even if you prove the note is fabricated, the debt still remains. And in the current climate that means that any “credible” entity can step into the void created by the Wall Street banks and claim ownership of the debt for the purpose of the lawsuit.

What you want to do and in my opinion what you must do is focus on the identity of the creditor in addition to the the demand for the “original” note. When you couple that with tender of the amount demanded (under any one of the scenarios we use in our AMGAR programs) on the industry practice of demanding the identity of the creditor before anyone receives payment, then you really have something going.

But the risk element for tender MUST be present or it will likely be brushed aside who sees it as merely a gimmick — using the state law regarding tender as an offensive tool to get rid of the encumbrance and thus prevent foreclosure.


So the commitment is to pay off or refinance the alleged debt conforming to the industry standard of giving estoppel information — with the name of the creditor, where the payment should be sent, and the amount demanded by the creditor, and per diem, escrow and other information.


The inability and unwillingness of anyone to name a creditor has been credited with eliminating both the foreclosure and the mortgages in several dozen cases.


Judges may be biased in favor of “national security” (i.e., protecting the banks), but they have a surprisingly low threshold of tolerance when they are confronted by the bank’s argument that they don’t have to accept the money and that it is the banks option as to whether to accept the money or proceed with the foreclosure. To my knowledge that argument has lost 100% of the time. And THAT means the homeowner was able to get the proverbial free house or otherwise settle under seal of confidentiality (which might include the “free house.”)

Here is the UCC article by Douglas Whaley. [Words in brackets are from the Livinglies editor and not from Mr. Whaley]

the Golden Rule of Mortgage Foreclosure: the Uniform Commercial Code forbids foreclosure of the mortgage unless the creditor possesses the properly-negotiated original promissory note. If this can’t be done the foreclosure must
all too often the Golden Rule of Mortgage Foreclosure is simply ignored and the foreclosure goes ahead as if the rule were not the statutory law of every jurisdiction in the United States.1
Why is that? The answer is almost too sad to explain. The problem is that the Uniform Commercial Code is generally unpopular in general, and particularly when it comes to the law of negotiable instruments (checks and promissory notes) contained in Article Three of the Code. Most lawyers were not trained in this law when in law school (The course on the subject, whether called “Commercial Paper” or “Payment Law,” is frequently dubbed a “real snoozer” and skipped in favor or more exotic subjects), and so the only exposure to the topic attorneys have occurs, if at all, in bar prep studies (where coverage is spotty at best). Thus many foreclosures occur without it occurring to anyone that the UCC has any bearing on the issue.
If the defendant’s attorney announces that the Uniform Commercial Code requires the production of the original promissory note, the judge may react by saying something like, “You mean to tell me that some technicality of negotiable instruments law lets someone who’s failed to pay the mortgage get away with it if the promissory note can’t be found, and that I have to slow down my overly crowded docket in the hundreds of foreclosure cases I’ve got pending to hear about this nonsense?” It’s a wonder the judge doesn’t add, “If you say one more word about Article Three of the UCC you’ll be in contempt of court!”
The debt is created by the signing of a promissory note (which is governed by Article Three of the Uniform Commercial Code); the home owner will be the maker/issuer of the promissory note and the lending institution will be payee on the note. There is a common law maxim that “security follows the debt.” This means that it is presumed that whoever is the current holder of the promissory note (the “debt”) is entitled to enforce the mortgage lien (the “security”). The mortgage is reified as a mortgage deed which the lender should file in the local real property records so that the mortgage properly binds the property not only against the mortgagor but also the rest of the world (this process is called “perfection” of the lien).1
{EDITOR’S NOTE: Technically the author is correct when he states that a debt is created by the signing of a promissory note governed by Article 3 of the Uniform Commercial Code. But it is also true that the note is merely a written instrument that memorializes the “loan contract” and which in and unto itself constitutes evidence of the debt.
This means that some sort of transaction with a monetary value to both sides must have taken place between the two parties on the note — the maker (borrower) and the payee (the lender). If no such transaction has in fact occurred then, ordinarily the note is worthless and unenforceable. But in the event that a third party purchases the note for value in good faith and without knowledge of the borrowers defenses, the note essentially and irrevocably becomes the debt and not merely an evidence of the debt. In that case the note is treated as the debt itself for all practical purposes.
Such a purchaser would be entitled to the exalted status of holder in due course. Yet if the borrower raises defenses that equate to an assertion that the note should be treated as void because there was no debt (the maker didn’t sign it or the maker signed it under false pretenses — i.e. fraud in the execution) then in most cases the HDC status won’t prevail over the real facts of the case..The corollary is that if there was no debt there must have been no loan.
This would be fraud in the inducement which moves the case into a gray area where public policy is to protect the innocent third party buyer of the note. All other defenses raised by borrowers are affirmative defenses (violations of lending statutes, for example) raising additional issues that were not presented nor implied in the complaint  enforce the note or the nonjudicial procedure in which the note is being enforced by nonjudicial foreclosure.}
The bankers all knew the importance of the mortgage, and supposedly kept records as to the identity of the entities to whom the mortgage was assigned. But they were damn careless about the promissory notes, some of which were properly transferred whenever the mortgage was, some of which were kept at the originating bank, some of which were deliberately destroyed (a really stupid thing to do), and some of which disappeared into the black hole of the financial collapse, never to be seen again.
Filing fees in real property record offices average $35 every time a new document is filed. The solution was the creation of a straw-man holding company called Mortgage Electronic Registration Systems [MERS]. MERS makes no loans, collects no payments, though it does sometimes foreclose on properties (through local counsel). Instead it is simply a record-keeper that allows its name to be used as the assignee of the mortgage deed from the original lender, so that MERS holds the lien interest on the real property. While MERS has legal title to the property [EDITOR’S NOTE: this assertion of title is now back in a grey area as MERS does not fulfill the definition of a beneficiary under a deed of trust nor a mortgagor under a mortgage deed.], it does not pretend to have an equitable interest. At its headquarters in Reston, Va., MERS (where it has only 50 full time employees, but deputizes thousands of temporary local agents whenever needed) supposedly keeps track of who is the true current assignee of the mortgage as the securitization process moves the ownership from one entity to another.3
Meanwhile the homeowner, who has never heard of MERS, is making payment to the [self proclaimed] mortgage servicer (who forwards them to whomever MERS says is the current assignee of the mortgage) [or as is more likely, forwards the proceeds of payments to the underwriter who sold bogus mortgage bonds, on which every few months another bank takes the hit on a multibillion dollar fine]..

Article 3 of the Uniform Commercial Code could not be clearer when it comes to the issue of mortgage note foreclosure. When someone signs a promissory note as its maker (“issuer”), he/she automatically incurs the obligation in UCC §3-412 that the instrument will be paid to a “person entitled to enforce” the note.5″Person entitled to enforce”—hereinafter abbreviated to “PETE”—is in turn defined in §3-301:

“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 instrument pursuant to Section 3-309 or 3-418(d) . . . .

[Editors’ note: the caveat here is that while the execution of a note creates a liability, it does not create a liability for a DEBT. The note creates a statutory liability while the debt creates a liability to repay a loan. Until the modern era of fake securitization, the two were the same and under the merger doctrine the liability for the debt was merged into the execution of the note because the note was payable to the party who loaned the money.

And under the merger doctrine, the debt is NOT merged into the note if the parties are different — i.e., ABC makes the loan but DEF gets the paperwork. Now you have two (2) liabilities — one for the debt that arose when the “borrower” received payment or received the benefits of payments made on his/her behalf and one for the note which is payable to an entirely different party. Thus far, the banks have succeeded in making the circular argument that since they are withholding the information, there is not way for the “borrower” to allege the identity of the creditor and thus no way for the “borrower” to claim that there are two liabilities.]

Three primary entities are involved in this definition that have to do with missing promissory notes: (1) a “holder” of the note, (3) a “non-holder in possession who has the rights of a holder, and (3) someone who recreates a lost note under §3-309.6

A. “Holder”

Essentially a “holder” is someone who possesses a negotiable instrument payable to his/her order or properly negotiated to the later taker by a proper chain of indorsements. This result is reached by the definition of “holder” in §1-201(b)(21):

(21) “Holder” means:

(A) 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 . . . .

and by §3-203:

(a) “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.

(b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

The rules of negotiation follow next.

B. “Negotiation”

A proper negotiation of the note creates “holder” status in the transferee, and makes the transferee a PETE. The two terms complement each other: a “holder” takes through a valid “negotiation,” and a valid “negotiation” leads to “holder” status. How is this done? There are two ways: ablankindorsement or aspecialindorsement by the original payee of the note.

With a blank indorsement (one that doesn’t name a new payee) the payee simply signs its name on the back of the instrument. If an instrument has been thus indorsed by the payee, anyone (and I mean anyone) acquiring the note thereafter is a PETE, and all the arguments explored below will not carry the day. Once a blank indorsement has been placed on the note by the payee, all later parties in possession of the note qualify as “holders,” and therefore are PETEs.7
Only if there is a valid chain of such indorsements has a negotiation taken place, thus creating “holder” status in the current possessor of the note and making that person a PETE. With the exception mentioned next, the indorsements have to be written on the instrument itself (traditionally on the back).
the allonge must be “affixed to the instrument” per §3-204(a)’s last sentence. It is not enough that there is a separate piece of paper which documents the unless that piece of paper is “affixed” to the note.10What does “affixed” mean? The common law required gluing. Would a paper clip do the trick? A staple?11
a contractual agreement by which the payee on the note transfers an interest in the note, but never signs it, cannot qualify as an allonge (it is not affixed to the note), and no proper negotiation of the note has occurred. If the indorsement by the original mortgagee/payee on the note is not written on the note itself, there must be an allonge or the note has not been properly negotiated, and the current holder of that note is not a PETE (since there is no proper negotiation chain). THE LACK OF SIGNATURE BECOMES A SERIOUS ISSUE IN THE CURRENT ERA BECAUSE OF WHAT HAS BEEN DUBBED “ROBO-SIGNING” THE EXACT DEFINITION OF WHICH HAS NOT YET BEEN DETERMINED BUT IT REFERS TO THE STAMPED OR EXECUTED SIGNATURE BY ONE POSSESSES NO KNOWLEDGE OR INTEREST IN THE CONTENTS OF THE INSTRUMENT AND ESPECIALLY WHEN THE PERSON HAS NO EMPLOYMENT OR OTHER LEGALR RELATIONSHIP WITHT EH ENTITY ON WHOSE BEHALF THE INDORSEMENT WAS EXECUTED. As stated in one case the base of robo-signing is that it is a forgery and therefore amounts to no signature at all which means the note has not really be negotiated, all appearances to the contrary. ]
The Code never requires the person making an indorsement to have an ownership interest in the note13 (though of course the payee normally does have such an interest), but simply that he/she is the named payee, and the Code clearly allows for correction of a missing indorsement. [EDITOR’S NOTE: Here is where the enforcement tot he note and the ability to enforce the mortgage diverge, See Article 9. The possessor of a note that is properly signed by a party to whom the note was payable or indorsed commits no offense by executing an indorsemtn in blank (bearer) or to another named indorse. The author is correct when he states that ownership of the note is not required to enforce the note; but the implication that the right to foreclose a mortgage works the same way is just plain wrong, to wit: foreclosure is ALL about ownership of the mortgage and Article 9 provisions specifically state the ownership means that the purported holder has paid value for it]. 
  1. 13   Thieves can qualify as a “holder” of a negotiable instrument and thereafter validly negotiate same to another; see Official Comment 1 to 3-201, giving an example involving a thief.
  2. 1.  Subsections (a) and (b) are based in part on subsection (1) of the former section 3-202.  A person can become holder of an instrument when the instrument is issued to that person, or the status of holder can arise as the result of an event that occurs after issuance.  “Negotiation” is the term used in article 3 to describe this post-issuance event.  Normally, negotiation occurs as the result of a voluntary transfer of possession of an instrument by a holder to another person who becomes the holder as a result of the transfer. Negotiation always requires a change in possession of the instrument because nobody can be a holder without possessing the instrument, either directly or  through an agent.  But in some cases the transfer of possession is involuntary and in some cases the person transferring possession is not a holder.  In defining “negotiation” former section 3-202(1) used the word “transfer,” an undefined term, and “delivery,” defined in section 1-201(14) to mean voluntary change of possession. Instead, subsections (a) and (b) used the term “transfer of possession” and subsection (a) states that negotiation can occur by an involuntary transfer of possession.  For example, if an instrument is payable to bearer and it is stolen by Thief or is found by Finder, Thief or Finder becomes the holder of the instrument when possession is obtained.  In this case there is an involuntary transfer of possession that results in negotiation to Thief or Finder. 
  3. [EDITOR’S NOTE: The heading for UCC 3-201 indicates it relates to “negotiation” of a note, not necessarily enforcement. The thief might be able to negotiate the note but enforcement can only be by a party with rights to enforce it. While a holder is presumed to have that right, it is a rebuttable presumption. Hence either a borrower or the party from whom the note was stolen can defeat the thief in court. But if the negotiation of the note includes payment of value in good faith without knowledge of the borrower’s defenses or complicity in the theft, then the successor to the thief is a holder in due course allowing enforcement against the maker. The borrower or victim of theft is then left with actions at law against the thief.]

Educating the Judge

The assumption that the Judge already knows the facts and the law is what drives lawyers into defeat. The Judge is not required to know anything, and is actually prohibited from taking an active role in favor of one party or the other.

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I recently had the occasion to assist as consultant on a case in a non judicial state. The Judge was clearly struggling with giving the homeowner due process but still not able to connect the dots. So I proposed that a preliminary statement be submitted in answer to the demurrer that was filed.

Plaintiff concedes the obvious — that when money was received by him or on behalf of him, a liability arose (the debt). But as stated in Yvanova, that debt arose by operation of law from the receipt of funds from a particular identified source. And the debt is not owed to the world at large but only to the party who advanced the funds.

The debt exists without anything in writing. In fact, there was nothing in writing creating a loan contract between the funding source and the Plaintiff, as alleged in the complaint. Further there is a complete absence of any allegation or evidence, despite years of requesting same in formal requests and informal requests, in which any of the parties in the chain ever paid one cent for the origination or acquisition of the alleged loan that they alleged was sold successively.

Ordinarily the debt would merge into a promissory note in which Plaintiff was the maker and the payee was the aforesaid funding source. But the funding source was never mentioned in the note or mortgage, which now contains the signature of Plaintiff obtained by fraud in the execution, to wit: Plaintiff signed said documents based upon the representation that the payee on the note (and the beneficiary under the deed of trust) was the funding source.

The debt owed to the funding source was thus not merged into the note because the funding source and the payee on the note were two completely separate and distinct entities. Hence the transfer of the note was the transfer of paper that was worthless and which ceased status of negotiable instrument when the Defendants asserted a default in performance under the note that had been fraudulently obtained. Hence no entity can assert the status of “holder” or “holder in due course” inasmuch as such terms arise solely from the state adoption of statutes from the Uniform Commercial Code, Article 3, governing negotiable instruments.

JPMC was the underwriter, Master servicer and agent for trusts that appear to be legally nonexistent and in any event completely controlled by JPMC Nonetheless control over all the events related to the debt, note and mortgage lies in the hands of JPMC.

JPMC is referred to as lender in Plaintiff’s complaint, although the funding actually came from institutional investors and passed through JPMC as an intermediary conduit. JPMC initiated the transfer of funds from accounts in which commingled funds from institutional investors from multiple trusts had been deposited.

The assumption that any Trust or other special purpose vehicle ever funded the origination of a loan, or even purchased it for value is a fiction. The only valid purchase would have been from those institutional investors. There being no such purchase asserted nor in existence, the paper instruments upon which the Defendants rely are merely obfuscations of the truth. And the reason they seek foreclosure is that the forced sale of the property would be the first legally valid document in their entire chain.

If securitization actually occurred, then one of two things would have occurred:
  1. The Trust or other special purpose vehicle would have funded the origination, thus eliminating the need for endorsements and assignments. [The Trust would have been the payee on the note and the mortgagee on the mortgage]. OR
  2. A bona fide lender would have received actual money for the sale of the debt, note and mortgage. Both the lender or the purchaser would have a record of the payment.
The reason I say that securitization is virtually nonexistent and the reason why Adam Levitin calls it “Securitization fail” is that neither of those things happened in the vast majority of so-called loans. I even object to the using the word “loan” because I find it misleading. A scheme that relies on stolen money and fraudulent documentation should not be given the title “lending.” This takes nothing away from the fact that the debt exists. But in nearly all cases, the debt is unliquidated and unsecured.

Freddie Mac Selling Toxic Loans: Do they really own those loans?

The resulting case law is opening up Pandora’s box as the law of these foreclosure cases spills over into hundreds of other situations.

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see http://4closurefraud.org/2016/10/05/freddie-mac-sells-1-billion-of-seriously-delinquent-loans/

So I have two questions that should be sufficiently annoying to the banksters: (1) what makes Freddie think it owns the loans? and (2) if the loans are in default doesn’t that make the notes non-negotiable paper?

As to the first, my guess is that Freddie paid somebody something. What they used as currency was MBS issued by private label trusts. The MBS were worthless because they were issued by an unfunded paper trust. Freddie paid somebody using those bonds. But that somebody didn’t own the loans because the money had already been advanced by ANOTHER party (the investors) under a false deposit scheme with the investment/commercial banks.


So the debt was at all times owned by an unidentified and perhaps unidentifiable  group of investors/victims who to this day may not know that their money was hijacked to make toxic loans. That makes any sale or assignment to anyone void, including Freddie Mac. And whoever is getting paper executed by Freddie Mac is getting exactly what Freddie owns: NOTHING.


As to the second, if the loans in default are not negotiable paper, then the presumptions attendant to negotiable paper under Article 3 of the UCC do not apply. And if THAT is the case, the party in possession is not a holder, not a holder in due course and possibly not a possessor with rights to enforce. They would need to prove that they paid for the “loan” and they would need to show that there was a loan [not just from anyone. It must be an actual loan of money from the party identified as Payee on the note]. They would need to show that they not only bought the note but they also bought the debt.

As it turns out the note and the debt are owned by two different parties. The debt normally merges into the note so that when someone signs it they don’t have two liabilities. But what if the debt was owned by a third party at the time the maker signed the note? Assuming the maker did not know that a third party was involved, the maker is back in the position of two debts — the very problem that the merger rule was intended to prevent.


So far the courts have endeavored to deal with this tricky problem by pretending it does not exist. The resulting case law is opening up Pandora’s box as the law of these foreclosure cases spills over into hundreds of other situations.


ABSENCE OF CREDITOR: Breaking Down the Language Of The “Trust”

The problem with all this is that the REMIC Trust never received the proceeds of sale of the MBS and therefore could not have paid for or purchased any loans. It had no assets. And THAT is why the Trust never shows up as a Holder in Due Course (HDC).  HDC is a very strong status that changes the risk of loss on a note. Under state law (UCC) of every state alleging and proving HDC status means that the entire risk shifts to the maker of the note (the person who signed it) even if there were fraudulent or other circumstances when the note was signed.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.

A reader pointed to the following language, asking what it meant:

The certificates represent obligations of the issuing entity only and do not represent an interest in or obligation of CWMBS, Inc., Countrywide Home Loans, Inc. or any of their affiliates.   (See left side under the 1st table –  https://www.sec.gov/Archives/edgar/data/906410/000114420407029824/v077075_424b5.htm)

If an “investor” pays money to the underwriter of the issuance of MBS from a “REMIC Trust” they are getting a hybrid security that (a) creates a liability of the REMIC Trust to them and (2) an indirect ownership of the loans acquired by the trust.

The wording presented means that only the REMIC Trust owes the investors any money and the ownership interest of the investors is only as beneficiaries of the trust with the trust assets being subject to the beneficiaries’ claim of an ownership interest in the loans. But if the Trust is and remains empty the investors own nothing and will never see a nickle except by (a) the generosity of the underwriter (who is appointed “Master Servicer” in the false REMIC Trust, (b) PONZI and Pyramid scheme payments (I.e., receipt fo their own money or the money of other “investors) or (c) settlement when the investors catch the investment bank with its hand in the cookie jar.

The wording of the paperwork in the false securitization scheme reads very innocently because the underwriting and selling institutions should not be the obligor for payback of the investor’s money nor should the investors be allocated any ownership interest in the underwriting or selling institutions.

The problem with all this is that the REMIC Trust never received the proceeds of sale of the MBS and therefore could not have paid for or purchased any loans. It had no assets. And THAT is why the Trust never shows up as a Holder in Due Course (HDC).  HDC is a very strong status that changes the risk of loss on a note. Under state law (UCC) of every state alleging and proving HDC status means that the entire risk shifts to the maker of the note (the person who signed it) even if there were fraudulent or other circumstances when the note was signed.

By contrast, the allegation and proof that a Trust was a holder before suit was filed or before notice of default and notice of sale in a deed of trust state, means that the holder must overcome the defenses of the maker. If one of the defenses is that the holder received a void assignment, then the holder must prove up the basis of its stated or apparent claim that it is a holder with rights to enforce. The rights to enforce can only come from the creditor, directly or indirectly.

And THAT brings us to the issue of the identity of the creditor. This is something the banks are claiming is “proprietary” information — a claim that has been accepted by most courts, but I think we are nearing the end of the silly notion that a party can claim the right to enforce on behalf of a creditor who is never identified.

Uniform Trust Code (UTC)

Hat tip to David Belanger

see utc_final_rev2010

see also utc-itc

Readers and analysts should refer to this as very persuasive authority and if enacted by the State legislature, it is the law. But this is not the Uniform Commercial Code. The UCC applies in all cases where paper instruments are involved and transfers of that paper are involved — although you wouldn’t know it looking at many case decisions that essentially ignore the UCC and apply common law contract law and interpretation. This approach was knocked down by the Jesinoski decision on rescission — the courts are meant to enforce the law and are not authorized to make the law. The courts may interpret the law only if they find a specific provision that is ambiguous.

The UTC is different. It applies only where the trust itself is ambiguous or fails to address an issue. The Pooling and Servicing Agreements of the alleged “REMIC Trusts” purport to be the trust agreement; those agreements are ambiguous, opaque, and contain conflicting provisions and are nearly always missing key provisions like the actual acquisition of loans in exchange for payment by the trust.

Banks are counting on lawyers and pro se litigants to either not read the statutory laws or other persuasive and authoritative materials or not understand them. The reason why the banks have been so successful at prosecuting fraudulent foreclosures is that they made the false securitization scheme so complex that government and lawyers and judges look to the authors of these documents to tell them what it means — i.e., they are asking the banks to explain their fraudulent documents. The only way to counter that is to drill down on specific provisions and show that the “explanation” offered by the banks is simply compounding the initial lie — i.e., that the REMIC Trusts actually purchased the loans. They didn’t.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.

The Dangers of Disregarding the Uniform Commercial Code

There is a trend nationwide where judges are ruling that broken chains of title are not relevant.

The UCC is one of the least favored courses in law school. Judges hate it because they didn’t pay attention during class. But it’s the law. So the courts are ruling by the seat of their pants instead of following the law. Banks like it for now but be careful what you wish for — these rulings are undermining the marketplace for negotiable instruments.

Eventually lenders and factoring companies are going to come face to face with the “law” they have created through the courts — the UCC doesn’t mean anything and there are no protections against a party with a broken chain pursing a competing claim. The end result is that they will start lending or trading in negotiable instruments or even non-negotiable instruments. That could stop the economy dead in its tracks as the credit markets freeze up because players have lost confidence in the courts applying the rule of law instead of following statutes that have been on the books for generations.

The second problem with the current approach is that it leads inescapably to a constitutional crisis: if the Courts can ignore the rule of law as set forth in a statute, then legislation is final only after a court rules on it. This is a fundamental break with the express provisions of the US Constitution which provides for separation of powers within three independent branches of government — executive, legislative and judicial. This takes us far from the rule of law and into the third world nation context where it is the the rule of men in power that prevails, that changes the laws at their whim, and that enables such leaders to line their pockets with Government money.

Also arising out of their inattention to the UCC — which is adopted into the laws of every state in the union — courts are left with applying their own sense of what SHOULD happen as an end result. And by their reckoning, the most important thing is that the marketplace SHOULD be a place where you can be assured that borrowers repay their debts or suffer the consequences.

Add the political fear factor and you have a mess. The political fear factor is that most judges are laboring under the delusion that ruling for the borrower will cause the entire financial system to crash. This has been the most powerful weapon used by the banks in creating the myth of too big to fail. But as I predicted years ago during the bailout, this policy — of deferring to the thieves that undercut all world markets — will prevent Government or anyone else from pursuing policies of growth.

No judge wants to be responsible, even in part, for the downfall of the entire financial system. The irony is that their rulings are doing exactly that — holding the economy back from a real rebound. Nearly all of the foreclosures were wrongful. As a result the modifications and deeds in lieu of foreclosure were also wrongful — a continuing pattern of converting investor wealth into bank wealth.

Nearly all foreclosures could have been settled under the premise that everyone, including the banks, should share in the losses created by the false claims of securitization. Merely applying the rule of law as it has existed for decades would have stopped the foreclosures, stopped the loss of wealth, and stopped the loss of jobs and income for wage earners. We continue to see a “recovery” that has none of the ear-marks of a strong economy.

The reason is simple. We are a consumer driven economy and many of the consumers now have been stripped of the ability to buy anything. Until that fundamental element is addressed, the economy will never recover in actuality. We will continue to have the bubble and illusion that the economy is strong because the stock market has gone up. But ask any financial analyst and they will say that the stock market itself has taken on all the attributed of a bubble that will burst.

Stocks are over-valued by a factor of as much as 3, which means that for stocks falling into that category, they should be selling at one-third of their current share price. Averaging out the price earnings multiples and comparing it with traditional fundamental securities analysis and you come up with the inescapable conclusion that the DOW ought to be under 10,000.

When that correction happens, the last vestige of the illusion of economy recovery will be gone — because Government never addressed the fundamental element of our economy — consumer wealth and income.

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