Archive | July, 2011

The securitization argument a year later

28 Jul


Posted on April 28, 2010 by Neil Garfield

There is a lot of conflicting opinions about this. My opinion is that the confusion arises not from the law, not from application of the law and not from what is written on the note or deed of Trust. If you look at the Bellistri Missouri case the issue is well settled. And the problem is not what is written, it is what is assumed to be written. The Bellistri case, 284SW 3d 619, (Missouri Appeal, cert. reportedly denied) coupled with its quote from Restatement 3rd is simple: put one name on the note and another on the DOT as beneficiary (particularly when the beneficiary is MERS and therefore an undisclosed principal) and you have direct evidence that the intention of the parties was to separate the note from the mortgage. The burden of proof thus shifts to the alleged creditor.

Conflict comes not from the law or the wording on the instruments but from the inherent question of “why would anyone want to do that?” There are of course many answers to that question in a securitized mortgage context. But it is the existence of the question that causes people to lean toward the idea that no reasonable person would have intended that and to assume that the parties, including the borrower, would never have intended WHAT WAS WRITTEN.

I think the point of the Bellistri case is simple: factually, the note and DOT are split and according to the Restatement 3rd, they can never be put back together again. The note, while still enforceable as an instrument by itself, is no longer secured by an encumbrance on the property. The “mistake” is that of the drafter of the instruments. They want to say, much later in time, what we NOW mean is that the beneficiary is X, who is not the payee on the note,, but X has received an assignment of the note. Thus NOW the beneficiary and the payee are the same which means we can foreclose.

So the question put to the Judge is can a note and security instrument, initially made out to two different parties be LATER joined and if so, what does that mean for enforcement. My first comment is that once you have established that facially the note and DOT were split, your prima facie case is met and the burden goes to the “lender” to prove they are the creditor along with a whole bunch of other things that are not unlike the elements of proving up a lost or destroyed note. You can’t just say it happened. You must explain and prove HOW it happened.

But the simple answer to the question as per the Restatement 3rd, is “NO.” The reason why they cannot be joined later is not just because Restatement 3rd says so, it is the reason Restatement 3rd says that, to wit: if you allowed, particularly in a non-judicial setting, parties not named on the note and not named as beneficiary to later act because of a claim as being both, you are introducing uncertainty into the marketplace which is the precise reason we have the law of contracts, property records and such. The moral hazard is raised from possibility to near certainty when you KNOW from the beginning that the payee and the beneficiary are two different parties and the beneficiary is not the real party so the knowledge includes, from the beginning, that there is at least one additional undisclosed party.

Let’s take the simplest example we can given the complexity of securitized residential mortgages. ABC is named the Payee on the note. MERS is named the beneficiary. MERS obviously has some understanding with a third party DEF not to make a claim on the loan (according to their website). So we must presume that they have that understanding and that maybe it is in writing in some general type of contract which was neither disclosed nor revealed to exist at the time of the closing with the borrower. DEF defaults in its payment obligations to MERS. MERS now says we refuse to perform under our contract with DEF. Borrower knows nothing of DEF nor of DEF’s payment default to MERS. Borrower pays the note in full to ABC. ABC returns the note as paid in full. Borrower wants a release and reconveyance (satisfaction) so the title record is clear.

Now it MIGHT be that DEF=ABC. But we don’t know that. So for purposes of your case, you MUST assume that DEF is simply an undisclosed third party. Borrower asks MERS for the release and reconveyance.  MERS refuses because it wasn’t paid by DEF and because it has no idea whether you paid the right person. With MERS refusing to execute a document releasing the lien, Borrower now has a defect in title that is unmarketable.

Borrower files a quiet title suit against MERS. MERS says it was named as beneficiary but that the DOT clearly states it serves only as nominee and therefore has no power to do anything. Now you have, on record, that the beneficiary is not MERS but the undisclosed third party DEF. The court MIGHT grant the final judgment, but it would then be adjudicating the rights of other parties who are not present in court, thus leaving the title clouded and possibly still unmarketable.

Another possibility is that the Court would inquire or allow discovery to allow the identification of DEF. Assuming MERS wishes to comply, there is still a problem. Data entry is NOT performed by MERS employees. Data entry is performed by “members” with passwords and user ID’s. Thus all MERS can say is that at a particular point in time MERS computer records show DEF, which was assigned to ABC or perhaps yet another party. The assignment is executed by Jane Jones as “limited signing officer” for MERS. MERS can’t say they know Jane Jones or anything about her because she doesn’t work for MERS. Therefore the only competent evidence from MERS is the data in fields populated by unknown sources of data input, and references to documents that were never seen or kept by MERS. The evidence from MERS thus has little or no probative value.

So now the Court or borrower goes to DEF and says “Who is Jane Jones?” DEF replies they don’t know because the assignment document was prepared by a foreclosure processing firm in Jacksonville, Florida named DOCX. DOCX has no contract with ABC or DEF or MERS. They were just following orders from yet a fourth party who is unidentified, and whose instructions were relayed through a fifth firm that serves as the correspondent or document manager once the loan goes into foreclosure (perhaps ordered by the servicer, BAC).

Thus the reason that a note and DOT can never be joined at any time other than the creation of those documents and executed contemporaneously with the funding of the obligation is that the contract and its performance is not based upon a condition subsequent (because such a condition would render the contract inchoate until the condition subsequent arrived or which would extinguish the obligation, note and mortgage). For there to be enforceability there must be certainty in the contract. Certainty can only be achieved if the terms and parties who are expected to perform are identified with sufficient clarity that any reasonable person would say they are known.

A borrower who signs papers without having a known party who is required by law to execute a satisfaction (release and reconveyance) has in effect executed documentation without a counterparty. The document is therefore void. Since the document (note, DOT, etc.) is only evidence of the obligation that arose because the borrower did in fact receive a benefit from the funding of the loan, the obligation survives while the note and/or DOT do not. However, in order to achieve certainty in the marketplace, the obligation is not secured unless and until some party identifies itself as the creditor and establishes a subsequent encumbrance through judgment lien, equitable or constructive trust or some other means.

Such a creditor action would be subject to rigorous requirements of pleading and proof. In the context of a securitized residential mortgage, the creditor can only be the party(ies) who advanced actual money, from which money the borrower’s loan was funded. In the context of mortgage-backed securities, a creditor who pleads that he expected a secured loan, must also plead all the documents and transactions that gave rise to advancing the money. This would mean that the creditor would be required to disclose and account for credit enhancements, insurance, credit default swaps, over-collateralization, cross-collateralization, and payments received from all sources pursuant to the terms under which the creditor advanced said funds.

Those terms are included in the prospectus and bond indenture which incorporate the pooling and service agreement, Depositor Agreement, Assignment and Assumption Agreements etc. In other words, the actual terms upon which the creditor advanced money were different from the actual terms accepted by the borrower. A court in equity would thus be required to allocate equity and liability for the various unpaid and paid obligations of multiple parties whose existence was unknown to borrower at the time of the loan closing, and whose existence even now would be at best dimly understood by the borrower or any other person who was not extremely well-versed in the securitization of credit.

MERS and invalid assignments

26 Jul

Brand New, Hot Off The Presses MERS Policy Bulletin

July 24th, 2011 | Author:

After years of claiming that assignments don’t matter and the date of assignment certainly doesn’t matter, the MERS Monster has finally changed its tune, effective July 21, 2011:

The Certifying Officer must execute the assignment of the Security Instrument from MERS before initiating foreclosure proceedings or filing Legal Proceedings and promptly send the assignment of the Security Instrument for recording in the applicable public land records

Well, harumph says I…what of all those damn post filing assignments?  What about all them specious arguments made in courtrooms all across this country that said the date of assignment didn’t matter?  What about the absurd argument that an “equitable assignment” had already occurred? (despite the fact that neither the pooling and servicing a agreement nor law permit such assignments)  For foreclosure cases already adjudged this is problematic and for all those hundreds of thousands still pending, this change in policy is exhibit #1 in the argument that a post filing assignment cannot confer standing.

This certainly ain’t “Ding Dong The Witch Is Dead”, it’s just another stanza in “Humpty Dumpty Sat on A Wall”

And all the kings horses and all the kings men couldn’t put Humpty Dumpty back together again.

Humpty Dumpty is our real property recording system that was developed over hundreds of years in this country.  A key read is Hernando Desoto’s “The Mystery of Capital” for a long explanation that our country’s success is tied largely to our real property record system that has been completely obliterated in just a few short years by all this mortgage madness.  What is most astonishing (and the biggest indictment of the whole MERS madness) is the fact that no law, legislation or court decision was ever rendered to justify the MERS system prior to its widespread implementation.  It was merely spread all across this country like a virulent virus that was transmitted and lay dormant in the property records impacting millions of homes all across America.

MERS Policy Bulletin

Been evicted and need more time ??Appeals from UD actions are governed by CCP §§901–923. [See CCP §1178; Anchor Marine Repair Co. v Magnan (2001) 93 CA4th 525, 528–530.]

23 Jul

Stay of Execution and Appeal

The defendant may request a stay of execution of the judgment whether or not an appeal is taken. [CCP §918(a), (c).] You may stay execution of the judgment for up to 40 days without the landlord’s consent in a limited civil case (or up to 70 days in an unlimited case). [See CCP §918(b); CRC 8.104(a), 8.822.] It is a common practice in some courts to require a tenant claiming hardship to pay into court the daily rental value for the length of the stay. [See CCP §1176(a).]

Related procedures govern stays of unlawful detainer judgments pending appeal. The following conditions apply [CCP §1176(a)]:

  • There is no automatic stay on appeal.
  • A request for a stay must first be directed to the judge who rendered the judgment.
  • A stay must be granted if the judge finds that (1) the moving party will suffer extreme hardship if no stay is granted and (2) a stay will not irreparably injure the nonmoving party.
  • Denial of a stay is reviewable by writ.
  • Any stay is subject to any conditions the court deems just.
  • Any stay must be conditioned on payment of the reasonable monthly rental value to the court each month in advance.

Appeals from UD actions are governed by CCP §§901–923. [See CCP §1178; Anchor Marine Repair Co. v Magnan (2001) 93 CA4th 525, 528–530.]


Possible Counter-Attack in Unlawful Detainer (Eviction) in Fraudulent Foreclosure Cases (via Livinglies's Weblog)

22 Jul

Possible Counter-Attack in Unlawful Detainer (Eviction) in Fraudulent Foreclosure Cases MOST POPULAR ARTICLES GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE factual issues for Unlawful Detainer case NFG 7-15-11 Various states have two levels of  jurisdiction that make it difficult to raise the proper issues in eviction even if there has been no preceding judicial action or if the preceding judicial action has been predicated on fraudulent evidence proffered and accepted by the court. I ended up working on the issue and it … Read More

via Livinglies's Weblog


22 Jul

FREE HOUSE MYTH DEBUNKED BY PORTER AND LEVITIN MOST POPULAR ARTICLES GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE The Free House Myth posted by Katie Porter As challenges to whether a "bank" (usually actually a securitized trust) has the right to foreclose because it owns the note and mortgage become more common, rumors swirl about the ability to use such tactics to get a "free house." There are a few instances of consumer getting a free house, see here and here, for examples, but … Read More

via Livinglies's Weblog

BOA Feeling the Heat is Striking Back at Foreclosure Defense Lawyers as Lawsuits are Filed Against Firms Who Represent BOA (via Livinglies's Weblog)

22 Jul

BOA Feeling the Heat is Striking Back at Foreclosure Defense Lawyers as Lawsuits are Filed Against Firms Who Represent BOA MOST POPULAR ARTICLES GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE EDITOR'S NOTE: The battle is heating up. BOA, for example, is stepping up efforts to cause as much trouble as possible for those foreclosure defense lawyers who are getting traction in the courts. This started some time ago as some people were actually indicted for using tactics that were essentially the identical to the bogus filings of the pretenders. The indictments … Read More

via Livinglies's Weblog

Robo-signing continues without consequences (via Livinglies's Weblog)

22 Jul

Robo-signing continues without consequences MOST POPULAR ARTICLES GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE No Punishment = Continued Misconduct Posted on July 19, 2011 by Mark Stopa Esq. In Maine, a group of drug dealers was caught distributing drugs to local middle schoolers. They confessed, yet the District Attorney declined to press charges, so the drug dealers returned to the school and passed out more drugs. In Kansas, police ap … Read More

via Livinglies's Weblog

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