Won’t Take the Money: Insist on Foreclosure Even When Payment in Full is Tendered

5 Sep

Banks Won’t Take the Money: Insist on Foreclosure Even When Payment in Full is Tendered
by Neil Garfield
We have seen a number of cases in which the bank is refusing to cooperate with a sale that would pay off the mortgage completely, as demanded, and at least one other case where the homeowner deeded the property without any agreement to the foreclosing party on the assumption that the foreclosing party had a right to foreclose, enforce the note or mortgage. There is a reason for that. They don’t want the money, they don’t even want the house — what they desperately need is a foreclosure judgment because that caps the liability on that loan to repay insurers and CDS counterparties, the Federal Reserve and many other parties who paid in full over and over again for the bonds of the REMIC trust that claimed to have ownership of the loan.
This should and does alert judges that something is amiss and some of their basic assumptions are at least questionable.
I strongly suggest we all read the Renuart article carefully as it contains many elements of what we seek to prove and could be used as an attachment to a memorandum of law. She does not go into the issue of their being actual consideration in the actual transactions because she is unfamiliar with Wall Street practices. But she does make clear that in order for the sale of a note to occur or even the creation of a note, there must be consideration flowing from the payee on the note to the maker. In the absence of that consideration, the note is non-negotiable. Thus it is relevant in discovery to ask for the proof of the first transaction in which the note and mortgage were created as well as the following alleged transactions in which it is “presumed” that the loan was sold because of an endorsement or assignment or allonge. To put it simply, if they didn’t pay for it, then it didn’t happen no matter what the instrument or endorsement says.
The facts are that in many if not most cases the origination of the loan, the execution of the note and mortgage and the settlement documents were all created and recorded under the presumption that the payee on the note was the source of consideration. It was easy to make that mistake. The originator was the one stated throughout the disclosure and settlement documents. And of course the money DID appear at the closing. But it did not appear because of anything that the originator did except pretend to be a lender and get paid for its acting service. Lastly, the mistake was easy to make, because even if the loan was known or suspected to be securitized, one would assume that the assignment and assumption agreement for funding would have been between the originator or aggregator (in the predatory loan practice of table funding) and the Trust for the asset pool. Instead it was between the originator and an aggregator who also contributed no consideration or value to the transaction. The REMIC trust is absent from the agreement and so is the investor, the borrower, the insurers and the counterparties to credit default swaps (CDS).
If the loan had been properly securitized, the investors’ money would have funded the REMIC trust, the Trust would have purchased the loan by giving money, and the assignment to the trust would have been timely (contemporaneous) with the creation of the trust and the sale of the loan — or the Trust would simply have been named as the payee and secured party. Instead naked nominees and disinterested intermediaries were used in order to divert the promised debt from the investors who paid for it and to divert the promised collateral from the investors who counted on it. The servicer who brings the foreclosure action in its own name, the beneficiary who is self-proclaimed and changes the trustee on deeds of trust does so without any foundation in law or fact. None of them meet the statutory standards of a creditor who could submit a credit bid. If the action is not brought by or on behalf of the creditor there is no jurisdiction.
Add to that the mistake made by the courts as to the accounting, and you have a more complete picture of the transactions. The Banks and servicers do not want to reveal the money trail because none exists. The money advanced by investors was the source of funds for the origination and acquisition of residential mortgage loans. But by substituting parties in origination and transfers, just as they substitute parties in non-judicial states without authority to do so, the intermediaries made themselves appear as principals. This presumption falls apart completely when they ordered to show consideration for the origination of the loan and consideration for each transfer of the loan on which they rely.
The objection to this analysis is that this might give the homeowner a windfall. The answer is that yes, a windfall might occur to homeowners who contest the mortgage or who defend foreclosure. But the overwhelming number of homeowners are not seeking a free house with no debt. They would be more than happy to execute new, valid documentation in place of the fatally defective old documentation. But they are only willing to do so with the actual creditor. And they are only willing to do so on the actual balance of their loan after all credits, debits and offsets. This requires discovery or disclosure of the receipt by the intermediaries of money while they were pretending to be lenders or owners of the debt on which they had contributed no value or consideration. Thus the investor’s agents received insurance, CDS and other moneys including sales to the Federal reserve of Bonds that were issued in street name to the name of the investment bankers, but which were purchased by investors and belonged to them under every theory of law one could apply.
Hence the receipt of that money, which is still sitting with the investment banks, must be credited for purposes of determining the balance of the account receivable, because the money was paid with the express written waiver of any remedy against the borrower homeowners. Hence the payment reduces the account receivable. Those payments were made, like any insurance contract, as a result of payment of a premium. The premium was paid from the moneys held by the investment bank on behalf of the investors who advanced all the funds that were used in this scheme.
If the effect of these transactions was to satisfy the account payable to the investors several times over then the least the borrower should gain is extinguishing the debt and the most, as per the terms of the false note which really can’t be used for enforcement by either side, would be receipt of the over payment. The investor lenders are making claims based upon various theories and settling their claims against the investment banks for their misbehavior. The result is that the investors are satisfied, the investment bank is still keeping a large portion of illicit gains and the borrower is being foreclosed even though the account receivable has been closed.
As long as the intermediary banks continue to pull the wool over the eyes of most observers and act as though they are owners of the debt or that they have some mysterious right to enforce the debt on behalf of an unnamed creditor, and get judgment in the name of the intermediary bank thus robbing the investors, they will continue to interfere with investors and borrowers getting together to settle up. Perhaps the reason is that the debt on all $13 trillion of mortgages, whether in default or not, has been extinguished by payment, and that the banks will be left staring into the angry eyes of investors who finally got the whole picture.
READ CAREFULLY! UNEASY INTERSECTIONS: THE RIGHT TO FORECLOSE AND THE UCC by Elizabeth Renuart, Associate Professor of Law, Albany Law School — attached


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