A PRIMER ON MORTGAGES

When a person takes out a loan to buy a home, they sign two separate and totally distant contracts.

One contract is the Promissory Note (aka: the loan agreement) and the other is the Security Instrument (aka: the mortgage-or-deed of trust).

The Note states that the lender is loaning you money and you agree to pay it back over a time, typically 30 years.

The Mortgage or Deed of Trust states that if you do not pay back the loan, the bank can foreclose on your home.

These two separate and totally distinct contracts come together to form one single contract, which is called the mortgage loan contract.

Under common law a basic concept is that “the mortgage follows the note”.  This was pronounced by the Supreme Court of the United States in 1872 in Carpenter v. Longan, 83 US. 271, 274 as follow: “…the note and mortgage are inseparable…, the assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity”. A nullity is the state of having NO Legal Validity. In other words, it’s legally void!

Remember it is the Security Instrument (the Mortgage-or-Deed of Trust) that gives someone the legal authority to foreclose on a property. ASSIGNMENT OF A MORTGAGE WITHOUT TRANSFER OF THE DEBT IS A NULLITY. Lawyers for the foreclosure mills are often using MERS assignments as a substitute for transfer of the debt.

Under common law the Note and Mortgage are supposed to stay together as one contract. Otherwise if a bank was to sell or transfer the note to another entity, but they failed to properly transfer or assign the mortgage along with the note, the party that holds the note (without the mortgage) would have no legal authority to foreclose on the property, if the borrower defaulted on the note; because it’s the mortgage (security instrument, aka: the lien) that gives you the legal authority to foreclose on the property if the loan is not paid.

On August 28, 2009 the Supreme Court of the State of Kansas stated in LANDMARK NATIONAL BANK v. KESLER that “the splitting of the note and mortgage creates an immediate and fatal flaw in title”.

The fatal flaw results in no one having the legal authority to foreclose on a property, because the party that sold the note would have received consideration (money) when they sold it, and therefore they cannot foreclose on the property because they were paid off, because to do so would be Double Dipping, which is illegal.

Furthermore, the party that paid for (and received) the note, without having the security instrument (mortgage or deed of trust), could not legally foreclose either because it’s the security instrument that gives someone the right to foreclose if the borrower defaults on the note.

So, if the note and mortgage were separated no one would have the right to foreclose. Remember under common law the note and the mortgage must stay together.

Some lawyers representing foreclosing entities have argued that under common law “the mortgage follows the note” means that if they are in possession of the note, they are also in possession of the mortgage, because the two are inseparable. So, by default if they hold the note, they hold the mortgage and have legal rights to foreclose. However, without a contract in writing executed with the formalities required for transfer of interests in real property, it is highly probable that any instrument executed on behalf of MERS means nothing without the necessity of drilling into the authority or knowledge of the signor. In fact, it might just be that the execution of an assignment might be the utterance of a false instrument for purposes of recording, which in and of itself constitutes illegal activity. Neil Garfield

Now the bank’s lawyers claim that under UCC 3-205b because they are in possession of the note in bearer form, and the borrower defaulted on the note, they have the right to foreclose on the property; end of story!

But wait, what the banks do not want you to understand is that it is legally impossible to attach article 9 to the UCC receivables (securities) to enforce a lien on real property. You will discover why as you keep reading. For now, just keep in mind that in a common law mortgage loan contract the borrower creates the promissory note (it was the borrower’s instrument—they were the creators of it, and they owned it); then the borrower gives the promissory note to the lender who excepts it for value and loans the borrower money. After the borrowers pays back the loan, the lender should issue a Release of Mortgage, thereby releasing their claim over the collateral.

In a Normal Common Law Mortgage Loan Transaction:

  • The borrower creates a note (promise to pay).
  • The borrower gives the note to the lender.
  • The lender accepts the note.
  • The lender gives consideration (money) to the borrower.
  • The borrower uses the money to buy the property.
  • The borrower pledges the property as collateral on the loan agreement by granting the lender a mortgage.
  • The borrower pays off the loan.
  • When the loan is paid off the lender issues a Release of Mortgage releasing their interest over the collateral.

This is how mortgages worked for hundreds of years!

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