Securitization Refined For Defense of Foreclosure
by Neil Garfield
Homeowners attempt to “disprove” the presumed facts by raising questions. But the questions are directed to the judge instead of to their predator. The judge has no obligation to answer such questions and in the absence of some procedural reason raised by the homeowner will and must decide in favor of the fraudster because the victim failed to properly defend.
I think that I have not made securitization, as practiced, clear enough. In the context of securitization, there are only two possibilities for a “loan” transaction with a homeowner. One is that the transaction was never a loan and the other is that it ceased being a loan. People get confused by the fact that securitization (i.e., issuance of securities) occurred.
It’s true. Securities were both issued and sold but that does not mean that the obligations of homeowners were securitized. that would only be true if the securities conveyed an ownership interest in the obligation. They didn’t. None of them did. And that fact is what causes the extinguishment (not reduction) of the risk of loss through the extinguishment of any ownership of any obligation of a homeowner. No loan and no loan portfolio is purchased or sold on or on behalf of Wall Street. That is the point.
It was never a loan if there was no lender. A lender is not just someone who pays money to the homeowner. It is a legal person who complies with the duties of a lender and who assumes some risk of loss to the extent that the homeowner fails to make payment. Such a party would keep the obligation of the homeowner to make such payment as an asset on its accounting records.
It stops being a loan when the obligation ceases to exist. Securitization came in two phases: the first was the purchase of existing conventional loans and the second was the origination of transactions that were falsely identified as loans. For the earlier loans that were acquired, the obligation ceased to exist the moment that the homeowner’s obligation was dropped from the accounting records.
A conventional loan was recorded as an asset on the books of the lender. But when that lender received payment, the customary data entries on the accounting records of the securitization Player(s) never appeared. That is when the transaction ceased being a loan. There can be no loan without a lender and there is no successor lender who is not a creditor of the homeowner. The legal description of the transaction as a loan was no longer applicable.
Existing law in all U.S. jurisdictions says two things that are relevant to this discussion.
The first is that there is no legal transfer of ownership of lien without also transferring ownership of the underlying obligation. So paper alone does not make the transfer. There must be a transaction in the real world in which the obligation was purchased and sold for value. Without such a transaction there is no transfer of ownership of the obligation. And without transfer of ownership of the obligation, there is no transfer of the lien in the legal world. This is not philosophy or theory. This is a report of the actual rules we use in our legal system.
The second is that there is no right to enforce the lien unless value has been paid for the underlying obligation. There are no exceptions to this requirement. There is a higher bar for enforcement of liens than enforcement of notes. Again, no theory, just the facts. And the corollary which nearly everyone forgets is that ultimately even enforcement of the note depends upon the existence of a creditor who has paid for and legally owns the underlying obligation. Even a “holder” may not enforce if they have not received authority to enforce the note. There are also no exceptions to this requirement.
So when people refer to a loan being sold from one party to another they are presuming facts that are not true. There is no reason to sell an asset that does not exist and there are no accounting entries that would show debits to cash and credits to accounts or loans receivable. The creation, execution, and even recording of paper instruments that state that such a sale occurred are untrue and are obviously meant to produce a misleading impression in the mind of a judge. But if the homeowner explicitly or tacitly admits that such a sale occurred, then that homeowner has just lost the case. If the sale occurred then value was paid and the obligation was transferred.
Procedure and the rules of pleading, evidence, and argument are where the rubber meets the road. I can fabricate a note and forge your signature. I can also give the note to my friend and tell him to enforce the note. And he can enforce it by filing a lawsuit to collect on the note and even get an enforceable judgment if you fail to respond. That is just the way the system works. That even works if you never find out about the note and my friend manages to convince the judge you cannot be found and publishes the notice instead of serving the summons and complaint.
The reason for such an absurd result is that our system does not consider it absurd. The allegations in the lawsuit are taken to be true unless there is an answer denying those allegations. It is presumed that someone would not file a lawsuit that is completely unfounded — i.e., no events ever occurred in the real world giving rise to the breach of some duty that caused damages to the Plaintiff. But since around 1996, such lawsuits have regularly and successfully been filed.
Homeowners, unaware that their obligation has been extinguished by securitization, mostly (96%) do not contest foreclosure in any way. Hence a false claim for a nonexistent legal debt becomes a legal judgment requiring the sale of the property and the proceeds delivered to whoever was guiding or participating in the false claim.
The second procedural hurdle is that the system looks at documents to see if they’re facially valid, which means that they conform to the style and content of other documents that purport to memorialize some event in the real world. If they’re deemed facially valid then they’re presumed to be valid and true. So in the case of fake documents and false claims, the burden then shifts to the victim of this scheme to eliminate the presumption of validity or to disprove the facts that are now presumed to be true because of the document.
If the fake documents come from a “credible” source, the legal presumptions are what controls the case until the legal presumptions no longer apply or until the facts are shown by the victim to be untrue. It is here that most laypeople (nonlawyers) fail to utilize the system properly. They attempt to “disprove” the presumed facts by raising questions. But the questions are directed to the judge instead of at their predator. The judge has no obligation to answer such questions and in the absence of some procedural reason raised by the homeowner will and must decide in favor of the fraudster because the victim failed to properly defend.