Why the UCC Matters in Foreclosure Cases

by Neil Garfield

The problem as illustrated by many scholarly articles and articles on this blog is that courts are given to treat plaintiffs and claimants as holders in due course without anyone asking them to do so.

The first thing you need to know about Foreclosure is that it is only about money. If you have the money and you pay it, there is no claim — or at least no claim against you. You might have a claim against a “debt collector” seeking to enforce a nonexistent debt for a nonexistent claimant.

The second thing to remember is that, by definition, foreclosure is a lawsuit or claim based upon enforcement of the mortgage or deed of trust. The promissory note is usually introduced as evidence of the existence of the obligation and the duty to make scheduled payments. But enforcement of the note alone can only result in a monetary judgment that could be discharged in bankruptcy.

According to the law in every U.S. jurisdiction (adopting 9-203 UCC) the mortgage or deed of trust can only be foreclosed to satisfy an unpaid existing obligation owed by the homeowner to the named claimant. Lawyers and judges have adopted various strategies to allow foreclosures when they are only based upon the enforcement rights of a holder of a promissory note and often without regard to whether the claimant is a legal “holder.”

In fact, most courts treat the claimant as though it had established its exalted status of a holder in due course — without anyone asserting that status. And the common failure to object to such treatment is the principal reason why homeowners fail to successfully defend foreclosure actions based upon a nonexistent loan account and often even a nonexistent claimant.

In 2007, the Fordham Law review published an article entitled “Will the real holder in due course please stand up?” I republished that article later on this blog. The answer to the question, in cases where foreclosure was claimed as a legal remedy by some alleged REMIC trust structure, was that there was no holder in due course.

You’ll be surprised to learn that there have been many cases where a credible offer to pay the claim has been declined if it required confirmation from the named Plaintiff or claimant.

This is standard industry practice in circumstances where a prior “loan” is being been financed or paid off through sale or other means. Many states have laws specifically requiring that the payoff information includes such information and assurances — in order to prevent a payoff to a party with no claim. It is basic common sense and basic law to assure continuous clear title to the property free from claims of clouded or unmarketable title.

In each case where I have been involved, opposing counsel basically took the position that they didn’t want the money they wanted the foreclosure. And in each case, the judge was surprised by that position.
But most homeowners are not in a position to make a credible offer to pay off the entire amount as demanded. Those who can make that offer are utilizing the AMGAR strategy that I developed 16 years ago.

Those who cannot make that offer must litigate to make the same point — that in the final analysis (trial) the attorney for the named claimant will be unable to proffer credible evidence of the existence, ownership, and authority to administer, collect or enforce any debt.

Instead, they will proffer fabricated documents and argue that the judge should apply legal presumptions to conclude that an obligation exists, the named claimant owns it and the homeowner is in breach of a duty to make scheduled payments.

In reverse logic, the foreclosure lawyer simply takes an uncontested fact (usually) and bootstraps it into a case that the judge thinks is real. And what nearly everyone forgets is that the absence of a scheduled payment, even after making such payments, is not evidence of default nor a license to declare a default unless the payment was actually legally required to be paid to the party seeking to collect it.

If you skip a car payment I have no business, right or justification in declaring that to be a default. But current law is hazy on the subject of what happens if I do declare the default and then bring a claim based upon my declaration of default and my claim that I represent the loan company.

In a 2016 article just brought to my attention that was published by Franklin Pierce School of Law of New Hampshire University, a lawyer in Miami published an article about the nonconforming use of the UCC to support nonconforming claims. At the time of publication, he was associated with a Florida law firm representing lenders. 14 U.N.H. L. REV. 267 (2016), available at http://scholars.unh.edu/unh_lr/vol14/iss2/2.

The Non-Uniform Commercial Code_ The Creeping Problematic Applic

Morgan L. Weinstein
Senior Attorney at Van Ness Law Firm, PLC, Miami, FL
The Non-Uniform Commercial Code_ The Creeping Problematic Applic
Weinstein makes a clear presentation of fact and law with respect to the application of UCC Article 3 (notes) and Article 9 (Security instruments, mortgages deeds of trust etc.).

Keep in mind here that a holder in due course (HDC) is ONLY one who has paid value for the ownership of the note in good faith and without knowledge of the maker’s defenses. In plain language, the HDC can enforce even though there are potentially many defenses that would be available to the maker of the note if the claimant was merely an alleged “holder.”
In every instance where a REMIC trust structure is alleged, there is only an allegation or assertion that the “trustee” or trust is a holder, not a holder in due course. Earlier (2001-2005) assertions of HDC status were removed from the script.

Also, keep in mind that a legal holder of a note has two attributes: POSSESSION and RIGHT TO ENFORCE. The latter is overlooked. The only party with the power to grant the right to enforce is ultimately the creditor who owns the underlying obligation.
So the claimant attempting to enforce a note may file a complaint (and win a judgment if there is no contest) based upon the technical allegation that it is a “holder”. But it still loses at trial or summary judgment if it fails to respond to discovery requests asking for the source of its authority to enforce (given that they are not a holder in due course).

The problem as illustrated by many scholarly articles and articles on this blog is that courts are given to treat plaintiffs and claimants as holders in due course without anyone asking them to do so. Although I have seen many transcripts in which the lawyer Argues that his “client” is a holder in due course without any reference to payment of value in exchange for ownership of the debt, note or mortgage.

Such “misstatements” are protected under the doctrine of litigation immunity unless you can prove that the lawyer speaking absolutely had knowledge that he or she was lying when the statement was made.
He begins with a discussion of negotiability:
Negotiability presents the possibility of a transferee taking a position that is better than the transferor.The Uniform Commercial Code defines a number of different possible parties to a negotiation. There are three general positions that a transferee can occupy in a transfer under a negotiable instrument: the transferee can occupy a better position, a same position, or a worse position, with each position being relative to the transferor. [e.s.]

Typically, lenders in foreclosure actions occupy the same or worse position, given their frequent status as a “holder, ”rather than the better position of a “holder in due course.”
Under Article 3, a “holder in due course” occupies a privileged position. Specifically, a holder in due course is insulated from numerous defenses to the right to enforce an instrument. A holder in due course is susceptible only to the “real defenses” of a borrower or other interested party. The real defenses include claims of infancy, essential fraud, insolvency, duress, incapacity, or illegality. Though there is an assumption of good faith in Article 3 dealings, a holder in due course is still protected from many defenses to the right to enforce.

Weinstein makes the following point, though:
it is generally understood that a note-holder may foreclose a mortgage, and a plaintiff need only establish entitlement to enforce the note in order to demonstrate its ability to foreclose the incidental mortgage; such a plaintiff need not demonstrate ownership of the note.

Although he correctly states the current status of legal consensus, this statement overlooks the issue presented above — that the right to enforce emanates solely and ultimately from the creditor owning the underlying obligation. Otherwise, the whole concept is meaningless.

The prima facie case of the claimant need not prove that line of authority and grants but the defense can undermine and eliminate the prima facie case if it can be shown that the claimant has not received such authorization or that the claimant cannot produce evidence of such authorization in discovery and even under court order in the discovery process.

Thus whether one relies on Article 3 or Article 9 the UCC result is the same: there is no remedy of foreclosure for a party who has not paid value for the underlying obligation or at the very least can show the foreclosure sale will be used to pay the creditor owning the underlying obligation thus reducing the alleged loan balance.

This goes to the root of foreclosure. Nobody in the courts would agree that anyone with knowledge of the original transaction with a homeowner should be allowed to enforce a contract to which he she or it was not a party. And if the proceeds of a foreclosure sale are not intended to decrease the loan account receivable of a creditor who paid value, then there can and should be no foreclosure or any other claim for that matter.

As far as I can determine, contrary to the belief of most lawyers and judges, there is no single instance where the forced sale of residential property in which the claimant was an alleged REMIC trustee, for an alleged REMIC trust resulted in payment to anyone who was owed the money. In fact, there is no single instance in which the alleged REMIC trustee or the alleged REMIC trust even received one single penny at any time.
My conclusion: all alleged REMIC trust structures are basically trade names (fictitious names) for the investment bank. None of them ever see a penny of payments received from homeowners or their homes.

Who Owns Your Mortgage Note?

Have you ever asked who owns your mortgage note? A better question to ask is, “If I paid off my mortgage loan tomorrow, would I get clear and equitable title to my real property?” If your mortgage loan contract was converted into a mortgage backed security and sold to an investment trust on Wall Street you might not!

If you are thinking of applying for a loan modification, or refinancing through the Home Affordable Refinance Program (HARP), Home Affordable Modification Program (HAMP), or other program(s) under the Making Home Affordable (MHA) initiative there are a few things to consider.

First, remember that the entity who claims to own your mortgage loan is not automatically the same entity that may be servicing your mortgage loan. A loan servicer is a debt collections company that sends you mortgage statements, takes your payments each month, and if you have an escrow account, pays your homeowner’s insurance and property tax bills. But who really owns your mortgage loan?

If you want to find out here are a few things you can do:

  • Ask the servicer. Your loan servicer is legally obligated to tell you the name, address, and telephone number of the owner of your loan as shown in their records. It’s a good idea to ask them in writing officially with a “Qualified Written Request” via certified mail while keeping a log of your communications. The name of your servicer should be on your mortgage statement, but you can also use the MERS link below.
  • Original lender. Your loan may have never been sold, and still kept as a “portfolio loan” with the original lender. That’s the way loans used to be done!
  • Fannie Mae. In reality, many loans are sold to FNMA aka “Fannie Mae”. See Fannie Mae loan lookup tool.
  • Freddie Mac. Similar story with Federal Home Loan Mortgage Corporation (FHLMC) aka “Freddie Mac”. See Freddie Mac loan lookup tool.
  • Mortgage Electronic Registration Systems, Inc. (MERS) is a big online registry designed to replace the costly process of publicly recording mortgage ownership at the local government level with a private electronic version that allows the swapping of mortgages with no friction at all. MERS tracks both the servicing rights and ownership of mortgage loans in the United States, although the accuracy has been called into question. See MERS ServiceID lookup tool. You can also call them at 888-679-6377 FREE.
  • Search the Securities and Exchange Commission (SEC) for the alleged trust that claims they are the owner of your mortgage loan: https://fraudstoppers.org/how-to-search-the-sec-for-a-securitized-trust
  • Register for a Free Mortgage Fraud Analysis and Securitization Search. Complete our Mortgage Fraud Analysis form and we will conduct a free securitization check to see if your mortgage loan contract was converted into a mortgage backed security and who really owns your note. If your loan was securitized than you may have legal standing to sue your lender, or current loan servicer, for mortgage fraud and quiet title. Find out more by completing our Mortgage Fraud Analysis form or call us at 773-877-3655 and we will help you get the facts and evidence you need to get the legal remedy you deserve.

Cases like the Glaski v. Bank of America and Jesinoski v. Countrywide Home Loans may have provided hope for homeowners who were victims of mortgage and foreclosure fraud. But they did not strike at the heart of the real problem behind the securitization of millions of mortgage loans.

The Glaski decision states that if some entity wants to collect on a debt they must first legally own that debt. Furthermore, if that entity is claiming ownership by way of an Assignment, it must prove that Assignment is legally valid.

The Jesinoski case addressed a borrower’s right to rescind, or cancel, their mortgage loan contract under the Truth in Lending Act (TILA) by only providing written notice to the lender, without filing suit. A loan is rescinded at the time the rescission letter is mailed. If the lender wants to refute or fight the rescission they must file an action to do so, and they have limited time to do so.

If your mortgage was securitized (the practice of pooling mortgages and selling their related cash flows to third party investors as securities) then it was part of a table funded transaction. In a table funded transaction the borrower named on the note is NOT in debt to the lender (“Pretender Lender”) because they signed the note in the capacity of an Accommodation Party, or co-signer for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument!

The broker, or originator, of the loan is pretending to loan money to the alleged “Borrower“, but in reality they trick the alleged “Borrower” into co-signing on a note that is pledged as collateral on a warehouse line of credit with the funding bank.

It is illegal for banks to loan credit, they can only loan money!

But if the Pretender Lender is not the entity putting up the funds, then there is no underlining indebtedness between the alleged “Borrower” and the originator who is named on the note. And if there is no underlining indebtedness between the parties named on the note, then the mortgage (or deed of trust) vaporizes into nothingness, and is legally unenforceable as a matter of law.

If your mortgage loan contract was part of a table funded transaction and converted into a mortgage backed security that was sold to an investment vehicle, or trust, on Wall Street, then you may have legal standing to rescind your mortgage loan contract, and sue your “Pretender Lender” for Special Damages equal to triple the original amount of your note, plus clear and equitable title to your home!

Fraud Stoppers is part of a National Private Members Association that provides back office litigation support to law firms, foreclosure defense advocacy groups, and pro se litigants nationwide. Our Private Members Association can help you sue your lender for mortgage fraud, with or without an attorney.

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