What if you called the bluff that has been working for 25 years?

July 11, 2022

Making an offer to pay all that is demanded leads to some interesting issues that result in highly negative inferences for lawyers representing “clients” who are implied creditors — i.e., companies or business entities that (a) exist and (b) own an underlying obligation to pay money (corroborated by an unpaid loan account receivable on the books and records of the implied creditor (not the “servicer, subservicer or FINTECH servicer).

Mortgage loans are about money. The paper documents are merely evidence of a transaction (if there was a transaction of the type and sort that is reflected or implied in the paperwork) or incident to the real-world transaction in which money was loaned (not paid for services). Bottom LIne: You should have no interest in purchasing just the note. If you did that you would be purchasing evidence of a transaction that either never occurred or no longer exists. You want to purchase the underlying obligation and the best tactical way of doing that is to offer refinancing from a third-party entity that has real funds or demonstrable access to the cash required to pay off the current owner of an unpaid loan account receivable that demonstrably exists as an asset on the books and records of an identified creditor.

My premise, corroborated over 16 years of confrontations, lawsuits, and litigation, is that no such creditor exists because the process of what is loosely labeled as securitization is a process of converting what could have been a legal loan transaction that was governed by lending laws, into a virtual loan transaction that is neither recognized nor supported by any statutory or common law. For you to use this premise credibly means you must proceed on the basis that there is no unpaid loan account receivable asset on the books and records of any company. And your new lender who is willing to accept the idea that there is such an account wants to avoid any claims arising from securitization or else the new lender will not fund.

If you can resist the temptation to refer to the transaction and the history as being a loan transaction with an underlying obligation that could be and was purchased for value by an identified creditor, the rest of the strategies and tactics are obvious. The new lender issues a letter of commitment that says we won’t accept any implied assertions of title. As per 9-203 UCC we want to be paying the owner of the underlying obligation where that creditor had paid cash in exchange for ownership of the underlying obligation. In short, if there is a debt, then we will pay it. If there is only a note and mortgage with dubious or uncorroborated evidence of the ownership of the underlying debt, we will not fund.

The note then is a rabbit hole down which you will go to your doom. Even aiming at it is a concession that it has value because it IS evidence of the debt (even if the debt does not exist). But it is also true that at this stage the offer to pay off the debt completely comes at a late-stage and might be successfully defended on procedural grounds. So the sooner you move on this the better. But it is also true that in a court of equity if someone is claiming rights through a note and mortgage, and the alleged obligee offers to pay off all claims associated with those instruments, no court has ever denied the right of the homeowner to save his homestead by paying off the underlying obligation.

It is equally true that if the attorneys argue against the requirement that their “client” accept the payment and give the correct payoff information (including identification, acknowledgment, and corroboration of the owner of the underlying obligation) the most conservative, business-biased, bank biased judges don’t agree. Mortgages are about loans of money and repayment of the money if it is a loan. If the homeowner concedes that it is a loan and asks for the payoff information, together with a reasonable schedule for closing the new loan transaction and the payoff of the old creditor, there does not appear to be any judge that will ultimately deny that right even though the legal arguments proposed by the attorneys allegedly representing the implied creditor (REMIC trust or trustee) are considered sufficient for foreclosure.

The basic common law doctrine supporting all of this is the unanimous consensus that a conveyance (assignment) of the mortgage without a transfer of ownership of the underlying debt is a legal nullity. That means the transfer is regarded as void, which means for legal purposes, it never happened.

You will need someone to draft documents and a lawyer who is licensed in the jurisdiction in which the property is located. The lawyer is necessary in order to file a claim against the implied creditor for interference with the right to reinstate, redeem or pay off the debt claim. You will need this because no lawyer or business entity is going to admit that there is no creditor.

They will instead argue that proof of ownership of the debt is either irrelevant or otherwise not necessary because of all the fine laws they have created regarding the right to foreclosure. But this is different. this is not about foreclosure even if a foreclosure has been filed. This is about whether the terms of the commitment from the new lender will be applied to the good faith and statutory requirements of providing the pay-off information for refinancing the transaction. The right to resist prepayment or refinancing has long since been outlawed in the courts and many statutes.

The logic behind all this is simple. The judge might ask, “why does the new lender want this extra protection?” The answer is that it is not extra and that nobody should be paying off a virtual debt. They are only legally required to pay off a real debt and a real debt exists only if it is legally or equitably owned by an identified creditor. But the real answer is the homeowner, who filed the petition or motion to force the alleged “Creditor” to comply with pay-off demands, cannot answer for the new lender.

It doesn’t matter why but if pushed, the new creditor could simply include in the letter of commitment the reason: given the studies, decisions, and inconsistent results reached in litigation where claims of securitization form the foundation of claims to rights of administration, collection, and enforcement, the new lender (a) has no interest in participating in securitization and should not be required to do so and (b) the new lender is not satisfied with implied assertions, allegations, assurances or even title insurance to assure first priority position as a first mortgage lender.

The final question is “what is the harm of requiring the designated creditor to corroborate that it is a creditor both by acknowledgment of that fact by sworn testimony and corroboration of that fact by showing the transaction in which it paid value for the underlying obligation and currently maintains an unpaid loan account receivable on its own books and records due from the homeowner(s)?”

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What if you called the bluff that has been working for 25 years?