Nevada Supreme Court Creates Conflict: Approves MERS

Case No 57430 Edelstein v Bank of New York Mellon

“to proceed with the nonjudicial foreclosure of an owner-occupied residence, the party seeking to foreclose must demonstrate that it is both the beneficiary of the deed of trust and the current holder of the promissory note.”

Editor’s  Analysis: Once again, poor understanding of the securitization process as set forth in the documents and the actuality of what happened with the money produced the wrong pleading, the wrong argument, and unfortunately a bad result which will be used around the country as persuasive authority why MERS does not invalidate the foreclosure.

The Court was right in its opinion and the logic behind it is sound. Given the way the case was presented any other decision would produce precedent that would be unfair to lenders and would disrupt the marketplace with uncertainty surrounding the transactions starting with the loan origination and going forward. The whole point of the UCC and other statutes like it along with common law is to produce certainty in the marketplace. And if the elements are present (admitted in this case, as usual) the court has no choice but to rule against the homeowner.

In a nutshell, as we have been saying for years, there is no magic bullet to shoot down the flock of foreclosures. And no court can or should invalidate a foreclosure leaving the lender without appropriate remedies when the clear intent evidenced in the documents was to take the loan, accept the money, agree to repay it as set forth in the note and agree separately that the house can be sold if the homeowner is unable or unwilling to reinstate the loan.

The problem is that all the presumptions were misleading in this case and the logic of any appellate court is based upon what is actually in the record on appeal, not what should have been in the record. Few Judges, if any, are going to invalidate a foreclosure that contains all the basic elements of a proper foreclosure just because some games were played with the paperwork. That is why the Nevada decision was unanimous. And that is why the strategy of deny and discover would have produced a result exactly opposite to the one produced in Nevada.

“any split [of the note and mortgage] is cured when the promissory note and deed of trust are reunified. Because the foreclosing bank in this case became both the holder of the promissory note and the beneficiary of the deed of trust, we conclude that it had standing to proceed through the FMP.”

Editor’s Analysis: The Court is on shaky ground here because it invites moral hazard — the split that occurs intentionally as set forth in the UCC creates an invitation to perform a multitude of transactions each of which constitutes a sale of the loan as if the “holder” was the true owner of the loan. But because of the presumption that the “trust” funded the obligation either directly or indirectly through purchase of an assignment, the Court’s opinion stands for the proposition that substance takes precedence over form. “show me the note”, evidence of forgery and fabrication etc. alone do nothing to alter the result unless they are part of a larger argument as to whether the money trail actually was congruent with the documents. Here the Court obviously concluded that the “trust” would be the losing party financially after a good faith loan. They were not going along with that kind of result and neither would you if you were faced with the same set of facts.

“In 2006, appellant David Edelstein executed a promissory note
(the note) in favor of lender New American Funding, which provided Edelstein with a loan to buy a house. The note provided that “the Lender may transfer [the] [n]ote,” and that “[t]he Lender or anyone who takes [the] [n]ote by transfer and who is entitled to receive payments under this [n]ote is called the ‘Note Holder.'”

Editor’s Analysis: Where do you start? At the beginning. The problem is in knowing where the beginning is and how to present it in understandable form to the Judge, which is why even owners of Hotels and other commercial properties are coming to me for help. They can’t find a lawyer who understands or even believes that the merits of the case should be decided in favor of the mortgagor.

The court starts with the execution of a promissory note. What is missing here? It is the real beginning where the investors advanced money for a “mortgage bond” issued by a “trust”. Investigation and discovery would have made it clear that the money was obtained first based upon a loan transaction that didn’t exist — before Edelstein had even made application for the loan. Further investigation would have revealed that the money did not come from the trust to fund the loan. It came from a much larger commingled account that would probably be called a general partnership or would be governed by laws as if it was a general partnership.

That means that neither the “trust” nor the specific investors in that trust were the lenders — or at least it means that there were many more investor-lenders than what might be revealed in the dissection of the “trust” which from beginning to end was never funded with either cash from the investors nor loans from borrowers.

Thus the Court started with the wrong presumption — but whose fault is that? They were constrained to look at what was actually in the court record and what they found led them to believe that these facts were real.

New American Funding was a thinly capitalized sham company to act as originator. The note to them was no more a note to the actual party than was the deed of trust a pledge tot he actual party. They never funded the loan (see SEC disclosures showing them as originators and not as lenders) who were paid to act as though they were the lender to (a) induce the borrower to sign and (b) induce insurance companies and other co-obligors that the “originator was the lender when in fact there had been no financial transaction (money changing hands) unbeknownst to the borrower or the investor lenders. And the fact that the terms of the mortgage bond (never signed or even disclosed to the buyer) differed from the terms on the note, was never addressed because there was nothing in the record pointing to that fact.

The Court thus presumed that New American Funding was the lender, when nothing could have been further from the truth. The Court further presumed that anyone holding that note was entitled to collect money when in fact that was never the case. NAF was NEVER in a position where it could accept a payoff and issue a satisfaction of mortgage and return the note as paid. But the court didn’t know that, so they decided the case based upon the record that was in front of them — rather than the record that should have been in front of them.

“The deed of trust also stated that “Borrower understands and agrees that MERS holds only legal title to the Interests granted by Borrower in this Security Instrument,” but that “MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender ….”

Editor’s analysis: Once the Court accepted the “FACT” that NAF was the lender the conclusion was inevitable. If the Plaintiff had denied that NAF was the lender, then an entirely different set of procedures could have been invoked. The truth is that the payee, lender, and beneficiary were ALL stand-ins for undisclosed principals in table-funded loans that were not and are not permitted under TILA and other State and Federal Laws. The borrower was walking into quicksand and the parties at the “closing” were urging him on. The decision was about whether the note and mortgage were split. It should have been about whether the entire set of “closing” papers were split from the actual financial (money changing hands) transaction.

“the deed of trust was also conveyed when MERS granted, assigned, and transferred “all beneficial interest” under the deed of trust to respondent Bank of New York Mellon (BNY Mellon); the conveyance language on the assignment stated that it was assigned and transferred “together with the [N]ote ….”3 BNY Mellon designated ReconTrust Company as its new trustee, replacing Chicago Title. At the time of the mediation, ReconTrust physically possessed (1) the note, which was endorsed in blank, and (2) an assignment of the deed of trust, which named BNY Mellon as the beneficiary.”

Editor’s Analysis: All along the Court is presuming that money was exchanging hands and that the transactions recited in the documents upon which the foreclosers were relying, were accurate and real. The presumption is wrong through no fault of the Court. Thus a different set of facts presented to the court on the same case would raise issues that were never discussed in the record or in the appeal.

Reciting that the deed of trust was conveyed obviously meant something to the Court. They were presuming that however it was done, the note was “properly” transferred and delivered when in fact the note was invalid and any transfer of it was both a nullity and the form of the transfer was the opposite of that intended by the pooling and servicing agreement. If you were “buying” a note, would you want it endorsed in blank when the end user (creditor) was already known or would you condition acceptance upon proper assignment to you, recordable or recorded of a performing loan. The answer is obvious. The question is why did the parties intentionally violate the terms of the PSA and good judgment? The answer is that they were “borrowing” the loan to trade on it, get insurance payable to the intermediaries and otherwise steal the identity and ownership of the loan along with any proceeds from hedge products that were specifically described in the PSA but used to line the pockets of the bankers instead o the creditor.

The net result of the actuality of these papers and the document”trail” is to hide the fact that the intermediaries received money on behalf of the real creditor (as they defined it) which was never used to decrease the obligation to that creditor was retained instead by the intermediary banks as profits.

By maintaining the balance as though no mitigation payments had been received, the banks interfered with the borrower’s account statement. Neither the borrower nor the lender knew of the money that had been diverted and retained by the banks. Thus the receivable generated by the bogus mortgage bond and the receivable generated by the bogus promissory note was never reduced in accordance with generally accepted accounting principles.

Then the Court makes a leap of faith which does not bode well for the marketplace if followed by other courts. While it presumes that the creditor is BONY/Mellon it arrives at the conclusion that the trustee could be both creditor and beneficiary as well.

My last comment is on basic law and it is surprising that even appellate courts don’t seem to understand the definition or purpose of an allonge. An allonge is not a legal way of going back and changing the note unilaterally. An allonge is something different from an assignment. It is an additional term, condition or other provision that for whatever reason is attached to or written on the instrument itself. In this case the instrument is the note itself. The maker of the note (the borrower) cannot go back and change the interest rate or principal on the note nor any of the parties that are shown as payees or lenders. The same holds true for the those other parties. They cannot go back in the form of an allonge and change the parties without written consent of the maker. The allonge, by law, is part of the note. If later changes can be made by either party on the face of the note or by an attachment without the knowledge or consent of the other party then in every case, one would need to “quiet title” to the note with parole evidence. Using “allonge” interchangeably with endorsement (indorsement) or assignment, transfer and delivery is not just mincing words — it is changing the law.

128nevadvopno48

Posted in bubble, Corruption, Eviction, securities fraud |