EVIDENCE OF THE OBLIGATION IS THE NOTE PLUS THE BOND

Assume that the transaction is a single transaction. The investor (creditor) lends the homeowner (debtor) money. Thus arises the obligation from the debtor to pay the creditor. In securitized loans a peculiar thing happens. The debtor signs a note like in all the old kind of mortgage loans, but the creditor gets a bond. As stated elsewhere on this blog this shell game leads to different or changing terms, conditions and even parties to the original obligation undertaken by the debtor, thus negatively impacting negotiability of the note, obligation and bond and probably negatively affecting the effectiveness of the security instrument (mortgage or deed of trust).

If the pretender lenders were legally correct in their premise the transaction would cease becoming an event and forever become a dynamic process wherein the beneficiary, payee, lender, and others would be constantly in motion depending upon the exigencies of the moment.

Their argument is that the reason their position should be sustained is the desirability of certainty in the marketplace. But their own behavior undermines their contention. By using nominees (e.g. MERS, or a “Trust” or “Trustee”) they fail to identify the real parties, whose identity is only revealed upon the happening of a future event or at least the passage of time.  The hapless borrower is left waiting in limbo for the creditor to be revealed.

It is usually stated in law books that the note is evidence of the obligation, it is not the obligation itself. And it is further stated that the mortgage or deed of trust is incident to the note and not the note. In securitized residential mortgage transactions, the evidence of the obligation is the note PLUS the mortgage backed bond, because it is the bond which the investor has received.

The bonds are sold with wording similar to JP Morgan wording as follows:

“The underlying certificates represent beneficial ownership interest in fixed-rate and adjustable-rate, conventional, first lien residential mortgage loans, substantially all of which have original terms to stated maturity of 30 years.”

It therefore follows that the evidence of the obligation consists of the NOTE and the BOND, since it is the BOND indenture that provides for conveyance of an ownership of the loans.

The obligation arose when the funds were advanced for the benefit of the homeowner. But the pool from which those funds were advanced came from investors who purchased certificates of asset backed securities. Those investors are the creditors because they received a certificate containing three promises: (1) repayment of principal non-recourse based upon the payments by obligors under the terms of notes and mortgages in the pool (2) payment of interest under the same conditions and (3) the conveyance of a percentage ownership in the pool, which means that collectively 100% of the investors own 100% of the the entire pool of loans. This means that the “Trust” does NOT own the pool nor the loans in the pool. It means that the “Trust” is merely an operating agreement through which the ivnestors may act collectively under certain conditions.  The evidence of the transaction is the note and the mortgage or deed of trust is incident to the transaction. But if you are following the money you look to the obligation.

The other peculiarity is that the name of the mortgagee or beneficiary is the name of an entity who serves as a nominee or in other words, in name only.

They never were the real beneficiary. In all securitized loans the named beneficiary is the nominal beneficiary — i.e., in name only. It means the Deed of Trust is void or voidable, but subject to reformation in court, which means they must file a lawsuit to reform the mortgage to comply with the real terms.

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