How to present the defense in foreclosure

Aug 22, 2019

Program note: The Neil Garfield Show will not air tonight due to personal and professional time conflicts.

As we all continue to fight what we know are wrongful foreclosures we struggle with how to reveal that to a judge in a way that is so compelling that even the most bank biased judge will feel so uncomfortable with the proof that he or she is compelled to rule for the homeowner. As long as the judge think the forced sale of the property is going to result in restitution for an unpaid debt the ruling will most likely be for the claimant even though the claim was at best defective and probably fraudulent

In response to a question from a lawyer in Massachusetts who was lamenting the loss of his forensic “expert” and other problems defeating illegal foreclosures I wrote the following:

While talented, she may suffer from the same delusions of grandeur as some other forensic experts — but she can still be used. Her impulse to offer opinions must be thwarted. Her factual analysis is usually spot on except for some anomalies that she still doesn’t understand. I warned such unqualified “experts” years ago that they would undercut their work by proffering opinions for which they are completely unqualified especially as to conclusions of law —which no “expert” can proffer. They are easily undermined when they appear to be an advocate instead of a finder of fact and a reporter of discrepancies.

You are of course completely correct when you describe the current judicial climate and context. Yet I have won cases repeatedly even with judges who were distinctly pro-bank.

The key appears to be getting them to feel so uncomfortable with the proof of the claimant that they can’t rule for them even if they think that such ruling would result in the right thing — i/e/. restitution for unpaid debt. Using that as your first goal you can move to your second goal which is giving the judge comfort in ruling for the homeowner and setting up a claim for wrongful foreclosure.

Once a judge comes to the conclusion that the proof has failed and that the documents are not authentic or even suspected of fabrication, then he/she can state factual findings that say that the Plaintiff never had any right to the debt and lacked standing to foreclose. In two of my cases the pro-bank judge stated at length (30 minutes or more) why the casen utterly failed and was based upon at least suspicious documents.

I have recently found it helpful to point out the difference between enforcement of a note and enforcement of a mortgage. All 50 states have adopted Article 9 §203 UCC which states that a condition precedent to enforcement of a mortgage is that the party who initiates the foreclosure action must be the owner of the debt of reason of having paid value for it.

The banks have succeeded in confusing the issue especially when unopposed or when opposed by a pro se litigant or a lawyer who does not understand the basic precept that the condition precedent of payment of value for the debt is never waived or to be ignored.

The banks get around this by arguing for a legal presumption that delivery of the note constitutes delivery of the debt (or delivery of title to the debt) and then presume that the debt was paid for by the transferee. That is a presumption on a presumption.

Then the court presumes that the transferor was the owner of the debt because if the transferor was not the owner of the debt then the purchase would have been just for the note and not the mortgage (transfer of mortgage without the debt is a legal nullity).

And if the purchase was just for the note then the claimant would appropriately claim that it is a holder in due course which frees it from most defenses of the maker of the note regardless of who owns the debt. But the HDC may not foreclose on the mortgage because it was not paying for the debt unless the owner of the note happens to be the owner of the debt. And not so oddly there is never a claim of HDC status in today’s foreclosures.

So the way forward might be a recent tack I have taken. And that means taking it one step further. If the claimant did not purchase the debt for money the claimant is not entitled to foreclose. But this still leaves the corut thinking that this is a technical objection to prevent restitution for a just unpaid debt. While the “other creditor” idea is theoretically correct, it gains no traction in court.

But a close corollary does gain traction, to wit: that if the claimant is not the owner of the debt it may be presumed that upon forced sale the proceeds are not going to the owner of the debt unless the proof establishes some representative capacity, even if that capacity is barred by Article 9 §203 UCC.

By arguing that no proof has been alleged and no allegation or assertion has been made that the proceeds will go to the party who owns the debt by virtue of having paid for it, you effectively eliminate the ability of the judge to presume otherwise since there is not even a scintilla of anything to support that view, which incidentally is in fact entirely correct — the proceeds do not go to anyone who has paid value for the debt.

Which brings us to the point that makes every judge uncomfortable regardless of bias — if the debt is not going to be repaid by the forced sale of the property then it follows logically and inescapably that the sale will result in revenue to the participants in the foreclosure, not the repayment of debt.

And foreclosure is a remedy exclusively reserved to a claimant seeking restitution of unpaid debt owed to the claimant. If the claimant has not paid for it then the claimant does not have any accounting records showing that it is reporting a loan receivable for the subject debt, note or mortgage and that means no injury, no standing and even malicious motive attempting to weaponize the foreclosure process to achieve revenue to the detriment of both the homeowner and the true owner of the debt who paid for it.

It should be argued that the obtuse complexity of sales of mortgages into the secondary markets and claims of securitization is not the product of some plan of homeowners to escape a just debt. It is the product of a plan by banks who saw an opportunity that was worth their effort despite the risk that the plan failed to comply with law. Whether the banks can create a lawful correction to the problem is not for the court to decide nor for a borrower to propose. A foreclosure must be decided based upon the claim alleged. If that claim is invalid then the claimant must lose.