The difference between assumptions, presumptions and reality

Reynaldo Reyes, VP asset Management for Deutsch Bank said it best. “It is all very counter-intuitive.”

The borrower naturally assumes that the loan contract is complete when the money hits the closing table. Offer, acceptance and consideration — all the basics of an enforceable contract appear to be present. The borrower assumes the money was loaned by the party whose name is on the note as lender and named on mortgage as mortgagee.

What the Borrower does NOT know is that there is a previous agreement between the “originator” (whether licensed as a lender or not) that control the entire transaction with the borrower. It is frequently called an assignment and assumption agreement or purchase and assignment agreement. You can see what I have to say on this on YouTube or use the search engine on this blog for previous articles on the subject.

The previous assignment and assumption agreement calls for a  table funded loan. A table funded loan is improper simply under Florida property law, contract law, and deceptive lending laws. It is also PER SE a void contract because it commits the parties to perform acts contrary to law. Then the originator, closing agent and third party aggregator (the other side of the assignment and assumption agreement) go ahead and act in accordance with the illegal assignment and assumption agreement. In my opinion all actions at closing should be considered void, subject to equitable doctrines.

Putting the name of the originator on the note instead of the source of funding and subject to repayment terms that are different than what the true lenders or true creditors required, is a void act against public policy and illegal per se. It is also PREDATORY PER SE  which is more than just “wrong.” it entitles the borrower to justice and requires the perpetrators be punished by treble damages, disgorgement of undisclosed fees etc.

The note and mortgage are therefore in my opinion VOID not voidable. AND the absence of offer and acceptance on the same terms also means the loan documents are unenforceable. And further and most importantly, the absence of consideration at the alleged loan closing means that no contract was formed, the creation and signing of the note were a sham, and the creation, signing and recording of the mortgage were also a sham.

The closing agent assumes the same thing. He gets the money usually in the exact amount required by the settlement statements which were “approved” by the originator. He either doesn’t notice or doesn’t care who gave him the money to close the transaction. He also has the motivation to close because he gets paid out if the closing proceeds. At this moment it is difficult to say with certainty if the closing agents were negligent or participated intentionally in an illegal scheme.

Lawyers and the courts presume that the closing was real because the documents are facially valid.

But the facts are different. There is no doubt that a debt exists — the receipt of the benefits of the loan creates a debt where the borrower is the debtor. The debt is the amount of money that hit the closing table modified by the settlement statements. The net debt matches the amount set forth on the note. But this debt, as we learned in law school arises by operation of law, where it is presumed under these circumstances that a loan was made. But the statute of frauds requires that the loan contract be supported by written instruments. Notice the words “loan contract.” The only thing governing the validity of actions performed at a loan closing is contract law — not the UCC.

This is the point where the facts don’t match the documents. The banks are resisting at all costs, allowing the borrower to see the transaction trail. If an order is entered requiring compliance with the homeowner’s discovery demands, the case is settled under confidentiality. But the facts remain. The party with whom the borrower has settled actually has at best a questionable right to enter into a settlement. So the issue of title is not actually addressed in hedge settlement or modification, leaving the homeowner or any subsequent buyer or bank financing a loan using the property as collateral, in a grey area at best.

Since the assignment and assumption agreement effectively transfers “ownership” at the moment the documents are signed, the originator is not able to execute a satisfaction of mortgage — or an assignment or endorsement. It is prevented from doing so by the terms of the assignment and assumption agreement. And neither the borrower nor the closing agent knows who does possess the right to execute a satisfaction, assignment or endorsement.

The party who has apparently funded the loan is actually in the same position of the originator. The reason is that the broker dealers were careful to avoid any appearance that they were involved in loans that violated the promises they made to the lenders (investors) and which violated laws against predatory lending and rules requiring industry standard underwriting.

Thus there is no legal nexus between the broker dealer and the closing, no nexus between the trust and the closing, no nexus between the investors and the closing. This happened solely because the investment banks acted like pirates. Using the money from investors, who are the real lenders, they interposed a cloud of entities whose relationship appears murky but in reality is actually quite clear if you view it from the perspective of intentional fraud, as alleged by investors, regulators, guarantors, and other parties who were drawn into this cloud.

Thus far, those cases have been settled, but like the lawsuits with the borrowers, they are all settled under confidentiality. At this point the amount paid out in settlements appears to be over $300 billion and will eventually total over $1 trillion. This doesn’t prove anything of course. But it does corroborate that the banks saw their vulnerability and instead of litigating they settled. This should lend some comfort to borrowers who are wading into that cloud, that what they are looking for they will find — or receive a settlement offer that cannot be refused.

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