Consummation vs. Closing: Why Foreclosure Courts Get It Wrong

Disclaimer: This article is for educational purposes only and is not a substitute for legal advice. Always consult with a licensed attorney in your jurisdiction.

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The Problem: Courts Ignore Basic Contract Law

In foreclosure cases, many courts are ignoring centuries-old contract law by treating a loan as consummated the moment a homeowner signs documents — even if the lender never signed or performed its obligations.

• Without consideration passing both ways, there is no contract.

• A lender’s obligations come alive only when they comply with TILA and actually fund the loan.

• To treat it otherwise makes the lender’s performance optional — turning the loan into an executory contract, unenforceable until performance occurs.

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The Loophole: Lenders Don’t Sign Loan Instruments

Banks exploit the fact that lenders don’t sign notes or mortgages. But that doesn’t absolve them of their reciprocal duties.

• Paper instruments can’t sidestep the requirement of mutuality.

• If a third party performs the “lender’s” duties instead of the originator, the written loan contract isn’t enforceable.

This is why discovery into consummation and consideration is fair game, no matter how much foreclosure attorneys protest.

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Consummation vs. Closing

Some state laws distort the definition of consummation, equating it with the moment a borrower signs documents at closing. But that ignores the lender’s duty to:

1. Fund the loan, and

2. Provide a verifiable record of that funding.

This problem is most evident in refinance transactions, where no buyer or seller exists — only rearranged entries between financial institutions. The result? Borrowers are left without proof of consideration or proper performance.

This flawed definition affects more than contract enforcement. It can also undermine TILA rescission rights by starting the clock prematurely, leaving borrowers unable to exercise their rights within the statutory window.

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Why It Matters in Foreclosure

By defining consummation as one-sided — only the borrower signing — courts are excusing lenders from proving:

• That consideration actually passed, and

• That the originator was acting for a real, disclosed lender.

If the third party was undisclosed, that’s a TILA violation. If the third party wasn’t even a lender but merely a conduit, then:

• No consideration was provided, and

• There was nondisclosure at closing.

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Debt Still Exists – But Who Is the Creditor?

None of this means the homeowner didn’t receive money. If funds did appear after closing, the borrower owes a debt. But:

• That debt is owed only to the party actually out of pocket.

• Successors cannot enforce the note or mortgage without proving real consideration.

The true creditor’s remedy is likely:

1. An equitable action to prove their status as the real party in interest, or

2. A claim for unjust enrichment.

In the first case, they might preserve the mortgage lien. In the second, they’d be left with an unsecured claim.

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Key Takeaways

• Consummation ≠ Closing. Both sides must perform for a contract to be enforceable.

• Originators are often not lenders. Without proof of funding, there’s no enforceable loan contract.

• Assignments aren’t enough. Courts must require proof of consideration and compliance with TILA.

• Borrowers still owe money if funds were disbursed—but only to the true creditor, not a paper claimant.

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Posted in Corruption, discovery, evidence, foreclosure defenses, legal standing, Modification, securities fraud, Servicer |