WHY THERE IS NO UNIVERSAL FORECLOSURE LAW

August 1, 2016

[The following is the opinion of the editor based on over eight (8) years of experience in foreclosure defense across over 35 states at both the trial and appellate levels and in both state and Federal court.]

In the old days, when the “lender” was in fact the entity which lent money in connection with a mortgage loan, the lender would keep the Note and mortgage instrument (called, depending on the state and the structure of foreclosure law (judicial or non-judicial), a Mortgage, Deed of Trust, or as they call it in Georgia, a “Security Deed) in a vault or other secured place, and if there was a foreclosure, simply pull the documents out of the vault and present them to the Court. That was the old days.

I spent years litigating what was called, at the time, “limited partnership private placement tax syndication litigation”, which arose out of the sale of what were “limited partnership interests” in what was supposed to be shopping centers, oil and gas wells, etc. Limited partnership “Certificates” were sold to those with 6-or more figure incomes so that they could take a 2 to 1 or 3 to 1 tax writeoff (meaning, for example, that if you invested $100K into the syndication, you could deduct $200K or $300K off of your income right off the top for tax purposes). When the Tax Reform Act of 1986 passed, those “writeoffs” were disallowed, and the investors took a major tax hit from the IRS including disallowance of the writeoffs, and penalties and interest on the taxes which were assessed.

At that time, my job, as an associate of a Miami law Firm, was to defend 66 lawsuits at the same time filed by banks against our Firm’s client, who syndicated shopping centers. As an associate, you do what you are told, or “there’s the door”.

This morphed into what was called the “Ginnie Mae” securitizations of the 1990s, which were derivative investments involving the bundling and securitization of second mortgage loans. I was charged by my boss with the duty of defending one of the most successful securitizers of the day in numerous lawsuits against him (who lived in Palm Beach, Florida and was voted the “Best Dressed Man in Palm Beach at the time). Again, that was my job. The market for these “Ginnie Mae securities” was high-level investors.

What Anthony Mozillo and his crew learned from all of this was that you could make the American homeowner your market, and thus ran with the concept of the “mortgage-backed security” in connection with granting anyone a loan who could sign a piece of paper. The market thus increased exponentially overnight, as there was no regulation on granting loans to borrowers who “qualified” for a loan. As we all know, the situation got so bad with “NINJA” (no income, no job, no assets) loans that a guy working in 7-11 could get a million dollar loan on stated income (no documentation to prove what he made).

What this resulted in was the foreclosure crisis which began in 2007-2008. As this entire situation was totally new to the courts, there was no law on the real issues (such as what constitutes a valid assignment or endorsement under the circumstances; whether a downline transferee is in fact a “holder” of the Note, etc.). The biggest problem, which continues to confront us today, is that the bankster and servicer attorneys have essentially lied to the courts by claiming that even a thief of a Note can foreclose on a mortgage, and that the old law applies to the unique factual situations of the present.

Modern day foreclosures involving securitization; “SBM” cases (“successor by merger”, like Wells Fargo on Wachovia originations); and cases involving bankrupt or non-existent “lenders” who may or may not have been real “lenders” (and brokers who were essentially acting as agents for third-party funding entities), had no fact-specific or issue-specific legal precedent to rely on. Thus, the bankster and servicers attorneys try to convince the Judges that the law of securities, contracts, fraud, corporations, transfers of beneficial interests under mortgage instruments, constitutional law, etc. do not apply to what they call a “routine foreclosure” where the only issues, according to them, are “the homeowner did not pay and we have the Note with a blank endorsement”. Unfortunately, many of the Judges believe this swill as many cases have gone uncontested.

However, despite this intentional effort on the part of attorneys for the banksters and servicers to pervert the law to their own benefit, the law remains unsettled. For example, the January, 2015 Jesinoski decision from the U.S. Supreme Court opened more doors than it closed, and the litigation as to what the decision really means remains unresolved and continues. Another example is Mr. Barnes’ victories in the Supreme Courts of Oregon and Montana as to whether MERS is the “beneficiary” of a Deed of Trust (which it is not, as both Supreme Courts so ruled), which directly affects any alleged “transfer” of a beneficial interest in the mortgage instrument.

It is up to us, on the right side of the law, to continue the fight, and we sincerely thank those who have the gumption to continue it.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

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