What is the Produce the Note Defense to Foreclosure? Some basic information learned at Neil Garfield Seminar

The following is general legal information only and should not be relied upon as legal advice. From the years 2001-2008 most loans originated by so called ìlendersî (who lent none of their own money as can usually be verified by looking at the ìlenderísî financials) were securitized and sold on WALL STREET to investors such as mutual funds, municipal funds, hedge funds, insurance companies and foreign investors.

• When Wall Street stepped into the picture during these years, the underwriting standards for most, if not all originating ìlendersî dropped significantly as the originating ìlenderî was more incentivized to produced as many assignable loans (or better yet, Security instruments) as it could in order to feed the Wall Street money-making machine that financially craved as many as these loans as could be produced.
• The original ìlendersî rarely lent their own money which can be proved by looking at the originating ìlenderísî balance sheet. In fact, the originating ìlenderî had already contracted to sell the loan to a loan aggregator, investment banker or other entity and was to be paid back for the full loan amount plus typically a 2.5% return on the loan originated (i.e. these ìmiddlemenî in the securities transaction were all paid in full and had no interest in the loan and could not be deemed a ìlenderî but rather a conduit in a single securities transaction). Thus, it is clear the ìoriginating lenderî was doing nothing more than using borrower to issue unregulated negotiable securities (certificates of asset backed securities) on behalf of the Wall Street investors who were the true ìlendersî who funded the loan and who are entitled to any payment that may be due on the loan.
• To state it another way, the activities of the originating ìlenderî in creating the negotiable security, along with the coordinated and contracted participation of the middlemen loan aggregators, investment bankers and others, was a SINGLE TRANSACTION that was literally designed to encourage predatory loans to be originated by the ìstraw manî or ìstand-inî originating ìlenderî that resulted in providing and issuing negotiable securities for literally anyone that could fog a mirror. Moreover, the more predatory the loan/security (ex. deceptive teaser rates, obscured negative amortization products, balloon payments, YSP, onerous pre-payment penalties, failure to properly underwrite, bait and switch tactics at the signing table, false assertions of a right to refinance, appraisal fraud, unverified stated income loans, etc.) often the more that was paid - higher yields - to both the originating ìlender,î the securities middlemen, and the ultimate investor-beneficiary.
• What this created was a system wherein literally anyone with a pulse and FICO score over 500, was able to obtain a mortgage loan in the form and issue the negotiable security that would be sold on Wall Street. For the originating ìlender,î knowing that Wall Street would fund the loan through its investors, incentivized the originating ìlenderî to cut corners on proper underwriting and instead produce as many assignable notes as possible without regard to the ramifications.
• The Securitization system was further set up in such a way as to eliminate the risks caused by predatory lending, defaulting loans, and other risks by insuring and cross-collateralizing thousands of loans in a loan pool. In fact, if foreclosure is pursued, we will show that the above referenced loan has in fact been paid-off in full by insurance proceeds, money from various guarantors, by the investors, and/or by the federal government. If the loan has been paid, there is no right to foreclose or threaten foreclosure.
• The promissory notes and deeds of trust were separated making the notes unenforceable. MERS was used to track ownership of loan servicing rights and ownership rights and even pretends, at times, to be the beneficiary of many loans even though they do not collect any loan payments, have no right to collect such, and have no other financial interest other than being paid its ordinary fees for the tracking and registration service. MERS typically fails to record any assignments of the loans in the property County Recorderís office. This was done to avoid the paying of fees, among other reasons.
• At the end of the day, in many cases a predatory loan was originated by the ìoriginating lenderî who was financed by the Wall Street investor in an elaborate unregistered security scheme. The loans were sliced and diced into loan pools, and many different investors are known to be the so-called ìowners of the noteî although no one, (including MERS, the originating ìlenderî, the Mortgage Loan Aggregators, Investment Bankers and the final Wall Street Investors) can produce a copy of the original promissory note that proves ownership of the ìloanî obligation and right to collect payments and ultimately foreclose.
• If there is no note, and/or no properly recorded assignments of such, there can be no enforceable debt obligations. This is not a new principle, but rather embodies age-old principles and requirements of commercial law such as the Uniform Commercial Coded (U.C.C.).
• Failure to provide validation of the debt or proof of ownership of the note/recorded assignments SHOULD MAKE A LENDER, LOAN SERVICER, INVESTOR, AND/OR TRUSTEE THINK TWICE BEFORE attempting, or undertaking any of the following acts ñ WHICH MAY BE WORTH CHALLENGING IN THE PROPER CASE (Note: we believe a proper case normally requires other more firmly established legal rights, such as a federal truth in lending violation raising extended rescission rights, fraud, or some other historically recognized ground for filing a lawsuit, rather than merely asserting a bare ìproduce the noteî defense):

1. 1. No foreclosure should be permitted where the California Foreclosure statutes are not followed. Under California Law (California Civil Code Section 2923-2924 et seq. ñ California Foreclosure Law) the ìbeneficiary or their authorized agentî is required to contact the borrower to assess their financial information and discuss modification options. This statutory section requires, it would seem, the TRUE AND ACTUAL BENEFICIARY (I.E. THE TRUE HOLDER OF THE NOTE) to make contact and certify such contacts with the homeowner/borrower prior to making the required declaration in the Notice of Default. Failure to have the TRUE AND ACTUAL BENEFICIARY, AND/OR THEIR AUTHORIZED AGENT (who shall be required to prove first that they are complying with California Foreclosure law on behalf of the TRUE AND ACTUAL BENEFICIARY) precludes and nullifies any attempted foreclosure, and makes any assertion of such, and filing of the Notice of Default with the California County Recorder, fraudulent.
   2. No one other than the TRUE AND ACTUAL BENEFICIARY, OR THEIR DULY AUTHORIZED AGENT SHOULD BE ABLE TO ASSERT PROPER STANDING AND PROVE THAT IT IS A REAL PARTY IN INTEREST IN ANY LEGAL PROCEEDING, INCLUDING RESPONDING TO A TEMPORARY RESTRAINING ORDER (TRO); PRELIMINARY INJUNCTION; BANKRUPTCY; OR EVICTION ACTION. As discussed above, without proof of ownership of the note and all required recorded assignments, any attempt to show up and defend any of the above actions (by the ìpretender lendersî and/or their ìagentsî who cannot prove their right to engage in any of the herein referenced activities) will result in attempting to perpetrate a ìfraud on the courtî and might wind up the subject of a motion for sanctions and other proper judicial relief. Moreover, any attorney/trustee attempting to pursue any of the herein referenced actions on behalf of a beneficiary or their agent, who cannot satisfy and prove ownership, would be well advised to consider all of the legal ramifications.
   3. No one other than the TRUE AND ACTUAL BENEFICIARY, OR THEIR DULY AUTHORIZED AGENT SHOULD BE ABLE TO ASSERT a right to collect Loan payments (including principal and interest), late fees, attorney fees, etc., and may not legally demand or collect such. All funds illegally collected from California Homeowners might be subject to the appointment of a receiver or the imposition of a constructive trust in a lawsuit demanding a full refund along with damages and attorney fees.

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NOTES: These are just a few basic ideas to consider in regard to debt validation and produce the note theories. Again, it would seem the case might be better if you have a traditional and historically recognized legal theory (aside from commercial code) to bring and to basically try to bend the judges ear on the PRODUCE THE NOTE STRATEGY, as a side issue, rather than the focal point of the lawsuit. Judges may be reluctant to having their courts used as a grounds for testing somewhat novel legal theories where some might see it as an attempt to ìget your home for free when you are in default of the loan documents.î If granted, this may also lead to ìfloodgate litigation.î

As referenced, above, many loan servicers try to keep it secret who the real ìlenderî or ìbeneficiaryî of a loan is. I suppose the securitization process demands secrecy in debt collection to make it work. Of course, this seems counter-intuitive that a person is not entitled to know who their debt is actually owed to. Steve Vondran can be reached at steve@vondranlaw.com or (877) 276-5084.