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David C. Breidenbach
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I am not a bankruptcy attorney either, but I spent decades as a corporate tax attorney. Corporations issued mortgage backed securities long ago--using an Indenture. The corporation issued a note in favor of a trustee and if it were to be assigned, then there was a written assignment of note. There are a number of reasons why ownership of a promissory note is a critical element of foreclosure. An unverified photocopy obtained from an unknown source is not the note--nor is it proof of anything except that somebody had access to a copy machine. A "created" assignment of moertgage is invalid in the abscence of the note--the note establishes the debt, the mortgage is merely a device to collect the payment of the note. The note may imply the mortgage --but not the reverse. The collection agencies by whatever name ----call them servicers, psuedo-law firms or document creators----seek to set aside the law of mortgages and the UCC by intimidating mortgagors. Now if I were to pay every person that that could manage to get access to the original note --or even a copy thereof, so long as I could get a collection agency to "create" an assignment of mortgage" no doubt I'd have abundant opportunity to make as many payments as there were gutsy thieves. Madoff and many others have proven that there is no shortage of these.So if I pay the first guy that comes along with forged documents a willing attorneys--what do I do when the party shows up with the blue ink copy that I signed? Will he walk away and say--gee I guess I was just too late. Not likely. Assume I was foreclosed upon by the frauder, my house sold, the proceeds paid over to the gutsy frauder, and a deficiency judgment entered against me. Now the real holder shows up with blue ink in hand---my house and the proceeds are gone--the thief in bankruptcy and unavailable for comment in a far away jurisdiction. The holder goes to the same court that entered the judgment and "proves", yes "proves" he has the blue ink. Now what? Who is the fool? Is payment to a frauder a defense in Ohio? Not today. Now lets try another tack--lets say the promissory note was obtained by fraud. Lets say the originating lender wanted to defraud the derivative security buyers in order to get fees and skim the proceeds of the sale ----that couldn"t happen you say--SEC watching you say, ask Madoff's victims about SEC! Well anyway so the lender offers an illusory teaser rate, gins up an appraisal at an affiliate, then provides alters the preliminary disclosure rates and costs by say 30%--etc. etc.---anything to get the homeowner to sign so the lender can sell the derivatives. Now the lender doesnt want anybody--especially outside auditors or ratings guys to see that dirty note--so it disappears along with the facially fraudulent terms. No problem right --debt still recorded electronically right? But now the predatory lender knows he may face trouble collecting--not a holder in due course right. So why not create a wholly owned special purpose Delaware Trust to APPEAR as an independent unknowing holder for the benefit of the other group of defrauded suckers the security purchasers. It works, even the bankruptcy lawyers get confused by the impression that the accounting treatment allows this frauder to issue public debt as if it were a "sale". Hey guys wake up--you dont "sell" debt--you issue it! The trusts are a mere instrumentality used to get off balance sheet debt that allows the appearance of a well-capitalized lender. For tax purposes the transfers to the trust retain the benefits and burdens of ownership to the lender group. And if the accounting profession hadnt prostituted itself to facilitate this Enronesque behavior, the debt owed to the derivative securities owners would be there as would the homeowners' promissory notes --as assets-notes receivable. The way it is all portrayed the non-descript trust is owner--despite the retained benefits and burdes and dominion and control. You guys out there defending need to go back and review what ownership means. The lender owns the promissory notes and owes the security holders--or somebody does. The ownersip of notes and liabilities cannot be in a disembodied form--there is a person that owns the residual powers--usually the servicer. But back to the point--the lender predator cannot collect on the fraudulently procured note, any more than Jesse James can order a person to sign a check at gunpoint--then turn it over to Brother Frank who was holding the reins--and the two collect on it. So why is it important that the real owner of the promissory note prove it? Folks wake up and remember your law school and the Madoff affair.
David C. Breidenbach is now following The Typepad Team
Nov 23, 2009