Appeal No. 5D09-4035
IN THE 5TH DISTRICT FLORIDA COURT OF APPEALS
Gregory Taylor
Appellant
v.
Deutsche Bank National Trust Company
as Trustee for FFMLT 2006-FF4, Mortgage Pass-Through Certificates, Series
2006-FF4
Appellee
APPEAL IN CAUSE NO. 05-2008-CA-065811
IN THE CIRCUIT COURT OF BREVARD COUNTY, FLORIDA
David E. Silverman presiding
APPELLANTS’ OPENING BRIEF
George M. Gingo, FBN 879533
P.O. Box 838
Mims, Florida 32754
321-264-9624 Office
321-383-1105 Fax
ggingo@yahoo.com
1
TABLE OF CONTENTS
Table of Contents . . . . . 2
Table of Citations . . . . . 3
Table of Cases . . . . 3 – 7
Table of Statutes . . . . 7 – 8
Table of Secondary Sources . . 8
Statement of the Case and Statement of Facts 9 – 16
Standard on Appeal . . . . 16
Summary of the Arguments. . . . 17
Arguments . . . . . . 18
Issue 1:
The Appellee presented evidence
that it was not entitled to enforce
the promissory note in question. . 18 – 23
Issue 2:
MERS did not pass an enforceable
interest in the promissory note to
the Appellee. . . . . 23 – 33
Conclusion . . . . . . 33
Certificate of Service . . . . 33
Certificate of Font Compliance . . . 34
2
TABLE OF CITATIONS
TABLE OF CASES
Amacher v. Keel,
358 So. 2d 889
(Fla. 2 DCA 1975) . . . . . . . 24
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242
(1986). . . . . . . . . 16
Booker v. Sarasota, Inc.,
707 So.2d 886
(Fla. App. 1 Dist., 1998). . . . . . . 12
Brown v. Snell,
6 Fla. 741 (1856). . . . . . . . 18
Carpenter v. Longan,
16 Wall. 271,
83 U.S. 271,
21 L.Ed. 313
(1872). . . . . . . . . 24, 32
City of Cocoa v. Leffler,
762 So. 2d 1052
(Fla. 5th DCA 2000). . . . . . . 16
Century Group Inc. v.
Premier Fin. Services East L. P.,
724 So. 2D 661
(Fla. 2 DCA 1999) . . . . . . . 18
Case v. Smith,
200 So. 917
(Fla. 1941). . . . . . . . . 23
3
Collins v. Briggs,
123 So. 833
(Fla. 1929). . . . . . . . . 23
Evins v. Gainsville Nat’l Bank,
85 So. 659
(Fla. 1920). . . . . . . . . 23
Grier v. M.H.C. Realty Co.,
274 So. 2d 21
(Fla. 4 DCA 1973). . . . . . . 18
In re Carlyle,
242 B.R. 881
(Bankr. E.D.Va., 1999). . . . . . . 22
In re Foreclosure Cases,
521 F. Supp. 2D 650
(S.D. Oh. 2007). . . . . . . . 26
In Re Hayes,
393 B.R. 259
(Bankr. D. Mass. 2008). . . . . . . 21
In re Kang Jin Hwang,
396 B.R. 757
(Bankr.C.D.Cal., 2008). . . . . . . 22
In re Mitchell,
Case No. BK-S-07-16226-LBR
(Bankr.Nev. 3/31/2009). . . . . . . 25, 27
In re Sheridan,
Case No. 08-20381-TLM
(Bankr.Idaho, 2009). . . . . . . 28
4
In re Vargas,
396 B.R. 511
(Bankr.C.D.Cal., 2008). . . . . . . 28
In re Wilhelm,
Case No. 08-20577-TLM
(Bankr.Idaho, 2009). . . . . . . 22
Krol v. City of Orlando,
778 So. 2d 490, 492
(Fla. 5th DCA 2001). . . . . . . 16
Landmark National Bank v. Kesler,
216 P.3D 158
(Kansas, 2009). . . . . . . . 31
LaSalle Bank NA v. Lamy,
824 N.Y.S.2d 769
(N.Y. Supp. 2006).. . . . . . . 27
Major League Baseball v.Morsani,
790 So. 2d 1071
(Fla. 2001). . . . . . . . . 16
Mellor v. Goldberg,
658 So. 2d 1162
(Fla. 2 DCA 1995). . . . . . . 18
Margiewicz v. Terco Prop.,
441 So. 2d 1124
(Fla. 3 DCA 1983). . . . . . . 18
Mortgage Electronic Registration System, Inc.
v. Southwest Homes of Arkansas,
08-1299 (Ark. 3/19/2009) (Ark., 2009). . . . 31, 33
5
Miami Mtge. & Guar. Co. v. Drawdy,
127 So. 323
(Fla. 1930). . . . . . . . . 23
Pepe v. Shepherd,
422 So. 2d 910
(Fla. 3 DCA 1982). . . . . . . 18
Rollins v. Alvarez,
792 So. 2d 695
(Fla. 5th DCA 2001). . . . . . . 16
Scott v. Taylor,
58 So. 30
(Fla. 1912). . . . . . . . . 18
Sobel v. Mutual Dev. Inc.,
313 So. 2d 77
(Fla. 1 DCA 1975). . . . . . . 18, 24
So. Colonial Mtge. Co. v. Medeiros,
347 So. 2d 736
(Fla. 4 DCA 1977). . . . . . . 23
Stuyvesant Corp. v. Stahl,
62 So.2d 18, 20
(Fla., 1952). . . . . . . . . 32
Tayton v. American Nat’l Bank,
57 So. 678
(Fla. 1912). . . . . . . . . 18
Thomas v. Hartman,
553 So. 2d 1256
(Fla. 5 DCA 1989). . . . . . . 18
6
Vance v. Fields,
172 So. 2d 613
(Fla. 1 DCA 1965). . . . . . . 24
Volusia County v.
Aberdeen at Ormond Beach, L.P.,
760 So. 2d 126
(Fla. 2000). . . . . . . . . 16
Young v. Victory,
150 So. 624
(Fla. 1933). . . . . . . . . 18
TABLE OF STATUTES
§ 673.1031(1)(a), Fla. Stat.(2009). . . . . 12
§ 673.1031(1)(c), Fla. Stat.(2009). . . . . 12
§ 673.1031(1)(e), Fla. Stat.(2009). . . . . 12
§ 673.1041(1), Fla. Stat.(2009). . . . . . 19
§ 673.1041(2), Fla. Stat.(2009). . . . . . 19
§ 673.1041(5), Fla. Stat. (2009). . . . . 12, 19
§ 673.1051(1), Fla. Stat.(2009). . . . . . 19
§ 673.1051(3), Fla. Stat.(2009). . . . . . 19
§ 673.1091(2), Fla. Stat.(2009). . . . . . 19, 21
§ 673.1101(1), Fla. Stat.(2009). . . . . . 19
§ 673.2011(2), Fla. Stat.(2009). . . . . . 21, 25
§ 673.2014(1), Fla. Stat.(2009). . . . . . 21
7
§ 673.2031(1), Fla. Stat.(2009). . . . . . 20
§ 673.2031(3), Fla. Stat.(2009). . . . . . 21, 22, 25
§ 673.2041(1), Fla. Stat.(2009). . . . . . 12
§ 673.3011, Fla. Stat.(2009). . . . . . 19
§ 673.4121, Fla. Stat.(2009). . . . . . 21
§ 673.4151, Fla. Stat.(2009). . . . . . 21
§ 673, et. seq., , Fla. Stat.(2009). . . . . 19
TABLE OF SECONDARY SOURCES
Christopher L. Peterson, Subprime Mortgage Market
Turmoil: Examining the Role of Securitization,
http://banking.senate.gov/public/index.
cfm?FuseAction=Files.View&FileStore_id=
4f40e1b9-ec5b-4752-ba8f-0c14afc44884. . . . 29
MERS, State-by-State, MERS Recommended
Foreclosure Procedures, (2002), http://www.mersinc.org
/filedownload.aspx?id=176&table=ProductFile. . . 26
Richard R. Powell,
POWELL ON REAL
PROPERTY § 37.27[2] (2000). . . . . . 25
R. K. Arnold, Yes, There is Life on Mers,
Probate & Property, (Aug., 1997),
http://www.abanet.org/genpractice
/magazine/1998/spring-bos/arnold.html). . . . 30
8
STATEMENT OF THE CASE AND FACTS
This appeal is taken from the Circuit Court’s decision to render Summary
Final Judgment against the Appellant. The Appellate Court of Florida has
jurisdiction to consider the issues raised in this appeal under authority of the
Florida Rules of Appellate Procedure, Rule 9.130 et seq.
The nature of the case below was Appellee’s Complaint to foreclose the
residential real property owned and occupied by the Appellant, Gregory Taylor.
(R. I/2) Appellant’s First Amended Answer challenged Appellee’s standing in
affirmative defenses and an incorporated Motion to Dismiss. (R. I/111-112, 117,
118-119, 121-124)
On October 9, 2009, a hearing on the Appellee’s Motion for Summary Final
Judgment was held. (R. I/166) The Appellee offered in evidence the promissory
note, the mortgage instrument and an assignment of mortgage. (R. I/62-87)
Appellant’s Response in Opposition to Appellee’s Motion for Summary Final
Judgment (which was also identified as a cross-motion for summary judgment)
stipulated that this evidence was not in dispute. Appellant contended that the
dispute was as to what that evidence actually proved – that being that Appellee was
not entitled to enforce the promissory note against Appellant.1 (R. 174-175) This
1 The clerk’s Index to Record on Appeal has this document as being filed
subsequent to the Summary Final Judgment of Foreclosure. That is incorrect as
9
argument in the Appellant’s Response in Opposition to the Motion for Summary
Final Judgment was not novel. That document referenced that this argument had
been previously raised in the Motion to Dismiss which was incorporated within the
First Amended Answer. (R. 175) On October 9, 2009, Judge Silverman granted
Summary Final Judgment of Foreclosure in Appellee’s favor. (R. 166-172)
Appellee made the following three claims in it’s Complaint: 1) “On or about
December 21, 2005, a promissory note was executed and delivered in favor of
Plaintiff, or Plaintiff’s assignor, in the original principal amount of $168,000.00.”
(R. I/2, para. 2 of complaint); 2) “The Plaintiff is the present owner and
constructive holder of the promissory note and Mortgage.” (R. I/2, para. 2 of
complaint); and, 3) “The above-described Note and Mortgage were assigned to
Plaintiff. The assignment is attached as Exhibit “C”.” (R. I/3, para. 3 of complaint)
On November 26, 2008, Appellant filed an Answer which substantially
denied the foreclosure allegations. (R. I/49-50) On December 9, 2008, Appellee
filed a Motion for Summary Final Judgment. (R. I/51) In support of the Motion
for Summary Final Judgment, the Appellee relied solely upon the promissory note,
the mortgage instrument and the assignment of mortgage to support its’ claim that:
the file stamp on the document indicates it was filed at 8:27 a.m. on October 9,
2009. (R. I/174) This was prior to the hearing on the motion which was noticed
as set for 8:45 a.m. on October 9, 2009. (R. I/149)
10
The Note and Mortgage are in default. Moreover, Plaintiff owns and
holds the Note and Mortgage and is entitled to recover its principal,
interest, late charges, costs, attorney’s fees, and other expenses, all of
which are more fully set forth in the supporting affidavits to be filed
with the court.
(R. I/52, para. 6)
On February 23, 2009, the Appellee filed the original promissory note,
mortgage instrument and the assignment of mortgage. (R. I/62-87) The
promissory note states:
1. BORROWER’S PROMISE TO PAY
In return for a loan that I have received, I promise to pay U.S. $168,000.00
(this amount is called “principal”), plus interest, to the order of the Lender.
The Lender is FIRST FRANKLIN A DIVISION OF NAT. CITY BANK OF
IN. I understand that the Lender may transfer this Note. The Lender or
anyone who takes this Note by transfer and who is entitled to receive
payments under this Note is called the “Note Holder”.
(R. I/63)
Sections 7 and 9 of the promissory note provide that payments are due to the
Lender until the Lender transfers the note, at which time payments shall be made to
the “Note Holder”, who may enforce its rights under the note. (R. I/65) The
promissory note was never transferred, as evidenced by the lack of an indorsement
on the promissory note. (R. I/66-67)
Though the Appellee is Deutsche Bank National Trust Company, the
promissory note is payable to a different person who is specifically identified in
the promissory note as “First Franklin A Division of Nat. City Bank of IN”
11
(hereafter, “First Franklin”). The promissory note was not indorsed by anyone,
including First Franklin.2 (R. I/66) Additionally, the promissory note did not carry
an allonge.3
The mortgage instrument provides that Mortgage Electronic Registration
Systems, Inc. “MERS” is the mortgagee and that it is a separate corporation that is
acting solely as a nominee for the Lender and Lender’s successors and assigns. (R.
I/68, para. (C) and (D) ) The mortgage instrument does not identify MERS as a
2 Florida Statutes section 673.2041 (1) provides that the term “indorsement”
means a signature, other than that of a signer as maker, drawer, or acceptor, that
alone or accompanied by other words is made on an instrument for the purpose
of negotiating the instrument, restricting payment of the instrument, or incurring
indorser’s liability on the instrument. Appellant is the “maker” of the
promissory note pursuant to Florida Statutes section 673.1031(1)(e) which
provides that “Maker” means a person who signs or is identified in a note as a
person undertaking to pay.” The terms “drawer” and “acceptor’ do not apply in
this case as those terms only apply to a “draft” pursuant to Florida Statutes
section 673.1031(1)(a) & (c). Florida Statutes section 673.1041(5) provides
that “An instrument is a “note” if it is a promise and is a “draft” if it is an order.”
3 For the purpose of determining whether a signature is made on an
instrument, a paper affixed to the instrument is a part of the instrument. (§
673.2041(1), Fla. Stat. (2009)) “An allonge is a piece of paper annexed to a
negotiable instrument or promissory note, on which to write endorsements for
which there is no room on the instrument itself. Such must be so firmly affixed
thereto as to become a part thereof.” BLACK’S LAW DICTIONARY (6th
ed.1990). Florida’s Uniform Commercial Code does not specifically mention an
allonge, but notes that “[f]or the purpose of determining whether a signature is
made on an instrument, a paper affixed to the instrument is part of the instrument.”
§ 673.2041(1), Fla. Stat. (1995)). Booker v. Sarasota, Inc., 707 So.2d 886 (Fla.
App. 1 Dist., 1998)
12
payee. Instead, like the promissory note, the mortgage instrument names First
Franklin as the Lender/payee. (R. I/68, para. (E); also see R. I/70)
Appellee had not filed a reply to the Appellant’s Answer, so on June 1, 2009,
Appellant filed his First Amended Answer. (R. I/111) Appellee did not file an
objection to Appellant’s First Amended Answer. (See Index to Record for lack of
filing) In the First Amended Answer, Appellant:
1) denied that he delivered a promissory note in favor of the Appellee or
the Appellee’s assignors (R. I/110, para. 2);
2) denied that the promissory note was assigned by MERS to Appellee
(R. I/111, para. 3);
3) denied that the mortgage instrument was properly assigned to the
Appellee (R. I/111, para. 3);
4) denied that the promissory note and mortgage instrument are in
default with Appellee (R. I/111, para. 5); and,
5) denied that Appellee is owed any sum due and owing on the
promissory note and mortgage instrument (R. I/111, para. 6).
Appellant had admitted in his First Amended Answer that he is in control of
the subject property and that he resides at the property. (R. I/111, para. 12) And
though the Complaint neglected to specifically state that the Appellant had actually
borrowed money, the Appellant admitted in his Response in Opposition to the
Motion for Summary Final Judgment that he did execute a promissory note and
mortgage, but that someone other than the Appellee is entitled to enforce the
subject promissory note and mortgage against him and his property. (R. I/180)
13
Appellant made several affirmative defenses, the first and ninth of which
were to challenge the standing of the Appellee as not being an owner or holder of
the promissory note or an authorized agent for an identifiable owner or holder of
the promissory note. (R. I/111-112; 117)
The First Amended Answer also incorporated within it a Motion to Dismiss.
(R. I/119; 121-124)) The incorporated Motion to Dismiss challenged the
Appellee’s standing and stated the following:
i. The Plaintiff is clearly acting as a trustee in this action for an entity
not named in either the Mortgage or Note. (Complaint, Caption)
The Plaintiff claims that it is the present owner of the Promissory
Note and Mortgage, yet contrarily, it also claims that it is the
constructive holder of the promissory note and Mortgage.
(Complaint, par. 2) The Plaintiff claims that the Note and Mortgage
were both assigned to the Plaintiff and that the assignment is Exhibit
C to the Complaint. (Complaint, par. 3)
ii. Both the Mortgage and the Note state that payment shall be made to
Lender. (Complaint, Note, par. 1; Mortgage, p. 1)
iii. The assignment referenced in Exhibit C is an assignment by MERS of
the Mortgage to Plaintiff, it is not an assignment of the Note – there is
no assignment of the note in any of the Plaintiff’s documents.
(R. I/119)
The First Amended Answer’s incorporated Motion to Dismiss made the
following argument:
The Plaintiff alleges that it is all things – a trustee acting on behalf of
another entity who owns the Note and Mortgage, and that it is the owner of
the Note and Mortgage. The Mortgage provides that there can be multiple
14
owners of fractional interests of the Note and Mortgage. (Complaint,
Mortgage, par. 20) However, that is not what the Plaintiff alleges. The
Plaintiff alleges that there is only one owner of the Note and Mortgage – it
may be the Plaintiff, or it may be the beneficiary of a trust that the Plaintiff
is trustee of – we can’t possibly know because the Plaintiff pled it both
ways. The proof the Plaintiff provides of its ownership interest is
insignificant. The Plaintiff provides an assignment of the Mortgage but not
an assignment of the Note.
(R. I/123)
On October 9, 2009, at 8:27 a.m., which was prior to the hearing on the
Appellee’s Motion for Summary Final Judgment, the Appellant filed an opposition
to the Motion for Summary Final Judgment and Cross-Motion for Summary Final
Judgment. (R. I/174) In this document the Appellant stipulated that Appellee’s
evidence was authentic, uncontested and that there were no genuine issues of
material fact. (R. I/174-175 ) In the document, Appellant argued that there were
solely legal issues pending before the Court, those being: 1) that because the
promissory note was made payable to a specifically identified person who was not
the Plaintiff or the Plaintiff’s principal, that before Appellee could enforce it
against Appellant, the promissory note had to carry either an indorsement or an
allonge making it payable to the Appellant or to Appellant’s principal; (R. I/175)
and, 2) that MERS could not pass an enforceable interest to Appellee. (R. I/177)
The Appellee’s Motion for Summary Final Judgment was heard on October
9, 2009, at 8:45 a.m. (R. I/149; R. I/166) After oral argument in the absence of a
15
court reporter, the Circuit court granted Summary Final Judgment to the Appellee
after argument. (R. I/166)
STANDARD ON APPEAL
The standard of review for summary judgment is de novo. Major League
Baseball v.Morsani, 790 So. 2d 1071 (Fla. 2001); Rollins v. Alvarez, 792 So. 2d
695 (Fla. 5th DCA 2001); Volusia County v. Aberdeen at Ormond Beach, L.P.,
760 So. 2d 126 (Fla. 2000). In reviewing a summary judgment, the Court must
determine whether there is any “genuine issue as to any material fact” and whether
“the moving party is entitled to judgment as a matter of law.” Fla. R. Civ. P.
1.510(c).
Issues of fact are “genuine” only if a reasonable jury, considering the
evidence presented, could find for the non-moving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986). Generally, “[t]he party moving for
summary judgment has the burden to prove conclusively the nonexistence of any
genuine issue of material fact.” City of Cocoa v. Leffler, 762 So. 2d 1052,1055
(Fla. 5thDCA 2000). The evidence contained in the record, including supporting
affidavits, must be considered in the light most favorable to the non-moving party,
and if the slightest doubt exists, summary judgment must be reversed. Krol v. City
of Orlando, 778 So. 2d 490, 492 (Fla. 5th DCA 2001).
16
SUMMARY OF THE ARGUMENTS
Ownership of the promissory note and the mortgage instrument were
bifurcated. The unindorsed promissory note was not a bearer instrument. Rather,
it was made payable to the lender who is a specifically identified person – First
Franklin – and the mortgage instrument named MERS as the mortgagee, solely as
a nominee. Neither the promissory note nor the mortgage instrument granted
MERS an interest in the promissory note, instead, First Franklin retained
ownership in the promissory note.
The right to foreclose is dependent upon there being an enforceable
promissory note. An assignment of mortgage from MERS to Appellee granted
Appellee all of the interests that MERS had in the promissory note and the
mortgage instrument. By the assignment of mortgage, MERS could not convey a
greater interest to Appellee than that which it already held. Since MERS had no
enforceable interest in the promissory note, it conveyed no enforceable interest in
the promissory note to the Appellee. Even if MERS was an agent of First Franklin
with authority to enforce the promissory note, no evidence of such authority was
presented to the Circuit Court. Without an interest in the promissory note, or
without evidence of authority to enforce the promissory note against Appellant,
Appellee had no standing to foreclose and summary judgment was improper.
17
ARGUMENTS
FIRST ARGUMENT
THE APPELLEE PRESENTED EVIDENCE THAT
IT WAS NOT ENTITLED TO ENFORCE THE
PROMISSORY NOTE IN QUESTION
Every mortgage loan is composed of two documents – the note instrument
and the mortgage instrument. No matter how much the mortgage instrument is
acclaimed as the basis of the agreement, the note instrument is the essence of the
debt. Sobel v. Mutual Dev. Inc., 313 So. 2d 77 (Fla. 1 DCA, 1975); Pepe v.
Shepherd, 422 So. 2d 910 (Fla. 3 DCA 1982); Margiewicz v. Terco Prop., 441 So.
2d 1124 (Fla. 3 DCA 1983).
The promissory note is evidence of the primary mortgage obligation. The
mortgage is only a mere incident to the note. Brown v. Snell, 6 Fla. 741 (1856);
Tayton v. American Nat’l Bank, 57 So. 678 (Fla. 1912); Scott v. Taylor, 58 So. 30
(Fla. 1912); Young v. Victory, 150 So. 624 (Fla. 1933); Thomas v. Hartman, 553
So. 2d 1256 (Fla. 5 DCA 1989). The mortgage instrument is only the security for
the indebtedness. Grier v. M.H.C. Realty Co, 274 So. 2d 21 (Fla. 4 DCA 1973);
Mellor v. Goldberg, 658 So. 2d 1162 (Fla. 2 DCA 1995); Century Group Inc. v.
Premier Fin. Services East L. P . , 724 So. 2d 661 (Fla. 2 DCA 1999)
18
On December 21, 2005, Appellant issued a promissory note. (§673.1051(1),
Fla. Stat. (2009), and § 673.1051(3), Fla. Stat. (2009)) The subject promissory
note is a “negotiable instrument” because it is an unconditional promise to pay a
fixed amount of money and it was payable to the order of First Franklin at the time
it was first issued. (§ 673.1041(1), Fla. Stat. (2009); § 673.1041(2), Fla. Stat.
(2009); § 673.1041(5),Fla. Stat. (2009); and § 673.1091(2), Fla. Stat. (2009)) The
promissory note clearly states the intent of the Appellant to make the Lender, First
Franklin, the Payee. (§ 673.1101(1), Fla. Stat. (2009)) That’s because the
document specifically identifies First Franklin as the Payee.4
Florida law defines those who are entitled to enforce a negotiable instrument
as either a “holder” of the instrument, a non-holder in possession who has the
rights of a holder or a person not in possession who is entitled to enforce it as a lost
instrument. (§ 673.3011, Fla. Stat. (2009)) Florida law goes so far as to permit a
person to be entitled to enforce an instrument even though that person is not the
owner of the instrument or is in wrongful possession of the instrument.
However, the subject promissory note is more restrictive in its’
4 In a mortgage loan, there is only one negotiable instrument, and that is the
promissory note. Neither the mortgage instrument nor the assignment of mortgage
are “negotiable instruments” as the term “instrument” as used in § 673, Fla. Stat.
(2009), et. seq., only means a “negotiable instrument”. (§ 673.1041(2), FLA.
STAT. (2009))
19
characterization of who may enforce it because the subject promissory note and the
subject mortgage instrument together were designed to have been sold in fractional
interests on the secondary market. The subject mortgage instrument provides
“The Note or a partial interest in the Note (together with this Security Instrument)
can be sold one or more times without prior notice to Borrower.” (R. I/77, para.
20)
Having multiple parties attempting to enforce a single promissory note could
destroy the entire secondary market system in mortgages. In order to prevent that
from happening, the subject promissory note does not make a mere possessor of it
a “holder”, rather, one becomes a “holder” of the subject promissory note only
upon “transfer” of the promissory note along with the right to enforce it. The
subject promissory note provides “The Lender or anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is called the “Note
Holder”. (R. I/63, para. 1) This is consistent with Florida Statutes § 673.2031(1)
which provides that an instrument is transferred when it is delivered by a person
other than its issuer for the purpose of giving to the person receiving delivery the
right to enforce the instrument.
At the hearing on the Appellee’s Motion for Summary Final Judgment, there
was no evidence presented as to whether First Franklin actually delivered the
20
subject promissory note either to MERS or to the Appellee. That evidence was
necessary to demonstrate that First Franklin transferred the promissory note with
the purpose of giving the Appellee the right to enforce it. In the case of In Re
Hayes, 393 B.R. 259, 266-268 (Bankr. D. Mass. 2008), the movant seeking relief
from stay failed to show that it ever had any interest in the note at issue. In that
case the court found the movant lacked standing altogether because it failed to
show that the note was ever transferred to it, and thus had no rights of its own to
assert. Having a note in one’s possession is not synonymous with “transfer”.
The obligation of an issuer of a note owes that obligation to a person entitled
to enforce the instrument or to an indorser who paid the instrument under Florida
Statutes § 673.4151. (§ 673.4121, Fla. Stat. (2009)) A transfer of possession of a
bearer instrument is sufficient to transfer enforceable rights in the instrument. (§
673.2011(2), Fla. Stat. (2009)) That stands in stark contrast to a promise or order
that is payable to order, which means that it is payable to the identified person. ( §
673.1091(2), Fla. Stat. (2009)) In the case of an instrument payable to a
specifically identified person, transfer of possession of the instrument along with
an indorsement is necessary.5 (§ 673.2011(2), Fla. Stat. (2009) & § 673.2031(3),
Fla. Stat. (2009)) Without that necessary indorsement, the transferee still receives
5 An “indorsement” means a signature, other than that of a signer as maker,
drawer, or acceptor, made on an instrument for the purpose of negotiating the
instrument. (§ 673.2014(1), Fla. Stat. (2009))
21
an enforceable interest – however, it’s not enforceable against the issuer, rather, the
enforceable interest is the specifically enforceable right to the unqualified
indorsement of the transferor.6 (§ 673.2031(3), Fla. Stat. (2009)) Appellant
admitted in his Response in Opposition to the Motion for Summary Final
Judgment that he executed a promissory note, which someone is entitled to enforce
against him – just not the Appellee. (R. I/180)
In the case at hand, if the subject promissory note were delivered to the
Appellee by First Franklin with the purpose of giving Appellee rights to enforce it
against the Appellant, before Appellee could enforce the promissory note against
the Appellant it had to either obtain an indorsement from First Franklin or get an
Order from a court of competent jurisdiction enforcing it’s right to the unqualified
indorsement of First Franklin – the end result either way is that the promissory
note still must be indorsed. Absent that evidence, there is a material factual
dispute.
6 Addressing the same issue, the Court in the case of In re Kang Jin Hwang,
396 B.R. 757, 763 (Bankr.C.D.Cal., 2008) stated “The transfer of a negotiable
instrument has an additional requirement: the transferor must indorse the
instrument to make it payable to the transferee.” In the case of In re Wilhelm,
Case No. 08-20577-TLM (Bankr.Idaho, 2009) the Court recognized that if the
note instrument, by its terms, is not payable to the transferee, then before the
transferee can enforce it the transferee must account for possession of the
unindorsed instrument by proving the transaction through which the transferee
acquired it. (At page 18) The Court in In re Carlyle, 242 B.R. 881 (Bankr.
E.D.Va., 1999) came to the same conclusion at page 887 of the Opinion.
22
From the evidence admitted in Court, it is impossible to know whether
Appellee was ever a “holder” of the promissory note – as that term is defined by
the subject promissory note. Additionally, since this promissory note was payable
to a specifically identifiable person, before it could be enforced against the
Appellant it had to be indorsed. There was no evidence presented of an
indorsement, either by First Franklin or on Order of a court. Therefore, the
evidence presented proved that Appellee was not entitled to enforce the promissory
note against Appellant.
SECOND ARGUMENT
MERS DID NOT PASS AN ENFORCEABLE INTEREST
IN THE PROMISSORY NOTE TO APPELLEE
The note is the instrument of concern in all assignment situations. There is
an old maxim “the mortgage follows the note”. Evins v. Gainsville Nat’l Bank, 85
So. 659 (Fla. 1920); Case v. Smith, 200 So. 917 (Fla. 1941) The note is evidence
of the primary mortgage obligations or the debt. The assignment of the note
carries with it the mortgage and its rights, even though the mortgage instrument
has not been assigned either orally or in writing. Collins v. Briggs, 123 So. 833
(Fla. 1929); Miami Mtge. & Guar. Co. v. Drawdy, 127 So. 323 (Fla. 1930); So.
Colonial Mtge. Co. v. Medeiros, 347 So. 2d 736 (Fla. 4 DCA 1977)
23
The mortgage, as evidenced by the mortgage instrument, is only a mere
incident to the debt. Therefore, the mortgage instrument is of lesser significance.
Because the assignment of the note is an imperative act as to the transferring of the
mortgagee’s right, the assignment of the mortgage instrument without the note is
an ineffective assignment. Vance v. Fields, 172 So. 2d 613 (Fla. 1 DCA 1965);
Sobel v. Mutual Dev. Inc., 313 So. 2d 77 (Fla. 1 DCA 1975); Amacher v. Keel,
358 So. 2d 889 (Fla. 2 DCA 1975)
In the instant case, the assignment of mortgage claims that it assigns the
beneficial interest in both the note instrument and the mortgage instrument to
Appellee. However, the note instrument was bifurcated from the mortgage
instrument and MERS did not have an interest in the Note that it could assign.
MERS act of assigning the mortgage instrument was invalid as it held no beneficial
interest in the mortgage instrument for two reasons: 1) a security instrument, apart
from the promissory note giving rise to the debt has no value because there is no
debt by which it secures payment; and 2) MERS had no beneficial interest in the
mortgage instrument that it could assign.
In Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 274, 21 L.Ed. 313
(1872), the U.S. Supreme Court stated “The note and mortgage are inseparable; the
24
former as essential, the latter as an incident. An assignment of the note carries the
mortgage with it, while an assignment of the latter alone is a nullity.”
“Where the mortgagee has ‘transferred’ only the mortgage, the transaction is
a nullity and his ‘assignee,’ having received no interest in the underlying debt or
obligation, has a worthless piece of paper.” (4 RICHARD R. POWELL, POWELL
ON REAL PROPERTY, § 37.27[2] (2000); In re Mitchell, Case No. BK-S-07-
16226-LBR (Bankr.Nev. 3/31/2009)(At page 12))
As previously stated in Argument 1, the Uniform Commercial Code makes a
distinction between a promissory note that is a bearer instrument and one that is
payable to a specifically identified person – the former not requiring an
indorsement to be enforceable, the latter requiring an indorsement to be
enforceable. (§ 673.2011(2), Fla. Stat. (2009); § 673.2031(3), Fla. Stat. (2009))
Additionally, the subject mortgage instrument states that it can only be
transferred with the sale of the note – and not the other way around where the sale
of the mortgage instrument would include the note. (R. I/77, para. 20) The subject
mortgage instrument provides “The Note or a partial interest in the Note (together
with this Security Instrument) can be sold one or more times without prior notice
to Borrower.” (R. I/77, para. 20) In this case, the only relevant transfer that could
occur is a transfer of the promissory note, which would include a transfer of the
25
mortgage instrument if ownership of that instrument were not bifurcated from the
ownership of the promissory note. So an assignment of the mortgage instrument
from MERS to Appellee would not transfer the promissory note to Appellee.
Appellant’s Opposition to the Appellee’s Motion for Summary Final
Judgment included an affidavit of the contents of the MERS website. The
Opposition stated in relevant part:
MERS has nothing to transfer by an assignment. MERS own website listed
“MERS Recommended Foreclosure Procedures for FLORIDA”.7 In this
document MERS states that it is not the beneficial owner of the promissory
note. This document states:
MERS stands in the same shoes as the servicer to the extent that it is
not the beneficial owner of the promissory note. An investor,
typically a secondary market investor, will be the ultimate owner of
the note. (fn 8)
Foot Note 8:
Even though the servicer has physical custody of the note, custom in
the mortgage industry is that the investor (Fannie Mae, Freddie Mac,
Ginnie Mae or a private investor) owns the beneficial rights to the
promissory note.
(R. I/177-178)
In the consolidated cases of In re Foreclosure Cases, 521 F. Supp. 2D 650,
653 (S.D. Oh. 2007), a standing challenge was made and the Court found that there
was no evidence of record that New Century ever assigned to MERS the
7 http://www.mersinc.org/filedownload.aspx?id=176&table=ProductFile
26
promissory note or otherwise gave MERS the authority to assign the note.
Beginning with this case, courts around the country started to recognize that MERS
had no ownership in the notes and could not transfer an interest in a mortgage
upon which foreclosure could be based.
In LaSalle Bank NA v. Lamy, 824 N.Y.S.2d 769 (N.Y. Supp. 2006), the
Court denied a foreclosure action by an assignee of MERS on the grounds that
MERS itself had no ownership interest in the underlying note and mortgage.
In the case of In re Mitchell, Case No. BK-S-07-16226-LBR (Bankr.Nev.,
2009), the Court stated “In order to foreclose, MERS must establish there has been
a sufficient transfer of both the note and deed of trust, or that it has authority under
state law to act for the note’s holder.” (At page 9) The Court found that MERS has
no ownership interest in the promissory note. The Court found that though MERS
attempts to make it appear as though it is a beneficiary of the mortgage, it in fact is
not a beneficiary. The Court stated “But it is obvious from the MERS’ “Terms and
Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any
payments, to any servicing rights, or to any of the properties secured by the loans.
To reverse an old adage, if it doesn’t walk like a duck, talk like a duck, and quack
like a duck, then it’s not a duck.” (At page 7) MERS Terms and Conditions say
this:
27
MERS shall serve as mortgagee of record with respect to all such mortgage
loans solely as a nominee, in an administrative capacity, for the beneficial
owner or owners thereof from time to time. MERS shall have no rights
whatsoever to any payments made on account of such mortgage loans, to
any servicing rights related to such mortgage loans, or to any mortgaged
properties securing such mortgage loans. MERS agrees not to assert any
rights (other than rights specified in the Governing Documents) with respect
to such mortgage loans or mortgaged properties. References herein to
“mortgage(s)” and “mortgagee of record” shall include deed(s) of trust
and beneficiary under a deed of trust and any other form of security
instrument under applicable state law.
In the case of In re Vargas, 396 B.R. 511, 520 (Bankr.C.D.Cal., 2008) , the
Court stated:
MERS is not in the business of holding promissory notes. (fn 10: MERS,
Inc. is an entity whose sole purpose is to act as mortgagee of record for
mortgage loans that are registered on the MERS System. This system is a
national electronic registry of mortgage loans, itself owned and operated by
MERS, Inc.’s parent company, MERSCORP, Inc.)
In the case of In re Sheridan, Case No. 08-20381-TLM (Bankr.Idaho, 2009)
MERS moved for relief from the stay. The Court stated that MERS “Counsel
conceded that MERS is not an economic “beneficiary” under the Deed of Trust. It
is owed and will collect no money from Debtors under the Note, nor will it realize
the value of the Property through foreclosure of the Deed of Trust in the event the
Note is not paid.” The Court stated “Further, the Deed of Trust’s designation of
MERS as “beneficiary” is coupled with an explanation that “MERS is . . . acting
solely as nominee for Lender and Lender’s successors and assigns.” The Court
28
stated “Even if the proposition is accepted that the Deed of Trust provisions give
MERS the ability to act as an agent (“nominee”) for another, it acts not on its own
account. Its capacity is representative.”
In Landmark National Bank v. Kesler, 216 P.3D 158 (Kansas, 2009), the
Kansas Supreme Court extensively analyzed the position of MERS in relation to
the facts in that case and other non-binding court cases and concluded that MERS
is only a digital mortgage tracking service. (At page 168) The Court recited that
MERS never held the promissory note, did not own the mortgage instrument
(though the documents identified it as “mortgagee”), that it did not lend money, did
not extend credit, is not owed any money by the mortgage debtors, did not receive
any payments from the borrower, suffered no direct, ascertainable monetary loss as
a consequence of the litigation and consequently, has no constitutionally protected
interest in the mortgage loan.
Appellant’s Opposition to the Appellee’s Motion for Summary Final
Judgment included reference to professor Christopher L. Peterson’s writings on
MERS and the secondary market as a source for the court to understand what
MERS is and how it operates. (R. I/179) Christopher L. Peterson, Associate
Professor of Law, University of Florida, testified at a hearing before the U.S.
29
Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on
Securities, Insurance, and Investment and stated:8
MERS is merely a document custodian. . . . The system itself
electronically tracks ownership and servicing rights of mortgages. . . .
The parties obtain two principal benefits from attempting to useMERS as a
“mortgagee of record in nominee capacity.” First, under state secured credit
laws, when a mortgage is assigned, the assignee must record the assignment
with the county recording office, or risk losing priority vis-à-vis other
creditors, buyers, or lienors. Most counties charge a fee to record the
assignment, and use these fees to cover the cost of maintaining the real
property records. Some counties also use recording fees to fund their court
systems, legal aid organizations, or schools. In this respect, MERS’ role in
acting as a mortgagee of record in nominee capacity is simply a tax evasion
tool. By paying MERS a fee, the parties to a securitization lower their
operating costs. The second advantage MERS offers its customers comes
later when homeowners fall behind on their monthly payments. In addition
to its document custodial role, and its tax evasive role, MERS also
frequently attempts to bring home foreclosure proceedings in its own name.
This eliminates the need for the trust—which actually owns the loan—to
foreclose in its own name, or to reassign the loan to a servicer or the
originator to bring the foreclosure.
R.K. Arnold, Senior Vice President, General Counsel and Secretary of
Mortgage Electronic Registration Systems, Inc., stated:
MERS® will act as mortgagee of record for any mortgage loan registered
on the computer system MERS® maintains, called the MERS® System. It
will then track servicing rights and beneficial ownership interests in those
loans and provide a platform for mortgage servicing rights to be traded
electronically among its members without the need to record a mortgage
8 Subprime Mortgage Market Turmoil: Examining the Role of Securitization,
http://banking.senate.gov/public/index.cfm?
FuseAction=Files.View&FileStore_id=4f40e1b9-ec5b-4752-ba8f-
0c14afc44884 . (At page 6 -8)
30
assignment in the public land records each time. . . . Members pay annual
fees to belong and transaction fees to execute electronic transactions on the
MERS® System. . . . A mortgage note holder can sell a mortgage note to
another in what has become a gigantic secondary market. . . . For these
servicing companies to perform their duties satisfactorily, the note and
mortgage were bifurcated. The investor or its designee held the note and
named the servicing company as mortgagee, a structure that became
standard. . . . When a mortgage loan is registered on the MERS® System, it
receives a mortgage identification number (MIN). The borrower executes a
traditional paper mortgage naming the lender as mortgagee, and the lender
executes an assignment of the mortgage to MERS®. Both documents are
executed according to state law and recorded in the public land records,
making MERS® the mortgagee of record. From that point on, no additional
mortgage assignments will be recorded because MERS® will remain the
mortgagee of record throughout the life of the loan. . . . MERS® keeps track
of the new servicer electronically and acts as nominee for the servicing
companies and investors. Because MERS® remains the mortgagee of
record in the public land records throughout the life of a loan, it eliminates
the need to record later assignments in the public land records. Usually,
legal title to the property is not affected again until the loan is paid and the
mortgage is released.
(R.K. Arnold, Yes, There is Life on MERS, Prob.& Prop., Aug. 1997, at p.16;
http://www.abanet.org/genpractice/magazine/1998/spring-bos/arnold.html)
Courts around this country are clearly recognizing that MERS is not an
owner of the promissory note and that it is also only a mortgagee in name alone
and has no beneficial interest in the mortgage instrument. Landmark National Bank
v. Kesler, 216 P.3D 158 (Kansas, 2009); Mortgage Electronic Registration
System, Inc. v. Southwest Homes of Arkansas, 08-1299 (Ark. 3/19/2009) (Ark.,
2009) MERS own website says as much. Therefore, the assignment of
mortgage from MERS to Appellee could not transfer an interest in the promissory
31
note; it could not even transfer an enforceable interest in the mortgage instrument.
One hundred and thirty-eight years ago, the U.S. Supreme Court recognized
that the mortgage instrument is inseparable from the promissory note. Carpenter v.
Longan, 16 Wall. 271, 83 U.S. 271, 21 L.Ed. 313 (1872) That was necessary to
ensure that title to property could be deraigned. However, MERS is a product of
the past two decades and was designed to privatize recorded mortgages in order to
avoid the payment of taxes upon the recording of assignments of mortgage. The
design of bifurcating the mortgage instrument from the promissory note is not
based on law and it impairs the historical ability to deraign title. The logical
conclusion of bifurcating the mortgage instrument to MERS is that it renders a
foreclosure impossible as the promissory note is no longer secured by that
mortgage instrument. What they have sown, they should reap.
In Stuyvesant Corp. v. Stahl, 62 So.2d 18, 20 (Fla., 1952), the Florida
Supreme Court stated:
The rule is settled in this State that a principal is bound by the acts of his
agent. The authority of the agent may be real or it may be apparent and the
public may rely on either unless in the case of apparent authority the
circumstances are such as to put one on inquiry. The agent’s authority may
be conferred by writing, by parol, or it may be inferred from the related facts
of the case. (Cites omitted)
There was no evidence presented that MERS had any authority to act as an
agent for First Franklin. The Arkansas Supreme Court came to the same
32
conclusion in Mortgage Electronic Registration System, Inc. v. Southwest Homes
of Arkansas, 08-1299 (Ark. 3/19/2009) (Ark., 2009)(At page 7) By all
appearances, it seems contrary to the interests of First Franklin that the Appellee
would attempt to collect on a promissory note that was payable to First Franklin.
CONCLUSION
WHEREFORE, the Circuit Court’s judgment should be set aside and the
matter remanded.
Respectfully Submitted,
_________________________
George M. Gingo, FBN 879533
Counsel for Appellant
P.O. Box 838
Mims, FL 32754
321-264-9624 Office
321-383-1105 Fax
ggingo@yahoo.com
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing was
served by U.S. Mail on Jonathan J.A. Paul, Butler & Hosch, P.A., 3185 S. Conway
Road, Suite E, Orlando, Florida 32812 on this 15th day of January, 2010.
___________________________
George M. Gingo, FBN 879533
33
CERTIFICATE OF FONT COMPLIANCE
I certify that the lettering in this brief is Times New Roman 14-point font
and complies with the font requirements of the Florida Rule of Appellate
Procedure 9.210(a)(2).
By: _________________________
George M. Gingo, FBN 8795335-27-10-first-franklin-appeal-george-gingo

By Richard E. Wagner, Ph.D.

We recently have been hearing a lot about the threat of deflation, doubtlessly inspired by recent falls in indexes of consumer and producer prices. The Great Depression of the 1930s comes to mind when people speak of deflation. No one wants another Great Depression. Nearly everyone would prefer the double-digit inflation of twenty years ago. This preference is reasonable, but it does not follow that deflation is bad. Whether deflation is bad or good depends on why prices fall.

The Great Depression of the 1930s is the prime example of the bad kind of deflation. The Federal Reserve allowed the supply of money to shrink by thirty-five percent between 1930 and 1933. This gigantic destruction in the supply of money sabotaged markets throughout the land. Consumers could not afford to buy products, businesses could not sell their output, and workers could not find jobs. All of this happened because the Federal Reserve failed in its fundamental task of keeping the stock of money intact. This kind of demand-side deflation is clearly an economic scourge of major proportions.

Deflation can also result for supply-side reasons. This type of deflation is a radically different type of animal, and is a good one to have around. It is the kind of deflation that occurred in our economy after the Civil War and existed pretty much continually until the creation of the Federal Reserve in 1913. As productivity increased, consumer prices fell. Workers did not receive the continual wage increases that they have received during our recent inflationary times. Their well-being increased nonetheless. Steady wages with falling prices is a fine recipe for progress. This is, moreover, a recipe that works to the advantage of retired people on fixed incomes. With moderate deflation, a fixed sum for retirement goes ever farther because deflation allows retirees to share in the gains from rising productivity.

There is all the reason in the world to avoid a demand-side deflation. There is no reason at all, however, to oppose a supply-side deflation. No reason, at least, for ordinary citizens to oppose a supply-side deflation. It may be different for politicians and government officials. They are in a different situation with respect to deflation than are ordinary citizens. Inflation allows for increases in government budgets that would never be possible under deflation. Sustained inflation entered the American economy only with the creation of the Federal Reserve in 1913. Until then, the federal government claimed less than ten percent of the output of the American economy. It was only after steady inflation became a way of life that government’s share in the economy grew and now approaches fifty percent.

There are many reasons why inflation promotes growth in government. One of them is that inflation increases the share of total income that is collected through ordinary taxes. A ten percent increase in income increases collections of income tax on the order of twelve percent. This ability of tax rates to rise with inflation is referred to as “bracket creep.” Inflation pushes people into higher rate brackets, where they pay larger shares of their income in taxes.

Besides bracket creep, inflation is also a type of tax in its own right. The inflation tax is a form of public counterfeiting that goes by the technical name “seigniorage.” Seigniorage is the difference between the value of the money the government creates and the cost of creating that money. It is the government’s profit from creating money, and it is of the same character as the profit that a private counterfeiter makes. It costs almost nothing for the government to print another $100 bill, but this new bill is as valuable as all other $100 bills.

To be sure, the collection of this seigniorage tax works differently in different nations. In some nations, the Treasury and the central bank are joined. In those places, the government can finance its activities directly by creating money. It is different in America because the Treasury and the central bank are distinct. The government can still finance its activities by creating money, only this happens indirectly in two stages. In the first stage the government runs a deficit; in the second stage the Federal Reserve buys government bonds. The end result is indistinguishable from the Treasury directly creating money to finance its activities.

Supply-side deflation would put an end to the government’s ability to finance its activities through monetary expansion as well as through bracket creep. It would also eliminate the need for all of the various forms of indexing that have arisen to deal with inflation. The only losers from deflation would be those who live off the tax revenues that inflation generates.

#####

(Richard E. Wagner is Holbert Harris Professor of Economics at George Mason University and a member of the Board of Scholars of the Virginia Institute for Public Policy, an education and research organization headquartered in Potomac Falls, Virginia. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.)

On April 30 a new class action was filed as against Bank of America they are not giving Mods even thought they took 25 Billion in Taxpayer money
California Complaint

To start with, Gaitan is an unreported case, and should not be cited, nor rely on by the court. But more to the point, Gaitan is the only case in California to so hold. It summarily states that there is no private cause of action without much discussion. No other court so held.

The cases dealing with the issue of private cause of action deal specifically with section 2923.6 dealing with the duty of the servicers to the investors in modifying loans, and very generally, in fact conclusionary, with section 2923.5. both statutes were enacted under the Perata Mortgage Relief Act. Almost all the cases, excluding Gaitan, which is unreported, dismissed section 2923.5 claim (the one in which the lender must give preforeclosure notice to the borrower) on the merits, while dismissing section 2923.6 for lack of private cause of action.

Here is the reasoning for no private cause of action in section 2923.6. It is easily distinguished from the other non judicial foreclosure statutes:
“[N]othing in Cal. Civ.Code § 2923.6 imposes a duty on servicers of loans to modify the terms of loans or creates a private right of action for borrowers. The Perata Mortgage Relief Act was enacted relatively recently, and thus California courts have had little chance to examine its provisions. Nevertheless, section 2923.6, passed along with section 2923.5, clearly does not create a private right of action. That section solely “creat[es] a duty between a loan servicer [*19] and a loan pool member. The statute in no way confers standing on a borrower to contest a breach of that duty.” Farner v. Countrywide Home Loans, No. 08cv2193 BTM (AJB), 2009 U.S. Dist. LEXIS 5303, 2009 WL 189025, at *2 (S.D. Cal. Jan. 26, 2009). Other courts to consider this question have agreed unanimously with the Farner court. See Tapia v. Aurora Loan Servs., LLC, No. 1:09-cv-01143 AWI (GSA), 2009 U.S. Dist. LEXIS 82063, 2009 WL 2705853, at *1 (E.D. Cal. Aug. 25, 2009); Anaya v. Advisors Lending Group, No. CV F 09-1191 LJO DLB, 2009 U.S. Dist. LEXIS 68373, 2009 WL 2424037, at *8 (E.D. Cal. Aug. 5, 2009); Pantoja v. Countrywide Home Loans, Inc., F. Supp. 2d , No. C 09-01615 JW, 2009 U.S. Dist. LEXIS 70856, 2009 WL 2423703, at *7 (N.D. Cal. July 9, 2009); Connors v. Home Loan Corp., No. 08cv1134-L(LSP), 2009 U.S. Dist. LEXIS 48638, 2009 WL 1615989, at *7 (S.D. Cal. June 9, 2009).
II compiled the cases in California dealing with the private cause of action as it relates to the statutory scheme for non judicial foreclosure and they clearly treat section 2923.6 differently from the other statutes and for a good reason.. I hope this will help.
Kuoha v. Equifirst Corp
., Slip Copy, 2009 WL 3248105, S.D.Cal.,2009
(Deciding section 2923.5 claim on the merits but citing Anaya v. Advisors Lending Group No. CV F 09-1191, 2009 WL 2424037, (E.D.Cal., Aug.5, 2009) for the proposition that there is no private right of action, although Anaya dealt only with Section 2923.6.)
Anaya v. Advisors Lending Group
No. CV F 09-1191, 2009 WL 2424037, (E.D.Cal., Aug.5, 2009) (No private cause of action to enforce section 2923.6)
Gaitan v. Mortgage Electronic Registration Systems
, not Reported in F.Supp.2d, 2009 WL 3244729
C.D.Cal.,2009. (Section 2923.5 contains no language that indicates intent to create a private right of action.)
Yulaeva v. Greenpoint Mortg. Funding, Inc
., Slip Copy, 2009 WL 2880393, E.D.Cal.,2009.
(In light of plaintiff’s concession that there was no private right of action to enforce 2923.5, the court declined to independently evaluate the legislature’s intent.)
Ortiz v. Accredited Home Lenders, Inc, 639 F.Supp.2d 1159, S.D.Cal.,2009
(the court rejected the bank’s argument that there was no private cause of action to enforce section 2923.5, and noted that while the Ninth Circuit has yet to address this issue, the court found no decision from this circuit where a § 2923.5 claim had been dismissed on the basis advanced by bank.)
Lee v. First Franklin Financial Corp
., Slip Copy, 2009 WL 1371740, E.D.Cal.,2009.
(Deciding a claim based on Section 2923.5 on the merits.)
Gentsch v. Ownit Mortgage Solutions Inc
., 2009 WL 1390843, (E.D.Cal., May 14, 2009)
(Ortiz’ court indicated that this case decided a claim based on section 2923.5 on the merits, but I could not open the case)
Permpoon v. Wells Fargo Bank Nat. Ass’n
, Slip Copy, 2009 WL 3214321, S.D.Cal.,2009.
(No private cause of action under section 2923.6, but deciding section 2923.5 on the merits)
Nool v. HomeQ Servicing
, 653 F.Supp.2d 1047, E.D.Cal.,2009.
(Granting leave to amend a claim under section 2923.6, but noting that there is no authority that supports a private right of action under this section. Mentioning that plaintiff sought leave to amend a claim under section 2923.5, without any further discussion.)
Paek v. Plaza Home Mortg., Inc
., Not Reported in F.Supp.2d, 2009 WL 1668576, C.D.Cal.,2009.
(Dismissing claim under 2923.5 on the merits, because plaintiff’s allegations were inadequate to “raise a right to relief above the speculative level.” And dismissing claim under 2923.6 on the merits, but quoting Farner v. Countrywide Home Loans, 2009 WL 189025 at *2 (S.D.Cal. Jan. 26, 2009) that “nothing in section 2923.6 imposes a duty on servicers of loans to modify the terms of loans or creates a private right of action for borrowers.”).
Farner v. Countrywide Home Loans
, Not Reported in F.Supp.2d, 2009 WL 189025, S.D.Cal.,2009 (nothing in section 2923.6 imposes a duty on servicers of loans to modify the terms of loans or creates a private right of action for borrowers.)
Collins v. Power Default Services, Inc
., Slip Copy, 2010 WL 234902, N.D.Cal.,2010.
(Citing In Connors v. Home Loan Corp., District Court for the Southern District of California determined that there was no private right of action under section 2923.6. but granting leave to amend claim for “Violation of Statutory Duties” alleging that Defendants “failed to give proper notice under California law,” and issued ” notice of trustee’s sale that was not compliant with California law” to identify the statutory duties were violated, noting specifically possible sections 2924(a)(1), and 2924f.)
Connors v. Home Loan Corp
., Slip Copy, 2009 WL 1615989, S.D.Cal.,2009
(no private right of action with respect to section 2923.6.)
Glover v. Fremont Inv. and Loan
, Slip Copy, 2009 WL 5114001, N.D.Cal.,2009.
(No private right of action with respect to section 2923.6, but granting leave to amend re claim under 2923.5, to include factual allegations to support the bare legal conclusions.)
Reynoso v. Chase Home Finance
, Slip Copy, 2009 WL 5069140, N.D.Cal.,2009
(Section 2923.6 does not create a private right of action for purported violations of its provisions)
Tapia v. Aurora Loan Services, LLC
, Slip Copy, 2009 WL 2705853, E.D.Cal.,2009.
(“California Civil Code section 2923.6 does not create a cause of action for Plaintiff. Subdivision (a) of the section applies only to servicers and parties in a loan pool.” )
Reynoso v.Paul Financial, LLC
, Slip Copy, 2009 WL 3833298, N.D.Cal.,2009.
(Plaintiff’s claim for specific performance to modify the loan terms pursuant to section 2923.6(a), dismissed with prejudice. “Nothing in Cal. Civ.Code § 2923.6 imposes a duty on servicers of loans to modify the terms of loans or creates a private right of action for borrowers.”)
Enders v. Countrywide, Home Loans, Inc
., Slip Copy, 2009 WL 4018512, N.D.Cal.,2009.
(No private cause of action for section 2923.6)
Biggins v. Wells Fargo & Co.
2009 WL 2246199 (N.D.Cal.,2009)
(dismissing a section 2923.6 claim for being a “stand-alone claim for relief” and informing parties that it could be brought under a § 17200 claim).
Dizon v. California Empire Bancorp, Inc
., Not Reported in F.Supp.2d, 2009 WL 3770695, C.D.Cal.,2009.
(No private right of action under section 2923.6)
Santos v. Countrywide Home Loans
, Slip Copy, 2009 WL 3756337, E.D.Cal.,2009.
(No private cause of action under 2923.6)
Maguca v. Aurora Loan Services
, Not Reported in F.Supp.2d, 2009 WL 3467750, C.D.Cal.,2009.
(No private right of action for 2923.6, and deciding section 2923.5 on the merits: cause of action for violation of section 2923.5 dismissed because the allegations in the complaint were conclusory, and were contradicted by the notice of default provided by Aurora.)
Butera v. Countrywide, Home Loans, Inc
., Slip Copy, 2009 WL 3489873, E.D.Cal.,2009.
(No private right of action under section 2923.6. But citing section 2924(a)(1), and quoting Munger v. Moore, 11 Cal.App.3d 1, 7, 89 Cal.Rptr. 323 (1970): ‘trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has been an illegal, fraudulent or wilfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust.”’, and finding that complaint lacks facts of foreclosure irregularities or facts to support wrongful foreclosure to warrant dismissal of the fourth claim.

Posted on May 19, 2010 by Neil Garfield
There’s more than one way to attack the prima facie case though—here’s a good example of a nice result from attacking the assignment…

This NY decision lays out the legal reasoning for dismissing cases for problematic assignments:

Decided on April 19, 2010
Supreme Court, Kings County
The Bank of New York, as trustee for the benefit of the
Certificateholders, CWABS, Inc., Asset Backed Certificates, Series 2007-2, Plaintiff,
against
Sameeh Alderazi, Bank of America, NA, New York City Environmental Control
Board, .
Plaintiff submits anet al

Upon reading the Affirmation of Linda P. Manfredi, Esq., counsel for the
Plaintiff, dated November 20, 2008, together with Plaintiff’s Memorandum of
Law, dated November 19th, 2008, together with the proposed Ex Parte Order
Appointing a Referee to Compute, and all exhibits annexed thereto, the
application is denied without prejudice, with leave to renew upon providing the
Court with proof of the grant of authority from the original mortgagee to
MERS specifically to act in its interest as related to the secured loan
which is the subject of this action.
Plaintiff seeks summary judgment to foreclose upon the property located at
639 East 91st Street, (Block 4751, Lot 31), in Kings County.
In order to establish prima facie entitlement to summary judgment in a
foreclosure action, a plaintiff must submit the mortgage and unpaid note,
along with evidence of default. Capstone Business Credit, LLC v. Imperial
Family Realty, LLC, 70 AD3d 882
, 895 NYS2d 199 (2nd Dept 2010). The Second
Department has also required a showing that the mortgage was valid. Washington Mut.
Bank, FA v. Peak Health Club, Inc., 48 AD3d 793
, 853 NYS2d 112 (2nd
Dept.2008).
In this case, Defendant Sameeh Alderazi borrowed $408,000.00 from
“America’s Wholesale Lender” on January 25, 2007. The mortgage was recorded in the
Office of the City Register, New York City Department of Finance on
February 14, 2007. MERS was referred to in the mortgage as nominee of the
mortgagee, America’s Wholesale Lender, for the purpose of recording the mortgage.
MERS purported to assign the mortgage to Plaintiff BANK OF NEW YORK on
July 23, 2008. The assignment was recorded on September 19, 2008. The
assignment was executed by “Keri Selman, Assistant Vice President of MERS, as
“authorized agent pursuant to Board of Resolutions and/or appointment”. However,
no resolution nor other proof of authority was recorded with the
assignment or submitted to the Court.
A party cannot foreclose on a mortgage without having title, giving it
standing to bring the action. (See Kluge v. Fugazy, 145 AD2d 537, 538 (2nd
Dept 1988 ), holding that a “foreclosure of a mortgage may not be brought by
one who has no title to it and absent transfer of the debt, the assignment of
the mortgage is a nullity”. Katz v. East-Ville Realty Co., 249 AD2d 243
(1st Dept 1998), holding that “[p]laintiff’s attempt to foreclose upon a
mortgage in which he had no legal or equitable interest was without foundation
in law or fact”.
“To have a proper assignment of a mortgage by an authorized agent, a power
of attorney is necessary to demonstrate how the agent is vested with the
authority to assign the mortgage.” [*2]HSBC BANK USA, NA v. Yeasmin, 19 Misc
3d 1127(A), 866 NYS2d 92 (Table) N.Y.Sup.,2008. “No special form or
language is necessary to effect an assignment as long as the language shows the
intention of the owner of a right to transfer it”. Emphasis added, Id.,
citing Tawil v. Finkelstein Bruckman Wohl Most & Rothman, 223 AD2d 52, 55 (1st
Dept 1996); Suraleb, Inc. v. International Trade Club, Inc., 13 AD3d 612
(2nd
Dept 2004).
The claim in this case is that the mortgage was assigned by MERS, as the
nominee, to the Plaintiff. However Plaintiff submits no evidence that
America’s Wholesale Lender authorized MERS to make the assignment. MERS submits
only its own statement that it is the nominee for America’s Wholesale
Lender, and that it has authority to effect an assignment on America’s Wholesale L
ender’s behalf.
The mortgage states that MERS is solely a nominee. The Plaintiff, in its
Memorandum of Law, admits that MERS is solely a nominee, acting in an
administrative capacity.
In its Memoranda, Plaintiff quotes the Court in Schuh Trading Co., v.
Commisioner of Internal Revenue, 95 F.2d 404, 411 (7th Cir. 1938), which
defined a nominee as follows:
The word nominee ordinarily indicates one designated to act for another as
his representative in a rather limited sense. It is used sometimes to
signify an agent or trustee. It has no connotation, however, other than that of
acting for another, or as the grantee of another.. Id. Emphasis added.
Black’s Law Dictionary defines a nominee as “[a] person designated to act
in place of another, usually in a very limited way”. Agency is a fiduciary
relationship which results from the manifestation of consent by one person
to another that the other shall act on his behalf and subject to his
control, and consent by the other so to act. Hatton v. Quad Realty Corp., 100
AD2d 609, 473 NYS2d 827, (2nd Dept 1984). “[A]n agent constituted for a
particular purpose, and under a limited and circumscribed power, cannot bind his
principal by an act beyond his authority.” Andrews v. Kneeland, 6 Cow. 354
N.Y.Sup. 1826.
MERS, as nominee, is an agent of the principal, for limited purposes, and
has only those powers which are conferred to it and authorized by its
principal.
In the mortgage in this case, MERS claims, as nominee, that it was granted
the right “(A) to exercise any or all of those rights, including, but not
limited to the right to foreclose and sell the Property, and (B) to take
any action required of the Lender including, but not limited to, releasing
and canceling this Security Instrument.” However, this language quoted by
MERS is found in the mortgage under the section “BORROWER’S TRANSFER TO LENDER
OF RIGHTS IN THE PROPERTY” and therefore is facially an acknowledgment by
the borrower. The fact that the borrower acknowledged and consented to MERS
acting as nominee of the lender has no bearing on what specific powers and
authority the lender granted MERS. The problem is not whether the borrower
can object to the assignees’ standing, but whether the original lender,
who is not before the Court, actually transferred its rights to the
Plaintiff. To allow a purported assignee to foreclosure in the absence of some proof
that the original lender authorized the assignment would throw into doubt
the validity of title of subsequent purchasers, should the original lender
challenge the assignment at some future date.
Furthermore, even accepting MERS’ position that the lender acknowledges
MERS’ authority exercise any or all of the lenders’ rights under the
mortgage, the mortgage does not convey the specific right to assign the mortgage.
The only specific rights enumerated in the [*3]mortgage is the right to
foreclose and sell the Property. The general language “to take any action
required of the Lender including, but not limited to, releasing and canceling
this Security Instrument” is not sufficient to give the nominee authority to
alienate or assign a mortgage without getting the mortgagee’s explicit
authority for the particular assignment. Alienating a mortgage absent specific
authorization is not an administrative act.
Plaintiff submitted no other documents which purport to authorize MERS to
assign or otherwise convey the right of the mortgagor to assign the
mortgage to another party.
A party who claims to be the agent of another bears the burden of proving
the agency relationship by a preponderance of the evidence, Lippincot v.
East River Mill & Lumber Co., 79 Misc. 559, 141 NYS 220 (1913), and “[t]he
declarations of an alleged agent may not be shown for the purpose of proving
the fact of agency”. Lexow & Jenkins, P.C. v. Hertz Commercial Leasing
Corp., 122 AD2d 25, 504 NYS2d 192 (2nd Dept 1986). See also Siegel v. Kentucky
Fried Chicken of Long Island, Inc., 108 AD2d 218, 488 NYS2d 744 (2nd Dept
1985), Moore v. Leaseway Transp. Corp., 65 AD2d 697, 409 NYS2d 746 (1st Dept
1978). “The acts of a person assuming to be the representative of another
are not competent to prove the agency in the absence of evidence tending to
show the principal’s knowledge of such acts or assent to them”. (2 NY Jur
2d, Agency and Independent Contractors, 26).
Plaintiff has submitted no evidence to demonstrate that the original
lender, the mortgagee America’s Wholesale Lender, authorized MERS to assign the
secured debt to Plaintiff.
Thus, Plaintiff has not made out a prima facie case that it is entitled to
foreclose on the mortgage in question.WHEREFORE, it is ORDERED that the
Plaintiff’s application for an Order appointing referee to compute amounts
due to the Plaintiff is denied with leave to renew upon proof of authority.
This shall constitute the decision and order of this Court.

Posted on May 19, 2010 by Neil Garfield
I’m probably partly to blame for this notion so I want to correct it. The goal is NOT to get your house for free, although that COULD be the result, as we have seen in a few hundred cases. The simple answer is “No Judge I am not trying to get my house for free, I’m trying to stop THEM from getting my house for free. They don’t have one dime invested in this deal and payments have been received by the real creditors for which they refuse to give an accounting.”

The obligation WAS created. The question is not who holds the note but to whom the note is payable, and what is the balance due on the note after a full accounting from the creditor.

So don’t leave your mouth hanging open when the Judge says something like that. Tell him or her that they have the wrong impression because they are getting misinformation from the other side which is trying to get a lawyer’s argument admitted as evidence. Tell him you want the deal you signed up for — including the appraised value that the lender represented to you at closing.

Don’t say you won’t pay anything. Offer to make a monthly payment into the court registry — not in the amount demanded, but for perhaps 25% of the amount demanded. Tell him you refuse to pay someone who never lent you the money, who is not on the closing documents and is relying on securitization documents which contain multiple conditions, many of which they have violated.

Tell the Judge you deny the default because you know they received third party payments and they refuse to allocate the payments to your loan, and they refuse to inform you or the Court as to whether these third party insurers and guarantors have equitable or legal rights of subrogation. Subrogation is taking the place of another person because you are the real party in interest.

“Why should I lose my house just because I didn’t pay them. The note isn’t payable to them. Even if they have an assignment, it violates the terms under which they are permitted to accept it, and even if they were permitted to accept it, it wold be on behalf of the true creditors who were the investors who advanced the funds and now could be anyone because of the transactions in which the investors were paid or settled.

“The question is not whether I made a payment, it is whether a payment is due after allocation of third party insurance, credit default swap and guarantee payments. Who are they to declare a default when they refuse to give a full accounting?”

By Kristina Horton Flaherty
http://www.thestopforeclosureplan.com/Contact.html
Staff Writer

One recent fall morning, nearly 80 attorneys, paralegals and housing counselors streamed into San Francisco’s Practising Law Institute — another 166 arrived via the Internet — to learn how to better help desperate homeowners facing foreclosure.

More than 79,000 Californians lost their homes in the third quarter of 2008. Another 94,240 new default notices went out during the same period. And with credit tight, housing counselors overwhelmed and loan modification scams on the rise, experts say, thousands of homeowners are sinking fast.

The free, day-long “Defending Subprime Mortgage Foreclosures” training, still available online, was just one of several initiatives jointly sponsored by the State Bar to provide information and rally more volunteer assistance for those caught in the foreclosure crisis.http://www.thestopforeclosureplan.com/Contact.html

Other efforts include a free training on how to defend unlawful detainers (co-sponsored by Housing and Economic Rights Advocates of Oakland and others), and a new Web site — Foreclosure InfoCA.org — launched by the Public Interest Clearinghouse and the bar for homeowners and tenants, as well as attorneys interested in volunteering their help.

“There aren’t enough people out there to help the borrowers,” said Tara Twomey, the National Consumer Law Center attorney who conducted the foreclosure defense training. “It’s a numbers problem, a sheer numbers problem, especially in areas like California.”

And attorney volunteers from all areas of practice can make a difference, she says. “Does that mean every borrower can be helped? Probably not. But I do think that with some persistence, a lot of borrowers can.”

That help might involve seeking a loan modification or simply developing an exit strategy — delaying an eviction or negotiating a payment from the lender to vacate the home. Freezing an interest rate for two years while the borrower’s child finishes high school, for example, might be one homeowner’s goal. “Not everybody needs a long-term solution,” Twomey said.

The training includes an overview of the subprime mortgage market, the foreclosure process, the current crisis and responses to it, available options and how to spot potential predatory lending, federal law violations and state claims in the origination and servicing of subprime mortgages.

A recent explosion in loan modification scams illustrates that borrowers are not finding the help they need, Twomey points out. Desperate borrowers pay fees in advance to someone who promises to renegotiate their loan but winds up doing little or nothing.http://www.thestopforeclosureplan.com/Contact.html

“People are willing to pay money because the system’s so broken that they can’t get anywhere,” Twomey said. “Really, this should be able to be done for free.”

But housing counselors and non-profit programs are stretched too thin, many say. And borrowers often cannot get through to anyone at their financial institutions who can help them. In turn, a spin-off loan modification industry — along with numerous scams — has sprung up in just months.

“It’s just exploded,” said Tom Pool of the Department of Real Estate.

But companies that promise to help consumers in foreclosure cannot legally collect advance fees (attorneys are exempt from this prohibition). If no default notice has been recorded, real estate brokers can collect advance fees for such work if they have special approval from the DRE. In early November, just 12 brokers had such approval; six weeks later, that number had jumped to 40, with another 400 applications pending.

Loan modification scams typically start with a flyer, phone call or knock at the door and an offer to renegotiate the homeowner’s loan — for an upfront fee. Participating homeowners often are told to avoid contacting their lenders. Then, while the company does little or nothing to renegotiate the loan, the unwitting homeowner loses precious time and falls deeper into foreclosure.

“Loan modification scams are becoming more and more prevalent across the country, particularly in California,” Attorney General Jerry Brown said in November, after announcing arrests in an alleged Southern California scam involving First Gov (also operating as Foreclosure Prevention Services).

Homeowners allegedly paid First Gov an advance fee of $1,500 to $5,000 and then, when delinquency or foreclosure notices continued to pile up, were told that they needed to make an additional “good faith” payment to secure new accounts for their renegotiated loans. According to the Attorney General’s Office, records suggest homeowners lost more than $700,000 in the scheme.

Prosecutors and nonprofit counselors alike stress that assistance is available for homeowners at little or no cost. But many swamped non-profits need help — particularly from attorneys in such areas as bankruptcy, probate, elder abuse and consumer law.http://www.thestopforeclosureplan.com/Contact.html

At the Sacramento-based Senior Legal Hotline, those manning the phone lines can only handle about half of the 80 to 100 calls that back up every day, says supervising attorney David Mandel. And the bulk of those calls now involve foreclosure-related cases that tend to be more time-consuming.

“The amount of time we’re spending on each case has shot way up,” Mandel said. In some instances, he turns to reverse mortgages to help seniors stay in their homes. And he could really use help, he says, from attorneys willing to handle predatory lending cases that might lead to litigation.

The Housing and Economic Rights Advocates in Oakland currently handles 100 to 200 foreclosure-related calls a week, sometimes as many as 65 calls a day. Executive Director Maeve Elise Brown says she’s hoping to build a list of vetted pro bono attorneys who could be tapped, with some guidance, to take on some of their cases.

Kellie Morgantini, one of two staff attorneys at Legal Services for Seniors in Monterey County, says she’s recently seen a huge jump in senior tenants on the verge of eviction. They live in homes purchased as investment properties during the boom. They pay their rent on time. And then one day, the sheriff shows up with an eviction notice.

All Morgantini can do in most cases is negotiate a delay in the move, she says. She works to keep the tenant’s name off of the unlawful detainer as well. And she’s met with the sheriff to try to find a way to ease the situation. In one recent case, Morgantini’s client moved out after a delay, but bank investigators later insisted the woman was still in the home. As it turned out, someone else in dire straits had settled into the vacant home and placed a post-it on the window: “Please don’t throw us out. We’re a family.”

Morgantini attended the recent foreclosure defense training via the Webcast, she said, to learn how to better assist the surge of seniors falling victim to foreclosure, predatory lending scams and potential homelessness.

“This has been something that has been getting bigger and bigger,” she said. “We needed to be able to see how to focus on what’s important.”http://www.thestopforeclosureplan.com/Contact.html

Dan Mulligan of Jenkins, Mulligan & Gabriel LLP, a presenter at the training, says very little can be done for borrowers in the current climate. But, he said, attorneys who want to help should take the training, get into an organized pro bono program and try to do something. “Dig in,” the La Quinta attorney said, “and see where you can go on the loan modification process. It’s still possible.”

To view the trainings at no charge and earn MCLE credit, go to ForeclosureInfoCA.org. The Web site also provides a link to a list of programs that are seeking pro bono help from attorneys statewide.(866)717-0415 in Northern California(916)361-6583 http://www.thestopforeclosureplan.com/Contact.html
Many a client call me when its toooooo late however sometimes something can be done it would envolve an appeal and this application for a stay. Most likely you will have to pay the reasonable rental value till the case is decided. And … Yes we have had this motion granted. ex-parte-application-for-stay-of-judgment-or-unlawful-detainer3
When title to the property is still in dispute ie. the foreclosure was bad. They (the lender)did not comply with California civil code 2923.5 or 2923.6 or 2924. Or the didn’t possess the documents to foreclose ie. the original note. Or they did not possess a proper assignment 2932.5. at trial you will be ignored by the learned judge but if you file a Motion for Summary Judgmentevans sum ud
template notice of Motion for SJ
TEMPLATE Points and A for SJ Motion
templateDeclaration for SJ
TEMPLATEProposed Order on Motion for SJ
TEMPLATEStatement of Undisputed Facts
you can force the issue and if there is a case filed in the Unlimited jurisdiction Court the judge may be forced to consider title and or consolidate the case with the Unlimited Jurisdiction Case

2nd amended complaint (e) manuel
BAKER original complaint (b)
Countrywide Complaint Form
FRAUDULENT OMISSIONS FORM FINAL
sample-bank-final-complaint1-2.docx
California stop foreclosure and get your own shortsale COMPLAINT
elderabusecomplaint
And in some cases an injunction is in order
Foreclosure injunction TRO
and a Lis Pendence

Submitted by a reader from an unknown source — might be Dr. Housing Bubble, which is another Blog

---

Housing never really improved – 10 charts showing the United States housing market is entering the second wave of problems. 1 out of 4 people with no mortgage payment in the last year are still not in the foreclosure process.

To put it bluntly, the U.S. housing market today is in deep water.  Nothing exemplifies the transfer of risk to the public from the private investment banks more than the deep losses at Fannie Mae and Freddie Mac.  Fannie Mae announced a stunning first quarter loss of $13.1 billion while Freddie Mac lost $8 billion.  At the same time, toxic mortgage superstar JP Morgan Chase announced a $3.3 billion profit for Q1.  This reversal of fortunes has been orchestrated perfectly by Wall Street.  Since the toxic assets were never marked to market, the big losses have been funneled to the big GSEs (and as we will show in this article, now makes up 96.5 percent of the entire mortgage market).  In other words, banks are making profits gambling on Wall Street while pushing out mortgages that are completely backed by the government.  We are letting the folks that clearly had no system of underwriting mortgages correctly or any financial prudence lend out government backed money and the losses are piling up but only in the nationalized Fannie Mae and Freddie Mac.  What a sweet deal.  Stick the junk in a taxpayer silo.

I wanted to go into the details on the current U.S. housing market and the data is not pleasant.  In fact, it is downright disturbing.  For background information, the U.S. has roughly 51 million active mortgages.  As we go through the next 10 charts, it is important to keep this in mind.  Whitney Tilson’s T2 Partners came out with some riveting charts regarding the current state of the housing market.  Let us go through 10 of the most crucial charts.

Chart 1 – Homes in foreclosure

The ultimate sign of housing distress is foreclosure.  This should be obvious.  So for all the talk of a housing recovery I point to the above chart.  Today, as in right now, we are in record territory for the number of homes in foreclosure.  14 percent of all U.S. mortgages are in some form of foreclosure.  If you do the rough math, this equates to:

51 million x .14   =   7,140,000 mortgages in default or 30+ days late

I always get this question about how folks arrive at the figure of 7 million.  The above equation should give you an idea.  This by the way is not a good situation.  And with many toxic loans including option ARMs and Alt-As still lingering in the market, we have a few more years of problems baked in unfortunately.

Chart 2 – Foreclosure filings

Building off chart one, foreclosure filings are still at record levels.  In fact we are heading to a 3.5 to 4 million foreclosure year in 2010!  This is somehow a positive thing for the market?  People forget that foreclosures happen because of underlying economic issues.  If everyone was making big bucks and homes were going up in value then we wouldn’t have this problem.  Just look at the number of foreclosure filings back in 2005.  Roughly 60,000 to 70,000 per month.  Last month we hit 367,000+ which was an all time record.  When foreclosure filings get back down to more normal levels, then we can say the housing market is improving.

What about strategic defaults?  At most, 1 out of 5 foreclosures is probably a strategic default.  But that means 4 out of 5 are losing their home because they can’t pay.  This is why we absolutely need bigger down payment requirements.  If you get a government backed loan (aka the 96.5 percent of the market) then you should at the very minimum put down 10 percent from actual cash sources (no using tax credit nonsense).

Chart 3 – Home prices dropping

I think some people have a hard time understanding why home prices have fallen lately.  Well, when a large part of home sales are distress properties prices usually shoot to the downside.  We had a nice little bump from the alphabet soup of government programs including HAMP, tax credits, and other gimmicks but the trend is back to lower prices.  Why?  Because the underlying economy is still not healthy.  Now that people have to at least show some proof of income, it turns out that many cannot afford high priced houses.  Is this a surprise to anyone?  What do you expect when your strategy involves kicking the can down the road?  The above chart basically shows one World Cup kick to the can.

Chart 4 – Nationalized housing market

Congratulations, you are the housing market.  96.5% of all originated loans are now government backed.  Remember Fannie Mae and Freddie Mac and their epic continuing losses?  Apparently banks have no problem originating loans as long as they can use the government money to gamble in the stock market.

Wall Street enjoys handing your money out.  They like to beat on their chest about the free market but have no intention of lending out their own money (i.e., your bailout funds).  In fact, Wall Street has convinced itself that your money is basically their hard earned cash.  For the risky housing market, they’ll be the middleman in lending out mortgages that are defaulting in mass.  What do they care if the economy is on stable footing?  They don’t care if you lose your job and can’t pay the mortgage in one or two years.  By then, the banks will be gambling in another bubble putting another sector of the economy at risk.

Chart 5 – Housing overhang

Remember that 7 million figure?  Well there it is.  Keep in mind that we keep adding to this pile because foreclosure filings are running at 300,000+ per month.  So the market is actually saturated with inventory.  You may not always see this in the actual data but we’ve gone through multiple case studies of shadow inventory.  This large amount of overhang will add additional pressure to housing prices in the next few years.  In fact, with this amount of housing we have anywhere from 7 to 9 years of inventory to clean out!

Chart 6 – Distress inventory as sales

The dip you see in 2009 was basically the failed efforts of HAMP and other bank stalling efforts.  Now that banks have basically nationalized the housing market and have made Fannie Mae and Freddie Mac their dumping ground, they really don’t care.  They can use the taxpayer money they get under the guise of helping homeowners to speculate on Wall Street while funneling GSE debt to the public.  An absolute win for them.  The biggest and most risky of debt gets pushed to taxpayers while the lion share of profits stays in house as bonuses.  The system couldn’t be more corrupt or broken.

Chart 7 – Not paying and living with no foreclosure

This is a stunning chart.  24% of those that have made no payment in the last year are still not in foreclosure!  In other words, you have tens of thousands of people living rent free while banks pretend everything is fine and claim billions of dollars in profits.  What a sham!  Just look at the 24 months with no payment column.  39,000 people have not made a payment in 2 years and no foreclosure has been filed!

Chart 8 – Home equity lines

With so many homes underwater, the second mortgage market has virtually disappeared.  But we still have $842 billion in loans made during the peak of the bubble outstanding.  Most of these are actually held by the big four banks and that is probably another reason why banks are moving aggressively against some while letting others stay in their home without payment.  In fact, if you look at the above chart it seems that if you leveraged yourself with multiple mortgages banks might wait to move on you while if you only had one mortgage backed by a GSE, you’re out.  Fannie Mae and Freddie Mac defaults on standard mortgages are spiking to record levels.

HELOC defaults are soaring:

This means further bank losses but can Wall Street gambling outpace the losses from the housing market?

Chart 9 – nonpayment savings

There is an upside to not paying on your mortgage.  More money to spend!  Ironically some of the recent increase in consumer spending hasn’t come from job gains or actual employment improvement.  It has come from people not paying their mortgage, downsizing (or getting a similar house for half off), and using the freed up income to spend.  The estimate is that $8 to $12 billion per month is freed up from people not paying on their mortgage.  You must have some uncanny self delusion to spin that as good news.

Chart 10 – REO vs distress

This chart pretty much sums it up.  Banks are moving on current REOs (the small batch that they have) and pumping this up as good news but the 90 days plus foreclosure number is still trending up.  How is this magic done?  We’ve talked about it above.  You simply don’t move on delinquent homeowners.  You ignore actual losses.  You mark your assets to fantasy valuations.

In total the housing market is in worse shape today than it was a few years ago.  If the stock market was tied to housing we probably have a Dow 20,000 with 14 million foreclosures.  The bailouts have been one large transfer of wealth to the banking sector.  Remember that the bailouts were brought about under the guise of helping the housing market and keeping people in their homes.  None of that has happened.  Ironically the only thing that seems to keep people in their home is when they stop paying their mortgage!  If that is the strategy we have arrived at after $13 trillion in bailouts and backstops to Wall Street we are in for a world of problems.

Fannie, Freddie, McConnell, Shelby and Gregg

Sens. Mitch McConnell (R-Ky.), Richard Shelby (R-Ala.) and Judd Gregg (R-N.H.) (EPA/ZUMApress.com)
For the past year, Republicans have insisted that Congress take up legislation to stop the losses at Fannie Mae and Freddie Mac — the government-sponsored enterprises that buy up and repackage mortgages, keeping loan prices stable. Fannie and Freddie have incurred more than $150 billion in losses since the burst of the housing bubble. “In my view, it’s simply not acceptable for some on the other side to suggest that we have to rush this [Wall Street] bill through Congress, but that it’s okay to wait another year to address the GSEs, which we all know played a central role in the financial crisis,” Sen. Mitch McConnell (R-Ky.), the minority leader, argued earlier this month, a contention often repeated.

Image by: Matt Mahurin
Share
But the Republicans never said how they thought the GSEs should be reformed — until now. Last Wednesday, Sen. John McCain (R-Ariz), Sen. Judd Gregg (R-N.H.) and Sen. Richard Shelby (R-Ala.) proposed an amendment to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill, the GSE (Government Sponsored Enterprise) Bailout Elimination and Taxpayer Protection Amendment.
Releasing the proposal — with numbers, dates and directives aplenty — Gregg commented, “Fannie Mae and Freddie Mac are synonymous with mismanagement and waste and have become the face of ‘too big to fail.’ The time has come to end Fannie Mae and Freddie Mac’s taxpayer-backed slush fund and require them to operate on a level playing field.”
But housing market experts describe the Republicans’ proposal as disastrous. Analysts from both sides of the aisle contend that the proposal would unwind Fannie and Freddie so quickly and precipitously that it would destabilize the entire housing market: pushing mortgage prices up, pulling support from low and middle-income Americans and ending the nascent — if at all extant — housing recovery.
The GSE amendment would effectively shutter the mortgage giants, which together backstopped 97 out of 100 new mortgages in the first three months of the year, according to Inside Mortgage Finance. It would keep keep the current government conservatorship in place for 24 months (or 30 months, if the Federal Housing Finance Agency determines that market conditions are “adverse”). Then, it would begin begin the process of dissolution.
Were Fannie and Freddie to prove “viable” as private institutions (a term left ambiguous) after 24 or 30 months, they would become highly regulated institutions for three years, before the expiry of their charters. They would have no affordable housing goals, would have to reduce their mortgage assets yearly, could not purchase mortgages exceeding median-home values and could only buy mortgages with certain minimum down payments — among other provisions. Additionally, they would have to pay taxes. Were Fannie and Freddie not “viable” in two years — likely, given that Fannie reported yesterday that it does not see itself reporting a profit for the “indefinite future” — the amendment puts them into receivership.
Housing experts say that the bill would impact every participant in the housing economy, including builders, buyers, developers, lenders and banks. It would make vanilla mortgages — such as 30-year, fixed-rate mortgages — much more scarce, and would make all mortgages more expensive. It would remove a major source of liquidity in the mortgage market, causing credit problems at mortgage-reliant banks. It would also rapidly reduce the number of homebuyers.
Experts describe the McCain-Gregg-Shelby amendment’s transition as too much, too soon and too blunt. Kenneth Posner, who analyzed Fannie and Freddie for Morgan Stanley and is the author of Stalking the Black Swan, describes the plan as going “cold turkey” when it might be better to “use methadone.”
“The issue is that what Fannie and Freddie issue is considered close to government debt, and there is no limit on their ability to grow. That was fine a long time ago when they were small. But now, they’re big — we’re creating trillions of dollars of Treasury-like debt,” he explains. “We’re also dealing with the reality that too much stimulus for the housing market is a bad thing. That’s what the Republican [proposal] is getting at. But it does not answer the question of the transition [away from that support].”
Barry Zigas, the director of housing policy for the Consumer Federation of America, is blunter. He says that the Republican approach takes a “meat-axe” to an extremely fragile market. “It takes a very prescriptive and dangerous approach to a problem that at this point does not require it,” he says, noting that the Senate has not even held hearings on how to deal with Fannie and Freddie yet.
“It puts any housing recovery in jeopardy — the amendment is a huge gamble that forces the government to quickly and radically restructure these two companies without providing a clear path to a stable mortgage market in the future,” he says. “For one, it would raise down-payment requirements precipitously, which would be injurious to low-income communities and communities of color.
“This is a very heavy-handed and ultimately very unhelpful approach to a complex problem.”
“Some of it is serious. Some is trying to stir up trouble,” says Dean Baker, the co-director of the Center for Economic and Policy Research. “It doesn’t make sense to talk about dismantling Fannie and Freddie yet — and we’d really have to think this through more thoroughly. It does not, for instance, explain how it would sell off Fannie and Freddie’s assets, or in what form. Who would back them? What is the benefit to rushing this?” Baker says. “The risk is so obvious that the proposal seems strange.”
And with such obvious risks and despite Republican pressure, Democrats have punted on the question of how to reform Fannie and Freddie. This spring, the Treasury Department released a set of seven questions it said it was attempting to answer — stating that it was working on reform but needed more time. And yesterday, Sen. Mark Warner said the administration plans to release its Fannie and Freddie proposal next year.
“I think it’s a fair claim to make to say we haven’t done enough to address Fannie and Freddie,” Warner said. “It is the big elephant in the room that hasn’t been addressed.” But, “We’ll come back next year and take on Fannie and Freddie in a more thoughtful way.”

Q:
What damages are available through a wrongful foreclosure lawsuit?
A:
Banks are becoming more ruthless when it comes to seizing homes in a foreclosure situation-even when the foreclosure is unfounded. Doors are kicked in, locks broken, personal items damaged, not to mention the fear and stress of having strangers lurking around your property. No one should have to suffer this, and it may be possible for you to get compensation for damages in a wrongful foreclosure lawsuit. In California the Foreclosure Prevention Act of 2008 makes most foreclosure wrongful in that the lenders do not comply with the act.

What kind of damages can I receive compensation for?

Because of the forced and sudden nature of home seizure, many damages can result from the event, especially if you believe your property is being wrongfully foreclosed upon. The people hired by the bank to physically secure your property often do not take into consideration the harm they are causing your property and family. If your home is seized in error, you are entitled to wrongful foreclosure damage compensation for:

• Physical damage to the property
• Physical damage to your personal property
• Emotional damage resulting from the invasion

Recision of a Void Notice of Default, a Void Notice of Trustees Sale, Void Trustees Deed

This action recently files in Tennessee30872654-State-of-Tennessee-v-Mortgage-Electronic-Registration-Systems-Inc-et-al[1]

MEMORANDUM OF LAW – BANK FRAUD

I have, through research, learned the following to be true and most likely applies
to me, which is the reason I have requested and demanded “the bank” to validate their
claims and produce pursuant to applicable law. This MEMORANDUM serves to support
my suspicions and identify criminal facts. The “bank” allegedly “loaned me their money”
when in reality they deposited (credited) my promissory note and used that deposit to
“pay my seller”. Source and reasoning after reviewing the original file clearly shows this
fact, which is the reason for the “bank” refusing and failing to validate and to produce as
stipulated by law. However, the truth is out and there is plenty of law backing up the fact
that the bank is criminal.

FORECLOSURE ACTIONS AND CASES LAWFULLY DISMISSED (NOT
LETTING BANK FORECLOSE WITHOUT LAWFUL VALIDATION AND
PRODUCTION) BY THE COURTS DUE TO BANK’S FAILURE TO VALIDATE
& PRODUCE AS STIPULATED BY LAW AND COMMITTED “BANK FRAUD”
AGAINST THE BORROWER

FROM THE BAR ASSOCIATION’S OFFICIAL WEB SITE :… ”this Court has the
responsibility to assure itself that the foreclosure plaintiffs have standing and that subject
matter jurisdiction requirements are met at the time the complaint is filed. Even without
the concerns raised by the documents the plaintiffs have filed, there is reason to question
the existence of standing and the jurisdictional amount”. Over 30 cases are covered by
the BAR at: http://www.abanet.org/rpte/publications/ereport/2008/3/Ohioforeclosures.pdf

1. “A national bank has no power to lend its credit to any person or corporation . . .
Bowen v. Needles Nat. Bank, 94 F 925 36 CCA 553, certiorari denied in 20 S.Ct
1024, 176 US 682, 44 LED 637.

2. Countrywide Home Loans, Inc. v Taylor – Mayer, J., Supreme Court, Suffolk County
/ 9/07

3. American Brokers Conduit v. ZAMALLOA – Judge SCHACK 28Jan2008

Aurora Loan Services v. MACPHERSON – Judge FARNETI 1 1Mar2008

4. “A bank may not lend its credit to another even though such a transaction turns out
to have been of benefit to the bank, and in support of this a list of cases might be
cited, which-would look like a catalog of ships.” [Emphasis added] Norton Grocery
Co. v. Peoples Nat. Bank, 144 SE 505. 151 Va 195.

5. “In the federal courts, it is well established that a national bank has not power to lend
its credit to another by becoming surety, indorser, or guarantor for him.”’ Farmers
and Miners Bank v. Bluefield Nat ‘l Bank, 11 F 2d 83, 271 U.S. 669.

6. Bank of New York v. SINGH – Judge KURTZ 14Dec2007

7. Bank of New York v. TORRES – Judge COSTELLO 11Mar2008

8. Bank of New York v. OROSCO – Judge SCHACK 19Nov2007

Citi Mortgage Inc. v. BROWN – Judge FARNETI 13Mar2008

9. “The doctrine of ultra vires is a most powerful weapon to keep private corporations
within their legitimate spheres and to punish them for violations of their corporate
charters, and it probably is not invoked too often…. Zinc Carbonate Co. v. First
National Bank, 103 Wis 125, 79 NW 229. American Express Co. v. Citizens State
Bank, 194 NW 430.

“It has been settled beyond controversy that a national bank, under federal Law being
limited in its powers and capacity, cannot lend its credit by guaranteeing the debts of
another. All such contracts entered into by its officers are ultra vires . . .” Howard &
Foster Co. v. Citizens Nat’l Bank of Union, 133 SC 202, 130 SE 759(1926).

10. “. . . checks, drafts, money orders, and bank notes are not lawful money of the
United States …” State v. Neilon, 73 Pac 324, 43 Ore 168.

11. American Brokers Conduit v. ZAMALLOA – Judge SCHACK 11 Sep2007

Countrywide Mortgage v. BERLIUK – Judge COSTELLO 1 3Mar2008

12. Deutsche Bank v. Barnes-Judgment Entry

13. Deutsche Bank v. Barnes-Withdrawal of Objections and Motion to Dismiss

Deutsche Bank v. ALEMANY Judge COSTELLO 07Jan2008

Deutsche Bank v. Benjamin CRUZ – Judge KURTZ 21May2008

Deutsche Bank v. Yobanna CRUZ – Judge KURTZ 21May2008

Deutsche Bank v. CABAROY – Judge COSTELLO 02Apr2008

Deutsche Bank v. CASTELLANOS / 2007NYSlipOp50978U/- Judge SCHACK
11May2007

14. Deutsche Bank v. CASTELLANOS/ 2008NYSlipOp50033U/ – Judge SCHACK
14Jan 2008

15. HSBC v. Valentin – Judge SCHACK calls them liars and dismisses WITH prejudice
**

16. Deutsche Bank v. CLOUDEN / 2007NYSlipOp5 1 767U/ Judge SCHACK 1
8Sep2007

17. Deutsche Bank v. EZAGUI – Judge SCHACK 21Dec2007

Deutsche Bank v. GRANT – Judge SCHACK 25Apr2008

Deutsche Bank v. HARRIS – Judge SCHACK 05Feb2008

18. Deutsche Bank v. LaCrosse, Cede, DTC Complaint

19. Deutsche Bank v. NICHOLLS – Judge KURTZ 21May2008

Deutsche Bank v. RYAN – Judge KURTZ 29Jan2008

Deutsche Bank v. SAMPSON – Judge KURTZ 16Jan2008

20. Deutsche v. Marche – Order to Show Cause to VACATE Judgment of Foreclosure –
11 June2009

21. GMAC Mortgage LLC v. MATTHEWS – Judge KURTZ 10Jan2008

GMAC Mortgage LLC v. SERAFINE – Judge COSTELLO 08Jan2008

HSBC Bank USA NA v. CIPRIANI Judge COSTELLO 08Jan2008

HSBC Bank USA NA v. JACK – Judge COSTELLO 02Apr2008

IndyMac Bank FSB v. RODNEY-ROSS – Judge KURTZ 15Jan2008

LaSalleBank NA v. CHARLEUS – Judge KURTZ 03Jan2008

LaSalleBank NA v. SMALLS – Judge KURTZ 03Jan2008

PHH Mortgage Corp v. BARBER – Judge KURTZ 15Jan2008

Property Asset Management v. HUAYTA 05Dec2007

22. Rivera, In Re Services LLC v. SATTAR / 2007NYSlipOp5 1 895U/ – Judge
SCHACK 09Oct2007

23. USBank NA v. AUGUSTE – Judge KURTZ 27Nov2007

USBank NA v. GRANT – Judge KURTZ 14Dec2007

USBank NA v. ROUNDTREE – Judge BURKE 11Oct2007

USBank NA v. VILLARUEL – Judge KURTZ 01Feb2008

24. Wells Fargo Bank NA v. HAMPTON – Judge KURTZ 03 Jan2008

25. Wells Fargo, Litton Loan v. Farmer WITH PREJUDICE Judge Schack June2008

26. Wells Fargo v. Reyes WITH PREJUDICE, Fraud on Court & Sanctions Judge
Schack June2008

27. Deutsche Bank v. Peabody Judge Nolan (Regulation Z)

Indymac Bank,FSB v. Boyd – Schack J. January 2009

28. Indymac Bank, FSB v. Bethley – Schack, J. February 2009 ( The tale of many hats)

29. LaSalle Bank Natl. Assn. v Ahearn – Appellate Division, Third Department (Pro Se)

30. NEW JERSEY COURT DISMISSES FORECLOSURE FILED BY DEUTSCHE
BANK FOR FAILURE TO PRODUCE THE NOTE

31. Whittiker v. Deutsche (MEMORANDUM IN OPPOSITION TO DEFENDANTS’
MOTIONS TO DISMISS) Whittiker (PLAINTIFFS’ OBJECTIONS TO REPORT
AND RECOMMENDATION) Whittiker (DEFENDANT WELTMAN,
WEINBERG & REIS CO., LPA’S RESPONSE TO PLAINTIFFS’ OBJECTIONS
TO REPORT AND RECOMMENDATION) Whittiker (RESPONSE TO
PLAINTIFFS’ OBJECTIONS TO MAGISTRATE JUDGE PEARSON’S REPORT
AND RECOMMENDATION TO GRANT ITS MOTION TO DISMISS)

32. Novastar v. Snyder * (lack of standing) Snyder (motion to amend w/prejudice)
Snyder (response to amend)

33. Washington Mutual v. City of Cleveland (WAMU’s motion to dismiss)

34. 2008-Ohio-1177; DLJ Mtge. Capital, Inc. v. Parsons (SJ Reversed for lack of
standing)

35. Everhome v. Rowland

36. Deutsche – Class Action (RICO) Bank of New York v. TORRES – Judge

COSTELLO 1 1Mar2008

37. Deutsche Bank Answer Whittiker

38. Manley Answer Whittiker

39. Justice Arthur M. Schack

40. Judge Holschuh- Show cause

41. Judge Holschuh- Dismissals

42. Judge Boyko’s Deutsche Bank Foreclosures

43. Rose Complaint for Foreclosure | Rose Dismissals

44. O’Malley Dismissals

45. City Of Cleveland v. Banks

46. Dowd Dismissal

47. EMC can’t find the note

48. Ocwen can’t find the note

49. US Bank can’t find the Note

50. US Bank – No Note

51. Key Bank – No Note

52. Wells Fargo – Defective pleading

53. Complaint in Jack v. MERS, Citi, Deutsche

54. GMAC v. Marsh

55. Massachusetts : Robin Hayes v. Deutsche Bank

56. Florida: Deutsche Bank’s Summary Judgment Denied

57. Texas: MERS v. Young / 2nd Circuit Court of Appeals – PANEL: LIVINGSTON,
DAUPHINOT, and MCCOY, JJ.

58. Nevada: MERS crushed: In re Mitchell

59. “Neither, as included in its powers not incidental to them, is it a part of a bank’s
business to lend its credit. If a bank could lend its credit as well as its money, it
might, if it received compensation and was careful to put its name only to solid
paper, make a great deal more than any lawful interest on its money would amount
to. If not careful, the power would be the mother of panics, . . . Indeed, lending credit
is the exact opposite of lending money, which is the real business of a bank, for
while the latter creates a liability in favor of the bank, the former gives rise to a
liability of the bank to another. I Morse. Banks and Banking 5th Ed. Sec 65; Magee,
Banks and Banking, 3rd Ed. Sec 248.” American Express Co. v. Citizens State Bank,
194 NW 429.

60. “It is not within those statutory powers for a national bank, even though solvent, to
lend its credit to another in any of the various ways in which that might be done.”
Federal Intermediate Credit Bank v. L ‘Herrison, 33 F 2d 841, 842 (1929).

61. “There is no doubt but what the law is that a national bank cannot lend its credit or
become an accommodation endorser.” National Bank of Commerce v. Atkinson, 55
E 471.

62. “A bank can lend its money, but not its credit.” First Nat’l Bank of Tallapoosa v.
Monroe . 135 Ga 614, 69 SE 1124, 32 LRA (NS) 550.

63. “.. . the bank is allowed to hold money upon personal security; but it must be money
that it loans, not its credit.” Seligman v. Charlottesville Nat. Bank, 3 Hughes 647,
Fed Case No.12, 642, 1039.

64. “A loan may be defined as the delivery by one party to, and the receipt by another
party of, a sum of money upon an agreement, express or implied, to repay the sum
with or without interest.” Parsons v. Fox 179 Ga 605, 176 SE 644. Also see Kirkland
v. Bailey, 155 SE 2d 701 and United States v. Neifert White Co., 247 Fed Supp 878,
879.

65. “The word ‘money’ in its usual and ordinary acceptation means gold, silver, or paper
money used as a circulating medium of exchange . . .” Lane v. Railey 280 Ky 319,
133 SW 2d 75.

66. “A promise to pay cannot, by argument, however ingenious, be made the equivalent
of actual payment …” Christensen v. Beebe, 91 P 133, 32 Utah 406.

67. “A bank is not the holder in due course upon merely crediting the depositors
account.” Bankers Trust v. Nagler, 229 NYS 2d 142, 143.

68. “A check is merely an order on a bank to pay money.” Young v. Hembree, 73 P2d
393

69. “Any false representation of material facts made with knowledge of falsity and with
intent that it shall be acted on by another in entering into contract, and which is so
acted upon, constitutes ‘fraud,’ and entitles party deceived to avoid contract or
recover damages.” Barnsdall Refining Corn. v. Birnam Wood Oil Co. 92 F 26 817.

70. “Any conduct capable of being turned into a statement of fact is representation.
There is no distinction between misrepresentations effected by words and
misrepresentations effected by other acts.” Leonard v. Springer 197 Ill 532. 64 NE
301.

71. “If any part of the consideration for a promise be illegal, or if there are several
considerations for an unseverable promise one of which is illegal, the promise,
whether written or oral, is wholly void, as it is impossible to say what part or which
one of the considerations induced the promise.” Menominee River Co. v. Augustus
Spies L & C Co.,147 Wis 559-572; 132 NW 1122.

72. “The contract is void if it is only in part connected with the illegal transaction and
the promise single or entire.” Guardian Agency v. Guardian Mut. Savings Bank, 227
Wis 550, 279 NW 83.

73. “It is not necessary for recision of a contract that the party making the
misrepresentation should have known that it was false, but recovery is allowed even
though misrepresentation is innocently made, because it would be unjust to allow
one who made false representations, even innocently, to retain the fruits of a bargain
induced by such representations.” Whipp v. Iverson, 43 Wis 2d 166.

74. “Each Federal Reserve bank is a separate corporation owned by commercial banks in
its region …” Lewis v. United States, 680 F 20 1239 (1982).

HOW AND WHY THE BANKS SECRETLY AND QUICKLY

“SWITCH CURRENCY”

NOT FULFILL THE “LOAN AGREEMENT “(THE CONTRACT)

OBTAIN YOUR MORTGAGE NOTE WITHOUT INVESTING ONE CENT

TO FORCE YOU TO LABOR TO PAY INTEREST ON “THE CONTRACT “

TO REFUSE TO FULFILL “THE CONTRACT “

TO MAKE YOU A DEPOSITOR (NOT A BORROWER)

The oldest scheme throughout History is the changing of currency. Remember the
moneychangers in the temple (BIBLE)? “If you lend money to My people, to the poor
among you, you are not to act as a creditor to him; you shall not charge him interest”
Exodus 22:25. They changed currency as a business. You would have to convert to
Temple currency in order to buy an animal for sacrifice. The Temple Merchants made
money by the exchange. The Bible calls it unjust weights and measures, and judges it to
be an abomination. Jesus cleared the Temple of these abominations. Our Christian
Founding Fathers did the same. Ben Franklin said in his autobiography, “… the inability
of the colonists to get the power to issue their own money permanently out of the hands
of King George III and the international bankers was the prime reason for the
revolutionary war.” The year 1913 was the third attempt by the European bankers to get
their system back in place within the United States of America. President Andrew
Jackson ended the second attempt in 1836. What they could not win militarily in the
Revolutionary War they attempted to accomplish by a banking money scheme which
allowed the European Banks to own the mortgages on nearly every home, car, farm,
ranch, and business at no cost to the bank. Requiring “We the People” to pay interest on
the equity we lost and the bank got free.

Today people believe that cash and coins back up the all checks. If you deposit $100 of
cash, the bank records the cash as a bank asset (debit) and credits a Demand Deposit

Account (DDA), saying that the bank owes you $100. For the $100 liability the bank
owes you, you may receive cash or write a check. If you write a $100 check, the $100
liability your bank owes you is transferred to another bank and that bank owes $100 to
the person you wrote the check to. That person can write a $100 check or receive cash.
So far there is no problem.

Remember one thing however, for the check to be valid there must first be a deposit of
money to the banks ASSETS, to make the check (liability) good. The liability is like a
HOLDING ACCOUNT claiming that money was deposited to make the check good.

Here then, is how the switch in currency takes place

The bank advertises it loans’ money. The bank says, “sign here”. However the bank never
signs because they know they are not going to lend you theirs, or other depositor’s
money. Under the law of bankruptcy of a nation, the mortgage note acts like money. The
bank makes it look like a loan but it is not. It is an exchange.

The bank receives the equity in the home you are buying, for free, in exchange for
an unpaid bank liability that the bank cannot pay, without returning the mortgage
note. If the bank had fulfilled its end of the contract, the bank could not have
received the equity in your home for free.

The bank receives your mortgage note without investing or risking one-
cent.

The bank sells the mortgage note, receives cash or an asset that can then be
converted to cash and still refuses to loan you their or other depositors’ money or
pay the liability it owes you. On a $100,000 loan the bank does not give up $100,000.
The bank receives $100,000 in cash or an asset and issues a $100,000 liability (check) the
bank has no intention of paying. The $100,000 the bank received in the alleged loan is the
equity (lien on property) the bank received without investment, and it is the $100,000 the
individual lost in equity to the bank. The $100,000 equity the individual lost to the bank,
which demands he/she repay plus interest.

The loan agreement the bank told you to sign said LOAN. The bank broke that
agreement. The bank now owns the mortgage note without loaning anything. The bank
then deposited the mortgage note in an account they opened under your name without
your authorization or knowledge. The bank withdrew the money without your
authorization or knowledge using a forged signature. The bank then claimed the money
was the banks’ property, which is a fraudulent conversion.

The mortgage note was deposited or debited (asset) and credited to a Direct Deposit
Account, (DDA) (liability). The credit to Direct Deposit Account (liability) was used
from which to issue the check. The bank just switched the currency. The bank demands
that you cannot use the same currency, which the bank deposited (promissory notes or

mortgage notes) to discharge your mortgage note. The bank refuses to loan you other
depositors’ money, or pay the liability it owes you for having deposited your mortgage
note.

To pay this liability the bank must return the mortgage note to you. However instead of
the bank paying the liability it owes you, the bank demands you use these unpaid bank
liabilities, created in the alleged loan process, as the new currency. Now you must labor
to earn the bank currency (unpaid liabilities created in the alleged loan process) to pay
back the bank. What the bank received for free, the individual lost in equity.

If you tried to repay the bank in like kind currency, (which the bank deposited without
your authorization to create the check they issued you), then the bank claims the
promissory note is not money. They want payment to be in legal tender (check book
money).

The mortgage note is the money the bank uses to buy your property in the foreclosure.
They get your real property at no cost. If they accept your promissory note to discharge
the mortgage note, the bank can use the promissory note to buy your home if you sell it.
Their problem is, the promissory note stops the interest and there is no lien on the
property. If you sell the home before the bank can find out and use the promissory note to
buy the home, the bank lost. The bank claims they have not bought the home at no cost.
Question is, what right does the bank have to receive the mortgage note at no cost in
direct violation of the contract they wrote and refused to sign or fulfill.

By demanding that the bank fulfill the contract and not change the currency, the bank
must deposit your second promissory note to create check book money to end the fraud,
putting everyone back in the same position they where, prior to the fraud, in the first
place. Then all the homes, farms, ranches, cars and businesses in this country would be
redeemed and the equity returned to the rightful owners (the people). If not, every time
the homes are refinanced the banks get the equity for free. You and I must labor 20 to 30
years full time as the bankers sit behind their desks, laughing at us because we are too
stupid to figure it out or to force them to fulfill their contract.

The $100,000 created inflation and this increases the equity value of the homes. On an
average homes are refinanced every 7 1/2 years. When the home is refinanced the bank
again receives the equity for free. What the bank receives for free the alleged borrower
loses to the bank.

According to the Federal Reserve Banks’ own book of Richmond, Va. titled “YOUR
MONEY” page seven, “…demand deposit accounts are not legal tender…” If a
promissory note is legal tender, the bank must accept it to discharge the mortgage note.
The bank changed the currency from the money deposited, (mortgage note) to check
book money (liability the bank owes for the mortgage note deposited) forcing us to labor
to pay interest on the equity, in real property (real estate) the bank received for free. This
cost was not disclosed in NOTICE TO CUSTOMER REQUIRED BY FEDERAL
LAW, Federal Reserve Regulation Z.

When a bank says they gave you credit, they mean they credited your transaction
account, leaving you with the presumption that they deposited other depositors money in
the account. The fact is they deposited your money (mortgage note). The bank cannot

claim they own the mortgage note until they loan you their money. If bank deposits your
money, they are to credit a Demand Deposit Account under your name, so you can write
checks and spend your money. In this case they claim your money is their money. Ask a
criminal attorney what happens in a fraudulent conversion of your funds to the bank’s use
and benefit, without your signature or authorization.

What the banks could not win voluntarily, through deception they received for free.
Several presidents, John Adams, Thomas Jefferson, and Abraham Lincoln believed that
banker capitalism was more dangerous to our liberties than standing armies. U.S.
President James A. Garfield said, “Whoever controls the money in any country is
absolute master of industry and commerce.”

The Chicago Federal Reserve Bank’s book,”Modern Money Mechanics”, explains exactly
how the banks expand and contract the checkbook money supply forcing people into
foreclosure. This could never happen if contracts were not violated and if we received
equal protection under the law of Contract.

HOW THE BANK SWITCHES THE CURRENCY
This is a repeat worded differently to be sure you understand it.
You must understand the currency switch.

The bank does not loan money. The bank merely switches the currency. The alleged
borrower created money or currency by simply signing the mortgage note. The bank does
not sign the mortgage note because they know they will not loan you their money. The
mortgage note acts like money. To make it look like the bank loaned you money the bank
deposits your mortgage note (lien on property) as money from which to issue a check. No
money was loaned to legally fulfill the contract for the bank to own the mortgage note.
By doing this, the bank received the lien on the property without risking or using one
cent. The people lost the equity in their homes and farms to the bank and now they must
labor to pay interest on the property, which the bank got for free and they lost.

The check is not money, the check merely transfers money and by transferring money the
check acts LIKE money. The money deposited is the mortgage note. If the bank never
fulfills the contract to loan money, then the bank does not own the mortgage note. The
deposited mortgage note is still your money and the checking account they set up in your
name, which they credited, from which to issue the check, is still your money. They only
returned your money in the form of a check. Why do you have to fulfill your end of the
agreement if the bank refuses to fulfill their end of the agreement? If the bank does not
loan you their money they have not fulfilled the agreement, the contract is void.

You created currency by simply signing the mortgage note. The mortgage note has
value because of the lien on the property and because of the fact that you are to repay the
loan. The bank deposits the mortgage note (currency) to create a check (currency, bank
money). Both currencies cost nothing to create. By law the bank cannot create currency
(bank money, a check) without first depositing currency, (mortgage note) or legal tender.

For the check to be valid there must be mortgage note or bank money as legal tender, but
the bank accepted currency (mortgage note) as a deposit without telling you and without
your authorization.

The bank withdrew your money, which they deposited without telling you and withdrew
it without your signature, in a fraudulent conversion scheme, which can land the bankers
in jail but is played out in every City and Town in this nation on a daily basis. Without
loaning you money, the bank deposits your money (mortgage note), withdraws it
and claims it is the bank’s money and that it is their money they loaned you.

It is not a loan, it is merely an exchange of one currency for another, they’ll owe you the
money, which they claimed they were to loan you. If they do not loan the money and
merely exchange one currency for another, the bank receives the lien on your property for
free. What they get for free you lost and must labor to pay back at interest.

If the banks loaned you legal tender, they could not receive the liens on nearly every
home, car, farm, and business for free. The people would still own the value of their
homes. The bank must sell your currency (mortgage note) for legal tender so if you use
the bank’s currency (bank money), and want to convert currency (bank money) to legal
tender they will be able to make it appear that the currency (bank money) is backed by
legal tender. The bank’s currency (bank money) has no value without your currency
(mortgage note). The bank cannot sell your currency (mortgage note) without fulfilling
the contract by loaning you their money. They never loaned money, they merely
exchanged one currency for another. The bank received your currency for free, without
making any loan or fulfilling the contract, changing the cost and the risk of the contract
wherein they refused to sign, knowing that it is a change of currency and not a loan.

If you use currency (mortgage note), the same currency the bank deposited to create
currency (bank money), to pay the loan, the bank rejects it and says you must use
currency (bank money) or legal tender. The bank received your currency (mortgage note)
and the bank’s currency (bank money) for free without using legal tender and without
loaning money thereby refusing to fulfill the contract. Now the bank switches the
currency without loaning money and demands to receive your labor to pay what was not
loaned or the bank will use your currency (mortgage note) to buy your home in
foreclosure, The Revolutionary war was fought to stop these bank schemes. The bank has
a written policy to expand and contract the currency (bank money), creating recessions,
forcing people out of work, allowing the banks to obtain your property for free.

If the banks loaned legal tender, this would never happen and the home would cost much
less. If you allow someone to obtain liens for free and create a new currency, which is not
legal tender and you must use legal tender to repay. This changes the cost and the risk.

Under this bank scheme, even if everyone in the nation owned their homes and farms
debt free, the banks would soon receive the liens on the property in the loan process. The
liens the banks receive for free, are what the people lost in property, and now must labor
to pay interest on. The interest would not be paid if the banks fulfilled the contract they
wrote. If there is equal protection under the law and contract, you could get the mortgage
note back without further labor. Why should the bank get your mortgage note and your

labor for free when they refuse to fulfill the contract they wrote and told you to sign?

Sorry for the redundancy, but it is important for you to know by heart their “shell game”,
I will continue in that redundancy as it is imperative that you understand the principle.
The following material is case law on the subject and other related legal issues as well as
a summary.

LOGIC AS EVIDENCE

The check was written without deducting funds from Savings Account or Certificate of
Deposit allowing the mortgage note to become the new pool of money owed to Demand
Deposit Account, Savings Account, Certificate of Deposit with Demand Deposit, Savings
Account, and/or Certificate of Deposit increasing by the amount of the mortgage note. In
this case the bankers sell the mortgage note for Federal Reserve Bank Notes or other
assets while still owing the liability for the mortgage note sold and without the bank
giving up any- Federal Reserve Bank Notes.

If the bank had to part with Federal Reserve Bank Notes, and without the benefit of
checks to hide the fraudulent conversion of the mortgage note from which it issues the
check, the bank fraud would be exposed.

Federal Reserve Bank Notes are the only money called legal tender. If only Federal
Reserve Bank Notes are deposited for the credit to Demand Deposit Account- Savings
Account, Certificate of Deposit, and if the bank wrote a check for the mortgage note, the
check then transfers Federal Reserve Bank Notes and the bank gives the borrower a bank
asset. There is no increase in the check book money supply that exists in the loan process.

The bank policy is to increase bank liabilities; Demand Deposit Account, Savings
Account, Certificate of Deposit, by the mortgage note. If the mortgage note is money,
then the bank never gave up a bank asset. The bank simply used fraudulent conversion of
ownership of the mortgage note. The bank cannot own the mortgage note until the bank
fulfills the contract.

The check is not the money; the money is the deposit that makes the check good. In this
case, the mortgage note is the money from which the check is issued. Who owns the
mortgage note when the mortgage note is deposited? The borrower owns the mortgage
note because the bank never paid money for the mortgage note and never loaned money
(bank asset). The bank simply claimed the bank owned the mortgage note without paying
for it and deposited the mortgage note from which the check was issued. This is
fraudulent conversion. The bank risked nothing! Not even one penny was invested. They
never took money out of any account, in order to own the mortgage note, as proven by
the bookkeeping entries, financial ratios, the balance sheet, and of course the bank’s
literature. The bank simply never complied with the contract.

If the mortgage note is not money, then the check is check kiting and the bank is
insolvent and the bank still never paid. If the mortgage note is money, the bank took our
money without showing the deposit, and without paying for it, which is fraudulent
conversion. The bank claimed it owned the mortgage note without paying for it, then sold

the mortgage note, took the cash and never used the cash to pay the liability it owed for
the check the bank issued. The liability means that the bank still owes the money. The
bank must return the mortgage note or the cash it received in the sale, in order to pay the
liability. Even if the bank did this, the bank still never loaned us the bank’s money, which
is what ‘loan’ means. The check is not money but merely an order to pay money. If the
mortgage note is money then the bank must pay the check by returning the mortgage
note.

The only way the bank can pay Federal Reserve Bank Notes for the check issued is to sell
the mortgage note for Federal Reserve Bank Notes. Federal Reserve Bank Notes are
non-redeemable in violation of the UCC. The bank forces us to trade in non-redeemable
private bank notes of which the bank refuses to pay the liability owed. When we present
the Federal Reserve Bank Notes for payment the bank just gives us back another Federal
Reserve Bank Note which the bank paid 2 1/2 cents for per bill regardless of
denomination.

What a profit for the bank!

The check issued can only be redeemed in Federal Reserve Bank Notes, which the bank
obtained by selling the mortgage note that they paid nothing for.

The bank forces us to trade in bank liabilities, which they never redeem in an asset. We
the people are forced to give up our assets to the bank for free, and without cost to the
bank. This is fraudulent conversion making the contract, which the bank created with
their policy of bookkeeping entries, illegal and the alleged contract null and void.

The bank has no right to the mortgage note or to a lien on the property, until the bank
performs under the contract. The bank had less than ten percent of Federal Reserve Bank
Notes to back up the bank liabilities in Demand Deposit Account, Savings Account, or
Certificate of Deposit’s. A bank liability to pay money is not money. When we try and
repay the bank in like funds (such as is the banks policy to deposit from which to issue
checks) they claim it is not money. The bank’s confusing and deceptive trade practices
and their alleged contracts are unconscionable.

SUMMARY OF DAMAGES

The bank made the alleged borrower a depositor by depositing a $100,000 negotiable
instrument, which the bank sold or had available to sell for approximately $100,000 in
legal tender. The bank did not credit the borrower’s transaction account showing that the
bank owed the borrower the $100,000. Rather the bank claimed that the alleged borrower
owed the bank the $100,000, then placed a lien on the borrower’s real property for
$100,000 and demanded loan payments or the bank would foreclose.

The bank deposited a non-legal tender negotiable instrument and exchanged it for another
non legal tender check, which traded like money, using the deposited negotiable
instrument as the money deposited. The bank changed the currency without the
borrower’s authorization. First by depositing non legal tender from which to issue a check
(which is non-legal tender) and using the negotiable instrument (your mortgage note), to
exchange for legal tender, the bank needed to make the check appear to be backed by

legal tender. No loan ever took place. Which shell hides the little pea?

The transaction that took place was merely a change of currency (without authorization),
a negotiable instrument for a check. The negotiable instrument is the money, which can
be exchanged for legal tender to make the check good. An exchange is not a loan. The
bank exchanged $100,000 for $100,000. There was no need to go to the bank for any
money. The customer (alleged borrower) did not receive a loan, the alleged borrower lost
$100,000 in value to the bank, which the bank kept and recorded as a bank asset and
never loaned any of the bank’s money.

In this example, the damages are $100,000 plus interest payments, which the bank
demanded by mail. The bank illegally placed a lien on the property and then threatened to
foreclose, further damaging the alleged borrower, if the payments were not made. A
depositor is owed money for the deposit and the alleged borrower is owed money for the
loan the bank never made and yet placed a lien on the real property demanding payment.

Damages exist in that the bank refuses to loan their money. The bank denies the
alleged borrower equal protection under the law and contract, by merely exchanging one
currency for another and refusing repayment in the same type of currency deposited. The
bank refused to fulfill the contract by not loaning the money, and by the bank refusing to
be repaid in the same currency, which they deposited as an exchange for another
currency. A debt tender offered and refused is a debt paid to the extent of the offer. The
bank has no authorization to alter the alleged contract and to refuse to perform by not
loaning money, by changing the currency and then refusing repayment in what the bank
has a written policy to deposit.

The seller of the home received a check. The money deposited for the check issued came
from the borrower not the bank. The bank has no right to the mortgage note until the bank
performs by loaning the money.

In the transaction the bank was to loan legal tender to the borrower, in order for the bank
to secure a lien. The bank never made the loan, but kept the mortgage note the alleged
borrower signed. This allowed the bank to obtain the equity in the property (by a lien)
and transfer the wealth of the property to the bank without the bank’s investment, loan, or
risk of money. Then the bank receives the alleged borrower’s labor to pay principal and
Usury interest. What the people owned or should have owned debt free, the bank
obtained ownership in, and for free, in exchange for the people receiving a debt, paying
interest to the bank, all because the bank refused to loan money and merely exchanged
one currency for another. This places you in perpetual slavery to the bank because the
bank refuses to perform under the contract. The lien forces payment by threat of
foreclosure. The mail is used to extort payment on a contract the bank never fulfilled.

If the bank refuses to perform, then they must return the mortgage note. If the bank
wishes to perform, then they must make the loan. The past payments must be returned
because the bank had no right to lien the property and extort interest payments. The bank
has no right to sell a mortgage note for two reasons. The mortgage note was deposited
and the money withdrawn without authorization by using a forged signature and; two, the
contract was never fulfilled. The bank acted without authorization and is involved in a

fraud thereby damaging the alleged borrower.

Excerpts From “Modem Money Mechanics” Pages 3 & 6

What Makes Money Valuable? In the United States neither paper currency nor deposits
have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits
merely book entries. Coins do have some intrinsic value as metal, but generally far less
than face value.

Then, bankers discovered that they could make loans merely by giving their promises to
pay, or bank notes, to borrowers, in this way, banks began to create money. More notes
could be issued than the gold and coin on hand because only a portion of the notes
outstanding would be presented for payment at any one time. Enough metallic money
had to be kept on hand, of course, to redeem whatever volume of notes was presented for
payment.

Transaction deposits are the modem counterpart of bank notes. It was a small step from
printing notes to making book entries crediting deposits of borrowers, which the
borrowers in turn could “spend” by writing checks, thereby “printing” their own money.

Notes, exchange just like checks.

How do open market purchases add to bank reserves and deposits? Suppose the Federal
Reserve System, through its trading desk at the Federal Reserve Bank of New York, buys
$10,000 of Treasury bills from a dealer in U.S. government securities. In today’s world
of Computer financial transactions, the Federal Reserve Bank pays for the securities
with an “electronic” check drawn on itself. Via its “Fedwire” transfer network, the
Federal Reserve notifies the dealer’s designated bank (Bank A) that payment for the
securities should be credited to (deposited in) the dealer’s account at Bank A. At the
same time, Bank A’s reserve account at the Federal Reserve is credited for the amount of
the securities purchased. The Federal Reserve System has added $10,000 of securities to
its assets, which it has paid for, in effect, by creating a liability on itself in the form of
bank reserve balances. These reserves on Bank A’s books are matched by $10,000 of the
dealer’s deposits that did not exist before.

If business is active, the banks with excess reserves probably will have opportunities to
loan the $9,000. Of course, they do not really pay out loans from money they receive as
deposits. If they did this, no additional money would be created. What they do when they
make loans is to accept promissory notes in exchange for credits to tile borrower’s
transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000.
Reserves are unchanged by the loan transactions. But the deposit credits constitute new
additions to the total deposits of the banking system.

PROOF BANKS DEPOSIT NOTES AND ISSUE BANK CHECKS. THE CHECKS
ARE ONLY AS GOOD AS THE PROMISSORY NOTE. NEARLY ALL BANK
CHECKS ARE CREATED FROM PRIVATE NOTES. FEDERAL RESERVE BANK
NOTES ARE A PRIVATE CORPORATE NOTE (Chapter 48, 48 Stat 112) WE USE
NOTES TO DISCHARGE NOTES.

Excerpt from booklet Your Money, page 7: Other M1 Money

While demand deposits, traveler’s checks, and interest-bearing accounts with unlimited
checking authority are not legal tender, they are usually acceptable in payment for
purchases of goods and services.

The booklet, “Your Money”, is distributed free of charge. Additional copies may be
obtained by writing to: Federal Reserve Bank of Richmond Public Services
Department P.O. Box 27622 Richmond, Virginia 23261

CREDIT LOANS AND VOID CONTRACTS: CASE LAW

75. “In the federal courts, it is well established that a national bank has not power to
lend its credit to another by becoming surety, indorser, or guarantor for him.”’
Farmers and Miners Bank v. Bluefield Nat ‘l Bank, 11 F 2d 83, 271 U.S. 669.

76. “A national bank has no power to lend its credit to any person or corporation . . .
Bowen v. Needles Nat. Bank, 94 F 925 36 CCA 553, certiorari denied in 20 S.Ct
1024, 176 US 682, 44 LED 637.

77. “The doctrine of ultra vires is a most powerful weapon to keep private corporations
within their legitimate spheres and to punish them for violations of their corporate
charters, and it probably is not invoked too often .. .” Zinc Carbonate Co. v. First
National Bank, 103 Wis 125, 79 NW 229. American Express Co. v. Citizens State
Bank, 194 NW 430.

78. “A bank may not lend its credit to another even though such a transaction turns out
to have been of benefit to the bank, and in support of this a list of cases might be
cited, which-would look like a catalog of ships.” [Emphasis added] Norton Grocery
Co. v. Peoples Nat. Bank, 144 SE 505. 151 Va 195.

79. “It has been settled beyond controversy that a national bank, under federal Law
being limited in its powers and capacity, cannot lend its credit by guaranteeing the
debts of another. All such contracts entered into by its officers are ultra vires . . .”
Howard & Foster Co. v. Citizens Nat’l Bank of Union, 133 SC 202, 130 SE
759(1926).

80. “. . . checks, drafts, money orders, and bank notes are not lawful money of the
United States …” State v. Neilon, 73 Pac 324, 43 Ore 168.

81. “Neither, as included in its powers not incidental to them, is it a part of a
bank’s business to lend its credit. If a bank could lend its credit as well as its money,
it might, if it received compensation and was careful to put its name only to solid
paper, make a great deal more than any lawful interest on its money would amount
to. If not careful, the power would be the mother of panics . . . Indeed, lending
credit is the exact opposite of lending money, which is the real business of a bank,
for while the latter creates a liability in favor of the bank, the former gives rise to a
liability of the bank to another. I Morse. Banks and Banking 5th Ed. Sec 65; Magee,

Banks and Banking, 3rd Ed. Sec 248.” American Express Co. v. Citizens State
Bank, 194 NW 429.

82. “It is not within those statutory powers for a national bank, even though solvent, to
lend its credit to another in any of the various ways in which that might be done.”
Federal Intermediate Credit Bank v. L ‘Herrison, 33 F 2d 841, 842 (1929).

83. “There is no doubt but what the law is that a national bank cannot lend its credit or
become an accommodation endorser.” National Bank of Commerce v. Atkinson, 55
E 471.

84. “A bank can lend its money, but not its credit.” First Nat’l Bank of Tallapoosa v.
Monroe . 135 Ga 614, 69 SE 1124, 32 LRA (NS) 550.

85. “.. . the bank is allowed to hold money upon personal security; but it must be money
that it loans, not its credit.” Seligman v. Charlottesville Nat. Bank, 3 Hughes 647,
Fed Case No.12, 642, 1039.

86. “A loan may be defined as the delivery by one party to, and the receipt by another
party of, a sum of money upon an agreement, express or implied, to repay the sum
with or without interest.” Parsons v. Fox 179 Ga 605, 176 SE 644. Also see
Kirkland v. Bailey, 155 SE 2d 701 and United States v. Neifert White Co., 247 Fed
Supp 878, 879.

87. “The word ‘money’ in its usual and ordinary acceptation means gold, silver, or paper
money used as a circulating medium of exchange . . .” Lane v. Railey 280 Ky 319,
133 SW 2d 75.

88. “A promise to pay cannot, by argument, however ingenious, be made the equivalent
of actual payment …” Christensen v. Beebe, 91 P 133, 32 Utah 406.

89. “A bank is not the holder in due course upon merely crediting the depositors
account.” Bankers Trust v. Nagler, 229 NYS 2d 142, 143.

90. “A check is merely an order on a bank to pay money.” Young v. Hembree, 73 P2d
393.

91. “Any false representation of material facts made with knowledge of falsity and with
intent that it shall be acted on by another in entering into contract, and which is so
acted upon, constitutes ‘fraud,’ and entitles party deceived to avoid contract or
recover damages.” Barnsdall Refining Corn. v. Birnam Wood Oil Co.. 92 F 26 817.

92. “Any conduct capable of being turned into a statement of fact is representation.
There is no distinction between misrepresentations effected by words and
misrepresentations effected by other acts.” Leonard v. Springer 197 Ill 532. 64 NE
301.

93. “If any part of the consideration for a promise be illegal, or if there are several
considerations for an unseverable promise one of which is illegal, the promise,
whether written or oral, is wholly void, as it is impossible to say what part or which

one of the considerations induced the promise.” Menominee River Co. v. Augustus
Spies L & C Co., 147 Wis 559. 572; 132 NW 1122.

94. “The contract is void if it is only in part connected with the illegal transaction and
the promise single or entire.” Guardian Agency v. Guardian Mut. Savings Bank,
227 Wis 550, 279 NW 83.

95. “It is not necessary for rescission of a contract that the party making the
misrepresentation should have known that it was false, but recovery is allowed even
though misrepresentation is innocently made, because it would be unjust to allow
one who made false representations, even innocently, to retain the fruits of a
bargain induced by such representations.” Whipp v. Iverson, 43 Wis 2d 166.

96. “Each Federal Reserve bank is a separate corporation owned by commercial banks
in its region …” Lewis v. United States, 680 F 20 1239 (1982).

97. In a Debtor’s RICO action against its creditor, alleging that the creditor had
collected an unlawful debt, an interest rate (where all loan charges were added
together) that exceeded, in the language of the RICO Statute, “twice the enforceable
rate.” The Court found no reason to impose a requirement that the Plaintiff show
that the Defendant had been convicted of collecting an unlawful debt, running a
“loan sharking” operation. The debt included the fact that exaction of a usurious
interest rate rendered the debt unlawful and that is all that is necessary to support
the Civil RICO action. Durante Bros. & Sons, Inc. v. Flushing Nat ‘l Bank. 755 F2d
239, Cert. denied, 473 US 906 (1985).

98. The Supreme Court found that the Plaintiff in a civil RICO action need establish
only a criminal “violation” and not a criminal conviction. Further, the Court held
that the Defendant need only have caused harm to the Plaintiff by the commission
of a predicate offense in such a way as to constitute a “pattern of Racketeering
activity.” That is, the Plaintiff need not demonstrate that the Defendant is an
organized crime figure, a mobster in the popular sense, or that the Plaintiff has
suffered some type of special Racketeering injury; all that the Plaintiff must show is
what the Statute specifically requires. The RICO Statute and the civil remedies for
its violation are to be liberally construed to effect the congressional purpose as
broadly formulated in the Statute. Sedima, SPRL v. Imrex Co., 473 US 479 (1985).

DEFINITIONS TO KNOW WHEN EXAMINING A BANK CONTRACT

BANK ACCOUNT: A sum of money placed with a bank or banker, on deposit, by a
customer, and subject to be drawn out on the latter’s check.

BANK: whose business it is to receive money on deposit, cash checks or drafts, discount
commercial paper, make loans and issue promissory notes payable to bearer, known as
bank notes.

BANK CREDIT: A credit with a bank by which, on proper credit rating or proper
security given to the bank, a person receives liberty to draw to a certain extent agreed
upon.

BANK DEPOSIT: Cash, checks or drafts placed with the bank for credit to depositor’s
account. Placement of money in bank, thereby, creating contract between bank and
depositors.

DEMAND DEPOSIT: The right to withdraw deposit at any time.

BANK DEPOSITOR: One who delivers to, or leaves with a bank a sum of money
subject to his order.

BANK DRAFT: A check, draft or other form of payment.

ANK OF ISSUE: Bank with the authority to issue notes which are intended to circulate
as currency.

LOAN: Delivery by one party to, and receipt by another party, a sum of money upon
agreement, express or implied, to repay it with or without interest.

CONSIDERATION: The inducement to a contract. The cause, motive, price or
impelling influences, which induces a contracting, party to enter into a contract. The
reason, or material cause of a contract.

CHECK: A draft drawn upon a bank and payable on demand, signed by the maker or
drawer, containing an unconditional promise to pay a certain sum in money to the order
of the payee. The Federal Reserve Board defines a check as, “…a draft or order upon a
bank or banking house purporting to be drawn upon a deposit of funds for the payment at
all events of, a certain sum of money to a certain person therein named, or to him or his
order, or to bearer and payable instantly on demand of.”

QUESTIONS ONE MIGHT ASK THE BANK IN AN INTERROGATORY

Did the bank loan gold or silver to the alleged borrower?

Did the bank loan credit to the alleged borrower?

Did the borrower sign any agreement with the bank, which prevents the borrower from
repaying the bank in credit?

Is it true that your bank creates check book money when the bank grants loans, simply by
adding deposit dollars to accounts on the bank’s books, in exchange, for the borrower’s
mortgage note?

Has your bank, at any time, used the borrower’s mortgage note, “promise to pay”, as a
deposit on the bank’s books from which to issue bank checks to the borrower?

At the time of the loan to the alleged borrower, was there one dollar of Federal Reserve
Bank Notes in the bank’s possession for every dollar owed in Savings Accounts,
Certificates of Deposits and check Accounts (Demand Deposit Accounts) for every dollar
of the loan?

According to the bank’s policy, is a promise to pay money the equivalent of money?

Does the bank have a policy to prevent the borrower from discharging the mortgage note
in “like kind funds” which the bank deposited from which to issue the check?

Does the bank have a policy of violating the Deceptive Trade Practices Act?

When the bank loan officer talks to the borrower, does the bank inform the borrower that
the bank uses the borrowers mortgage note to create the very money the bank loans out to
the borrower?

Does the bank have a policy to show the same money in two separate places at the same
time?

Does the bank claim to loan out money or credit from savings and certificates of deposits
while never reducing the amount of money or credit from savings accounts or certificates
of deposits, which customers can withdraw from?

Using the banking practice in place at the time the loan was made, is it theoretically
possible for the bank to have loaned out a percentage of the Savings Accounts and
Certificates of Deposits?

If the answer is “no” to question #13, explain why the answer is no.

In regards to question #13, at the time the loan was made, were there enough Federal
Reserve Bank Notes on hand at the bank to match the figures represented by every
Savings Account and Certificate of Deposit and checking Account (Demand Deposit
Account)?

Does the bank have to obey, the laws concerning, Commercial Paper; Commercial
Transactions, Commercial Instruments, and Negotiable Instruments?

Did the bank lend the borrower the bank’s assets, or the bank’s liabilities?

What is the complete name of the banking entity, which employs you, and in what
jurisdiction is the bank chartered?

What is the bank’s definition of “Loan Credit”?

Did the bank use the borrowers assumed mortgage note to create new bank money, which

did not exist before the assumed mortgage note was signed?

Did the bank take money from any Demand Deposit Account (DDA), Savings Account
(SA), or a Certificate of Deposit (CD), or any combination of any Demand Deposit
Account, Savings Account or Certificate of Deposit, and loan this money to the
borrower?

Did the bank replace the money or credit, which it loaned to the borrower with the
borrower’s assumed mortgage note?

Did the bank take a bank asset called money, or the credit used as collateral for
customers’ bank deposits, to loan this money to the borrower, and/or did the bank use the
borrower’s note to replace the asset it loaned to the borrower?

Did the money or credit, which the bank claims to have loaned to the borrower, come
from deposits of money or credit made by the bank’s customers, excluding the borrower’s
assumed mortgage note?

Considering the balance sheet entries of the bank’s loan of money or credit to the
borrower, did the bank directly decrease the customer deposit accounts (i.e. Demand
Deposit Account, Savings Account, and Certificate of Deposit) for the amount of the
loan?

Describe the bookkeeping entries referred to in question #13.

Did the bank’s bookkeeping entries to record the loan and the borrower’s assumed
mortgage note ever, at any time, directly decrease the amount of money or credit from
any specific bank customer’s deposit account?

Does the bank have a policy or practice to work in cooperation with other banks or
financial institutions use borrower’s mortgage note as collateral to create an offsetting
amount of new bank money or credit or check book money or Demand Deposit Account
generally to equal the amount of the alleged loan?

Regarding the borrowers assumed mortgage loan, give the name of the account which
was debited to record the mortgage.

Regarding the bookkeeping entry referred to in Interrogatory #17, state the name and
purpose of the account, which was credited.

When the borrower’s assumed mortgage note was debited as a bookkeeping entry, was
the offsetting entry a credit account?

Regarding the initial bookkeeping entry to record the borrower’s assumed mortgage note
and the assumed loan to the borrower, was the bookkeeping entry credited for the money
loaned to the borrower, and was this credit offset by a debit to record the borrower’s
assumed mortgage note?

Does the bank currently or has it ever at anytime used the borrower’s assumed mortgage
note as money to cover the bank’s liabilities referred to above, i.e. Demand Deposit
Account, Savings Account and Certificate of Deposit?

When the assumed loan was made to the borrower, did the bank have every Demand
Deposit Account, Savings Account, and Certificate of Deposit backed up by Federal
Reserve Bank Notes on hand at the bank?

Does the bank have an established policy and practice to emit bills of credit which it
creates upon its books at the time of making a loan agreement and issuing money or so-
called money of credit, to its borrowers?

SUMMARY

The bank advertised it would loan money, which is backed by legal tender. Is not that
what the symbol $ means? Is that not what the contract said? Do you not know there is no
agreement or contract in the absence of mutual consent? The bank may say that they gave
you a check, you owe the bank money. This information shows you that the check came
from the money the alleged borrower provided and the bank never loaned any money
from other depositors.

I’ve shown you the law and the bank’s own literature to prove my case. All the bank
did was trick you. They get your mortgage note without investing one cent, by making
you a depositor and not a borrower. The key to the puzzle is, the bank did not sign the
contract. If they did they must loan you the money. If they did not sign it, chances
are, they deposited the mortgage note in a checking account and used it to issue a
check without ever loaning you money or the bank investing one cent.

Our Nation, along with every State of the Union, entered into Bankruptcy, in 1933. This
changes the law from “gold and silver” legal money and “common law” to the law of
bankruptcy. Under Bankruptcy law the mortgage note acts like money. Once you sign the
mortgage note it acts like money. The bankers now trick you into thinking they loaned
you legal tender, when they never loaned you any of their money.

The trick is they made you a depositor instead of a borrower. They deposited your
mortgage note and issued a bank check. Neither the mortgage note nor the check is
legal tender. The mortgage note and the check are now money created that never existed,
prior. The bank got your mortgage note for free without loaning you money, and sold the
mortgage note to make the bank check appear legal. The borrower provided the legal
tender, which the bank gave back in the form of a check. If the bank loaned legal tender,
as the contract says, for the bank to legally own the mortgage note, then the people
would still own the homes, farms, businesses and cars, nearly debt free and pay little, if
any interest. By the banks not fulfilling the contract by loaning legal tender, they
make the alleged borrower, a depositor. This is a fraudulent conversion of the
mortgage note. A Fraud is a felony.

The bank had no intent to loan, making it promissory fraud, mail fraud, wire fraud, and a
list of other crimes a mile long. How can they make a felony, legal? They cannot! Fraud

is fraud!

The banks deposit your mortgage note in a checking account. The deposit becomes the
bank’s property. They withdraw money without your signature, and call the money, the
banks money that they loaned to you. The bank forgot one thing. If the bank deposits
your mortgage note, then the bank must credit your checking account claiming the bank
owes you $100,000 for the $100,000 mortgage note deposited. The credit of $100,000 the
bank owes you for the deposit allows you to write a check or receive cash. They did not
tell you they deposited the money, and they forget to tell you that the $100,000 is money
the banks owe you, not what you owe the bank. You lost $100,000 and the bank gained
$100,000. For the $100,000 the bank gained, the bank received government bonds or
cash of $100,000 by selling the mortgage note. For the loan, the bank received $100,000
cash, the bank did not give up $100,000.

Anytime the bank receives a deposit, the bank owes you the money. You do not owe the
bank the money.

If you or I deposit anyone’s negotiable instrument without a contract authorizing it, and
withdraw the money claiming it is our money, we would go to jail. If it was our policy to
violate a contract, we could go to jail for a very long time. You agreed to receive a loan,
not to be a depositor and have the bank receive the deposit for free. What the bank got for
free (lien on real property) you lost and now must pay with interest.

If the bank loaned us legal tender (other depositors’ money) to obtain the mortgage note
the bank could never obtain the lien on the property for free. By not loaning their money,
but instead depositing the mortgage note the bank creates inflation, which costs the
consumer money. Plus the economic loss of the asset, which the bank received for free, in
direct violation of any signed agreement.

We want equal protection under the law and contract, and to have the bank fulfill the
contract or return the mortgage note. We want the judges, sheriffs, and lawmakers to
uphold their oath of office and to honor and uphold the founding fathers U.S.
Constitution. Is this too much to ask?

What is the mortgage note? The mortgage note represents your future loan payments. A
promise to pay the money the bank loaned you. What is a lien? The lien is a security on
the property for the money loaned.

How can the bank promise to pay money and then not pay? How can they take a promise
to pay and call it money and then use it as money to purchase the future payments of
money at interest. Interest is the compensation allowed by law or fixed by the parties for
the use or forbearance of borrowed money. The bank never invested any money to
receive your mortgage note. What is it they are charging interest on?

The bank received an asset. They never gave up an asset. Did they pay interest on the
money they received as a deposit? A check issued on a deposit received from the
borrower cost the bank nothing? Where did the money come from that the bank invested
to charge interest on?

The bank may say we received a benefit. What benefit? Without their benefit we would
receive equal protection under the law, which would mean we did not need to give up an
asset or pay interest on our own money! Without their benefit we would be free and not
enslaved. We would have little debt and interest instead of being enslaved in debt and
interest. The banks broke the contract, which they never intended to fulfill in the first
place. We got a check and a house, while they received a lien and interest for free,
through a broken contract, while we got a debt and lost our assets and our country. The
benefit is the banks, who have placed liens on nearly every asset in the nation, without
costing the bank one cent. Inflation and working to pay the bank interest on our own
money is the benefit. Some benefit!

What a Shell Game. The Following case was an actual trial concerning the issues we
have covered. The Judge was extraordinary in-that he had a grasp of the
Constitution that I haven’t seen often enough in our courts. This is the real thing,
absolutely true. This case was reviewed by the Minnesota Supreme Court on their
own motion. The last thing in the world that the Bankers and the Judges wanted
was case law against the Bankers. However, this case law is real.

_______________________________________________________________________

STATE OF MINNESOTA IN JUSTICE COURT COUNTY OF SCOTT
TOWNSHIP OF
CREDIT RIVER

)MARTIN V. MAHONEY, JUSTICE

FIRST BANK OF MONTGOMERY, Plaintiff, ) CASE NO: 19144

Vs. ) JUDGMENT AND DECREE

Jerome Daly, Defendant. )

The above entitled action came on before the court and a jury of 12 on December 7, 1968
at 10:00 a.m. Plaintiff appeared by its President Lawrence V. Morgan and was
represented by its Counsel Theodore R. Mellby, Defendant appeared on his own behalf.

A jury of Talesmen were called, impaneled and sworn to try the issues in this case.
Lawrence V. Morgan was the only witness called for plaintiff and defendant testified as
the only witness in his own behalf.

Plaintiff brought this as a Common Law action for the recovery of the possession of lot
19, Fairview Beach, Scott County, Minn. Plaintiff claimed titled to the Real Property in
question by foreclosure of a Note and Mortgage Deed dated May 8, 1964 which plaintiff
claimed was in default at the time foreclosure proceedings were started. Defendant
appeared and answered that the plaintiff created the money and credit upon its own books
by bookkeeping entry as the legal failure of consideration for the Mortgage Deed and
alleged that the Sheriff’s sale passed no title to plaintiff. The issues tried to the jury were

whether there was a lawful consideration and whether Defendant had waived his rights to
complain about the consideration having paid on the note for almost 3 years. Mr. Morgan
admitted that all of the money or credit which was used as a consideration was created
upon their books that this was standard banking practice exercised by their bank in
combination with the Federal Reserve Bank of Minneapolis, another private bank, further
that he knew of no United States Statute of Law that gave the Plaintiff the authority to do
this. Plaintiff further claimed that Defendant by using the ledger book created credit and
by paying on the Note and Mortgage waived any right to complain about the
consideration and that Defendant was estopped from doing so. At 12:15 on December 7,
1968 the Jury returned a unanimous verdict for the Defendant. Now therefore by virtue of
the authority vested in me pursuant to the Declaration of Independence, the Northwest
Ordinance of 1787, the Constitution of the United States and the Constitution and laws of
the State Minnesota not inconsistent therewith.

IT IS HEREBY ORDERED, ADJUDGED AND DECREED

That Plaintiff is not entitled to recover the possession of lot 19, Fairview Beach, Scott
County, Minnesota according to the plat thereof on file in the Register of Deeds office.
That because of failure of a lawful consideration the note and Mortgage dated May 8,
1964 are null and void.

That the Sheriffs sale of the above described premises held on June 26, 1967 is null and
void, of no effect.

That Plaintiff has no right, title or interest in said premises or lien thereon, as is above
described.

That any provision in the Minnesota Constitution and any Minnesota Statute limiting the

Jurisdiction of this Court is repugnant to the Constitution of the United States and to the
Bill of Rights of the Minnesota Constitution and is null and void and that this Court has
Jurisdiction to render complete Justice in this cause.

That Defendant is awarded costs in the sum of $75.00 and execution is hereby issued
therefore.

A 10 day stay is granted.

The following memorandum and any supplemental memorandum made and filed by this
Court in support of this judgment is hereby made a part hereof by reference.

BY THE COURT

Dated December 9, 1969

MARTIN V. MAHONEY

Justice of the Peace Credit River Township Scott County, Minnesota

MEMORANDUM

The issues in this case were simple. There was no material dispute on the facts for the
jury to resolve. Plaintiff admitted that it, in combination with the Federal Reserve Bank
of Minneapolis, which are for all practical purposes because of their interlocking activity
and practices, and both being Banking Institutions Incorporated under the laws of the
United States, are in the Law to be treated as one and the same Bank, did create the entire
$14,000.00 in money or credit upon its own books by bookkeeping entry. That this was
the Consideration used to support the Note dated May 8, 1964 and the Mortgage of the
same date. The Money and credit first came into existence when they credited it.

Mr. Morgan admitted that no United States Law of Statute existed which gave him the
right to do this. A lawful consideration must exist and be tendered to support the note.
(See Anheuser Busch Brewing Co. v. Emma Mason, 44 Minn. 318. 46 NW 558.) The
Jury found there was no lawful consideration and I agree Only God can create something
of value out of nothing. Even if defendant could be charged with waiver or estoppel as a
matter of law this is no defense to the plaintiff. The law leaves wrongdoers where it finds
them. (See sections 50, 5 1, and 52 of Am Jur 2d “Actions” on page 584.”) No action will
lie to recover on a claim based upon, or in any manner depending upon, a fraudulent,
illegal, or immoral transaction or contract to which plaintiff was a party. Plaintiffs act of
creating is not authorized by the Constitution and Laws of the United States, is
unconstitutional and void, and is not lawful consideration in the eyes of the law to
support any thing or upon which any lawful rights can be built. Nothing in the
Constitution of the United States limits the jurisdiction of this Court, which is one of
original jurisdiction with right of trial by jury guaranteed.

This is a Common Law Action. Minnesota cannot limit or impair the power of this Court
to render complete justice between the parties. Any provisions in the Constitution and
laws of Minnesota which attempt to do so is repugnant to the Constitution of the United
States and void. No question as to the Jurisdiction of this Court was raised by either party
at the trial. Both parties were given complete liberty to submit any and all facts and law
to the jury, at least in so far as they saw it. No complaint was made by Plaintiff that
Plaintiff did not receive a fair trial. From the admissions made by Mr. Morgan the path of
duty was made direct and clear for the jury. Their verdict could not reasonably have been
otherwise. Justice was rendered completely and without purchase, conformable to the law
in this Court on December 7, 1968.

BY THE COURT

MARTIN V. MAHONEY

Justice of the Peace Credit River Township Scott County, Minnesota

Note: It has never been doubted that a note given on a consideration, which is prohibited
by law is void. It has been determined independent of Acts of Congress, that sailing
under the license of an enemy is illegal. The emission of Bills of Credit upon the books of
these private Corporations for the purposes of private gain is not warranted by the
Constitution of the United States and is unlawful. See Craig v. @ 4 peters reports 912,
This Court can tread only that path which is marked out by duty. M.V.M.

JUDGE MARTIN MAHONEY DECISION AS FOLLOWS

“For the Justice’s fees, the First National Bank deposited @ the Clerk of the District
Court the two Federal Reserve Bank Notes. The Clerk tendered the Notes to me (the
Judge). As Judge my sworn duty compelled me to refuse the tender. This is contrary to
the Constitution of the United States. The States have no power to make bank notes a
legal tender. Only gold and silver coin is a lawful tender.” (See American Jurist on
Money 36 sec.13.)

“Bank Notes are a good tender as money unless specifically objected to. Their consent
and usage is based upon the convertibility of such notes to coin at the pleasure of the
holder upon presentation to the bank for redemption. When the inability of a bank to
redeem its notes is openly avowed they instantly lose their character as money and their
circulation as currency ceases.” (See American Jurist 36-section 9). “There is no lawful
consideration for these Federal Reserve Bank Notes to circulate as money. The banks
actually obtained these notes for cost of printing – A lawful consideration must exist for a
Note. As a matter of fact, the “Notes” are not Notes at all, as they contain no promise to
pay.” (See 17 American Jurist section 85, 215) “The activity of the Federal Reserve
Banks of Minnesota, San Francisco and the First National Bank of Montgomery is
contrary to public policy and contrary to the Constitution of the United States, and
constitutes an unlawful creation of money, credit and the obtaining of money and credit
for no valuable consideration.

Activity of said banks in creating money and credit is not warranted by the Constitution
of the United States.” “The Federal Reserve Banks and National Banks exercise an
exclusive monopoly and privilege of creating credit and issuing Notes at the expense of
the public which does not receive a fair equivalent. This scheme is obliquely designed for
the benefit of an idle monopoly to rob, blackmail, and oppress the producers of wealth.
“The Federal Reserve Act and the National Bank Act are, in their operation and effect,
contrary to the whole letter and spirit of the Constitution of the United States, for they
confer an unlawful and unnecessary power on private parties; they hold all of our fellow
citizens in dependence; they are subversive to the rights and liberation of the people.”
“These Acts have defiled the lawfully constituted Government of the United States. The
Federal Reserve Act and the National Banking Act are not necessary and proper for
carrying into execution the legislative powers granted to Congress or any other powers
vested in the Government of the United States, but on the contrary, are subversive to the
rights of the People in their rights to life, liberty, and property.” (See Section 462 of Title
31 U. S. Code).

“The meaning of the Constitutional provision, ‘NO STATE SHALL make anything but
Gold and Silver Coin a legal tender ‘ payment of debts’ is direct, clear, unambiguous and
without any qualification. This Court is without authority to interpolate any exception.
My duty is simply to execute it, as and to pronounce the legal result. From an
examination of the case of Edwards v. Kearsey, Federal Reserve Bank Notes (fiat money)
which are attempted to be made a legal tender, are exactly what the authors of the

Constitution of the United States intend to prohibit. No State can make these Notes a
legal tender. Congress is incompetent to authorize a State to make the Notes a legal
tender. For the effect of binding Constitution provisions see Cooke v. Iverson. This
fraudulent Federal Reserve System and National Banking System has impaired the
obligation of Contract promoted disrespect for the Constitution and Law and has shaken
society to its foundation.” (See 96 U.S. Code 595 and 108 M 388 and 63 M 147)

“Title 31, U.S. Code, Section 432, is in direct conflict with the Constitution insofar, at
least, that it attempts to make Federal Reserve Bank Notes a legal tender. The
Constitution is the Supreme Law of the Land. Section 462 of Title 31 is not a law, which
is made in pursuance of the Constitution. It is unconstitutional and void, and I so hold.
Therefore, the two Federal Reserve Bank Notes are Null and Void for any lawful purpose
in so far as this case is concerned and are not a valid deposit of $2.00 with the Clerk of
the District Court for the purpose of effecting an Appeal from this Court to the District
Court.” “However, of these Federal Reserve Bank Notes, previously discussed, and that is
that the Notes are invalid, because of a theory that they are based upon a valid, adequate
or lawful consideration. At the hearing scheduled for January 22, 1969, at 7:00 P.M., Mr.
Morgan appeared at the trial; he appeared as a witness to be candid, open, direct,
experienced and truthful. He testified to years of experience with the Bank of America in
Los Angeles, the Marquette National Bank of Minnesota and the First National Bank of
Minnesota. He seemed to be familiar with the operation of the Federal Reserve System.
He freely admitted that his Bank created all of the money and credit upon its books with
which it acquired the Note and Mortgage of May 8, 1964. The credit first came into
existence when the Bank created it upon its books. Further, he freely admitted that no
United States Law gave the Bank the authority to do this. This was obviously no lawful
consideration for the Note.

The Bank parted with absolutely nothing except a little ink. In this case, the evidence was
on January 22, 1969 that the Federal Reserve Bank obtained the Notes for this seems to
be conferred by Title 12 USC Section 420. The cost is about 9/10th of a cent per Note
regardless of the amount of the Note. The Federal Reserve Banks create all of the money
and credit upon their books by bookkeeping entries by which they acquire United States
Securities. The collateral required to obtain the Note is, by section 412 USC, Title 12, a
deposit of a like amount of bonds. Bonds which the Banks acquire by creating money and
credit by bookkeeping entry.”

“No rights can be acquired by fraud. The Federal Reserve Bank Notes are acquired
through the use of unconstitutional statutes and fraud.” “The Common Law requires a
lawful consideration for any contract or Note. These Notes are void for failure at a lawful
consideration at Common Law, entirely apart from any Constitutional consideration.
Upon this ground, the Notes are ineffectual for any purpose. This seems to be the
principal objection to paper fiat money and the cause of its depreciation and failure down
through the ages. If allowed to continue, Federal Reserve Bank Notes will meet the same
fate. From the evidence introduced on January 22, 1969, this Court finds that as of March
18, 1969, all Gold and Silver backing is removed from Federal Reserve Bank Notes.”
“The law leaves wrongdoers where it finds them. (See I Mer. Jur 2nd on Actions Section
550).”Slavery and all its incidents, including Peonage, thralldom, and debt created by

fraud is universally prohibited in the United States. This case represents but another
refined form of Slavery by the Bankers. Their position is not supported by the
Constitution of the United States. The People have spoken their will in terms, which
cannot be misunderstood. It is indispensable to the preservation of the Union and
independence and liberties of the people that this Court, adhere only to the mandate of the
Constitution and administer it as it is written. I, therefore, hold these Notes in question
void and not effectual for any purpose.” (4) January 30, 1969

Judge Martin V. Mahoney

Justice of the Peace Credit River Township

_______________________________________________________________________

CREDIT LOANS AND VOID CONTRACTS PERFECT OBLIGATION AS TO A
HUMAN BEING AS TO A BANK

Furthermore, this Memorandum of law is offered in order to advance understanding of
the complex legal issues, present and embodied in the Common Law, with authorities,
law and cases in support of, which will constitute the following facts:

Privately owned banks are making loans of “credit” with the intended purpose of
circulating “credit” as “money”. Other financial institutions and individuals may
“launder” bank credit that they receive directly or indirectly from privately owned banks.
This collective activity is unconstitutional, unlawful, in violation of Common Law, U.S.
Code and the principles of equity. Such activity and underlying contracts have long been
held void, by State Courts, Federal Courts and the U.S. Supreme Court. This
Memorandum will demonstrate through authorities and established common law, that
credit “money creation” by privately owned bank corporations is not really “money
creation” at all. It is the trade specialty and artful illusion of law merchants, which use
old-time trade secrets of the Goldsmiths, to entrap the borrower and unjustly enrich the
lender through usury and other unlawful techniques. Issues based on law and the
principles of equity, which are within the jurisdiction of this Court, will be addressed.

THE GOLDSMITHS

In his book, Money and Banking (8th Edition, 1984), Professor David R. Kamerschen
writes on pages 56 -63: “The first bankers in the modern sense were the goldsmiths, who
frequently accepted bullion and coins for storage … One result was that the goldsmiths
temporarily could lend part of the gold left with them . . . These loans of their customers’
gold were soon replaced by a revolutionary technique. When people brought in gold, the
goldsmiths gave them notes promising to pay that amount of gold on demand. The notes,
first made payable to the order of the individual, were later changed to bearer obligations.
In the previous form, a note payable to the order of Jebidiah Johnson would be paid to no
one else unless Johnson had first endorsed the note … But notes were soon being used in
an unforeseen way. The note holders found that, when they wanted to buy something,
they could use the note itself in payment more conveniently and let the other person go
after the gold, which the person rarely did . . .The specie, then tended to remain in the
goldsmiths’ vaults. . . . The goldsmiths began to realize that they might profit handsomely
by issuing somewhat more notes than the amount of specie they held. . . These additional

notes would cost the goldsmiths nothing except the negligible cost of printing them, yet
the notes provided the goldsmiths with funds to lend at interest . . . .And they were to find
that the profitability of their lending operations would exceed the profit from their
original trade. The goldsmiths became bankers as their interest in manufacture of gold
items to sell was replaced by their concern with credit policies and lending activities . . .

They discovered early that, although an unlimited note issue would be unwise, they could
issue notes up to several times the amount of specie they held. The key to the whole
operation lay in the public’s willingness to leave gold and silver in the bank’s vaults and
use the bank’s notes. This discovery is the basis of modern banking: On page 74,
Professor Kamerschen further explains the evolution of the credit system: “Later the
goldsmiths learned a more efficient way to put their credit money into circulation. They
lent by issuing additional notes, rather than by paying out in gold. In exchange for the
interest-bearing note received from their customer (in effect, the loan contract), they gave
their own non-interest bearing note. Each was actually borrowing from the other … The
advantage of the later procedure of’ lending notes rather than gold was that . . . more
notes could be issued if the gold remained in the vaults … Thus, through the principle of
bank note issuance, banks learned to create money in the form of their own liability.”
[Emphasis Added]

MODERN MONEY MECHANICS

Another publication which explains modern banking as learned from the Goldsmiths is
Modern Money Mechanics (5th edition 1992), published by the Federal Reserve Bank of
Chicago which states beginning on page 3: “It started with the goldsmiths …” At one
time, bankers were merely middlemen. They made a profit by accepting gold and coins
brought to them for safekeeping and lending the gold and coins to borrowers. But the
goldsmiths soon found that the receipts they issued to depositors were being used as a
means of payment. ‘Then, bankers discovered that they could make loans merely by
giving borrowers their promises to pay, or bank notes… In this way, banks began to create
money … Demand deposits are the modern counterpart of bank notes . . . It was a small
step from printing notes to making book entries to the credit of borrowers which the
borrowers, in turn, could ‘spend’ by writing checks, thereby printing their own money.”
[Emphasis added]

HOW BANKS CREATE MONEY

In the modern sense, banks create money by creating “demand deposits.” Demand
deposits are merely “book entries” that reflect how much lawful money the bank owes its
customers. Thus, all deposits are called demand deposits and are the bank’s liabilities.
The bank’s assets are the vault cash plus all the “IOUs” or promissory notes that the
borrower signs when they borrow either money or credit. When a bank lends its cash
(legal money), it loans its assets, but when a bank lends its “credit” it lends its liabilities.
The lending of credit is, therefore, the exact opposite of the lending of cash (legal
money).

At this point, we need to define the meaning of certain words like “lawful money”, “legal

tender”, “other money” and “dollars”. The terms “Money” and “Tender” had their origins
in Article 1, Sec. 8 and Article 1, Sec. 10 of the Constitution of the United States. 12
U.S.C. §152 refers to “gold and silver coin as lawful money of the United States” and
was unconstitutionally repealed in 1994 in-that Congress can not delegate any portion of
their constitutional responsibility without Amendment. The term “legal tender” was
originally cited in 31 U.S.C.A. §392 and is now re-codified in 31 U.S.C.A. §5103 which
states: “United States coins and currency . . . are legal tender for all debts, public charges,
taxes, and dues.” The common denominator in both “lawful money” and “legal tender
money” is that the United States Government issues both.

With Bankers, however, we find that there are two forms of money – one is government-
issued, and privately owned banks such as WASHINGTON MUTUAL, and JP
MORGAN CHASE, issue the other. As we have already discussed government issued
forms of money, we must now scrutinize privately issued forms of money.

All privately issued forms of money today are based upon the liabilities of the issuer.
There are three common terms used to describe this privately created money. They are
“credit”, “demand deposits” and “checkbook money”. In the Sixth edition of Blacks Law
Dictionary, p.367 under the term “Credit” the term “Bank credit” is described as: “Money
bank owes or will lend a individual or person”. It is clear from this definition that “Bank
credit” which is the “money bank owes” is the bank’s liability. The term “checkbook
money” is described in the book “I Bet You Thought”, published by the privately owned
Federal Reserve Bank of New York, as follows: “Commercial banks create checkbook
money whenever they grant a loan, simply by adding deposit dollars to accounts on their
books to exchange for the borrowers IOU . . . .” The word “deposit” and “demand
deposit” both mean the same thing in bank terminology and refer to the bank’s liabilities.

For example, the Chicago Federal Reserves publication, “Modern Money Mechanics”
states: “Deposits are merely book entries … Banks can build up deposits by increasing
loans … Demand deposits are the modern counterpart of bank notes. It was a small step
from printing notes to making book entries to the credit of borrowers which the
borrowers, in turn, could ‘spend’ by writing checks. Thus, it is demonstrated in “Modern
Money Mechanics” how, under the practice of fractional reserve banking, a deposit of
$5,000 in cash could result in a loan of credit/checkbook money/demand deposits of.
$100,000 if reserve ratios set by the Federal Reserve are 5% (instead of 10%).

In a practical application, here is how it works. If a bank has ten people who each deposit
$5,000 (totaling $50,000) in cash (legal money) and the bank’s reserve ratio is 5%, then
the bank will lend twenty times this amount, or $1,000,000 in “credit” money. What the
bank has actually done, however, is to write a check or loan its credit with the intended
purpose of circulating credit as “money.” Banks know that if all the people who receive a
check or credit loan come to the bank and demand cash, the bank will have to close its
doors because it doesn’t have the cash to back up its check or loan. The bank’s check or
loan will, however, pass as money as long as people have confidence in the illusion and
don’t demand cash. Panics are created when people line up at the bank and demand cash
(legal money), causing banks to fold as history records in several time periods, the most
recent in this country was the panic of 1933.

THE PROCESS OF PASSING CHECKS OR CREDIT AS MONEY IS DONE
QUITE SIMPLY

A deposit of $5,000 in cash by one person results in a loan of $100,000 to another person
at 5% reserves. The person receiving the check or loan of credit for $100,000 usually
deposits it in the same bank or another bank in the Federal Reserve System. The check or
loan is sent to the bookkeeping department of the lending bank where a book entry of
$100,000 is credited to the borrower’s account. The lending bank’s check that created the
borrower’s loan is then stamped “Paid” when the account of the borrower is credited a
“dollar” amount. The borrower may then “spend” these book entries (demand deposits)
by writing checks to others, who in turn deposit their checks and have book entries
transferred to their account from the borrower’s checking account. However, two highly
questionable and unlawful acts have now occurred. The first was when the bank wrote
the check or made the loan with insufficient funds to back them up. The second is when
the bank stamps its own “Not Sufficient Funds” check “paid” or posts a loan by merely
crediting the borrower’s account with book entries the bank calls “dollars.” Ironically, the
check or loan seems good and passes as money — unless an emergency occurs via
demands for cash – or a Court challenge — and the artful, illusion bubble, bursts.

DIFFERENT KINDS OF MONEY

The book, “I Bet You Thought”, published by the Federal Reserve Bank of New York,
states: “Money is any generally accepted medium of exchange, not simply coin and
currency. Money doesn’t have to be intrinsically valuable, be issued by a government or
be in any special form.” [Emphasis added] Thus we see that privately issued forms of
money only require public confidence in order to pass as money. Counterfeit money also
passes as money as long as nobody discovers it’s counterfeit. Like wise, “bad” checks and
“credit” loans pass as money so long as no one finds out they are unlawful. Yet, once the
fraud is discovered, the values of such “bank money” like bad check’s ceases to exist.
There are, therefore, two kinds of money — government issued legal money and privately
issued unlawful money.

DIFFERENT KINDS OF DOLLARS

The dollar once represented something intrinsically valuable made from gold or silver.
For example, in 1792, Congress defined the silver dollar as a silver coin containing
371.25 grains of pure silver. The legal dollar is now known as “United States coins and
currency.” However, the Banker’s dollar has become a unit of measure of a different kind
of money. Therefore, with Bankers there is a “dollar” of coins and a dollar of cash (legal
money), a “dollar” of debt, a “dollar” of credit, a “dollar” of checkbook money or a
“dollar” of checks. When one refers to a dollar spent or a dollar loaned, he should now
indicate what kind of “dollar” he is talking about, since Bankers have created so many
different kinds.

A dollar of bank “credit money” is the exact opposite of a dollar of “legal money”. The
former is a liability while the latter is an asset. Thus, it can be seen from the earlier

statement quoted from I Bet You Thought, that money can be privately issued as: “Money
doesn’t have to … be issued by a government or be in any special form.” It should be
carefully noted that banks that issue and lend privately created money demand to be paid
with government issued money. However, payment in like kind under natural equity
would seem to indicate that a debt created by a loan of privately created money can be
paid with other privately created money, without regard for “any special form” as there
are no statutory laws to dictate how either private citizens or banks may create money.

BY WHAT AUTHORITY?

By what authority do state and national banks, as privately owned corporations, create
money by lending their credit –or more simply put – by writing and passing “bad” checks
and “credit” loans as “money”? Nowhere can a law be found that gives banks the
authority to create money by lending their liabilities.

Therefore, the next question is, if banks are creating money by passing bad checks and
lending their credit, where is their authority to do so? From their literature, banks claim
these techniques were learned from the trade secrets of the Goldsmiths. It is evident,
however, that money creation by private banks is not the result of powers conferred upon
them by government, but rather the artful use of long held “trade secrets.” Thus, unlawful
money creation is not being done by banks as corporations, but unlawfully by bankers.

Article I, Section 10, para. 1 of the Constitution of the United States of America
specifically states that no state shall “… coin money, emit bills of credit, make any
thing but gold and silver coin a Tender in Payment of Debts, pass any Bill of
Attainder, ex post facto Law, or Law impairing the Obligations of Contracts . .
“[Emphasis added]

The states, which grant the Charters of state banks also, prohibit the emitting of
Bills of credit by not granting such authority in bank charters. It is obvious that “We
the people” never delegated to Congress, state government, or agencies of the state, the
power to create and issue money in the form of checks, credit, or other “bills of credit.”
The Federal Government today does not authorize banks to emit, write, create, issue and
pass checks and credit as money. But banks do, and get away with it! Banks call their
privately created money nice sounding names, like “credit”, “demand deposits”, or
“checkbook money”. However, the true nature of “credit money” and “checks” does not
change regardless of the poetic terminology used to describe them. Such money in
common use by privately owned banks is illegal under Art. 1, Sec.10, para. 1 of the
Constitution of the United States of America, as well as unlawful under the laws of the
United States and of this State.

VOID “ULTRA VIRES” CONTRACTS

The courts have long held that when a corporation executes a contract beyond the scope
of its charter or granted corporate powers, the contract is void or “ultra vires”.

In Central Transp. Co. v. Pullman, 139 U.S. 60, 11 S. Ct. 478, 35 L. Ed. 55, the court
said: “A contract ultra vires being unlawful and void, not because it is in itself immoral,
but because the corporation, by the law of its creation, is incapable of making it, the

courts, while refusing to maintain any action upon the unlawful contract, have always
striven to do justice between the parties, so far as could be done consistently with
adherence to law, by permitting property or money, parted with on the faith of the
unlawful contract, to be recovered back, or compensation to be made for it. In such case,
however, the action is not maintained upon the unlawful contract, nor according to its
terms; but on an implied contract of the defendant to return, or, failing to do that, to make
compensation for, property or money which it has no right to retain. To maintain such an
action is not to affirm, but to disaffirm, the unlawful contract.”

“When a contract is once declared ultra vires, the fact that it is executed · does not
validate it, nor can it be ratified, so as to make it the basis of suitor action, nor does the
doctrine of estoppel apply.” F& PR v. Richmond, 133 SE 898; 151 Va 195.

“A national bank … cannot lend its credit to another by becoming surety, indorser, or
guarantor for him, such an act ; is ultra vires . . .” Merchants’ Bank v. Baird 160 F 642.

THE QUESTION OF LAWFUL CONSIDERATION

The issue of whether the lender who writes and passes a “bad” check or makes a “credit”
loan has a claim for relief against the borrower is easy to answer, providing the lender
can prove that he gave a lawful consideration, based upon lawful acts. But did the lender
give a lawful consideration? To give a lawful consideration, the lender must prove
that he gave the borrower lawful money such as coins or currency. Failing that, he
can have no claim for relief in a court at law against the borrower as the lender’s
actions were ultra vires or void from the beginning of the transaction.

It can be argued that “bad” checks or “credit” loans that pass as money are valuable; but
so are counterfeit coins and currency that pass as money. It seems unconscionable that a
bank would ask homeowners to put up a homestead as collateral for a “credit loan” that
the bank created out of thin air. Would this court of law or equity allow a counterfeiter to
foreclose against a person’s home because the borrower was late in payments on an
unlawful loan of counterfeit money? Were the court to do so, it would be contrary to all
principles of law.

The question of valuable consideration in the case at bar, does not depend on any value
imparted by the lender, but the false confidence instilled in the “bad” check or “credit”
loan by the lender. In a court at law or equity, the lender has no claim for relief. The
argument that because the borrower received property for the lender’s “bad” check or
“credit” loan gives the lender a claim for relief is not valid, unless the lender can prove
that he gave lawful value. The seller in some cases who may be holding the “bad” check
or “Credit” loan has a claim for relief against the lender or the borrower or both, but the
lender has no such claim.

BORROWER RELIEF

Since we have established that the lender of unlawful or counterfeit money has no claim
for relief under a void contract, the last question should be, does the borrower have a
claim for relief against the lender? First, if it is established that the borrower has made no
payments to the lender, then the borrower has no claim for relief ‘against the lender for

money damages. But the borrower has a claim for relief to void the debt he owes the
lender for notes or obligations unlawfully created by an ultra vires contract for lending
“credit” money.

The borrower, the Courts have long held, has a claim for relief against the lender to
have the note, security agreement, or mortgage note the borrower signed declared
null and void.

The borrower may also have claims for relief for breach of contract by the lender for not
lending “lawful money” and for “usury” for charging an interest rate several times greater
than the amount agreed to in the contract for any lawful money actually risked by the
lender. For example, if on a $100,000 loan it can be established that the lender actually
risked only $5,000 (5% Federal Reserve ratio) with a contract interest rate of 10%, the
lender has then loaned $95,000 of “credit” and $5,000 of “lawful money”. However,
while charging 10% interest ($10,000) on the entire $100,000. The true interest rate on
the $5,000 of “lawful money” actually risked by the lender is 200% which violates
Usury laws of this state.

If no “lawful money” was loaned, then the interest rate is an infinite percentage.
Such techniques the bankers say were learned from the trade secrets of the
Goldsmiths. The Courts have repeatedly ruled that such contracts with borrowers
are wholly void from the beginning of the transaction, because banks are not
granted powers to enter into such contracts by either state or national charters.

ADDITIONAL BORROWER RELIEF

In Federal District Court the borrower may have additional claims for relief under “Civil
RICO” Federal Racketeering laws (18 U.S.C. § 1964). The lender may have established a
“pattern of racketeering activity” by using the U.S. Mail more than twice to collect an
unlawful debt and the lender may be in violation of 18 U.S.C. §1341, 1343, 1961 and
1962.

The borrower has other claims for relief if he can prove there was or is a conspiracy to
deprive him of property without due process of law under. (42 U.S.C. §1983
(Constitutional Injury), 1985 (Conspiracy) and 1986 (“Knowledge” and “Neglect to
Prevent” a U.S. Constitutional Wrong), Under 18 U.S.C.A.§ 241 (Conspiracy) violators,
“shall be fined not more than $10,000 or imprisoned not more than ten (10) years or
both.”

In a Debtor’s RICO action against its creditor, alleging that the creditor had collected an
unlawful debt, an interest rate (where all loan charges were added together) that
exceeded, in the language of the RICO Statute, “twice the enforceable rate”. The Court
found no reason to impose a requirement that the Plaintiff show that the Defendant had
been convicted of collecting an unlawful debt, running a “loan sharking” operation. The
debt included the fact that exaction of a usurious interest rate rendered the debt unlawful
and that is all that is necessary to support the Civil RICO action. Durante Bros. & Sons,
Inc. v. Flushing Nat ‘l Bank. 755 F2d 239, Cert. denied, 473 US 906 (1985).

The Supreme Court found that the Plaintiff in a civil RICO action, need establish only a

criminal “violation” and not a criminal conviction. Further, the Court held that the
Defendant need only have caused harm to the Plaintiff by the commission of a predicate
offense in such a way as to constitute a “pattern of Racketeering activity.” That is, the
Plaintiff need not demonstrate that the Defendant is an organized crime figure, a mobster
in the popular sense, or that the Plaintiff has suffered some type of special Racketeering
injury; all that the Plaintiff must show is what the Statute specifically requires. The RICO
Statute and the civil remedies for its violation are to be liberally construed to effect the
congressional purpose as broadly formulated in the Statute. Sedima, SPRL v. Imrex Co.,
473 US 479 (1985).

Aside from any legal obligation, there exists a societal and moral obligation enure to both
the Plaintiff and the Defendant in that if you were to defuse a Bomb, and you completed
the task 99% correct, you are still dead. Grantor believes that his position on the law is
sound, but fears grievous repercussions throughout the financial community if he should
prevail. The credit for money scheme is endemic throughout our society and could have
devastating effects on the national economy.

Grantor believes that another approach may be explored as follows:

PERFECT OBLIGATION AS TO A HUMAN BEING

That which is borrowed is wealth. Labor created that wealth, so it is money
notwithstanding its form. Consideration is promised in advance by the Promissor of the
Note, in the nature of principal and interest payments for the consideration provided by
the lender, which is his personal wealth created by his labor.

A Mortgage Note or Promissory Note secures the position of the lender and if there is
default on the promise to pay then the borrower has agreed to accept the strict foreclosure
remedy provided by state statutes.

Then the borrower obligated themselves to pay back the principal and pay for the use of
it, in the form of interest for the years over which the principal is to be paid back. When
payments stop there is a prima facie injury to the lender. When payments stop the
lender has strict foreclosure procedure in state court to remedy the pay back of the
balance of the principal.

Judgment to foreclose on the property is granted upon the mere proof that payments have
ceased as promised. The property is sold to cover the unpaid balance; deficiency
judgment may be needed. All is right with the world. Here the lender would be
prejudiced if complete and swift remedy were not available. Absent such remedy the
government would be party to placing the lender into a condition of involuntary servitude
to the borrower.

PERFECT OBLIGATION AS TO A BANK

In years past banks and savings and loans institutions enjoyed the remedy outlined above.
The reason was they were lending out money belonging to their depositors and there was
prima facie injury to the depositors upon the mere proof that payments had ceased.

Thereby the bank as well as the government would be party to creating a condition of
involuntary servitude upon the depositors if strict foreclosure remedy were not available.
Today depositors are not in jeopardy of being injured when a person borrows money
from a bank. The bank does not lend their money, only their credit in the amount of the
loan (paper accounting). Hence no prima facie injury exists to either the depositors or the
bank upon the mere proof that payments cease. Injury is based upon the payments made
as to the credit line.

PERFECT OR IMPERFECT OBLIGATION

A perfect obligation is one recognized and sanctioned by positive law; one of which the
fulfillment can be enforced by the aid of the law. But if the duty created by the obligation
operates only on the moral sense, without being enforced by any positive law, it is called
an “imperfect obligation,” and creates no right of action, nor has it any legal operation.
The duty of exercising gratitude, charity, and the other merely moral duties are examples
of this kind of obligation. Edwards v. Keaney, 96 U.S. 595, 600, 24 L.Ed. 793.

Government approved the Federal Reserve Bank, Inc., as the Central Banking system for
the United States, and it’s policy is reviewed by Congress albeit, in a haphazard manner.
The Federal Reserve authorizes its “private money” “Federal Reserve Bank Notes” to be
used by lending institutions such as member banks, to operate upon a system of
fractionalizing. The nature of which is that they do not lend either their money or the
money of the depositors, the money is created out of thin air, by the mere stroke of a pen.
When there is no consideration in jeopardy of being returned, then the obligation is to
make the bank injury proof, to the extent of the obligation, which would be to make them
whole.

The only legal obligation is based upon the moral issue, which under the law is an
Imperfect Obligation, to return to them their property, which isn’t wealth, but credit. A
Promissory Note is signed under “economic compulsion” when, the “loan” will not be
consummated unless and until the borrower signs it. Thus, performing the act of signing a
Promissory Note cannot be considered voluntary.

The discharging of the credit is based upon social, economic, and moral standards to
make the bank whole, if injury is claimed, in any court action where default on the
Promissory Note is on record and where the bank fails to verify an injury, the bank
cannot enforce a promise to pay consideration where they provided no consideration. For
the bank to be able to force upon the defendant an amount over and above the credit, is to
force upon the defendants a debt that goes to the control of their labor against their will.
This condition would be Peonage, which has been abolished in this country.

(42 U.S.C. § 1994, and 18 U.S.C. §1581.)

The question then arises as to when is the obligation discharged, to put the bank in a
position, where there is no record of injury to it?

THE CASE IS CLEAR

Conspiracy against rights: If two or more persons conspire to injure, oppress, threaten,
or intimidate any person in any State, Territory, Commonwealth, Possession, or District

in the free exercise or enjoyment of any right or privilege secured to him by the
Constitution or laws of the United States, or because of his having so exercised the same;
or If two or more persons go in disguise on the highway, or on the premises of another,
with intent to prevent or hinder his free exercise or enjoyment of any right or privilege so
secured – They shall be fined under this title or imprisoned not more than ten years, or
both; and if death results from the acts committed in violation of this section or if such
acts include kidnapping or an attempt to kidnap, aggravated sexual abuse or an attempt to
commit aggravated sexual abuse, or an attempt to kill, they shall be fined under this title
or imprisoned for any term of years or for life, or both, or may be sentenced to death. [18,
USC 241]

Deprivation of rights under color of law: Whoever, under color of any law, statute,
ordinance, regulation, or custom, willfully subjects any person in any State, Territory,
Commonwealth, Possession, or District to the deprivation of any rights, privileges, or
immunities secured or protected by the Constitution or laws of the United States, or to
different punishments, pains, or penalties, on account of such person being an alien, or by
reason of his color, or race, than are prescribed for the punishment of citizens, shall be
fined under this title or imprisoned not more than one year, or both; and if bodily injury
results from the acts committed in violation of this section or if such acts include the use,
attempted use, or threatened use of a dangerous weapon, explosives, or fire, shall be fined
under this title or imprisoned not more than ten years, or both; and if death results from
the acts committed in violation of this section or if such acts include kidnapping or an
attempt to kidnap, aggravated sexual abuse, or an attempt to commit aggravated sexual
abuse, or an attempt to kill, shall be fined under this title, or imprisoned for any term of
years or for life, or both, or may be sentenced to death. [18, USC 242]

Property rights of citizens: All citizens of the United States shall have the same right, in
every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase,
lease, sell, hold, and convey real and personal property. [42 USC 1982]

Civil action for deprivation of rights: Every person who, under color of any statute,
ordinance, regulation, custom, or usage, of any State or Territory or the District of
Columbia, subjects, or causes to be subjected, any citizen of the United States or other
person within the jurisdiction thereof to the deprivation of any rights, privileges, or
immunities secured by the Constitution and laws, shall be liable to the party injured in an
action at law, suit in equity, or other proper proceeding for redress, except that in any
action brought against a judicial officer for an act or omission taken in such officer’s
judicial capacity, injunctive relief shall not be granted unless a declaratory decree was
violated or declaratory relief was unavailable. For the purposes of this section, any Act of
Congress applicable exclusively to the District of Columbia shall be considered to be a
statute of the District of Columbia. [42 USC 1983]

Conspiracy to interfere with civil rights: Depriving persons of rights or privileges: If
two or more persons in any State or Territory conspire or go in disguise on the highway
or on the premises of another, for the purpose of depriving, either directly or indirectly,
any person or class of persons of the equal protection of the laws, or of equal privileges
and immunities under the laws; or for the purpose of preventing or hindering the

constituted authorities of any State or Territory from giving or securing to all persons
within such State or Territory the equal protection of the laws; or if two or more persons
conspire to prevent by force, intimidation, or threat, any citizen who is lawfully entitled
to vote, from giving his support or advocacy in a legal manner, toward or in favor of the
election of any lawfully qualified person as an elector for President or Vice President, or
as a Member of Congress of the United States; or to injure any citizen in person or
property on account of such support or advocacy; in any case of conspiracy set forth in
this section, if one or more persons engaged therein do, or cause to be done, any act in
furtherance of the object of such conspiracy, whereby another is injured in his person or
property, or deprived of having and exercising any right or privilege of a citizen of the
United States, the party so injured or deprived may have an action for the recovery of
damages occasioned by such injury or deprivation, against any one or more of the
conspirators. [42 USC 1985(3)]

Action for neglect to prevent: Every person who, having knowledge that any of the
wrongs conspired to be done, and mentioned in section 1985 of this title, are about to be
committed, and having power to prevent or aid in preventing the commission of the same,
neglects or refuses so to do, if such wrongful act be committed, shall be liable to the party
injured, or his legal representatives, for all damages caused by such wrongful act, which
such person by reasonable diligence could have prevented; and such damages may be
recovered in an action on the case; and any number of persons guilty of such wrongful
neglect or refusal may be joined as defendants in the action; and if the death of any party
be caused by any such wrongful act and neglect, the legal representatives of the deceased
shall have such action therefore, and may recover not exceeding $5,000 damages therein,
for the benefit of the widow of the deceased, if there be one, and if there be no widow,
then for the benefit of the next of kin of the deceased. But no action under the provisions
of this section shall be sustained which is not commenced within one year after the cause
of action has accrued. [42 USC 1986]

COURT: The person and suit of the sovereign; the place where the sovereign sojourns
with his regal retinue, wherever that may be. [Black’s Law Dictionary, 5th Edition, page
318.]

COURT: An agency of the sovereign created by it directly or indirectly under its
authority, consisting of one or more officers, established and maintained for the purpose
of hearing and determining issues of law and fact regarding legal rights and alleged
violations thereof, and of applying the sanctions of the law, authorized to exercise its
powers in the course of law at times and places previously determined by lawful
authority. [Isbill v. Stovall, Tex.Civ.App., 92 S.W.2d 1067, 1070; Black’s Law
Dictionary, 4th Edition, page 425]

COURT OF RECORD: To be a court of record a court must have four characteristics,
and may have a fifth. They are:

a. A judicial tribunal having attributes and exercising functions independently
of the person of the magistrate designated generally to hold it [Jones v. Jones,

188 Mo.App. 220, 175 S.W. 227, 229; Ex parte Gladhill, 8 Metc. Mass., 171,
per Shaw, C.J. See, also, Ledwith v. Rosalsky, 244 N.Y. 406, 155 N.E. 688,
689] [Black’s Law Dictionary, 4th Ed., 425, 426]

b. Proceeding according to the course of common law [Jones v. Jones, 188
Mo.App. 220, 175 S.W. 227, 229; Ex parte Gladhill, 8 Metc. Mass., 171, per
Shaw, C.J. See, also, Ledwith v. Rosalsky, 244 N.Y. 406, 155 N.E. 688, 689]
[Black’s Law Dictionary, 4th Ed., 425, 426]

c. Its acts and judicial proceedings are enrolled, or recorded, for a perpetual
memory and testimony. [3 Bl. Comm. 24; 3 Steph. Comm. 383; The Thomas
Fletcher, C.C.Ga., 24 F. 481; Ex parte Thistleton, 52 Cal 225; Erwin v. U.S.,
D.C.Ga., 37 F. 488, 2 L.R.A. 229; Heininger v. Davis, 96 Ohio St. 205, 117
N.E. 229, 231]

d. Has power to fine or imprison for contempt. [3 Bl. Comm. 24; 3 Steph.
Comm. 383; The Thomas Fletcher, C.C.Ga., 24 F. 481; Ex parte Thistleton,
52 Cal 225; Erwin v. U.S., D.C.Ga., 37 F. 488, 2 L.R.A. 229; Heininger v.
Davis, 96 Ohio St. 205, 117 N.E. 229, 231.] [Black’s Law Dictionary, 4th
Ed., 425, 426]

e. Generally possesses a seal. [3 Bl. Comm. 24; 3 Steph. Comm. 383; The
Thomas Fletcher, C.C.Ga., 24 F. 481; Ex parte Thistleton, 52 Cal 225; Erwin
v. U.S., D.C.Ga., 37 488, 2 L.R.A. 229; Heininger v. Davis, 96 Ohio St. 205,
117 N.E. 229, 231.] [Black’s Law Dictionary, 4th Ed., 425, 426]

Taking into consideration all of the documentation contained herein it is
abundantly clear that no foreclosure action is warranted, justified or
lawful. There is no injury to the purported lender. A court of record
should decide what actions should and must be taken as a result of the
unlawful actions of the Plaintiff.

Cases: Deeds of Trust
March 04, 2009
Civil Code Section 1717: Plaintiff Losing Forbearance Agreement Breach Lawsuit Hit With $48,877.50 Fees/Costs Award

Fourth District, Division 3 Affirms Lower Court Fees/Costs Award.

Here is a sign of the times. Delinquent borrower enters into a Forbearance Agreement with lender. There is a mistaken tax refund paid to lender as part of the forbearance that gets disgorged, with borrower indicating that lender took a risk with respect to paying past tax delinquencies. Borrower sues and loses. Borrower is assessed with attorney’s fees under the loan’s promissory note. Borrower appeals. Result? Read on.

These facts arose in Gharib v. Novastar Mortgage, Inc., Case No. G039602 (4th Dist., Div. 3 Mar. 3, 2009) (unpublished). The Fourth District, Division 3 affirmed the fee award, in a 3-0 decision authored by Acting Presiding Justice Moore (who recently participated as a panel member on the California Supreme Court’s Tobacco II argument in San Francisco).

The case involved de novo review of unambiguous note language allowing the Note Holder to obtain recovery of “costs and expenses in enforcing [the] Note.” Because Lender prevailed, the procedural status of the case was inconsequential. “Because Gharib initiated this lawsuit, its defense became part and parcel of all ‘costs and expenses in enforcing this Note.’” There is no distinction in the law between offensive and defensive attorney fees. (Shadoan v. World Savings & Loan Assn. (1990) 219 Cal.App.3d 97, 107.”

BLOG UNDERVIEW—Borrower did argue that no fee recovery was allowable because there was no fees clause in the Forbearance Agreement. However, the appellate panel rejected this argument because it was so poorly developed.

Wrongful Foreclosure And Home Improvement Case: Fees Are Sustained And Remanded For Calculation In Wild Decision Out Of The Second District

Section 1717 Fees Are Affirmed As to Husband, Reversed and Remanded As to Wife; Home Improvement Statutory Fees Are Affirmed As to Both Husband and Wife.

Talk about a wild one. If any of you readers believe that legal cases do not mimic real life, you need to read and stay tuned for our synopsis of the next case. Although we only give you the highlights, it certainly has a flavor for all of what goes on in life and also reinforces some principles in the attorney’s fees area of practice as well.

The case is Kachlon v. Markowitz, Case No. B182816 (2d Dist., Div. 4 Nov. 17, 2008) (certified for partial publication, although we summarize published and unpublished parts of the opinion). It is 72 pages long, but we will try to cut to the chase.

The “thickets of appeal” arose from two lawsuits involving the Markowitzes (Donald and Debra, husband and wife) and Kachlons (Mordechai and Monica, also husband and wife). Markowitzes purchased a residence from the Kachlons, with the Markowitzes executing a $53,000 note to the Kachlons secured as a second trust deed against the residence, with Mordechai Kachlon providing contractor services to the Markowitzes for various home improvement projects, and with attorney Debra Markowitz agreeing to provide legal services to Mordechai Kachlon before Debra became romantically involved with Mordechai. If you haven’t guessed it already, the parties’ dealings soured (except for possibly Debra and Mordechai, until litigation began). Mordechai sued the Markowitzes for breaching the home improvement contract and failing to repay personal loans, while the Markowitzes sued the Kachlons and foreclosure trustee for wrongfully-initiated nonjudicial foreclosure proceedings on the residence. Mordechai cross-complained against Debra for legal malpractice and breach of fiduciary duty.

After both a jury trial on legal issues and court trial on equitable issues, the following happened: (1) the jury assessed damages of $100,000 for Donald Markowitz and $40,000 for Debra on the wrongful foreclosure claims against the Kachlons, plus $150,000 in punitive damages; (2) the jury awarded damages of $30,000 each to Donald and Debra against trustee Best Alliance; and (3) the court cancelled the note, ordered reconveyance of the second trust deed, ordered rescission of the Kachlons’ pending foreclosure efforts, and set aside the punitive damage award in favor of the Markowitzes.

With respect to attorney’s fees, the court did this: (1) as against the Kachlons and Best Alliance (jointly and severally) under Civil Code section 1717, awarded Donald Markowitz $166,207.50 (1,108.05 hours at $150 per hour; even though Donald requested $201,622.50), plus an additional $14,572.20 for later litigation efforts, totaling $180,779.70; (2) as against the Kachlons and Best Alliance (jointly and severally) under section 1717, awarded Debra Markowitz $16,000 based on a contingency agreement (which was 40% of the $40,000 monetary award), even though she initially requested fees of $206,160 based on 687.2 hours at a requested rate of $300/hour and later scaled down the request to $93,372 based on 40% of 778 hours at $300/hour; (3) as against Mordechai under the Business and Professions Code section 7168 (the home improvement contract fee-shifting statute), awarded Donald Markowitz $116,452; and (4) as against Mordechai under section 7168, awarded Debra Markowitz $37,200.

Appeals ensued, with the Second District, Division Four affirming most of the rulings but for one: it reversed the $16,000 fee award to Debra Markowitz under Civil Code section 1717 and remanded to recalculate the fees using the lodestar method described in PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084, 1095-1096 (2000).

Here are the highlights of the appellate decision of this litigation “soap opera” in the context of the fees proceedings:

· The trust deed provisions, when construed under cases and principles involving Civil Code section 1717, easily allowed fee recovery against the Kachlons with respect to the declaratory relief and injunctive claims for note cancellation and wrongful foreclosure. See, e.g., Texas Commerce Bank v. Garamendi, 28 Cal.App.4th 1234, 1246 (1994); Star Pacific Investments, Inc. v. Oro Hills Ranch, Inc., 121 Cal.App.3d 447, 463 (1981); Valley Bible Center v. Western Title Ins. Co., 138 Cal.App.3d 931, 932-933 (1983); Wilhite v. Callihan, 135 Cal.App.3d 295 (1982); Saucedo v. Mercury Sav. & Loan Assn., 111 Cal.App.3d 309 (1980); Huckell v. Matranga, 99 Cal.App.3d 471, 482 (1979).

· Trustee Best Alliance faced fee exposure to the Markowitzes because it consistently allied itself with the Kachlons on essential issues relevant to the note and trust deed, opting to not file (only belatedly) a declaration of nonmonetary status pursuant to Civil Code section 2924l until after the lower court’s determination of equitable issues. [HINT TO FORECLOSURE TRUSTEES—A more timely filing of this declaration might have made a difference here—“But by filing a declaration, at least prior to the trial court’s bifurcated determination of the equitable claims based on the note and deed of trust, Best Alliance would have timely articulated the position that it considered itself merely a nominal defendant on those claims with no interest in the outcome.”]

· Best Alliance was not immune from a fee award based on the operation of the litigation privilege under Civil Code section 47, because “[a] motion for attorney fees is not analogous to a tort claim [protected under section 47].”

· The lower court’s award of 40% of fees to Debra under section 1717—based on her contingency fee arrangement with her attorney—was erroneous. Rather, PLCM mandated use of the lodestar method in calculating fees under section 1717. This was the one issue requiring reversal and remand for a fee recalculation.

· Business and Professions Code section 7168 contains a mandatory fee-shifting provision requiring a trial court to award reasonable attorney’s fees to the prevailing party in an action between parties to a swimming pool construction contract. The fee award to Donald was justified and did not require allocation, because Donald’s attorney showed why the issues regarding the swimming pool were “inextricably intertwined” with other issues involving home improvements. In such instances, allocation is a matter for the trial court’s discretion—with the lower court finding no allocation justified in the Markowitz-Kalchon dispute as far as Donald was concerned. See, e.g., Thompson Pacific Construction, Inc. v. City of Sunnyvale, 155 Cal.App.4th 525, 555 (2007); Akins v. Enterprise Rent-A-Car Co., 79 Cal.App.4th 1127, 1133 (2005). However, Debra did not make a sufficient showing to justify an unapportioned award. The trial court’s discretion in allocating fees is very broad in nature and was sustained in this case.

BLOG BONUS COVERAGE—The Second District in Kachlon disagreed with the Fourth District, Division Two’s conclusion in Garretson v. Post, 156 Cal.App.4th 1508 (2007) that nonjudicial foreclosure proceedings are protected by the absolute Civil Code section 47 litigation privilege. Instead, Kachlon held that the protection granted nonjudicial foreclosures is the qualified, common interest privilege of Civil Code section 47(c)(1), one requiring malice before immunity is compromised.

Settlement Stipulation Calling For Deed Of Trust Implicitly Bound Defaulting Party To Fees Clause Even Though Stipulation Had No Such Clause

Second District, Division Four So Holds in Interesting Settlement Stipulation Default Dispute.

In past posts, we have explored some cases that hold the absence of a fees clause in a settlement stipulation prevents a creditor from obtaining a fee recovery after the debtor defaults. See our October 29, 2008 post on Stansbury and Execute Sports. However, as the next case demonstrates, general principles in this area are hard to elucidate, because the specific structure of a settlement may dictate a different result. That is exactly what occurred in USA Aisiqi Shoes, Inc. v. Huang, Case No. B204798 (2d Dist., Div. 4 Nov. 12, 2008) (unpublished).

Huang involved a settlement agreement reached between an Employer and Employee by which Employee agreed to pay Employer a specified amount and execute a third trust deed on his residence as security for the monetary obligation. After Employee defaulted under the settlement (which did not have a fees clause or specify that the trust deed would contain such a provision), the trial court entered a stipulated judgment, including an award of $16,250 in attorney’s fees against Employee, and had a court-appointed elisor execute a trust deed on Employee’s behalf (which trust deed did contain a fees clause). While a nonjudicial foreclosure was proceeding, Employee paid off the settlement except for the attorney’s fees award. Employee then quitclaimed the residence to his wife. Employer then moved for an award of fees in the amount of $41,616 for having to enforce the settlement agreement, with the trial court awarding fees of $40,326 against Employee. Employee properly appealed the postjudgment fee award, but lost upon review by the Second District when it affirmed the fee award in Employer’s favor.

Justice Willhite, on behalf of a 3-0 panel, did acknowledge that the settlement agreement was silent as to whether the trust deed would contain an attorney’s fees clause. However, he resorted to custom and practice in resolving the issue: “By agreeing to secure his monetary obligation to [Employer] by executing a deed of trust, [Employee] implicitly agreed to be contractually bound to pay attorney fees in ‘any action or proceeding purporting to affect the security [of the deed of trust] or the rights or powers of Beneficiary'” under the trust deed fee clause. (Slip Opn., at p. 7.) Beyond that, Employee’s failure to contest the award of initial fees in the first settlement enforcement proceeding waived his right to challenge the inclusion of a fees provision in the trust deed.

In summarizing why the result was sound, the appellate panel observed: “Unlike the typical situation involving a deed of trust which contains an attorney fee provision and a nonjudicial foreclosure results, the matter now before us is unique in that it involves a settlement agreement by which the parties agreed to execution of a deed of trust as security for the monetary obligation created by the settlement. The obligation to pay attorney fees arose out of the contract, i.e., the deed of trust, but not in the context of nonjudicial foreclosure proceedings. Rather, it occurred as an outgrowth of the stipulated judgment, and was based upon the trial court’s continuing jurisdiction to enforce the settlement agreement.” (Slip Opn., at p. 9.)

BLOG OBSERVATION—We were very intrigued over the use of “elisor.” So, we consulted the web, which indicates that it goes back to English law practice where the court appointed a person to execute the duties of a sheriff when the sheriff was disqualified on account of conflicts of interest or prejudice. In modern practice, it seems that this means a person appointed by the court to execute an act if the person ordered to perform the act refuses to do so. Co-contributor Marc Alexander recently had a case in Orange County Superior Court where a defendant, much like the one in Huang, was ordered to execute, as part of a settlement on the court record, certain reconveyances under penalty of having the clerk or an elisor execute for the recalcitrant defendant.

Deeds of Trust: Post-Foreclosure Lender Entitled To Recovery of Attorney’s Fees Under Trust Deed Provision

Fourth District, Division Two Finds Borrower’s Post-Foreclosure Unsuccessful Challenge Required Award of Fees to Foreclosing Lender.

The next case should be of interest to lenders in these days where borrowers are “pulling out” all the stops after a foreclosure to regain possession of the foreclosed property. The lender in the next case was denied full attorney’s fees under Civil Code section 1717; but, on appeal, lender obtained a reversal and an opportunity to recover a substantial fee award from the foreclosed-out borrowers.

Chandra Family Trust 851 v. Countrywide Home Loans, Case Nos. E042200 & E043578 (4th Dist., Div. 2 Nov. 10, 2008) (unpublished) involves a recurrent set of facts in these precarious financial times that Americans are now facing. Borrowers defaulted, and Countrywide began foreclosure proceedings that were suspended when borrowers entered into a “repayment agreement” whose terms had to be strictly followed under penalty of Countrywide foreclosing without further notice. Because borrowers tried to pay via third party checks rather than by other agreed-upon modes of payment, Countrywide foreclosed without further notice. Borrowers then filed an action against Countrywide sounding in contract, tort, and statutory violations. Countrywide successfully moved for summary judgment on the ground that the third party check tender breached the repayment agreement so that the foreclosure was justified—a merits determination affirmed on appeal. However, the lower court did not award Countrywide requested fees of $175,683 under Civil Code section 1717, even though a pertinent trust deed provision provided that the lender would be entitled to “reasonable counsel fees” in “any action … purporting to affect” either “the security hereof” or “the rights or the powers of Beneficiary ….”

Lender appealed the failure to award fees under section 1717 and prevailed.

The issue on appeal was one for independent contractual interpretation given the lack of conflicting extrinsic evidence.

The Fourth District, Division Two, in a 3-0 opinion by Justice Richli, observed that similarly worded trust deed provisions had been held to authorize the recovery of attorney’s fees in an action to enjoin a foreclosure. (See, e.g., Buck v. Barb, 147 Cal.App.3d 920, 924-925 (1983); Valley Bible Center v. Western Title Ins. Co., 138 Cal.App.3d 931, 932-933 (1983); Gudel v. Ellis, 200 Cal.App.2d 849, 853, 855-857 (1962); Johns v. Moore, 168 Cal.App.2d 709, 712, 714-715 (1959); see also Smith v. Krueger, 150 Cal.App.3d 752, 755-758 (1983) [declaratory relief action concerning beneficiary’s right to foreclose].) Because borrowers’ core position was that the foreclosure constituted a breach of the repayment agreement, this certainly concerned Countrywide’s entitlement to the benefit of the security of the trust deed by foreclosing or called into question Countrywide’s rights and powers under the trust deed as being limited by the repayment agreement.

The upshot is that the borrowers’ action was within the scope of the trust deed fee provision, meaning the trial court erred by refusing to grant Countrywide’s fees under section 1717. The appellate court remanded for fixing by the lower court.

BLOG OBSERVATION NO. 1—In an interesting footnote, the appellate court did note that borrowers never argued that, because the attorney’s fees were to be secured by a trust deed, an award of attorney’s fees would be tantamount to a deficiency judgment and barred under Code of Civil Procedure section 580b and/or 580d.

BLOG OBSERVATION NO. 2—Contrast the result here with the different ending reached in Lenett v. World Savings Bank, a Second District unpublished decision reviewed in our May 12, 2008 post. There, the Second District refused to award fees under a trust deed provision to a bona fide purchaser at a nonjudicial foreclosure sale, where the BFP defeated a borrower’s post-foreclosure challenges after the property had sold to the BFP. Here, unlike Lenett, the lender was not a BFP and much closer to the trust deed than the BFP simply purchasing at the trustee’s sale—with the BFP not having the benefit of security and trust deed beneficiary rights.

Deed of Trust Fee Clause: Successor Borrower Assuming Loan Without Lender Consent Held Subject To Fee Award Exposure

Fourth District, Division Two Holds Successor Bound By Fee Clause in Loan Documents.

In this interesting time of economic woes, there are many persons who “assume” loans from borrowers without lender consent. Not only can this practice likely trigger “due on sale” clauses, it also may expose the successor borrower to exposure for attorney’s fees award under the fee clauses in the trust deeds. The next decision proves that this result does indeed happen.

Haynes v. First Federal Bank of Cal., Case No. E044500 (4th Dist., Div. 2 Sept. 17, 2008) (unpublished) involved a home purchaser who “took over” a borrower’s loan with First Federal, but without the lender’s consent. Plaintiff filed a lawsuit seeking to enjoin a foreclosure of the home. In the complaint, plaintiff claimed First Federal had allowed him to assume the loan, he was the borrower under the trust deed, he had the right to cure the default, and First Federal had breached contractual obligations to him. First Federal won summary judgment. After the trial court determined that First Federal was the prevailing party, First Federal moved for and obtained an award of $141,173 in attorney’s fees and $4,027.80 in costs. Plaintiff appealed.

On appeal, plaintiff argued that he was a nonsignatory to the trust deed containing the fees clause such that First Federal could not be a prevailing party.

Justice McKinster—writing for a 3-0 panel of the Fourth District, Division Two—dispatched this contention on appeal. Plaintiff’s own allegations in the complaint were damning, because he took the position that he “stood in the shoes of the rightful borrower, with all the rights attendant thereto.” Given this stance, he would have claimed to be the prevailing party had he won, which means he faced exposure under the fee clause as a nonsignatory. (See Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4th 375, 382 (1994), also discussed in our September 14, 2008 post on Aluisi v. Kolkka.)

Plaintiff tried to shift course on appeal, arguing that his claim was really based on First Federal’s breach of an “oral agreement” to assume the loan—with no fee exposure based on the absence of a fees clause. Unavailing, said the appellate panel. It observed that this new theory would not stop the foreclosure. Justice McKinster concluded: “Such a suit would have been useless and impractical. We decline to attribute such a futile and frivolous intention to plaintiff’s underlying suit. Substantively, he sought to enforce the original loan agreement and deed of trust terms, which did contain the attorney fees clause.”

End result: the fee award was affirmed and First Federal was awarded costs on appeal (which likely means an additional fee award for the bank’s win at the appellate level).
Judicial Foreclosure Actions—Attorney’s Fees Are Added to the Loan Indebtedness for Purposes of Calculating Deficiency and Fee Exposure

Second District Rejects Borrower’s Argument That Contractual Fees Incurred by Lender Are Excluded from Deficiency Calculation.

In this time of subprime lending fallout and rising foreclosures, judicial foreclosures are making a comeback, as they typically do when market values plunge. Lenders on commercial and investment residential projects frequently opt to pursue a deficiency if the loan indebtedness is substantially higher than the market value of the underlying real estate collateral. Are attorney’s fees awardable after a fair value hearing that results in a determination that the market value of the property was higher than the underlying loan indebtedness but where a deficiency existed when attorney’s fees were added to the loan debt total? The next case we consider answers this question with a resounding “yes.”

First, a short primer on judicial foreclosure actions. Except where the lender opts for a nonjudicial foreclosure (trustee’s sale) or where a purchase money loan in involved, a creditor secured by California real estate can bring a judicial foreclosure action to have the court declare the loan in default, order the real estate sold at a sheriff’s sale to satisfy the loan balance, and then enter a deficiency judgment after sale (with the deficiency being the differential between the fair market value of the property and the loan indebtedness). The focal point of this post is whether attorney’s fees are added to the loan indebtedness for purposes of calculating the ultimate “deficiency.”

In First Federal Bank of California v. Blanchard, Case No. B136268 (2d Dist., Div. 7 Oct. 3, 2001) (unpublished), a Second District, Division Seven panel concluded that the fees are added to the loan indebtedness as part of the deficiency calculus.

Borrower defaulted on a refinance loan on an investment property located in Venice, California. Both the note and trust deed had attorney’s fees clauses, with the trust deed expressly providing that attorney’s fees incurred would become additional secured indebtedness. Lender obtained a foreclosure decree and purchased the property by a partial credit bid of $560,000 (even though the loan indebtedness was well over $705,000 about a year earlier). At the fair value hearing, the judge accepted Borrower’s “high” market appraisal of $815,000, indicating that the Lenders’ attorney’s fees and costs would be added to the loan arrearage to determine if there was a deficiency. After two more years of legal maneuvering and a redemption by Borrower, Lender was eventually awarded $151,296.90 in fees and Borrower was awarded a $12,791.11 offset. The court then entered a final judgment in Lender’s favor of $81,477.51, consisting of the difference between the foreclosure sale loan arrearage ($757,971.72) plus attorney’s fees ($151,296.90) less the $12,791.11 offset and the $815,000 fair value credit.

Borrower appealed, and lost.

The Blanchard panel rejected Borrower’s main argument that attorney’s fees and costs are excluded from the debt for purposes of calculating the deficiency. Code of Civil Procedure section 726(b) provides that the deficiency is “the amount by which the amount of the indebtedness with interest and costs of levy and sale and of action exceeds the fair value of the real property …sold as of the date of sale.” The Court of Appeal held that “[t]he statutory inclusion of “costs … of action” with the amount of the indebtedness, we conclude, necessarily refers to the costs of the lawsuit that is a requisite part of the judicial foreclosure process.” The justices also found that this result was proper under Civil Code section 1717 and the trust deed “additional indebtedness” provision, with any other conclusion tantamount “to re-writing both the statute and the parties’ written agreements.” The panel found no fault with the arithmetic of the lower court, finding that the loan indebtedness (inclusive of the fee award) outstripped the fair value determination.

Borrower’s final argument was that the trial court failed to make into account “equitable considerations” that should have warranted a “no fee” award. The appellate court did not find the pleas to equity persuasive in nature. Even though Borrower argued that it was unconscionable to allow Lender a possible “double recovery” in the event the debtor did not contest a low appraisal at the fair value hearing stage, the Second District panel found that the judicial foreclosure protections—the fair value offset and redemption rights—more than compensate for any theoretical fairness. (Also, this argument seemed somewhat misplaced given that Borrower won the fair value appraisal battle, showing the protections indeed work out in the debtor’s favor in the right circumstances.) Borrower further argued that Lender’s failure to accept a deed in lieu of foreclosure at a much earlier junction of the litigation meant that the bank could have achieved its objectives without the expenditure of substantial attorney’s fees. Maybe, said the appellate court, but Lender “had the statutory right to seek a deficiency, and it is only with the benefit of hindsight that its choice of remedies may appear debatable.” Borrower finally contended that Lender could continue to add attorney’s fees indefinitely after the sale without penalty. The appellate court nixed this potential harm by noting “[t]he debtor is fully protected by the requirement that fees must be reasonable, and are fixed by the court.”

Although this unpublished decision is not citable, its reasoning may aid debtors and creditors in evaluating the risks and expenses in engaging in a protracted judicial foreclosure action. We might add that Blanchard was authored by Justice Paul Boland, a fine jurist who unexpectedly passed away after a sudden illness in fall of last year.

POST-FORECLOSURE LENDERS BEWARE: TRUST DEED FEE PROVISIONS MAY NOT GET YOU ATTORNEYS FEES.

Unpublished Second District Decision Denies Attorney’s Fees to Successful Lender in Wrongful Foreclosure Suit Where Trust Deed Provisions Are Narrowly Crafted.

Lenders beware! Even in the wake of subprime fallout, do not count on your trust deed provisions regarding attorney’s fees to guarantee success even where you prevail in wrongful foreclosure actions against desperate borrowers. An unpublished decision from the Second District Court of Appeal confirms this lesson with great clarity.

In Lenett v. World Savings Bank, FSB, Case No. B199292 (2d Dist., Div. 4 May 12, 2008), a unanimous panel of the Second District Court of Appeal affirmed the denial of a fee motion to a lender where a borrower lost a wrongful foreclosure action after the sale to a bona fide purchaser in a nonjudicial foreclosure proceeding—a common occurrence in these days of subprime foreclosures. Lender appealed, relying on several standard attorney’s fees provisions in the trust deed.

Guess what? On appeal, the borrower won; and, not surprisingly.

The Court of Appeal relied on a literal interpretation of trust deed provisions, obviously drafted by lenders, which did not apply under the circumstances. The trust deed provisions concerned fee allocations where the borrower impaired the lender’s rights in the property while actually secured or failed to pay property taxes/insurance premiums for the property before the loan was foreclosed out.

The appellate court would have none of it. These provisions, it reasoned, were narrow and only concerned rights in the property before it was foreclosed and not owned by the successful foreclosure bidder (such as the bona fide purchaser in this case). Because the fee provisions were much more tightly drawn that those encountered in other cases, lender lost—the trust deed provisions did not cover “[a]ttorney fees incurred in defending an action for wrongful foreclosure after the sale has been completed [that] do not fall within the parties’ agreement.” (Slip Opn. at p. 7.)

So, lenders, do not count on standard trust deed provisions allowing recoupment of fees in wrongful foreclosure actions. Better ask your counsel to review the deed fee provisions closely before getting your hopes up prematurely (even before addressing whether the borrower has the assets to make the fee chase worthwhile in the first place)

California Penal Code 530.5
(a) Every person who willfully obtains personal identifying
information, as defined in subdivision (b) of Section 530.55, of
another person, and uses that information for any unlawful purpose,
including to obtain, or attempt to obtain, credit, goods, services,
real property, or medical information without the consent of that
person, is guilty of a public offense, and upon conviction therefor,
shall be punished by a fine, by imprisonment in a county jail not to
exceed one year, or by both a fine and imprisonment, or by
imprisonment in the state prison.
…

Note that the law was modified in 2001 to include with consent and also to make this violation a felony (important later).

In my opinion this law alone makes nearly every single unlawful act in the origination, servicing, securitization and foreclosure of a California homeowners loan a FELONY. This is because in almost all cases the homeowners personally identifiable information is used – such as on an ASSIGNMENT. This could also be applied directly to the FDCPA and the RFDCPA which usually involves a consumer, their address, their account information, etc.

For instance, after receiving the Notice of Default, we sent back a letter to NDEx West in which we disputed the validity the debt in a manner consistent with the requirements of the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. (“FDCPA”), and the
Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code 1788 et seq. (“RFDCPA”). By doing this, we imposed a duty on NDEx West to establish that the NDEx West was attempting to collect on a debt actually owed and that the amount demanded was proper before making further attempts to collect the alleged debt. NDEx West ignored this legal duty by never establishing that there a debt was owed, or that the amount of the demand was accurate, and instead chose to violate both federal and state law by continuing to attempt to collect on the alleged debt.

NDEx West used our personally identifiable information to violate federal and state law. NDEx West willfully obtained our personal identifying information, as defined in California Penal Code subdivision (b) of Section 530.55, and used that information for unlawful purposes (violation of FDCPA and RFDCPA), including to obtain, or attempt to obtain, credit, goods, services, real property, or medical information without our consent (or even with consent assuming it is determined that our initial consent at loan origination applies).

Think about it. If a debt collector violates the FDCPA, they are usually using the consumers personally identifiable information to commit the violation.

State of Washington

RCW 9.35.020
Identity theft.
(1) No person may knowingly obtain, possess, use, or transfer a means of identification or financial information of another person, living or dead, with the intent to commit, or to aid or abet, any crime.

What about Federal law?
The Department of Justice prosecutes cases of identity theft and fraud under a variety of federal statutes. In the fall of 1998, for example, Congress passed the Identity Theft and Assumption Deterrence Act. This legislation created a new offense of identity theft, which prohibits knowingly transfer[ring] or us[ing], without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law. 18 U.S.C. § 1028(a)(7): This offense, in most circumstances, carries a maximum term of 15 years’ imprisonment, a fine, and criminal forfeiture of any personal property used or intended to be used to commit the offense.

What is a “means of identification”?
(7) the term “means of identification” means any name or number that may be used, alone or in conjunction with any other information, to identify a specific individual, including any-
(A) name, social security number, date of birth, official State or government issued driver’s license or identification number, alien registration number, government passport number, employer or taxpayer identification number;
(B) unique biometric data, such as fingerprint, voice print, retina or iris image, or other unique physical representation;
(C) unique electronic identification number, address, or routing code; or
(D) telecommunication identifying information or access device (as defined in section 1029 (e));

These are huge issues. If you are not in California, Arizona or Washington, consult the identity theft laws for your state!

From Beth Findsen, Attorney in Scottsdale, AZ, she comments that ID Theft may just be the heart of the matter in seeking damages. The logic is simple: they used every borrower’s signature for selling a pool of loans that included OTHER borrowers and a huge undisclosed profit was generated by using the borrower’s signature. Without that signature there would have been no deal. This is especially true if the person was one of the top tier tranche borrowers with 800 FICO scores etc. Without them making the pool look pretty there would have been no sale. Those people were neither compensated nor informed of the use of their very personal information.

The elements are pretty clear. Use of a person’s ID without their consent. Loss to another person. This is another connection between the interests of the borrower and interests of investors.
The essence of securitization of loans has been the unauthorized use of the borrower’s ID to create a collection of loans that were sold as more valuable than any single loan would have been priced, based upon the presence of multiple parties who had no idea that their name and identifying information was being passed around the world like a “whiskey bottle at a frat party” as reported by MSNBC.
Privacy is a commodity. It is constitutionally and statutorily protected. It can be waived or it can be bought, if the person is willing to sell it or waive it. But it cannot be taken by a “lender” (pretender or otherwise) to use for their own profit. That profit belongs to the person or persons whose identity and privacy have been violated — along with punitive damages if it can be applied.

Quoted from Beth:
is it “consent” if it’s based upon a fraudulent misrepresentation or failure to disclose?
in AZ
13-2008. Taking identity of another person or entity; knowingly accepting identity of another person; classification
A. A person commits taking the identity of another person or entity if the person knowingly takes, purchases, manufactures, records, possesses or uses any personal identifying information or entity identifying information of another person or entity, including a real or fictitious person or entity, without the consent of that other person or entity, with the intent to obtain or use the other person’s or entity’s identity for any unlawful purpose or to cause loss to a person or entity whether or not the person or entity actually suffers any economic loss as a result of the offense, or with the intent to obtain or continue employment.

Reg. Z – Closed-end Credit Worksheet	Yes	No	N/A	Comment
Is the loan covered under Reg. Z closed-end disclosure requirements? If not, skip this section.
The required disclosures are clearly and conspicuously in writing, in a form that the consumer may keep. (12 CFR 226.17(a)(1))
The disclosures were made prior to consummation. (12 CFR 226.17(b))
The TIL reflects the terms of the legal obligation. (12 CFR 226.17(c)(1))
The identity of the creditor making the disclosures was disclosed. (12 CFR 226.18(a))
Amount financed, using that term, and a brief description such as the amount of credit provided to you or on your behalf, was accurately calculated and disclosed. (12 CFR 226.18(b))
A separate written itemization of the amount financed was provided, unless the loan was subject to RESPA. (12 CFR 226.18(c))
Finance charge, using that term, and a brief description such as “the dollar amount the credit will cost you” was accurately calculated and disclosed (12 CFR 226.18(d))
The annual percentage rate, using that term, and a brief description such as “the cost of your credit as a yearly rate” was accurately calculated and disclosed. (12 CFR 226.18(e))
10.  Payment schedule: amount, timing, and number of payments. 1(2 CFR 226.18(g))
11.  Total of payments accurate. (12 CFR 226.18(h))
12.  Demand feature, if applicable. (12 CFR 262.18(i))
13.  Prepayment (12 CFR 262.18(k))
14.  Late payment (12 CFR 262.18(l))
15.  Security interest (12 CFR 262.18(m))
16.  Insurance & debt cancellation ((12 CFR 262.18(n)) (see 226.4(d) for specifics)
17.  Security interest charges (12 CFR 262.18(o))
18.  Contract reference (12 CFR 262.18(p))
19.  Assumption policy (12 CFR 262.18(q))
20.  Required deposit (12 CFR 262.18(r))
21.  If a RMT and subject to RESPA, the following disclosures were provided, as applicable (12 CFR 226.19(a))
a) TIL was provided in a timely manner. (12 CFR 226.19(a)(1))
b) If the APR at the time of consummation varied from the initially disclosed APR by more than1/8 of 1 percentage point in a regular transaction or more than 1/4 of 1 percentage point in an irregular transaction, all of the changed terms were disclosed no later than consummation or settlement. (12 CFR 226.19(a)(2))
22.  If the APR may increase after consummation and secured by a dwelling, maximum interest rate disclosed within the contract. (12 CFR 226.30(a))
Variable Rate Transactions
23.  If the annual percentage rate may increase after consummation in a transaction not secured by the consumer’s principal dwelling or in a transaction secured by the consumer’s principal dwelling with a term of one year or less, the following disclosures were provided (12 CFR 226.18(f)(1):
a) Variable rate feature disclosed.
b) The circumstances under which the rate may increase.
c) Any limitations on the increase.
d) The effect of an increase.
e) An example of the payment terms that would result from an increase.
24.  If the annual percentage rate may increase after consummation in a transaction secured by the consumer’s principal dwelling with a term greater than one year, the following disclosures were provided (12 CFR 226.18(f)(2)):
a) The fact that the transaction contains a variable-rate feature
b) A statement that variable-rate disclosures have been provided earlier. (see ARM loans below)
Adjustable Rate Mortgages
25.  If the APR may increase after consummation in a transaction secured by the consumer’s principal dwelling with a term greater than one year, the following disclosures were provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier (12 CFR 226.19(b)):
a) The booklet titled Consumer Handbook on Adjustable Rate Mortgages published by the Board and the Federal Home Loan Bank Board, or a suitable substitute.
b) A loan program disclosure for each variable-rate program in which the consumer expresses an interest.
High Rate High Fee Loans (Sec. 32)				Complete HOEPA worksheet for all potential loans
26.  If the loan is subject to section 32, verify that:
a) Section 32 disclosures were made. (12 CFR 226.32(c))
b) There are no impermissible balloon payments. (12 CFR 226.32(d)(1))
c) There is no negative amortization. (12 CFR 226.32(d)(2))
d) There are no advance payments of more than two periodic payments. (12 CFR 226.32(d)(3))
e) The interest rate is not increased after default. (12 CFR 226.32(d)(4))
f)  There are no prepayment penalties. (includes Rule of 78s refunds). (12 CFR 226.32(d)(6))
g) Contract does not contain a due-on-demand clause (12 CFR 226.32(d)(8))
Right of Rescission
27.  If a rescindable transaction, verify the following:
a) Notice contained the required information. (12 CFR 226.23(b)(1)&(2))
b) Two copies of the notice and material disclosures were provided to each person entitled to rescind. (12 CFR 226.23(b)(1))
c) Funding delayed until rescission period has expired. 12 CFR 226.23(c))

Real Estate Settlement Procedures Act Worksheet (24 CFR 3500)	Yes	No	N/A	Comment
Is the loan covered under RESPA (Reg. X)? If not, skip this section.
Special Information Booklet
If secured by a first lien and for the initial purchase of a 1-4 family residential property, the HUD booklet was provided in a timely manner. (24 CFR 3500.6)
Servicing Disclosure Statement
If secured by a first lien:
a)   SDS was delivered at the time of application in a face-to face interview or no later than the 3rd business day
b)   Accurate and acknowledged by all applicants. (24 CFR 3500.21(b) & (c))
Good Faith Estimate
Good faith estimate reasonable, complete, and delivered in a  timely manner.( 24 CFR 3500.7(a) and (c))
Name, address, and phone number of required providers disclosed. (24 CFR 3500.7(e)(1)(ii))
Statement describing the nature of any relationship between required providers and the bank. (24 CFR 3500.7(e)(1)(iii))
Affiliated Business Arrangement Disclosure
If applicable, the AfBA disclosure was provided in a timely manner and contained the required information. (24 CFR 3500.15)
Settlement Statements
HUD-1 charges itemized and accurate. 24 CFR 3500.8(b)
Escrow Accounts
If an escrow account is established:				Complete Escrow worksheet for all applicable loans
a)   Bank provided initial statement at closing or not later than 45 days after settlement. 24 CFR 3500.17(g)(1)
b)   Initial statement is accurate. 24 CFR 3500.17(c)(1)
c)   Initial statement includes monthly mortgage and escrow payments, itemizes estimated taxes, insurance premiums, anticipated disbursement dates, and other charges to be paid in year after account is established, indicates the cushion amount and a running trial balance. 24 CFR 3500.17(g)(1)(i)
Notice of Servicing Transfer
If the loan was sold subsequent to closing, the bank provided the required notices in a timely manner. (24 CFR 3500.21(d))

Flood Disaster Protection Act Worksheet (12 CFR 22)	Yes	No	N/A	Comment
Is the loan secured by improved real property? If not, skip this section.
Initial Determination
Bank used the current “Standard Flood Hazard Determination Form”. (12 CFR 22.6)
If the bank requires the escrow of taxes, insurance, etc. on the loan, flood insurance premiums are also escrowed. (12 CFR 22.5)
Fees charged for determining whether the property is in a flood hazard area are reasonable. (12 CFR 22.8)
Flood Notice
Notification is accurate and furnished in a timely manner (12 CFR 22.9)
Flood Insurance
Evidence of flood insurance was obtained prior to consummation. (12 CFR 22.3; Force placed, if necessary. 12 CFR 22.7)
Property has sufficient coverage. (12 CFR 22.3)
Bank listed as mortgagee?

Reg. B (12 CFR 202)	Yes	No	N/A	Comment
Appraisal Rules
If secured by a 1-4 dwelling, bank provided the customer with either a copy of any appraisal used to determine the value of the property or a notice of the customer’s right to receive a copy. (12 CFR 202.14)
Written Application
If for the purchase or permanent construction or refinancing of the borrower’s principal residence, a written application was obtained. (12 CFR 202.4(c)(
Monitoring Information
Monitoring information was not recorded unless so required. (12 CFR 202.13)
Evidence of Intent
If there were multiple applicants, each person’s intent to be a joint applicant was evidenced at the time of application. (12 CFR 202.7(d)(1))

Reg. C (12 CFR 203)	Yes	No	N/A	Complete HMDA worksheet for all applicable loans
If applicable, the bank obtained the required monitoring information.
The application was correctly recorded on the LAR within 30 days of the end of the calendar quarter in which the action was taken.

Fair Housing Home Loan Data Worksheet (12 CFR 27)	Yes	No	N/A	Comment – Applies only to OCC regulated banks.
Did the bank obtain all of the required information on a written application? (12 CFR 27.3(b))

Reg. V (12 CFR 222)	Yes	No	N/A	Comment
If a consumer loan, did the institution provide a clear and conspicuous notice about furnishing negative information, in writing, to the customer? (Appendix B)
Was medical information obtained and/or used only within the restrictions? (12 CFR 222.30)

Fair Credit Reporting Act	Yes	No	N/A	Comment
Home Loan Notice
If the transaction was secured by the consumer’s principal residence and a credit score was obtained, were the required disclosures provided in a timely manner? (Section 609(g)(1))
Fraud Alerts
If a credit report was obtained and the report reflected a fraud or active duty alert, did the lender take steps to form a reasonable belief that the identity of the person making the request is known? (Section 605A(h)(1)(B))

Consumer Protection in the Sales of Insurance (12 CFR 14)	Yes	No	N/A	Comment
Was the required disclosure made orally and in writing at the time the consumer applied for the extension of credit in connection with which an insurance product or annuity is solicited, offered, or sold? (12 CFR 14.40(b))
Was the required disclosure provided at consummation? (12 CFR 14.40(a))

THE FORECLOSURE PROCESS AND THE TRUSTEE’S DUTIES
A. Context of Duties
Despite the name, a “trustee” under a deed of trust has not been held to the high fiduciary duties imposed on a trustee under an express trust.
The trustee has obligations to the trustor, and those obligations emerge in two contexts — the foreclosure process and reconveyance following discharge of the underlying obligation. Foreclosure may proceed either judicially or nonjudicially. [See Passanisi v. Merit McBride Realtors, Inc., supra, 190 Cal.App.3d 1496, 1502-03.] Although judicial foreclosures still occur, most foreclosures involving residential property proceed non judicially. The following discussion focuses on the trustee’s duties toward the trustor during the nonjudicial foreclosure process.
B. Nonjudicial Foreclosure
1. The Notice of Default and Intent to Foreclose
Following the trustor’s default, the beneficiary or the trustee must comply with certain statutory requirements prior to exercising the power of sale under the deed of trust. (Civ. Code § 2924 et seq.) To initiate nonjudicial foreclosure, the beneficiary or trustee must file a notice of default with the county recorder in the county in which the property or some part thereof is situated. (Civ. Code § 2924.) Usually the trustee files the notice at the request of the beneficiary. If there is more than one beneficiary, any beneficiary can instruct the trustee to record the notice of default. [See Perkins v. Chad Development Corp. (1979) 95 Cal.App.3d 645; 157 Cal.Rptr. 201.] Although the statute does not specify who may sign the notice of default, the trustee is authorized to sign it. Williams v. Koenia (1934) 219 Cal. 656, 659; 28 P.2d 351; Hopkins v. J.D. Millar Realty Co. (1930) 106 Cal.App. 409, 414; 289 P. 221.]
Federal law does not require the beneficiary to follow any foreclosure avoidance guidelines suggested by the Federal Department of Housing and Urban Development (HUD) or the Veterans Administration (VA) before recording a notice of default on a government-backed loan. (See Rank v. Nimmo (9th Cir. 1982) 677 F.2d 692, 698-99.) Several courts, however, have concluded that a lender’s failure to follow federal regulations governing mortgage servicing creates a valid equitable defense under state law to a foreclosure. [See Federal Nat. Mto. Assn. v. Moore (N.D. 111. 1985) 609 F.Supp. 194; Cross v. Federal Nat. Mtq. Assn. (Fla. App. 1978) 359 So.2d 464; Bankers Life Co. v. Denton (111.App. 1983) 458 N.E.2d 203; Heritage Bank, N.A. v. Ruh (N.J. Super. 1983) 465 A.2d 547; Associated East Mtg. v. Young (N.J. Super. 1978) 394 A.2d 899; Federal Nat. Mtg. Assn. v. Ricks (N.Y. Sup. Ct. 1975) 372 N.Y.S.2d 485; Federal Land Bank of St. Paul v. Overboe (N.D. 1987) 404 N.W.2d 445; but see Manufacturers Hanover Mortgage Corp. v. Snell (Mich.App. 1985) 307 N.W.2d 401; Federal Nat. Mtg. Assn. v. Prior (Wis.App. 1985) 381 N.W.2d 558.]
a. Content of the Notice of Default
(1) Required Contents
The only requirements for the notice of default are set forth in the trust deed and the statute. (See Lupertino v. Carbahal (1973) 35 Cal.App.3d 742, 747-48; 111 Cal.Rptr. 112.) The notice of default must name the trustors, state either the book and page in which the deed of trust is recorded or a description of the secured property, contain a statement that a breach of the obligation has occurred, set forth the nature of the breach and the election to sell the property to satisfy the obligation, and provide the notice prescribed in Civil Code § 2924c(b)(1) of the right to cure the default and reinstate the obligation if reinstatement is possible. (Civ. Code § 2924.)
An additional requirement is imposed on the trustee if the trustor’s obligation arose for goods or services subject to the Unruh Act. The trustee is required to send an additional notice to the trustor if the default is not cured within 30 days of the recordation of the notice of default. [Civ. Code § 2924f(c).]
(2) Statement of Nature of Breach
One of the most crucial aspects of the notice of default is the statement of the nature of the breach. Soon after this requirement was adopted, the Supreme Court concluded that a general statement of the breach was satisfactory: “a substantial compliance in accord with the spirit and purpose of the statute is sufficient.” Williams v. Koenig. supra, 219 Cal. 656.] If an item of default is not included in the notice of default, payment of the excluded item cannot be demanded to cure the particular default declared, Anderson v. Heart Fed. Sav. & Loan Assn. (1989) 1989 Cal.App. LEXIS 141; Little v. Harbor Pac. Mortgage Investors (1985) 175 Cal.App.3d 717, 720; 221 Cal.Rptr. 59; Miller v. Cote (1982) 127 Cal.App.3d 888, 894; 179 Cal.Rptr. 753; System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 152-53; 98 Cal.Rptr. 725; Tomczak v. Ortega (1966) 240 Cal.App.2d 902, 904; 50 Cal.Rptr. 20; Bisno v. Sax (1959) 175 Cal.App.2d 714, 720; 364 P.2d 814; Hayward Lumber & Inv. Co. v. Corbertt (1934) 138 Cal.App. 644, 650; 33 P.2d 41.]
The question is how clear the statement of the nature of the default must be. In Enqelbertson v. Loan & Blda. Assn. (1936) 6 Cal.2d 477, 478-79; 58 P.2d 647, the court approved a statement of a breach indicating, in part, that a particular installment of interest was due together with subsequent installments and unspecified sums advanced or expended under the trust deed with interest thereon. The court held that, “There is nothing in this section which warrants the construction that a statement of the amount of the items is required.” (Id. at 479.) [See Middlebrook-Anderson v. Southwest Sav. & Loan Assn. (1971) 18 Cal.App.3d 1023, 1038; 96 Cal.Rptr. 338.]
In Birkhofer v. Krumm (1938) 27 Cal.App.2d 513, 522-24; 81 P.2d 609, the notice of default claimed more money than in fact was due. However, the Court of Appeal did not find the notice fatally deficient because the substantial nature of the breach authorized the acceleration of the entire balance due. The court did not consider the effect of the exaggerated size of the default on the trustor’s exercise of the right to reinstate, but the reinstatement right may not have existed since the trust deed predated the adoption of Civil Code § 2924c.
In Little v. Harbor Pac. Mortgage Investors, supra, 175 Cal.App.3d 717, 721 n.6, the court stated in dicta in a footnote that the purpose of the statement of the nature of the default “is to put the debtor on notice as to which breaches the lienholder wishes cured•” (Emphasis in original.) The court indicated that a notice of default containing “a reference to delinquent payments, if any, on the first” (id.) would be sufficient to cover the trustor’s default in paying a senior encumbrance even though the foreclosing junior lienholder was unaware of the default at the time the notice was recorded. Thus, under Little, a foreclosing creditor could demand that the trustor cure delinquent taxes, payments to senior lienholders, and other defaults discovered after the notice of default was recorded as long as every default, “if any,” was listed in the notice of default. The court did not consider the effect of the requirement in Civil Code § 2924c(b)(l), discussed below, that the notice of default state the amount which must be paid to effect reinstatement.
Recent cases and a change in Civil Code § 2924c militate for a more precise statement of the nature of default to enable the trustor to cure the default. Indeed, the dicta in the Little case has been specifically rejected. Anderson v. Heart Fed. Sav. & Loan Assn., supra, 1989 Cal.App. LEXIS 141.] The courts have recognized that:
A purpose of the required statement in the notice of default is to afford the debtor an opportunity to cure the default and obtain reinstatement of the obligation within three months after the notice of default as provided in § 2924c of the Civil Code. System Inv. Corp. v. Union Bank, supra, 21 Cal.App.3d 137, 153; 98 Cal.Rptr. 735.
(Accord, Miller v. Cote, supra, 127 Cal.App.3d 888, 894; 179 Cal.Rptr. 753; see Tomczak v. Ortega, supra, 240 Cal.App.2d 902, 904; 50 Cal.Rptr. 20.) The rationale that the disclosure of the nature of the default is designed to facilitate reinstatement is buttressed by Civil Code § 2924c(b)(1) which requires a statement in the notice of default of the amount due as of a specified date. (Civ. Code § 2924.) As a result, the modern view is that the notice of default will be strictly construed and must correctly set forth the amounts required to cure the default. Sweatt v. The Foreclosure Co. (1985) 166 Cal.App.3d 273, 278; 212 Cal.Rptr. 350.] The purpose of Civil Code § 2924c(b)(1) would be subverted if a beneficiary could set forth in the notice of default a litany of possible defaults, specify that payment of a particular dollar amount by a specified date would cure the default, and then refuse to accept a tender of that sum because the beneficiary learned of an additional delinquency, especially a delinquency that occurred before the notice of default was recorded. Accordingly, the Court of Appeal in Heart rejected predicating a foreclosure on an “if any” qualifier which states a potential ground of default: the notice may state only breaches that have occurred, and the power of sale cannot be exercised until the proper notice requirements have been satisfied.
(3) Spanish Language Considerations
In some situations, the notice of default or the statutorily prescribed statement of the right of reinstatement may have to be written in the Spanish language. Prior to 1989, Civil Code § 1632(a) required that a Spanish translation of certain contracts, loans and other agreements be provided upon the request of a party to the agreement if the transaction was negotiated primarily in Spanish. Under current law, the Spanish translation must be given. A sign advising the parties of their right to a translation must be conspicuously displayed on the business premises. [Civ. Code § 1632(c).]
Beginning in 1989, a Spanish language translation of the disclosures required under Regulation Z and, if applicable, under the industrial loan, consumer finance lender, or personal property brokers’ laws may be given in lieu of the translation of the original contract by supervised financial organizations. A “supervised financial organization” means a bank, savings association, credit union, real estate broker, industrial loan company, consumer finance lender, or personal property broker. [Civ. Code § 1632(b).]
A Spanish language translation does not have to be given to borrowers who negotiate through their own interpreter if the interpreter can read and speak English and Spanish fluently and is not employed or made available through the creditor. Beginning in 1989, the interpreter must be 18 years of age or older. [Civ. Code § 1632(e).]
In Reves v. Superior Court (1981) 118 Cal.App.3d 159; 173 Cal.Rptr. 267, the Court of Appeal held that a notice of repossession and deficiency used under the Rees-Levering Act was covered by Civil Code § 1632. The court further held that in the absence of evidence showing compliance with this section, a deficiency judgment based on an English language notice against a solely Spanish-speaking debtor could not stand. (Id. at 162.) Since Civil Code § 1632 applies to loans subject to the provisions regulating mortgage brokers, industrial loan companies, personal property makers and consumer finance lenders, Reves can perhaps be applied to require Spanish translations of the notice of default if the requirements for the invocation of Civil Code § 1632 are satisfied.
Moreover, the notice of the right to cure contained in the trust deed must be in Spanish if (1) the obligation is a retail installment contract governed by the Unruh Act or a loan for personal, family or household purposes made by a mortgage broker, industrial loan company, personal property broker or consumer finance lender, and (2) the trustor requested a Spanish language translation of the agreement pursuant to Civil Code § 1632. In addition, if the obligation is contained in a home improvement contract subject to the Unruh Act, the seller is required to specify on the contract whether or not the contract was principally negotiated in Spanish, and, if so, the prescribed notice advising of the right to cure the default must be in Spanish. However, the trustee has no liability for failing to provide a Spanish language notice of the right to cure unless Spanish is specified in the home improvement contract or the trustee has actual notice that the obligation was principally negotiated in Spanish.
2. Adequacy of Notice to Trustor
The notice of default must be recorded. (Civ. Code § 2924.) Within ten days of its recordation, the trustee or beneficiary must send the notice of default, by registered or certified mail, to the trustor at the trustor’s last known address. [Civ. Code § 924b(b)(l); see Lupertino v. Carbahal, supra, 35 Cal.App.3d 742, 749.] A notice must also be sent by first-class mail. [Civ. Code § 2924b(e).] Although notice by certified or registered mail is required, notice sent by regular mail and actually received is considered valid notice. [See Crummer v. Whitehead (1964) 230 Cal.App.2d 264, 268; 40 Cal.Rptr. 826.] Publication or personal service is not required. In the very rare instances in which the trust deed does not contain the trustor’s address and the trustor has not recorded a request for notice, the notice of default may be published or personally served in lieu of mailing [Civ. Code § 2924b(4)].
The trustee has no duty to assure that the trustor actually receives notice even though the trustee may know that the trustor actually does not receive notice. The rule developed that “[t]he only requirements of notice of sale essential to the validity of a sale under a power contained in a deed of trust are those expressly and specifically prescribed by the terms of the instrument and by the provisions of the applicable statutes.;/ Lancaster Security Inv. Corp. v. Kessler (1958) 159 Cal.App.2d 649, 652; 324 P.2d 634 (notice of sale); see e.g., I. E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281; 216 Cal.Rptr. 438 (notices of default and sale); Sargent v. Shumaker (1924) 193 Cal. 122, 130; 223 P. 464 (notice of sale); McClatchev v. Rudd (1966) 239 Cal.App.2d 605, 608; 223 P. 464 (notice of default); Lopez v. Bell (1962) 207 Cal.App.2d 394, 397-98; 24 Cal.Rptr. 626 (notices of default and sale).] In McClatchev, for example, the envelope containing the notice of default was returned to the trustee marked “Deceased,” and although the beneficiary and trustee allegedly knew of the trustor’s death and the identity of the administrator of the decedent’s estate, the failure to notify the administrator did not invalidate the sale. (See 239 Cal.App.2d at 607-08.) Since a trustee’s sale has been held valid if the statutory notice requirements were met even though no notice was actually received, the “named trustee in a deed of trust, by virtue of that position alone, is ordinarily under no duty to give different or more specific notices than those prescribed by statute in order to exercise a power of sale.” Lupertino v. Carbahal. supra, 35 Cal.App.3d 742 (notice of default).] However, if the trustee dealt with the trustor at an address other than the address specified in the trust deed, the trustee might be estopped to use the invalid address. [See Lupertino v. Carbahal, supra, 35 Cal.App.2d 742, 748-49.]
Current law requires that the notices of default and sale be sent to the trustor at the trustor’s “last known address.” [Civ. Code § 2924b(b)(l) and (2).] The “last known address” is the last business or residence address actually known by the trustee or beneficiary. [Civ. Code § 2924b(b)(3).] The beneficiary must inform the trustee of the trustor’s last address actually known by the beneficiary. (Id.) The trustee incurs no liability for failing to send any notice to the last address unless the trustee has actual notice of it. (Id.) Constructive knowledge of the correct address is irrelevant, and the trustee has no duty of inquiry. [See I. E. Associates v. Safeco Title Ins. Co. supra, 39 Cal.3d 281, 285.]
Although the trustee’s compliance with statutory notice requirements has been deemed sufficient, no appellate case has considered whether the statutory provision for registered or certified mail requires that the mailed notice be received. In Dept. of Forestry v. Terry (1981) 124 Cal.App.3d 140; 177 Cal.Rptr. 92, the California Department of Forestry brought an action to foreclose a statutory lien for costs incurred in correcting certain violations of law. The costs were incurred after the defendant failed to respond to a notice to take corrective action sent by the state by certified mail as required by statute. The statute did not expressly require that the defendant receive the notice, but the Court of Appeal held that the process of certified or registered mail requires that the receiver sign for the mail, and therefore service is complete when the mail is received, not when the notice is deposited for mail collection. (Id. at 147.) Civil Code § 2924b which requires certified or registered mail may be similarly interpreted.
A court, however, could conclude that receipt of the certified mailing was unnecessary because the notices must also be sent by first-class mail. [Civ. Code § 2924b(e).] In the absence of fraud, an affidavit of mailing is conclusive proof that the notice was mailed. (Id.) A properly addressed and mailed letter is presumed to have been received. [Evid. Code § 641.] Accordingly, compliance with the certified and first-class mailing requirements may be sufficient even if receipt of the certified mailing is not

signed for.
In contrast to the procedure authorized for nonjudicial foreclosures, forced sales involving the government require scrupulous adherence to due process standards. [See Mennonite Board of Missions v. Adams (1983) 462 U.S. 791; 103 S.Ct 2706.] For example, in Barras v. Transamerica Title Ins. Co. (1982) 133 Cal.App.3d 845, 849-52; 184 Cal.Rptr. 262, the Court of Appeal required the government to go beyond the statutory notice requirements for tax sales which provide for publication, posting in a public place, and mailing notice to the last known address of the last assessee; to protect the rights of equitable owners in possession, the government was constitutionally compelled to post notice on the property. [See e.g., Atkins v. Kessler (1979) 97 Cal.App.3d 784; 159 Cal.Rptr. 231 holding the notice requirements of the Improvements Act of 1911 unconstitutional.] Since state action is not involved in nonjudicial foreclosure proceedings, the constitutional due process safeguards do not apply to the process. [See Garfinkle v. Superior Court (1978) 21 Cal.3d 268; 145 Cal.Rptr. 208.] Moreover, foreclosure by a private lender under a federally-guaranteed mortgage program does not constitute governmental action sufficient to invoke due process requirements even though the private parties are subject to extensive federal regulation. [See Rank v. Nimmo, supra, 677 F.2d 692, 702.]
3. The Right to Reinstatement
The trustor and junior lienholders have the right to cure the default and reinstate the obligation as though no default had occurred if a monetary default has occurred prior to the maturity date fixed in the obligation. [Civ. Code § 2924c(a)(1) . ] To reinstate, the trustor or junior lienholder must pay the beneficiary the amount of the default (i.e., arrearages, advances, taxes, etc.) plus allowable costs and expenses and trustee’s fees. (Id. ) The beneficiary may also be entitled to attorney’s fees. (See discussion in Chapter I B 3 h “Attorney’s Fees”, supra. ) The amount of the default plus attorney’s fees, if any, must be paid at any time within the period beginning on the date the notice of default was recorded until five business days before the date of sale stated in the initial recorded notice of sale. [Civ. Code § 2924c(e).] No right of reinstatement exists during the five business days preceding the sale. (JEd.; see Civ. Code § 9 for definition of “business day.”) However, if the sale is postponed or a new notice of sale is recorded, the right of reinstatement is revived until five business days before the newly scheduled date. (.Id. ) Again, no reinstatement right exists during the five business day period preceding the continued sale date. (Id.)
The filing of a bankruptcy petition does not toll or suspend the reinstatement period for the trustor or junior lienholders.
Napue v. Gor-Mev West, Inc. (1985) 175 Cal.App.3d 608; 220 Cal.Rptr. 799; In re Pridham (E.D. Cal. 1983) 31 B.R. 497; Triangle Management Services v. Allstate Savings & Loan Assn. (N.D.Cal. 1982) 21 B.R. 699.] However, if the trustor or junior lienholder’s right of reinstatement has not elapsed, the bankruptcy trustee may exercise the right before the later of the end of the reinstatement period or 60 days after the bankruptcy petition has been filed. [11 U.S.C. § 108(b); Napue v. Gor-Mev West, Inc., supra, 175 Cal.App.3d 608, 619.]
Notwithstanding the beneficiary’s demand that the entire balance be paid, the obligation is reinstated by the payment of the amount in default plus fees during the reinstatement period. [Civ. Code § 2924c(a)(1).] Thus, Civil Code § 2924c relieves the trustor and junior lienholder from the burden of the acceleration clause. After the reinstatement period, the beneficiary may still waive the acceleration of the balance, accept payment to cure the default, and reinstate the loan, but the beneficiary is not compelled to do so.
During the reinstatement period, payment or tender of payment of the default nullifies the right to proceed with the foreclosure. Any sale conducted after the entire amount necessary to cure the default was paid or properly tendered is invalid. Munger v. Moore (1970) 11 Cal.App.3d 1, 8; 89 Cal.Rptr. 323; Tomczak v. Ortega,supra, 240 Cal.App.2d 902, 906; 50 Cal.Rptr. 20; Bisno v. Sax, supra, 175 Cal.App.2d 714, 724; Macmus v. Morrison (1949) 93 Cal.App.2d 1, 3; 208 P.2d 407.]
Partial payments will not ordinarily cure the default. If the tender does not include all amounts needed to cure the default plus costs, the tender is ineffective. [See e.g., Enaelbertson v. Loan & Blda. Assn., supra, 6 Cal.2d 477, 479; Cassinella v. Allen (1914) 168 Cal. 677, 680-81; 144 P. 746.] Generally, the beneficiary may accept partial payments on the amount due after the notice of default is recorded without waiving the default, any rights under the acceleration clause, or the right to proceed with the foreclosure. [See Sellman v. Crosby (1937) 20 Cal.App.2d 562, 564-65; 67 P.2d 706; see also R. G. Hamilton Corp., Ltd. v. Corum (1933) 218 Cal. 92, 97; 21 P.2d 413; Bisno v. Sax, supra, 175 Cal.App.2d 714, 724; Birkhoffer v. Krurom, supra, 27 Cal.App.2d 513, 524; Harris v. Whittier Bldq. & Loan Assn. (1936) 18 Cal.App.2d 260, 268; 63 P.2d 840.] Nevertheless, the beneficiary’s conduct in conjunction with the acceptance of partial payments may be construed as a waiver or may estopped the beneficiary from claiming a default or invoking an acceleration clause. [See Altman v. McCollum (1951) 107 Cal.App.2d 847; 236 P.2d 914; see also R. G. Hamilton Corp., Ltd. v. Corum (1933) 218 Cal. 92, 97, 21 P.2d 413; Glas v. Glas (1896) 114 Cal. 566, 569, 46 P. 667; see discussion in Chapter III B(3)(c), “Waiver or Estoppel to Claim Payment or Default”, infra.]
The court may also suspend or toll the acceleration clause and thereby extend the right to cure the default and reinstate the loan. In Bisno v. Sax, supra, 175 Cal.App.2d 714, 724-30, the court relieved the trustors from the acceleration clause since they had cured the default during the seven-month pendency of a preliminary injunction. In Hunt v. Smyth (1972) 25 Cal.App.3d 807; 101 Cal.Rptr. 4, the trustor filed a complaint seeking a preliminary injunction 13 days before the expiration of the reinstatement period. The foreclosure was stayed through the lengthy appeal process. Nearly three years after the notice of default was originally filed, the Court of Appeal remanded the case to the trial court for a determination of the amount then owing and gave the trustors 13 days after that determination to make payment. (Id. at 837.)
If a junior lienholder cures the trustor’s default on the senior encumbrance, the junior lienholder may then foreclose based on the trustor’s failure to meet the obligation secured by the senior encumbrance or the failure to reimburse the junior lienholder for the amount of the advance to reinstate the senior lien. (See discussion in Chapter I B 3 d, “Senior Encumbrances,” supra.) The trustor or junior lienholder who cures a default may request that the beneficiary cause to be executed and recorded a notice of rescission of the notice of default. [Civ. Code § 2924c(a) (2). ] The notice of rescission must be recorded within 30 days of receipt of a written request. (Id.) No charge may be made except for recording fees. (Id.)
4. The Right of Redemption
The trustor has the right to redeem the real property securing the debt before the foreclosure sale (Civ. Code § 2903) by paying the entire secured obligation. [Civ. Code § 2905; see Winnett v. Roberts (1979) 179 Cal.App.3d 909, 922; 225 Cal.Rptr. 82; Kleeckner v. Bank of America (1950) 97 Cal.App.2d 30, 33; 217 P.2d 28; Lichtv v. Whitney (1947) 80 Cal.App.2d 696, 701; 182 P.2d 582.]
A tender of the proper amount due, even if rejected, extinguishes the lien and precludes foreclosure• [See, e.g., Winnett v. Roberts. supra, 179 Cal.App.3d 909, 902; Lichtv v. Whitney, supra, 80 Cal.App.2d 696, 701; see also Code Civ. Proc. § 2074.] In Winnett the court held that a tender of the principal amount without interest was sufficient because the note was usurious and the creditor was not entitled to receive interest.
Junior lienholders have a similar right of redemption. (Civ.Code § 2904.) If the junior lienholder redeems the property, the junior lienholder becomes subrogated to the rights of the satisfied senior lienholder and may add the amount paid to the senior lienholder to the amount secured by the junior lien. [See Civ. Code §§ 2876, 2904; Pacific Trust Co. TTEE v. Fidelity Fed. Sav. & Loan Assn. (1986) 184 Cal.App.3d 817, 825; 229 Cal.Rptr. 269.] The deed of trust routinely provides the same remedies. (See discussion in Chapter I B 3 d, “Senior Encumbrances,” supra.)
As a practical matter, the trustor or junior lienholder will generally attempt to exercise the right of reinstatement. However, if that right lapses, the right of redemption may become critically important.
5. Giving the Notice of Sale
At least three months must elapse between the date the notice of default is recorded and the date the trustee may give notice setting the sale. [Civ. Code § 2924.] The period is three calendar months, not 90 days. [See Hayward Lumber & Inv. Co. v. Corbett, supra, 138 Cal.App. 644, 651; see generally Tomczak v. Ortega, supra, 240 Cal.App.2d 902, 906, but see Bennett v. Ukiah Fair Assn. (1936) 7 Cal.2d 43; 59 P.2d 805.] There is no requirement that the notice of sale be given within any prescribed time after the three-month period elapses. [See Arata v. Downer (1937) 21 Cal.App.2d 406; 69 P.2d 213 (three years between notice
of default and sale)•]
The notice of sale must contain, in pertinent part, the name of the original trustor, the time of sale, the street address and the specific place at that address where the sale will be held, the name, street address and telephone number of the trustee, a special notice if a single home is being sold, a description of the property to be sold, the property’s street address or other common designation, and a statement of the total amount of the unpaid balance of the obligation and reasonable estimated costs, expenses and advances. The trustee has no liability for any good faith error in stating the proper amount, and an error or omission in the street address will not affect the validity of the notice if the legal description is given. [Civ. Code § 2924f(b).]
The trustee must record the notice of sale at least 14 days prior to the date of the sale. The trustee must post the notice of sale in a public place at least 20 days before the sale date and must publish the notice of sale once per week for the same period in an appropriate newspaper of general circulation. [Civ. Code § 2924f(b).] The publication requirement has been interpreted to mean that three successive publications are required, even though the first and last would be separated by only 14 days, since there can only be three weekly publications in the 20-day period; and, the first publication must be at least 20 days prior to the sale

date. Hotchkiss v. Darling (1933) 130 Cal.App. 625, 626-27; 20 P.2d 343; McCabe v. Willard (1931) 119 Cal.App. 122, 125; 6 P.2d 258.]
The trustee must also post a copy of the notice of sale in some conspicuous place on the property at least 20 days before the date of sale where possible and not restricted for any reason. If possible, and if not restricted for any reason, the trustee must post the notice on the door of a single family residence, but the trustee’s failure to post the notice on the door does not affect a sale to a bona fide purchaser for value. In the absence of any contrary evidence, the notices which have been posted are presumed to have remained in place for the required period. Hotchkiss v. Darling, supra, 130 Cal.App. 625, 627.]
If the trustee cannot place the notice on the front door of the single family residence, the notice must be placed in some conspicuous place on the property. [Civ. Code § 2924f(b).] The trustee may face a problem with compliance if the single family residence is not readily accessible, such as a condominium unit in a locked building. In this circumstance, many trustees have attempted a practical resolution by posting the notice near the main entry to the condominium units. However, this practice may not strictly satisfy the statute and may conceivably be an unfair collection practice in certain circumstances. [See Civ. Code § 1788.12(d).] The trustee, though, is permitted to post the notice

of sale at a guard gate or similar impediment at a “development community” if access to the single family residence in the development is blocked by a gate or other impediment.
Moreover, the trustee must send a copy of the notice of sale to the trustor’s address last known to the trustee at least 20 days before the date of sale. [Civ. Code § 2924b(2) (b). ] The rules applicable to the last known address requirement for notices of default also apply to notices of sale. [See Civ. Code § 2924b(2)(c); Chapter II B 2, “Adequacy of Notice to Trustor/’ supra.]
The trustee’s duty to assure that the trustor receives the notice of the sale is similar to the trustee’s duty to assure that the trustor receives the notice of default. (See Chapter II B 2, “Adequacy of Notice to Trustor,” supra.) The general rule is that the trustee need only comply with the statutory notice requirements notwithstanding whether the trustor knows of the sale. [ See e.g., Civ. Code § 2924b(b)(2) and (c); I. E. Associates v. Safeco Title Ins. Co., supra, 39 Cal.3d 281; Witter v. Bank of Milpitas (1928) 204 Cal. 570, 572-73, 269 P. 614; Sargent v. Shumaker, supra, 193 Cal. 122; Lopez v. Bell, supra, 207 Cal.App.2d 394.]
Without proper notice, a foreclosure sale is void. [See Scott v. Security Title Ins. & Guar. Co. (1937) 9 Cal.2d 606, 613; 72 P.2d 143; United Bank & Trust Co. v. Brown (1928) 203 Cal. 359; 264 P. 482.] However, defects in notice, such as setting the sale date before the expiration of the 20-day notice period, can be corrected prior to the sale, and the sale date may be postponed to permit an adequate period for correction. [See Mack v. Golino (1950) 95 Cal.App.2d 731; 213. P.2d 760.]
6. Notice Regarding Balloon Payment
A special notice must be given before the final payment is due on a balloon payment loan. [Civ. Code § 2924i.] A balloon payment loan is a loan which provides for a final payment as originally scheduled which is more than twice the amount of any of the immediately preceding six regularly scheduled payments. [Civ. Code § 2924i(d) (1). ] A balloon payment loan is also defined as a loan in which the holder of the loan exercises a call provision whereby the holder calls the loan due and payable either after a specified period or date. [Civ. Code § 2924i(d)(l) and (2).]
The notice requirement applies only if the following conditions are met: (1) the loan has a maturity exceeding one year; (2) the note for the loan was executed after January 1, 1984; (3) the loan is secured by a trust deed or mortgage on real property containing one to four residential units one of which is or will be occupied by the borrower; (4) the loan is not open-end credit; (5) the loan is not part of a transaction subject to Civil Code § 2956 (sales involving purchase money liens on residential property); and (6) the loan is not made for the principal purpose of financing construction. [Civ. Code § 29241(a), (b), and (g).]
If the statute applies, the holder of the loan must deliver or send by first-class mail a written notice to the trustor or the trustor’s successor in interest between 90 and 150 days before the due date of the final payment. The notice must state the name and address of the person to whom the final payment must be made, the date by which the payment must be made, the amount or good faith estimate of the amount to be paid (assuming timely payment of all scheduled payments due between the date of the notice and the date when the final payment is due), and a statement that the borrower has the right to refinance the final payment if such is the case. [See Civ. Code § 29241(c).]
If the notice is not given, the due date of the balloon payment is then deemed to be the latest of the following: (a) the due date specified in the loan, (b) 90 days from the date of delivery or mailing of the required notice, or (c) the due date specified in the notice. [See Civ. Code § 29241(e).] If the due date is extended beyond the date specified in the loan, the loan continues to accrue interest at the contract rate, and payments continue to be due at any periodic interval and on any payment schedule specified in the note. (Id.) Payments must be credited as the note requires, and any default in making any extended periodic payment shall be considered a default under the loan. (Id.)
Any person who willfully violates the notice requirement is liable for the actual damages suffered by the borrower as the proximate result of the violation and for the prevailing borrower’s reasonable attorney’s fees. [See Civ. Code § 2924i(f)(1).] The validity of the credit or security document, however, is unaffected by the failure to give notice. (Id-) If the violation of the section was unintentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid the error, there is no liability. [See Civ. Code § 2924i(f)(2).]
Civil Code § 2924i does not specify what effect failure to give the required notice has on the validity of any foreclosure sale predicated on the borrower’s nonpayment of the final balloon or call payment by the date specified in the note. Under the statute, the due date is extended; therefore, no default occurred when the balloon or call payment was not made by the date set forth in the note. Since no default occurred, the foreclosure sale should be held invalid subject to whatever rights may be held by a bona fide purchaser or encumbrancer. [See Chapter III B 3, “Dispute as to What, if any, Amount Owed”; III B 5, “Defective Procedure”; III D 4, “Conclusiveness of Deed Recitals”; III F, “The Status of Bona Fide Purchaser or Encumbrancer; infra. ] A sale could be predicated on a default in making any required extended periodic payments; however, the notice of default would have to state accurately the nature of the breach. [See Chapter III B 5 a, “Defective Notice of Default”, infra.1
7. Conduct of the Foreclosure Sale
The trustee must conduct the sale by public auction between 9 a.m. and 5 p.m. on any business day, Monday through Friday, in the county where all or some part of the property is located. [Civ. Code § 2924g(a).] Although the trustee usually conducts the sale, the sale may also be handled by anyone designated by the trustee. [See Civ. Code § 2924d(d); Central Sav. Bank of Oakland v. Lake (1927) 201 Cal. 438, 447; 257 P. 521.]
Ordinarily, the trustee or the trustee’s agent appears at the time and place designated in the notice of sale, announces the sale, identifies the property up for sale, and indicates the terms of sale, e.g., the amount of the minimum bid, whether the bids must be in cash or cashier’s check, etc. (See 1 Miller & Starr, Current Law of California Real Estate 534.) But this procedure is not mandated by statute. The trustee may require every bidder to show evidence of the bidder’s ability to deposit the full amount of the final bid in cash; a cashier’s check; a check drawn by a credit union, savings and loan association, savings association, or savings bank; or any equivalent specified as acceptable in the notice of sale. [Civ. Code § 2924h(b).] [See Witter v. Bank of Miloitas, supra, 204 Cal. 570, 580.] The trustee cannot refuse to accept a cashier’s check made payable to the bidder to be endorsed to the trustee. (Baron v. Colonial Mortgage Service Co. (1980) 111 Cal.App.3d 316; 168 Cal.Rptr. 450.) The selling beneficiary may bid a credit up to the amount owed without tendering that amount in cash. [Civ. Code § 2924h(b); Coraelison v. Kornbluth (1975) 15 Cal.3d 590, 607; 125 Cal.Rptr. 557; Passanisi v. Merit McBride Realtors, Inc.. supra, 190 Cal.App.3d 1496.] However, a junior lienholder cannot use the amount of the lien as a credit bid. [See Pacific Loan Management Corp. v. Superior Court (1987) 196 Cal.App.3d 1485, 1493; 242 Cal.Rptr. 547.]
The trustee has discretion to postpone the sale. The trustee, for example, may exercise that discretion by postponing the sale to protect the beneficiary’s or the trustor’s interests. [See Bank of Seoul & Trust Co. v. Marcione (1988) 198 Cal.App.3d 113, 118-19; 244 Cal.Rptr. 1; Pacific Readv-Cut Homes v. Title G. & T. Co. (1929) 103 Cal.App. 1, 5-6; 283 P. 963.] In addition, the trustee may postpone the sale at the instruction of the beneficiary or upon the written request of the trustor, if the trustor requests the postponement to obtain cash sufficient to satisfy the obligation or bid at the sale and the written request identifies the source from which the funds are being obtained. The trustee must grant at least one request by the trustor for a postponement not to exceed one day. [Civ. Code § 2924g(c)(l); Whitman v. Transtate Title Co. (1985) 165 Cal.App.3d 312, 320-21; 211 Cal.Rptr. 582.]
A sale also may be postponed by court order, operation of law, or mutual agreement between the trustor and beneficiary. If the sale has been stopped by an injunction, restraining order, stay effected by court order or operation of law, the sale may not be conducted sooner than seven days after the termination of the injunction, order, or stay unless a court expressly directs the conduct of the sale within that seven day period. [Civ. Code § 2924g(d).] If the sale was postponed to a time within that seven day period, a notice of postponement must be given. (.Id.)
While there is no limit to the number of postponements, if the trustee postpones the sale more than three times based on the exercise of its discretion or the instruction of the beneficiary, the trustee must give a new notice of sale. [Civ. Code § 2924g(c).] A postponement at the trustor’s request, by court order, or by operation of law, such as the automatic stay under the bankruptcy law [11 U.S.C. § 362(a)], is not included in counting the three postponements requiring a renoticing of the foreclosure sale. [See California Livestock Production Credit Assn. v. Sutfin (1985) 165 Cal.App.3d 136, 141; 211 Cal.Rptr. 152.]
The trustee must publicly declare the postponement and its reason at the time and place scheduled for sale, must declare the new date and time as well as place (which must be the same place), and must keep records of each postponement and the reason for it. The trustee does not have to give any further notice of a postponement. [Civ. Code § 2924g(d).] The trustee, for example, has no duty to give any special notice of a postponement to the trustor or the trustor’ s representative. (See California Livestock Production Credit Assn. v. Sutfin, supra, 165 Cal.App.3d 136, 141-42.)
The overriding duty of the trustee to the trustor is to conduct the sale fairly and properly to benefit the trustor:
A sale under a power in a mortgage or trust deed must be conducted in strict compliance with the terms of the power. The sale must be made fairly, openly, reasonably, and with due diligence and sound discretion to protect the rights of the mortgagor and others, using all reasonable efforts to secure the best possible or a reasonable price. Kleckner v. Bank of American Nat. Trust & Sav. Ass’n., supra, 97 Cal.App.2d 30, 33.[Accord, Bank of Seoul & Trust Co. v. Marcione, supra, (1988) 198 Cal.App.3d 113, 118-19; Baron v. Colonial Mortgage Service Co., supra. 111 Cal.App.3d 316, 323; Block v. Tobin (1975) 45 Cal.App.3d 214, 221; 119 Cal.Rptr. 288; Hill v. Gibraltar Sav. & Loan Assn. (1967) 254 Cal.App.2d 241, 243; 62 Cal. Rptr. 188; Brown v. Busch (1957) 152 Cal.App.2d 200, 204; 313 P.2d 19; see generally I.E. Associates v. Safeco Title Ins. Co., supra, 39 Cal.3d 281, 285 n.3.] But if the sale is openly and fairly conducted without any impropriety, the trustee can purchase the property for the trustee’s own benefit. (See Stephens, Partain & Cunningham v. Hollis, (1987) 196 Cal.App.3d 948, 955; 242 Cal.Rptr. 251.)
The trustee cannot fix or restrain bidding in any manner [Civ. Code § 2924h(g)] or “arbitrarily reduce the pool of available bidders.” (Bank of Seoul & Trust Co. v. Marcione, supra, 198 Cal.App.3d 118.) The trustee should exercise discretion to promote competitive bidding. (Id.; Baron v. Colonial Mortgage Service Co., supra, 111 Cal.App.3d 316, 323.) Accordingly, the trustee cannot use the device of repeated postponements to discourage and frustrate the participation of bidders so that the sale can be manipulated in favor of the beneficiary or anyone else. Such conduct constitutes a breach of the trustee’s duty to the trustor and is deceitful. (See Block v. Tobin (1975) 45 Cal.App.3d 214; 119 Cal.Rptr. 288.) Moreover, such conduct is a restraint on bidding. A trustee engaging in deceit or a restraint on bidding

is subject to criminal prosecution. [See Civ. Code § 2924h(f).]
The trustee is under no obligation to engage in improper or illegal conduct at the behest of the beneficiary. Indeed, the trustee is under an obligation to the trustor to conduct the sale fairly and reasonably. If the beneficiary insists on the trustee’s violating the law or its duty to the trustor in the conduct of the sale, the trustee should refuse. The beneficiary may substitute a new trustee pursuant to the trust deed or Civil Code § 2934a. As a practical matter, if the trustee refuses to act wrongfully, the beneficiary will either cease seeking improper trustee conduct or will substitute a new trustee. In the unlikely event the trustee needs judicial relief, the trustee can apply to the superior court for discharge as trustee [see generally Civ. Code § 2282(e)] and may be entitled to attorney’s fees depending on the terms of the trust deed.
The full parameters of the rule that the trustee must use all reasonable efforts to obtain a reasonable price have not been determined. Moreover, this rule cannot be easily reconciled with the oft-repeated rule that “mere inadequacy of price, however gross, is not itself a sufficient ground for setting aside a sale legally made” in the absence of fraud, unfairness, or irregularity in the trustee’s conduct of the sale. [E.g., Sargent v. Shumaker, supra, 193 Cal. 122, 129; Winbialer v. Sherman (1917) 175 Cal. 270, 275-76; 165 P. 943; Whitman v. Transtate Title Co., supra, 165 Cal.App.3d 312, 323; Crummer v. Whitehead, supra. (1964) 230 Cal.App.2d 264/ 266; Crofoot v. Tarman (1957) 147 Cal.App.2d 443f 446-47; 305 P.2d 56; see also Smith v. Allen (1908) 68 Cal.2d 93; 65 Cal.Rptr. 153.] The trustee must, for example, delay the sale and give the trustor at least one day to raise money to satisfy the debt. [Civ. Code § 2924g(c)(l); see Winbialer v. Sherman, supra, 175 Cal. 270; Whitman v. Transtate Title Co.. supra, 165 Cal.App.3d 312, 320-23; Foae v. Schmidt (1951) 101 Cal.App.2d 681.] The trustee may continue the sale and refuse to sell to the highest bidder if the bid is inadequate to satisfy the debt. [See Pacific Ready-Cut Homes, Inc. v. Title Guar. & Trust Co.. supra, 103 Cal.App. 1.]
The trustee, however, is under no obligation “to make other efforts to procure bidders than to advertise the sale . . . * Stockwell v. Barhum (1908) 7 Cal.App. 413, 420; 94 P. 400], or to delay the sale because of a decline in property values. (See Enqelbertson v. Loan & Blda. Assn., supra, 6 Cal.2d 477, 479.) The trustee is also not obligated to continue the sale even for a short time to allow bidders to obtain the necessary funds required to cover their bids: “[i]t is the duty of a trustee, once it has started, to continue with reasonable dispatch with a sale under a trust deed; the terms being cash, the trustee is not required to hold up the sale while sundry bidders leave the place to go to banks or elsewhere to get cash.” (Kleckner v. Bank of America Nat. Trust & Sav. Assoc, supra, 97 Cal.App.2d 30, 33-34.) Indeed, it might be a breach of duty to the beneficiary for the trustee to continue a sale and thereby risk losing a bid from a third party sufficient to satisfy the debt. [See Hill v. Gibraltar Sav. & Loan Assn., supra, 254 Cal.App.2d 241/ 244-45; Stockwell v. Barnum, supra, 7 Cal.App. 413, 420.) However, under Winbiqler, Foqe, Kleckner, Hill, supra, and Civil Code § 2924g(c)(l), the trustee may breach its obligation to the trustor if it fails to grant a reasonable continuance to the trustor to obtain funds when the only bidder is the beneficiary.
The sale is complete upon the delivery of the trustee’s deed although it is deemed complete at the conclusion of the public auction for the purpose of applying the antideficiency statutes. see Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1362; 233 Cal.Rptr. 923; Ballencree v. Sadlier (1986) 179 Cal.App.3d 1, 5; 224 Cal.Rptr. 301.]
Since the trustee, beneficiary, and the bidders are the primary players at the foreclosure sale, the “trustor cannot be characterized as a ‘seller’ under a duty to disclose known defects as exists in the normal vendor-vendee relationship.” [Sumitomo Bank v. Taurus Developers, Inc., supra, 185 Cal.App.3d 211, 221.] Thus, when the beneficiary makes a full credit bid, the beneficiary is not entitled to rely on the representations or nondisclosures by the trustor during the negotiation of the loan transaction or on nondisclosures during the trustee’s sale. (Id. at 222.)
a. Foreclosure Sales on Lien Contracts
In addition to the general sale requirements discussed above, special rules apply to the foreclosure of deeds of trust contained in retail installment obligations for the purchase of goods or services subject to the provisions of the Unruh Act. [Civ. Code §§ 1801 et sec.1
If the default is not cured within 30 days following the recordation of the notice of default, the trustee must mail a statutorily prescribed notice to the trustor at the trustor’s last known address. [Civ. Code § 2924f(c)(3).]
The trustee is also required to accept offers for the purchase of the property during the ten days preceding the sale date. The offers are revocable until accepted. If an offer is accepted in writing by both the trustor and the beneficiary before the scheduled sale date, the sale must be postponed to a definite date before which the trustor may convey the property according to the terms of the offer. When the sale is consummated, the foreclosure proceedings are deemed canceled. [Civ. Code § 2924f(c)(4).]
b. Effect of Military Service
A foreclosure sale held during the trustor’s military service or within three months thereafter is invalid if the trustor incurred the debt and owned the property securing the debt before military service, and if the trustor still owned the property at the time of the foreclosure. The provision does not apply if the trustor waives the right or the court so orders. [50 App. U.S.C. SS 532(1), 532(3); see 50 App. U.S.C. S 517.]
8. Distribution of the Sale Proceeds
Once collected, the trustee must dispose of the sale proceeds. The distribution occurs in the following order: (1) payment of costs and expenses of sale (cf. Civ. Code § 2273); (2) reimbursement to the foreclosing beneficiary of any advances made to redeem a prior lien (Civ. Code §§ 2903, 2904); (3) payment of the foreclosed debt [see generally Windt v. Covert (1907) 152 Cal. 350, 355-56; 93 P. 67]; (4) payment of junior lienholders in order of their priority [see Caito v. United California Bank (1978) 20 Cal.3d 694, 701; 144 Cal.Rptr. 751; Pacific Loan Management Corp. v. Superior Court, supra, 196 Cal.App.3d 1485, 1491; Strutt v. Ontario Sav. & Loan Assn. (1972) 28 Cal.App.3d 866, 876; 105 Cal.Rptr. 395; Dockrey v. Gray (1959) 172 Cal.App.2d 388, 391; 341 P.2d 746; Sohn v. California Pac. Title Ins. Co., supra, 124 Cal.App.2d 757, 766, 269 P.2d 223]. A junior lienholder retains its claim to surplus proceeds in the absence of any impropriety even if that junior lienholder purchased at the senior lienholder’s sale. [See Pacific Loan Management Corp. v. Superior Court, supra, 196 Cal.App.3d 1485, 1492.] Any remaining surplus must be paid to the trustor. [See Pacific Loan Management Corp. v. Superior Court, supra, 196 Cal.App.3d 1485/ 1491; Nomellini Constr. Co. v. Modesto Sav. & Loan Assn. (1969) 275 Cal.App.2d 114, 118, 79 Cal.Rptr. 717; Atkinson v. Foote (1919) 44 Cal.App. 149, 156-67, 186 P. 831; see also Passanisi v. Merit McBride Realtors, Inc., supra, 190 Cal.App.3d 1496, 1504.] Since senior liens are unaffected by the foreclosure of junior liens [see Streiff v. Darlington (1937) 9 Cal.2d 42, 45, 68 P.2d 728], senior liens are not paid out of the proceeds of the sale on the junior lien. [See Sohn v. California Pac. Title Ins. go. (1954) 124 Cal.App.2d 757, 766; 269 P.2d 223.]
A number of disputes may arise concerning the amount owed on the obligation and amounts for costs, expenses, advances, preservation of the property, and attorney’s fees. For example, the beneficiary may claim a prepayment penalty as a result of accelerating the balance because of the default, but, depending on the wording of the prepayment provision, the beneficiary may not be entitled to any penalty. [See Chapter I B 3 f, “Prepayment Penalties”, supra. 1 Other amounts to which the beneficiary may not be entitled include usurious interest [see Arneill Ranch v. Petit(1976) 64 Cal.App.3d 277; 134 Cal.Rptr. 456] or advances on delinquent senior encumbrances made after the foreclosure sale [see Streiff v. Darlington, supra, 9 Cal.2d 42, 45-46]. [See also Eastland Sav. & Loan Assn. v. Thornhill & Bruce, Inc. (1968) 260 Cal.App.2d 259; 66 Cal.Rptr. 90.]
The trustor has the right to obtain a judicial determination of the amount due on the obligation and the costs of sale and may establish the existence of a surplus in this manner. [See Passanisi v. Merit McBride Realtors, Inc., supra, 190 Cal.App.3d 1496, 1504; de la Cuesta v. Superior Court (1984) 152 Cal.App.3d 945, 950; 200 Cal.Rptr. 1.] The trustor can bring an action for an accounting (see Code of Civ. Proc. § 1050), declaratory relief and injunction, or money had and received and an accounting. (See Passanisi v. Merit McBride Realtors, Inc., supra, 190 Cal.App.2d 1496, 1512. If the trustor owes a judgment to the beneficiary, the trustor can establish an offset of surplus proceeds against the judgment through a motion to compel satisfaction or partial satisfaction of judgment. (Id. at 1513.) The trustee is also obligated to account to the trustor for any excess bid over the amount properly required to satisfy the debt. [See Streiff v. Darlington, supra, 9 Cal.2d 42, 45-46; Arneill Ranch v. Petit, supra, 64 Cal.App.3d 277, 294. To the extent the excess is in the form of the beneficiary’s credit bid, the beneficiary will be liable to the trustor for the amount in cash. Arneill Ranch v.Petit, supra, 64 Cal.App.3d at 295 (see also Passanisi v. Merit McBride Realtors, Inc., supra, 190 Cal.App.3d 1496, 1512 (offset)).
The beneficiary and, thus, the trustee are not liable to the trustor for any profit realized on the resale of the property, particularly if the profit represents the equity value formerly encumbered by sold out junior liens. [See Strutt v. Ontario Sav. & Loan Assn., supra, 28 Cal.App.3d 866, 876.]
Before filing an action against the trustee for an accounting and for the claimed share of the surplus, counsel for the trustor should consider the trustee’ s culpability and potential entitlement to attorney’s fees. If the trustee has not participated in any wrongdoing and is sued solely as a stakeholder, the trustee will be able to file a motion or action in interpleader and may be entitled to reasonable attorney’s fees and costs which the court could award from the disputed amount deposited in court. (Code of Civ. Proc. §§ 386, 386.5, 386.6; see Pacific Loan Management Corp. v. Superior Court, supra, 196 Cal.App.3d 1485, 1488-90.) In certain circumstances such as where surplus money is being held by an institutional lender’s subsidiary trustee, the trustor may decide to claim directly against the beneficiary, rather than sue the trustee.
Quarrels about the distribution of the proceeds should not affect a bona fide purchaser at the foreclosure sale who takes free of the claims of the trustor and junior lienholders. [See generally Central Sav. Bank of Oakland v. Lake, supra, 201 Cal. 438, 448; Hohn v. Riverside County Flood Control & Wat. Conserv. Dist. (1964) 228 Cal.App.2d 605, 613; 39 Cal.Rptr. 647.]
9. Trustee Charges
The fees imposed on a trustor for trustee services are limited by statute. For the period from the recording of the notice of default until the notice of sale is mailed, the trustee’s fees assessed against a trustor cannot exceed $200 if the unpaid principal sum secured is $50,000 or less, plus one-half of one percent of the unpaid principal sum secured exceeding $50,000 up to and including $150,000, plus one-quarter of one percent of the unpaid principal sum secured exceeding $150,000 up to and including $500,000, plus one-eighth of one percent of the unpaid principal sum secured exceeding $500,000. [Civ. Code § 2924c(d).] If the foreclosure sale is on a trust deed contained in a retail installment obligation subject to the Unruh Act, the trustee may charge $50 in addition to the amount authorized by Civil Code § 2924c. [Civ. Code § 2924f (c) (5). ] From the date the notice of sale is mailed until the property is sold, the trustee’s fees, in lieu of the above fees, may not exceed $300 if the unpaid principal sum is $50,000 or less, plus one percent of any portion of the unpaid principal sum secured exceeding $50,000 up to $150,000, plus one-half of one percent of the unpaid principal sum secured exceeding $150,000 up to $500,000, plus one-quarter of one percent of any portion of the unpaid principal sum secured exceeding $500,000. [Civ. Code § 2924d(a).] Upon sale of the property, in lieu of other fees, $300 or one percent of the unpaid balance, whichever is greater, may be deducted by the trustee from the sale proceeds, but the trustor is not personally liable for the fee after the sale. [Civ. Code §§ 2924c(d), 2924d(b).] Fees within the statutory limits are conclusively presumed valid and lawful. [Civ. Code §§ 2924c(d), 2924d(a), 2924d(b).]
However, if the amount or nature of the default is disputed and litigation results, the court may set the trustee’s fees at a sum less than the maximum statutorily authorized amount. [Sweatt v. The Foreclosure Co., supra, 166 Cal.App.3d 273, 278.)
The only costs and expenses which may be charged are those which are reasonable and actually incurred for recording, mailing, publishing, and posting required notices, for a trustee’s sale guarantee and for the postponement of a sale pursuant to a trustor’s written request under Civil Code § 2924g provided the charge does not exceed $50. [Civ. Code §§ 2924c(c), 2924d(a), 2924d(b).]
Kickbacks for the referral of any business involving trustee services are forbidden. If an unlawful rebate occurs, the offenders are liable to the trustor for treble the amount of the kickback plus reasonable attorney’s fees and costs in addition to any other remedy. The payment of an unlawful rebate will not affect the validity of a foreclosure sale to a bona fide purchaser or the rights of an encumbrancer for value without notice. [Civ. Code § 2924d(c).] If an illegal kickback is paid and the amount is imposed on the trustor under the guise of trustee’s fees, the trustor could argue that an improper statement of the default was set forth in the notice of default and the notice of sale. In such a situation, the trustor may seek to halt or invalidate the sale because of the defective notice. However, if the sale is to a bona fide purchaser, the trustor may be able to argue that the trustee is liable for all the damages sustained by the loss of the property and not just for the kickback amount which is relatively small amount, even when trebled. The trustee’s illegal misstatement of the appropriate fees in the notices rendering the notices defective should sufficiently taint the sale to make the trustee liable beyond the kickback.
10. Effect of Nonjudicial Foreclosure
a. Redemption
The trustor generally has no right of redemption after a nonjudicial foreclosure sale. [See e.g., Bank of Italy Nat’l. Trust & Sav. Ass’n. v. Bent lev (1933) 217 Cal. 644, 655; 20 P.2d 940; Ballenaee v. Sadlier, supra, 179 Cal.App.3d 1, 5; Pv v. Pleitner (1945) 70 Cal.App.2d 576, 579, 161 P.2d 393; City Lumber Co. v. Brown (1920) 46 Cal.App. 603, 608-09; 189 P. 830; see generally Roseleaf Corp. v. Chieriahino (1963) 59 Cal.2d 35, 43-44; 27 Cal.Rptr. 873.]
After a nonjudicial foreclosure sale for at least the full amount of the underlying debt, the trustor’s obligations under the promissory note and the trust deed are extinguished. (See, e.g., Cornelison v. Korabluth, supra, 15 Cal.3d 590, 606; Ballenaee v. Sadlier, supra, 179 Cal.App.3d 1, 5.)
A significant, but seldom employed, exception to this general rule permits the trustor to redeem the property from the beneficiary after the sale if the beneficiary both served as trustee and acquired the property. (Coosey v. Sacramento Bank (1901) 133 Cal. 659; 66 P. 7.) The right of the trustor to treat the sale as voidable and to redeem the property should be applicable to a beneficiary, such as an institutional lender, that purchases the property at a foreclosure sale conducted by an “in-house” or “captive” trustee [see Baron v. Colonial Mortgage Service Co., supra, 111 Cal.App.3d 316, 322-23], which is a subsidiary business entity of the beneficiary. [See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 116; 92 Cal.Rptr. 851.]
The general rule allowing no redemption after a nonjudicial foreclosure differs from the redemption rules that apply after a judicial foreclosure. After a judicial foreclosure in which the beneficiary’s right to a deficiency judgment is waived or precluded by law, the notice of sale may not be given until 120 days after the date the notice of levy was served on the judgment debtor, but there are no post-sale redemption rights. (Code of Civ. Proc. § 701.545.) After a judicial foreclosure in which the court may order a deficiency, the notice of sale may be given upon entry of judgment, but the debtor or the debtor’s successor in interest may redeem the property (a) during a three-month period following the sale if the sale price is sufficient to satisfy the debt plus interest and costs, or (b) during a one-year period following the sale if the sale price is insufficient to satisfy the debt plus interest and costs. (Code of Civ. Proc. §§ 729.010, 729.020, 729.030.)
b. Junior Liens
The trustee’s deed relates back in time to the date the trust deed was originally executed. Carpenter v. Smallpacre (1934) 220 Cal. 129, 132; 29 P.2d 841.] Thus,
The trustee’s deed on the sale under the power of sale passed to the purchasers . . . the title to the property held by the maker of the security instrument on the date he executed the same, and any title afterwards acquired. [Citation omitted. ]
The purchaser at the trustee’s sale and the grantee in the trustee’s deed acquires title free of all rights of the trustor or anyone claiming under or through him, and his title is free of all claims subordinate to the encumbrance pursuant to which the sale was made. Hohn v. Riverside County Flood Control & Wat. Conserv. Dist., supra, 228 Cal.App.2d 605, 612-13.
[See Streiff v. Darlington, supra, 9 Cal.2d 42, 45; Weber v. McCleverty (1906) 149 Cal. 316, 320-23; 86 P. 706; FPCI Re-Hab 01 v. E&G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1023; 255 Cal.Rptr. 157; Pacific Trust Co. TTEE v. Fidelity Fed. Sav. & Loan Assn., supra, 184 Cal.App.3d 817, 825; Bracey v. Gray (1942) 49 Cal.App.2d 274, 277-78; 121 P.2d 770; Duaand v. Magnus (1930) 107 Cal.App. 243, 247, 290 P. 309; see also Sain v. Silverstre (1978) 78 Cal.App.3d 461, 471; 144 Cal.Rptr. 478.] The foreclosure sale does not extinguish liens for real property taxes and assessments which have priority regardless of the date the liens attach [see Rev. & Tax Code § 2192.1] or mechanic’s liens recorded after the recordation of the deed of trust in foreclosure if the work commenced before the deed of trust was recorded. [See Civ. Code § 3134.] The effect of a foreclosure on other liens is beyond the scope of this handbook.
c. Deficiencies
1. Deficiency Judgments
If a beneficiary forecloses by a power of sale, a judgment for any deficiency between the sale proceeds and the debt is prohibited. (Code of Civ. Proc. § 580d.) However, a junior lienholder whose security is extinguished by the foreclosure of a senior lien still can sue the obligor to collect the underlying debt. (See e.g., Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d 35, 39.)
A beneficiary may choose to pursue judicial foreclosure (see Code of Civ. Proc. §§ 725a and 726) which permits a deficiency judgment in some circumstances. (See Code of Civ. Proc. § 726.) However, the deficiency judgment cannot exceed the difference between the debt owed and the greater of the fair market value of the property or its sale price. (See Code of Civ. Proc. §§ 580a and 726.) In addition, a deficiency judgment is prohibited if the obligation is owed to the seller of the property or to a lender of all or a portion of the purchase price of an owner-occupied dwelling for not more than four families. (Code of Civ. Proc. § 580b.)
A full discussion of the anti-deficiency statutes and judicial foreclosure procedures is beyond the scope of this handbook.
2. Beneficiary1s Right to Insurance Proceeds After Foreclosure
The trust deed usually gives the beneficiary the right to the proceeds of a hazard insurance policy as additional security. The beneficiary would be entitled to those proceeds up to the amount of the indebtedness remaining after the foreclosure sale. (See Cornelison v. Kornbluth, supra, 15 Cal.3d 590, 607; Armsev v. Channel Associates, Inc. (1986) 184 Cal.App.3d 833, 837-38; 229 Cal.Rptr. 509.) However, if the full amount of the indebtedness is satisfied through the foreclosure sale by the beneficiary’s full credit bid or by payment by a third party bidder, the beneficiary will not be entitled to any of the insurance proceeds. [See id.; Duarte v. Lake Gregory Land and Water Co. (1974) 39 Cal.App.3d 101/ 105; 113 Cal.Rptr. 893.]
d. Junior Lienholder as Bidder at Senior Lienholder’s Sale
A junior lienholder may bid at a sale conducted by a senior lienholder. If the junior lienholder purchases the real property security at the nonjudicial foreclosure sale, the junior lienholder is not precluded from obtaining a deficiency judgment by Code of Civil Procedure section 580d. Walter E. Heller Western, Inc. v. Bloxham (1985) 176 Cal.App.3d 266, 273; 221 Cal.Rptr. 425.] However, the fair value limitations of Code of Civil Procedure Section 580a apply. (Id.)
11. Right to Possession
After the foreclosure sale, the purchaser generally has the immediate right to possession. [See, e.g., Farris v. Pacific States Aux. Corp. (1935) 4 Cal.2d 103, 105, 48 P.2d 11; Central Sav. Bank of Oakland v. Lake, supra, 201 Cal. 438, 448.] The purchaser is accorded the right to use summary unlawful detainer proceedings to obtain possession. (See Code of Civ. Proc. § 1161a; see discussion in chapter III, section E, at p. 111-36, infra.) The foreclosed owner is subject to a three-day notice to quit; however, a tenant or subtenant of rental housing must be given a notice to quit at least as long as a rental period but not exceeding 30 days [See Code of Civ. Proc. § 1161a(b)(3) and (c).]
However, a local rental control or housing ordinance which limits the grounds for eviction may limit or preclude the purchaser at a trustee’s sale from obtaining possession. [See Gross v. Superior Court (1985) 171 Cal.App.3d 265, 274-76; 217 Cal.Rptr. 284.]
The foreclosure sale also extinguishes any leases made after the deed of trust. [See Sullivan v. Superior Court (1921) 185 Cal. 133, 138, 195 P. 1061; Dugand v. Magnus, supra, 107 Cal.App. 243, 247. ] The sale should extinguish any unrecorded lease exceeding one year made prior to the recordation of the trust deed. (See Civ. Code § 1214.) If a lease is recorded before a trust deed, the lease will survive the foreclosure of the trust deed, and the purchaser will be entitled to receive rent after the date of purchase. [See Fahrenbaker v. E. Clemens Horst Co. (1930) 209 Cal. 7, 9, 284 P. 905.]
12. Damages for Improper Sale
The sale process must closely adhere to the procedure set forth in Civil Code §§ 2924 et sea.; “The statutory requirements must be strictly complied with, and a trustee’s sale based on a statutorily deficient notice of default is invalid.” (Miller v. Cote, supra. 127 Cal.App.3d 888, 894.) A trustee is liable to the trustor for damages sustained from an “illegal, fraudulent or willfully oppressive” foreclosure sale. Munaer v. Moore, supra, 11 Cal.App.3d 1, 7.] Normally, the trustor will attempt to stop or vacate a foreclosure sale based on an invalid notice of default. (See Chapter III B 5 a, “Defective Notice of Default”, infra.) However, an action for damages may be the only avenue of redress if the property has been sold to a bona fide purchaser.
a. Liability for Deficient Notice
Although no case has held a trustee liable for damages for a deficient notice of default, a variety of theories depending on the nature of the trustee’s failings would support causes of action for damages. In any event, the trustor will likely have to show prejudice or an impairment of rights as a result of the deficiency in the notice of default. (See U.S. Hertz. Inc. v. Niobrara Farms (1974) 41 Cal.App.3d 68, 86; 116 Cal.Rptr. 44.) If the appropriate nexus between the notice and the loss is established, the trustor may be able to show that (1) the trustee intentionally failed to perform, or was negligent in performing, its duties under the trust deed and statute; (2) the trustee engaged in negligent or intentional misrepresentation in setting forth the information contained in the notice of default; (3) the trustee breached the covenant of good faith and fair dealing which is implied in a trust deed (see Schoolcraft v. Ross (1978) 81 Cal.App.3d 75; 1146 Cal.Rptr. 57); and (4) the trustee may have the duty as agent of the trustor to inquire of the beneficiary to verify the accuracy of the information contained in the notice of default and the trustor’s entitlement to a Spanish translation (but see Civ. Code § 2924c(b)(1) providing that the trustee has no liability for failing to give a Spanish language explanation of the right of reinstatement unless Spanish is specified on a lien contract or unless the trustee has actual knowledge that the obligation was negotiated principally in Spanish).
b. Liability for Deficient Sale
If the property is sold without compliance with notice requirements the trustee may be liable for damages. The trustor must first establish that any damages were sustained. Since a sale held without proper notice may be void, the trustor may suffer no damages because no sale was actually effected. (Scott v. Security Title Ins. & Guar. Co.. supra. 9 Cal.2d 606, 613-14, 72 P.2d 143.) However, the trustor may be precluded from attacking the sale and recovering the property from the purchaser if the sale was made to a bona fide purchaser for value and without notice and the trustee’s deed recites that all notice requirements were met. (See Chapter III F, “The Status of Bona Fide Purchaser or Encumbrancer’1, section 4, at p. 111-32; F, at p. 111-40, infra.) As a result, the trustor will have incurred damage.
The trustee will be liable to the trustor for damages resulting from the trustee’s bad faith, fraud or deceit (Scott v. Security Title Ins. & Guar. Co., supra, 9 Cal.2d 606, 611.) In Scott, the trustee failed to post notice of the sale and then sold the property in satisfaction of the debt. The sale was set aside because of the improper notice, and the trustee thereafter properly sold the property but only for a nominal sum insufficient to pay the debt. The beneficiary obtained the deficiency from a former owner who had assumed the debt and who in turn sued the trustee for breach of contract and agency. The Supreme Court held that the only valid sale was regularly conducted, and that the trustee had no liability for breach of contract or agency for mistakenly performing the first sale which was declared a nullity. (9 Cal.2d at 612-14.) The court indicated that the only liability might be for negligence but that the plaintiff could not recover since that theory had not been alleged. (9 Cal.2d at 614.)
Munger indicates that a trustee can be held liable for its negligence in the conduct of an illegal sale. [See supra, 11 Cal.App.3d at 7 citing Civ. Code § 1708; Dillon v. Legg (1968) 68 Cal.2d 728; 69 Cal.Rptr. 72; Davenport v. Vaughn (1927) 137 S.E. 714, 716 (the trustee is “charged with the duty of fidelity, as well as impartiality; of good faith and every requisite degree of diligence; of making due advertisement; and giving due notice . . . . If, through haste, imprudence, or want of diligence, his conduct was such as to advance the interest of one person to the injury of another, he became personally liable to the injured party”).]
c. Beneficiary’s Liability For Trusteefs Misconduct
The trustee is the common agent of the parties, and, as a result, a party to whom the trustee owes a duty to conduct a fair and open sale may impute a breach of that duty to the beneficiary. (Bank of Seoul & Trust Co. v. Marcione, supra, 198 Cal.App.3d 113, 120.)
13. Mobilehome and Manufactured Home Foreclosures
The foreclosure process for a “manufactured home” or a “mobilehome,” as those terms are respectively defined (see Health & Safety Code §§ 18007 and 18008), is the same as the foreclosure process for real property if any of the following conditions are met: (1) the manufactured home or mobilehome is affixed to a permanent foundation as provided by Health & Safety Code § 18551, (2) the security for the loan for these types of homes includes the real property on which the manufactured home or mobilehome is installed or affixed, or (3) the loan or credit sale was made under circumstances requiring disclosures under Regulation Z (Health & Safety Code §§ 18039.1, 18039.5). A lawyer representing an owner of one of these types of homes should ascertain whether either condition (1), (2), or (3) apply and should remember that, even though the home may be on a permanent foundation, the permanent foundation system may not comply with Health & Safety Code § 18551. If the manufactured home or mobilehome does not meet the description in Health & Safety Code § 18039.1 but is required to be registered pursuant to the Mobilehomes-Manufactured Housing Act of 1980, the default procedure is governed by special rules set forth in Health & Safety Code § 18037.5 which permit a sale generally pursuant to Commercial Code § 9504.
The mobilehome foreclosure procedures present a number of questions, and the statutes should be scrutinized by counsel. One of the questions concerns the right to cure a default provided in Health & Safety Code § 18037.5(a). The statute is silent on whether the default can be cured by paying only the arrearage and disregarding the accelerated balance or whether the right to cure the default is tantamount to a right of redemption. [Compare Health & Safety Code § 18037.5(a) with Civ. Code §§ 2924c,2983.3(b).] The language of the notice of default form suggests that a right of reinstatement is intended, and the statute should be liberally construed as a remedial statute protecting mobilehome owners from the loss of their residences.
A more detailed discussion of the foreclosure procedures and problems related to deficiency judgments is beyond the scope of this manual.
14. Condominium Assessment Lien Foreclosures
An assessment, including all charges, interest, costs, attorney’s fees, and penalties, levied on a condominium owner becomes a lien against the condominium upon the recordation of a notice of assessment containing certain statutorily required information. (See Civ. Code § 1367.) The lien expires one year after its recordation unless it is earlier satisfied and released or enforced or unless it is extended up to one additional year by the recordation of a written extension. (Id.) The lien may be enforced by a sale of the condominium as prescribed by Civil Code sections 2924, 2924b and 2924c “applicable to the exercise of powers of sale in mortgages and deeds of trust” or in any other manner permitted by law. (Id.) However, the nonjudicial foreclosure procedure cannot be used, with respect to subdivisions under the jurisdiction of the Department of Real Estate, against a person to enforce a lien for penalties imposed for any of the following reasons: (a) failure to comply with the governing instruments [Covenants, Conditions, and Restrictions, Articles of Incorporation, and Bylaws] or (b) as a means of reimbursing the association for costs incurred (1) in the repair of damage to common areas allegedly caused by the person or (2) in bringing the individual and the person’s subdivision interest into compliance with the governing instruments. [See 10 Cal.Adm. Code § 2792.26(c).]
The statutes authorizing a sale in accordance with nonjudicial foreclosure procedures conspicuously omit reference to Civil Code sections 2924d, 2924f, 2924g, and 2924h. (See Civ. Code § 1367.) Since the condominimum lien statutes suggest that the sale should be conducted in accord with law applicable to the exercise of the power of sale, an association enforcing its lien by the nonjudicial foreclosure method will not likely escape the protections and procedures required by the omitted Civil Code sections. Moreover, the condominium’s governing instruments may provide by contract that the enforcement procedure must follow Civil Code section 2924d, 2924f, 2924g, and 2924h.
A lawyer representing a condominium owner in foreclosure should consider the constitutionality of the foreclosure procedure. The constitutionality of the nonjudicial foreclosure process was upheld against attack on due process grounds because the contractually created private power of sale did not involve state action. (See Garfinkle v. Superior Court, supra, 21 Cal.3d 68.) The assessment lien foreclosure procedure, however, is established by statute and, thus, may involve State action. Nevertheless, the governing instruments, depending on their wording, may be construed to provide a contractual basis for the exercise of the power of sale.
15. Mixed Collateral – Real and Personal Property Security
A creditor may secure a single obligation with a security interest in real property and personal property. For example, a personal loan may be secured by a trust deed on the borrower’s house and a lien on both of the borrower’s automobiles. In the event of default, the creditor may foreclose in any sequence (1) under real property law (e.g., Civ. Code § 2924 et seg.) as to the real property and Article 9 of the Commercial Code as to the personal property; (2) under real property law as to the real property and some or all of the personal property; or (3) under real property law as to the real property and some of the personal property and under Article 9 as to other personal property. [Comm. Code § 9501(4).]
Commercial Code section 9501(4)(b) may be construed to abrogate substantially the operation of real property foreclosure and antideficiency protections in non-consumer transactions. [See Hetland and Hansen, ‘”Mixed Collateral’ Amendments to California’s Commercial Code – Court Repeal of California’s Real Property Foreclosure and Antideficiency Provisions Or Exercise in Futility?,” 75 Cal.L.Rev. 185 (1987).] However, Commercial Code section 9501(4)(b) does not apply to loans or credit sales made to individuals primarily for personal, family, or household purposes. [Comm. Code § 9501(4)(c)(v).] One commentator has indicated that the rules in existence before the 1986 amendment to Commercial Code section 9501(4) apply; thus, a foreclosure of mixed collateral would be governed by real property law. [See CEB, California Mortgage and Deed of Trust Practice Supp., § 44, p. 47 (1988).]
The exemption for consumer transactions casts doubt on the applicability of other provisions of the section which are predicated on the abrogation of real property foreclosure rules. For example, the disposition of personal property collateral and the application of the proceeds to the debt does not cure a monetary default so as to affect the secured party’s rights regarding other personal property collateral. [Comm. Code § 9501(4)(d)(ii).] This provision presupposes that the reinstatement rights afforded by Civil Code section 2924c do not apply. [Comm. Code § 9501(4)(b).] But, reinstatement rights continue to apply in consumer transactions. [Comm. Code § 9501(4)(c)(v).] As a result, if the sale proceeds from the disposition of personal property collateral are sufficient to cure the default under Civil Code section 2924c, the obligation will be reinstated, and the creditor should be precluded from enforcing any other security interest•
For example, suppose a loan is secured by a consumer’s house, car, and pickup truck. The consumer defaults, the creditor accelerates the $10,000 balance, and the amount needed to cure the default is $2,000. The creditor conducts a sale of the car and nets $2,000. A creditor might argue that the sale does not cure the default and that the creditor could proceed against the pickup. [See Coram. Code § 9501(4)(d)(ii).] Civil Code section 2924c, however, continues to apply to the obligation, and the $2,000 sale would be sufficient to reinstate the obligation. Because no default remains, the creditor could not proceed against the pickup.
A lawyer representing a homeowner who has given both real and personal property as security should evaluate whether the security interest is excessive. A court may conclude that a security interest which was disproportionate to the extension of credit and subjected a homeowner to the loss of significant personal property, such as cars and work related vehicles, as well as the homeowner’s home was unduly oppressive and unconscionable. As a result, the court might limit the enforcement of the creditor’s security interest. (See Civ. Code § 1670.5; )

I. WHERE THE TRUSTEES DEED TRANSFERS BY CREDIT BID TENDER OF THE FULL DEBT IS NOT APPROPRIATE.

A. CREDIT BIDS ARE DISTINGUISHED FROM PURCHASE MONEY BIDS.
California Civil Code 2924h (b) provides:
(b) At the trustee’s sale the trustee shall have the right (1) torequire
every bidder to show evidence of the bidder’s ability todeposit with the
trustee the full amount of his or her final bid incash, a cashier’s
check drawn on a state or national bank, a checkdrawn by a state or
federal credit union, or a check drawn by a stateor federal savings and
loan association, savings association, orsavings bank specified in
Section 5102 of the Financial Code andauthorized to do business in this
state, or a cash equivalent whichhas been designated in the notice of
sale as acceptable to thetrustee prior to, and as a condition to, the
recognizing of the bid,and to conditionally accept and hold these
amounts for the durationof the sale, and (2) to require the last and
highest bidder todeposit, if not deposited previously, the full amount
of the bidder’sfinal bid in cash, a cashier’s check drawn on a state or
nationalbank, a check drawn by a state or federal credit union, or a
checkdrawn by a state or federal savings and loan association,
savingsassociation, or savings bank specified in Section 5102 of
theFinancial Code and authorized to do business in this state, or a
cashequivalent which has been designated in the notice of sale
asacceptable to the trustee, immediately prior to the completion of
thesale, the completion of the sale being so announced by the fall ofthe
hammer or in another customary manner. The present beneficiary ofthe
deed of trust under foreclosure shall have the right to offsethis or her
bid or bids only to the extent of the total amount due thebeneficiary
including the trustee’s fees and expenses.This provision provides for
the purchase options at a trustee’s sale.
The first type of bid at a trustee sale is a purchase money bid.
Purchase money bidders are by definition third parties who pay with cash
or a check. Unless there is a lis pendens or obvious title flaw which
puts them on constructive notice, PMBs are given the status of good
faith purchasers and the sale cannot be undone — even with tender.
Therefore, there can be two types of purchase money bidders:good faith
purchasers for value, and those on constructive notice of clouds or
flaws in title. Either type of purchase money bidder is required under
Civil Code 2924h to pay with cash or check,the actual cost of their
winning bid.
Lastly, the section provides for what is known commonly as a “credit
bid.” In a credit bid, the creditor on the note applies the amount of
indebtedness toward its bid on the property, therebyallowing it to take
title without paying a single dollar out of pocket at the sale. The
rationale is simple: the creditor has already lent the borrower/trustor
a sum of money in exchange for the trust deed For seemingly obvious
reasons, credit bidders are not allowed the status of a “good faith
purchaser for value” because they are deemed to be aware of any
improprieties of title which would undermine their title position.
B. PRINCIPLES OF EQUITY AND FAIRNESS GENERALLY REQUIRE PURCHASE MONEY
TENDER IN FAVOR OF PURCHASE MONEY BIDDERS.
Where a third party shows up to a trustee sale and without any notice of
title issues, comes out of pocket to purchase an auctioned home in good
faith, then simple fairness requires that he be paid back the moneyhe
spent prior to being divested of the title he purchased, prior to the
court allowing an action to proceed against that title, which he would
have to defend or forfeit. Tender is the general rule where it comes to
PMBs.
However, the law also provides exceptions to the tender requirement,
even in cases of PMBs. For instance, where the sale is void because
the trustee holding the sale is not empowered to hold a sale on a
property, then tender is not required to set aside the trustee’s deed
after sale because it is void and good title did not transfer in the
first instance. Bank of America v. LaJolla Group II. Tender is also
excepted in the case offraud, where the equities of the case favor the
victim, even over a good faith purchaser for value. (CITE) Such
exceptions are easily rationalized in light of the need for society to
depend on due process and fairness.
In these cases, the amount of tender required is the amount of the
winning bid.
C. PRINCIPLES OF EQUITY AND FAIRNESS DO NOT REQUIRE FULL DEBT TENDER IN
FAVOR OF CREDIT BIDDERS.
However, where a credit bid is made, the bidder is not a good faith
purchaser. It is the creitor party. The trustee deed is a mere matter
of paperwork, without a penny out of pocket. All the tender that is
required to put a credit bidder in a pre-sale condition is 1) cost of
the trustee sale, 2) interest and fees, and 3) reinstate the preexisting
debt which would still be serviced by the creditor but for the sale.
Especially where it may be shown that a sale was knowingly wrongful,
without right, and carried out in spite of borrower’s preexisting claims
on the validity of the debt or recorded lis pendens, equity weighs
heavily against requiring the borrower to make a full tender of the
challenged debt rather than what is required to put the creditor in a
pre-sale position.
Defendants argue that the tender in these cases should be not the sale
price, not the amount required to put the defendant in a pre-sale
position, but the full amount of the debt! In so doing, Defendants are
conflating the idea of a RESCISSION tender with the concept of a SET
ASIDE TENDER. While sharing a common name, these are two very different
beasts.
III. TENDER IS AN EQUITABLE PROCEDURE SUBJECT TO THE COURT’S EQUITABLE
DISCRETION AND THE COURT MAY FASHION TENDER IN THE APPROPRIATE FORM.
a. Court’s equitable discretion allows it great leeway in fashioning a
remedy appropriate to this case.
Court has equitable discretion (cite) etc. .
b. The creditor does not need tender of the full debt to be put in a
pre-sale condition.
Do the math — What has the creditor actually been displaced from its
pre-sale position?
c. A Credit Bidders Expectations do Not Require the Same Reconciliation
that a PMB’s Expectations Require.
The creditor was not expecting payment in full for 30 more years vs. a
PMB has immediate expectation of title for money and the deal the PMB
gets is title for money; the deal the bank had wasmonthly payments at
interest over 30 years.
d.
In a public policy sense, the imposition of full debt tender on
borrowers as to credit bid grantees by many courts in this state has
caused the floodgates to open for massive abuse of the California
non-judicial foreclosure system. This effect has been caused because
banks view wrongful foreclosure as having no practical recourse where
the only penalty for a wrongful foreclosure is getting a 30-year debt
paid in full 25 years early — which is in reality not a penalty at all,
but rather an incentive to hold more foreclosure sales whether they are
wrongful or not.
CONCLUSION
If the sale was wrongful to begin with, and the title has not passed
beyond the pre-sale parties, no rationale exists for overburdening the
Plaintiff with a full-debt tender where the sale has been a matter of
paperwork rather than payment, and to require a tender bond in the
amount of the cost of the sale and fair marker rent going forward would
adequately protect the creditor from prejudice.

… Just a rough draft.
Any thoughts on the idea?
Any help in drafting?
I think it may help to go through some of the tender cases and look at
the equities, the status of the parties, and see if we can find some
strong exception cases where the court’s rationale is actually looking
at the equities rather than the word “tender”.