State attorneys general are not happy with a $5 billion offer by major banks to settle lawsuits regarding robo-foreclosures and other alleged grievances. Some officials want as much as $20 billion. The compromise threat is on the high end.
He then goes on to try to make the case with:
This is what I want to know:
How many people lost their home to foreclosure out of an error? By error I mean the wrong person, a home with no mortgage, or a major procedural error.
How many people think they deserve a free house and clear or a principal reduction over "show me the note" nonsense or other problems including unemployment?
How many people did banks string along for many months with promises of work-outs, where the person paid their mortgage for months, then lost their home.
Dismissing #2 right up front, of course.
There's a problem with this: The UCC, along with the contracts in question, do not support his liberal interpretation of "Show me the Note."
Bluntly, you only owe the person who actually owns your note money. The UCC is very specific on what has to happen for two events to take place:
The security interest (the right to toss you in a foreclosure, as opposed to simply suing for money which you may not have)
The owner of the paper having holder in due course status.
Neither of these are "technicalities."
First, if someone sues for foreclosure who doesn't actually own the loan the person who does own it still has an enforceable claim against you. That means you could get foreclosed upon and then sued by the actual owner for the money, effectively being forced to pay twice - once by ejectment from the property and then again by being financially destroyed a second time through a lawsuit for money damages. The UCC and general contract law, along with the PSAs, are structured in a form and fashion to prevent this. Ignoring these very real legal requirements is not a "formality", it is part and parcel of the rule of law.
Second, the "Holder in Due Course" status is extremely important and germane. One of the sordid facts of the "aughts" (the 2000s) is that many people were sold money under false pretense of some sort. There were myriad frauds, including floating-rate loans sold as fixed, "riders" in middle of paperwork that was slipped in un-noticed and in violation of the good-faith estimates and claims given to borrowers before closing along with all sorts of chicanery and outright fraud. Lending officers held themselves out not only as sellers of money but as qualifiers of a person's capacity to pay, an expert opinion proffered based upon ratios and program claims given to homeowners.
There is a fair issue triable at law as to whether active frauds occurred in these areas. Some of the cases are black-letter, where borrowers had their own submitted figures and papers altered by lending officers through multiple iterations through computer-based underwriting without their knowledge. Others are more nebulous and may have (or may not have) involved active deception by the borrower himself. These are issues to be tried in a court of law and examined by a trier of fact.
If holder in due course status does not apply to the current "owner" of the debt the remedies available to the buyer extend to the current holder of the paper. It is only through establishment of that holder in due course status that the paper's owner escapes successor liability for these actions.
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