Today’s New… “But, You Didn’t Make Your Payment” Exemption to the Law


I’m not a lawyer, so let’s be very clear about that, but I’m about to tell you how the law has always worked in this country, as far as I have understood it.

If you came to repossess my car, then you were required to be the person or entity that held the pink slip to my car, or you had to be working for the person or entity that held the pink slip to my car.  If you were not the person or entity holding my pink slip, then you couldn’t come repossess my car.

In fact, if you came and repossessed my car but were NOT the person or entity holding my pink slip, then we had a phrase to describe that occurrence as well … you were STEALING MY CAR.

Pretty straightforward, right?  I don’t even think you need to finish law school if that’s the extent to which you want to understand the law.  And don’t let any of the attorneys that may be reading this around you try to make it more complicated, because it’s not.  It is that simple… you can’t repossess someone’s car unless you’re the person or entity that holds the pink slip, or title, to that car… or are working for that person or entity, of course.

That’s the same way it’s supposed to work where houses are concerned.  If you don’t make your mortgage payments, that doesn’t mean that everyone in the country is allowed to throw you out of your home… only the person or entity that holds your mortgage is supposed to be able to do that, right?  Of course that’s right, silly.  And don’t play semantics with me, that’s the deal.

But in this country today, there appears to be a new exemption to quite a few laws… it’s called the “But you didn’t make your mortgage payments” exemption, and when it comes into play, nothing else seems to much matter… you just lose.

Like, what if you don’t make your mortgage payments and the entity that comes to evict you from your home is one that you’ve never heard of before.  And they have no proof whatsoever that they own your loan or represent the entity that owns your loan.  Well, in general it’s tough cheese.  The judge just says, “But you didn’t make your mortgage payments,” and that’s the end of that.  And most everyone seems to be in agreement with this line of thinking.

You say, “But, your Honor… they’ve broken a dozen laws here… important laws… laws governing the transfer of property rights upon which the country has been built.”  And the judge just gets annoyed saying, “But you didn’t make your mortgage payments,” and that’s the end of that.  It’s almost like a get out of jail free card.

So, you say, “But your Honor, they’ve forged the documents, falsified the records, committed fraud on your court.”  But he says it doesn’t matter… you didn’t make your mortgage payments… you have no rights and the party that’s foreclosing is now exempt from all of the laws that might otherwise apply.  In fact, those laws are now reduced to being mere “technicalities.”   And no one cares about technicalities as compared to you not making your mortgage payments.

So, I’m just wondering… don’t you think this sets kind of a dangerous precedent?

Let’s say that you’re not making your mortgage payments.  And one night after dinner, the doorbell rings and you answer the door and it’s a representative of your mortgage servicer… and he punches you right in the face and then proceeds to beat the crap out of you.

And you end up in court.   And the judge says, “But you didn’t make your mortgage payments, “ and dismisses the case.  And you say, “But, your Honor… my mortgage servicer beat the crap out of me and that’s against the law, in fact there are all sorts of laws broken by him beating the crap out of me.”  But the judge just replies, “But you didn’t make your mortgage payments, “ and that’s the end of that.

Do you think I’m being ridiculous?  Why?  What’s the difference between ignoring one set of laws and another set of laws?  If you’re allowed to foreclose and kick someone out of his or her home without being the party that either owns the loan or represents the person who owns the loan… if you can ignore those laws, why can’t you ignore other laws too?  Which laws apply, when one of the parties didn’t make his or her payments?

You see, I think the reason we have laws about the transfer of property is because it was important that someone not lose their property without those laws being followed.  Whether one made their payments or not, wasn’t the point… the point was simply that the transfer of property rights has always been seen as a pretty big deal under the law, as far as I can tell.

I think the reason we let things get a little loose concerning foreclosure is that we trusted the bankers who were foreclose.  In California, and all of the non-judicial foreclosure states, as far as I know, you don’t need to prove to the court that you hold the title to someone’s home in order to foreclose, and I’m pretty sure that the reason that was okay to our lawmakers was that they trusted the bankers… and they never envisioned not trusting them in that regard.

The problem is that today there is an abundance of evidence that says we cannot trust our bankers… quite often they lie, commit fraud on the courts, and in general are more than willing and able to fabricate and falsify whatever is required to foreclose on someone’s home… period.  They don’t care at all… and they don’t get in trouble for it either, which I find the most disturbing part of the whole thing.

So, since its become clear that bankers lie, and cannot be trusted, we’re going to need to bring back the old laws about having to prove you’re the right party to be foreclosing on someone’s home before you’re allowed to do so.  Several states have already done this… Hawaii and Arkansas, most recently.  Arizona tried to pass such a law, but the banking lobby got to them and killed them both.

California had a bill that would have come close, but the banking lobby killed it in committee, for heaven’s sake.  It was too dangerous to even debate in the legislature.

Some have said to me, “But Mandelman… the banks need to be able to foreclose or repossess when people don’t make their house or car payments.”  And I reply… “No one is debating that point.  Of course they can foreclose when payments are not made.  If they’re the party who holds the beneficial interest, as the lawyers says, in the loan.  If they lost the pink slip, they’ll have to correct that problem before they can come take back my car.”

It’s no different than if my car gets impounded for being parked in the wrong spot.  When I show up to get it out of impound, I better have the registration, right?  If I don’t, what am I told by the man at the impound lot?  No ticket, no laundry, right?

We have laws about the transfer of property in this country and there are reasons for these laws.  None of these laws say anything about banks only being required to follow them when someone is current on his or her payments.

Let’s stop making this more complicated than it needs to be… if the trust can prove that it does hold the note, that the note was properly assigned to that trust, that the note was endorsed… or whatever was supposed to happen according to the laws and rules, did in fact happen, then fine… foreclose away.  But if that’s not the case, banker people… then you have to fix it… before you’re allowed to foreclose.

Sorry, and I know how unfair you think this is, but forging the documents isn’t an okay answer to this problem.  Like if you want to repossess my car and you lost the pink slip, the acceptable answer is not to fake one on your laser printer and get Linda Green to sign it, got it?  That’s not how we fix things in this country, and it doesn’t matter who made payments on time and who didn’t.

If that’s inconvenient, then so be it.  And I have to think it’s a damn sight less inconvenient than what’s going on today, and if it’s even more inconvenient than that, then the bankers in this country have really screwed up bad, and we should all be shown what they’ve done.

I ran all of this by a lawyer friend of mine and here is the language from the Deed of Trust (page 23):

“Reconveyance.  Upon payment of all sums secured by this security instrument, lender shall request trustee to reconvey the property and shall surrender this security instrument and all notes evidencing debt secured by this security instrument to trustee.  Trustee shall reconvey the property without warranty to the person or persons legally entitled to it.”

So, apparently this language appears in EVERY Deed of Trust, including yours, your Honor. So when you want your pink slip/title/note in order to have your mortgage burning party, you may be disappointed to find that no one seems to have it.

And what about title insurance in the future?  Will we be able to get it as a result of this whole mess being allowed to go on unchecked?  I don’t think anyone really knows the answer to that question.

Lastly, the question always seems to come around to one of damages.  How did the note not being properly endorsed to the trust and the trust being permitted to foreclosing anyway damage the homeowner?  Again, it’s quite simple, really…

If someone is allowed to repossess my car even though that entity doesn’t hold my pink slip or work for the entity that holds my pink slip, then whoever repossessed my car STOLE IT.  And that, by itself, sounds pretty damaging.

But what if someone shows up later and says they have the pink slip?  What then?  Will they be understanding and say, “Oh, someone else got it.  No problem, we’re sorry to have bothered you.  We’ll follow up with them.”

Somehow I doubt that will happen that way.  And there are several reasons I’m not at all sure that this won’t be the case in the years to come.  For one thing, both Taylor Bean & Whittaker and New Century Mortgage were found to have sold mortgages to more than one person at the same time, and others have admitted that it happens all the time.

And for another, I know of several homeowners who have filed quiet title actions and are still waiting for someone to show up and say they own the loan… in one case that’s recently been brought to my attention, it’s been almost a year and still no one has shown up.  Does that mean no one will?  Or will someone show up years from now?  (Here’s the case, click it and you’ll see.)

Harvey v Garbett, Quiet Title Case in Draper Utah

I don’t really know, but wouldn’t it just be easier for the entity foreclosing to be the entity that actually holds the beneficial interest in the loan?  You know, just as the law has always intended?

There’s another reason that it makes sense to require the right entity to foreclose… because the right entity, the entity that does in fact hold the beneficial interest in the loan would be much more likely to want to modify the loan as opposed to foreclosing on it, in instances where the payments have not been made.

You see, servicers chose to foreclose because it’s in their own best interests to foreclose, but what about the investor’s best interests?  After all the investor is who put up the money in the first place, so what about the investor’s best interests?

Surely the investor would rather have a modified loan, especially in instances where the home is terribly underwater and by foreclosing the investor will realize an enormous loss and then not be able to sell it… perhaps for several years… wouldn’t you think that investor would prefer to modify the loan and get payments again?

Louis Ranieri, who is often referred to as the father of mortgage-backed securities had the following to say about foreclosing:

“The cardinal principle in the mortgage crisis is a very old one. You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure.

In the past that was never at issue because the loan was always in the hands of someone acting as a fiduciary. The bank, or someone like a bank owned them, and they always exercised their best judgment and their interest. The problem now with the size of securitization and so many loans are not in the hands of a portfolio lender but in a security where structurally nobody is acting as the fiduciary.”

Well, what do you know about that?  So, it seems there are lots of good reasons that we should make sure that the entity foreclosing is the entity who does in fact own the loan, or at least work for the entity that owns the loan.

So, why are we making this so damn difficult?  And why is it such a big problem for a bank-servicer-whatever to show up and actually prove that the trust actually holds the note in question?  They don’t really expect us to buy into that whole, “But we lost them, your Honor.  All of them, your Honor.  It was a mass misplacement, your Honor.”

I mean, come on now… are we really supposed to believe that ALL of the major banks lost ALL of the notes and ALL at the same time?  Seriously?  I know 14 year-old boys that could tell you that such a story is simply not believable.

It’s time to come clean banker-people.  Your story stinks to high heaven and the homeowners, lawyers, investors, and even the government investigators are all getting closer to uncovering the truth every day.

And until the banks start telling the truth, or modifying loans in the best interests of the investors and homeowners like they are supposed to…

… how about we the people pass a bill that requires the entity foreclosing to prove they are the entity that owns the loan… because it’s clear… abundantly clear… that we certainly can’t trust the trustee any more.

Mandelman out.


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