Foreclosure Defense: Basic Rules, Discovery, Affirmative Defenses and Audits

Affirmative Defenses and Procedure
You Can Stop Foreclosure and Put the Lender on the Defense.
Does the Lender have the “Original” Note in Hand?

Step One: Answer the Foreclosure Lawsuit

            We will posts the basics of preparing an Answer in a later post.

Step Two: The Lender Must Prove Existence of the Note.

To recover on a promissory note, the plaintiff (the Lender in the case of foreclosure) must prove 4 basic things.

(1) The existence of the note in question;

(2) That the party sued signed the note;

(3) That the plaintiff is the owner or holder of the note in due course; and

(4) That a certain balance is due and owing on the note.

We’ll discuss and explain each one of these things in detail.  In your Answer and Affirmative Defenses, you want to consider pleading these defenses:

(1) The actual note in question does not exist – Your possible Defenses are:

It is true, in mortgage foreclosures, that the Plaintiff, in order prove up their claim the law requires presentment of the “ORIGINAL” promissory note.   A copy of it should be attached to the Foreclosure Complaint, and you must demand to see the Original.  If the existence of the note is in question, you’ve got defenses.  You will know this if the Complaint has a Count, or Request in it to reestablish a lost, misplaced or destroyed promissory note.  If the “ORIGINAL” note you signed in ink that contains your signature is claimed to be lost, stolen, missing and/or destroyed, then you may have the following defenses.  Affirmative Defenses, (which is what these are) usually must be plead or listed in your “Answer” to the complaint.

1)      there may be fraud upon the court in that the named Plaintiff may not have ANY interest to the note which is supposedly lost note is not lost, but may have been intentionally destroyed due to missing assignments on the note which may have made it void and a legal nullity;

2)      there is no proof that the named Plaintiff ever held the note or took possession of the note and thus has no claim or right to bringing about the foreclosure;

3)      the mortgage industry, investors, and GSE’s, or government-sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress such as Fannie Mae, Freddie Mac, and FHLBs etc. have a requirement that the last endorsement to them be undated and “blank” leaving the payee line blank and making the negotiable instrument a sort of “bearer bond” and instrument. As such, any party finding or stealing the note can place their name on the payee line, claim ownership of the note, and sell the note to others who may make a demand upon you in the future. Because of this, you want to require money to be deposited in an escrow account or with the court in an amount equal to the amount claimed owed on the note, until such missing note is found or upon your death. Notes have a life of their own…

4)      If the note was destroyed or lost intentionally (the industry will do this as a matter of course) then they may be trying to hide the beneficial owners and shield them from any assignee liability arising from the actions of the servicer who they hire, supervise and most importantly authorize to foreclose upon you. Without the note, since subsequent endorsements are not recorded to avoid payment of taxes and hide true and real beneficial interests, there is no possible way to determine who ever held a rightful interest in the note and who you may have claims or counter claims against those unknown parties and who should be presently before the court as a real party in interest.

5)      Federal Circuit Courts have ruled that the only way to prove the perfection of any security [including promissory note] is by actual possession of the security. Current or prior possession must be proved up.

In an electronic age, it is a simple matter to photoshop someone’s signature or image upon a document and that it is very difficult to imagine such a valuable negotiable instrument being lost or missing without a ulterior motive.

(2) That the party sued never signed the note involved in this Foreclosure – Your possible Defenses are;

1)      that the party sued never signed the note

2)      the note in question is not the note you signed and executed in ink and only the one you signed in ink that presumably contains your fingerprints can be relied upon by your handwriting analysis expert; 

i)  We want to eliminate the possibility that the Plaintiff has “photo-shopped” your signature onto a fictitious document.

(3) That the plaintiff is not the owner or holder of the note in due course – Your possible Defenses are;

1)      the “named” Plaintiff is not the ‘holder in due course” of the note and only an agent or nominee for the true beneficial owners and holders in due course has the right to sue;

2)      there is no proof, without the note, that a proper chain of assignments took place and that the lien positions were properly perfected;

i)  Furthermore, if there are missing assignments of the original note and the assignment went from Lender A to Lender B to Lender D without an intervening assignment from Lender B to Lender C and From Lender C to Lender D, then the note may be void and a legal nullity in your state.

3)      other unnamed and disclosed real parties in interest may have a claim to the note and be the rightful beneficial owners to the note and must be identified and brought before the court; 

4)      there may be several unnamed and disclosed real parties in interest may have a claim to the note and be the rightful beneficial owners of the noted and consequently you could be sued later on the same note by different parties;

5)       It is industry practice to not name the GSE, investor, or real party in interest in foreclosure and to use the Servicer as a front for the real or true Plaintiff: 

i)  The original lender who may or may not even be in business any more or sold their interest in the note long ago, only to have a claim made upon them for repurchase;

ii) A Servicer of even “special servicer” who is acting as an agent for the investors, GSE’s or real party in interest, but has no beneficial ownership in the note since they are only being paid to collect and foreclosure by the real parties in interest;

iii)  A “nominee” such as MERS who has no legal authority to foreclose upon you and do business in your state and who according to their own written documents and verbal assurances never hold the note or own “any” beneficial interest in the note.

6)      Notes are pledged, sold, bifurcated, consolidated and traded in various derivative transactions like bubblegum baseball cards and their transfers, sales, pledges etc.  are not publicly recorded. As such, only possession of the actual original note can prove the actual owner and holder in due course of the note and who you can make an offer of payment to for purchase of the note by yourself, another family member or partner. You have a right to know the rightful owner of the note so an offer for payment of the note at a discount and at fair market value can be made. If the note has been pledged and encumbered, then that party must be made aware of the foreclosure and your right to negotiate with them a payment and release of the note by you, other lien holders or private parties;

(4) The Plaintiff must be able to prove that a certain balance is due and owing on the note – Your possible Defenses are:

1)      Proof of the balance due and owing on the note requires a general account and ledger statement. Claims of damages, to be admissible as evidence, must incorporate records such as a general ledger and accounting of an alleged unpaid promissory note, the person responsible for preparing and maintaining the account general ledger must provide a complete accounting which must be sworn to and dated by the person who maintained the ledger.

2)      Notes are traded often and you need to inspect the physical note to see who the real prior parties were that held and endorsed your note since you may have counter and cross claims against them and need to bring them before the court for the action, since they may have improperly inflated your principal balance, amount owed or escrow account by not applying your payments correctly; adding fees not legally owed by you to the principal balance;  miscalculating the interest and not properly amortizing your loan; fraudulent selling your loan or misreporting you on your credit report.

3)       You must have the master transaction histories and general ledgers for the account since a “dump,” “summary,” or redacted record cannot be relied upon to determine the rightful amounts owed without having a complete audit of your account. In order to conduct a proper audit, master records and all prior records must be compiled, reviewed, analyzed, and reconciled. It is not your responsibility to prove each payment was made. It is your responsibility to say a payment was made and provide evidence, including your word that it was made. It is the note holder’s duty and responsibility to validate the claims being made on the note and the amount owed. If they have the master records or claim that the records of prior servicers are missing, then there is no rightful way for anyone to prove up the balances and amounts they claim are owed.

Therefore, you must claim:

 a)      That the principal balance claimed owed, is not owed, and is the wrong amount.

 b)      That the loan has not been properly credited and amortized;

 c)      That the current servicer cannot be relied upon to testify and certify that prior amounts, transactions, credits, debits, charges and fees added by prior servicers were indeed proper and correct, and that the account they transferred to the current Servicer, was properly amortized and credited. As such, the person holding the ledgers at the prior servicer must come and testify as to the amounts owed on the note.

 d)      Dumps and summaries of amounts owed cannot be relied upon.  Only original ledgers and master records and the keeper of those records can testify as to the amounts claimed owed and due.


Step Three: Audit Your Closing Documents for TILA Violations, Illegal Kickbacks and Fraud In order to find for consumer protection law violations you will have to gather and assemble your loan and closing documents and put them in order.  This can be the basis for additional defenses:

            We will cover this thoroughly in a later article.

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Foreclosure Defenses, General Advice