Case Law

Statutory laws or Codes are the laws passed by Federal and State legislatures. The Uniform Commercial Code (UCC) is a nationwide standard set of business laws that have regulated financial contracts since the 1950’s. The code itself has nine separate articles. Each article deals with separate aspects of banking and loans.

Common law is the system of deciding cases that originated in England and which was later adopted in the U.S.. Common law is based on precedent (legal principles developed in earlier case law) instead of statutory laws. It is the traditional law of an area or region created by judges when deciding individual disputes or cases. Common law changes over time. The U.S. is a common law country. (http://definitions.uslegal.com/c/common-law/)

Case Law: Legal principles enunciated and embodied in judicial decisions that are derived from the application of particular areas of law to the facts of individual cases.

. . . Case law is a dynamic and constantly developing body of law. Each case contains a portion wherein the facts of the controversy are set forth as well as the holding and dicta—an explanation of how the judge arrived at a particular conclusion. In addition, a case might contain concurring and dissenting opinions of other judges.

Since the U.S. legal system has a common-law system, higher court decisions are binding on lower courts in cases with similar facts that raise similar issues. The concept of precedent, or Stare Decisis, means to follow or adhere to previously decided cases in judging the case at bar. It means that appellate case law should be considered as binding upon lower courts.
West's Encyclopedia of American Law, edition 2. Copyright 2008

The following are some of the rulings pertinent to collections and foreclosure.

(These rulings can be found on the Internet, which is where we found them.)

A borrower can only be foreclosed upon by the actual owner of the Note. Enforcement of a Note always requires that the person seeking to collect show that it is the holder. Under UCC § 1-201 (20) the person who asserts the status of the holder must be in possession of the instrument.

UCC § 1-201 (20) "Holder" with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession. "Holder" with respect to a document of title means the person in possession if the goods are deliverable to bearer or to the order of the person in possession.

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Further, the Federal Courts have ruled that you must prove the existence of the Note.

To recover on a promissory note the plaintiff must prove:
(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; and
(4) that a certain balance is due and owing on the note.

See In Re: SMS Financial LLC. v. Abco Homes, Inc. No.98-50117 February 18, 1999 (5th Circuit Court of Appeals.)

Where the complaining party cannot prove the existence of the note, then there is no note.
See Pacific Concrete F.C.U. V. Kauanoe, 62 Haw. 334, 614 P.2d 936 (1980), GE Capital Hawaii, Inc. v. Yonenaka 25 P.3d 807, 96 Hawaii 32, (Hawaii App 2001).

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The law requires that you have legal standing to enforce the matter or bring it before the courts. The fight over standing to appear in court runs deeper than technicalities and tactics. It is a matter of fundamental rights. In order to have standing UCC § 3-302 requires that the person enforcing the Note be the “Holder in Due Course.” By Federal law, in every transfer of a mortgage, the seller must sign over the notes to the buyer. Moreover, this issue must be proved by the production of the Note.

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. See Matter of Staff Mortg. & Inv. Corp., 550 F.2d 1228 (9th Cir 1977). “Under the Uniform Commercial Code, the only notice sufficient to inform all interested parties that a security interest in instruments has been perfected is actual possession by the secured party, his agent or bailee.”

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The court must be satisfied that the actual parties before it have this “standing.” As Idaho’s bankruptcy court recently pointed out, in most cases this will mean proving that the party appearing in court has an actual “pecuniary interest” in the case.

See, In re Sheridan, #08-20381 (Bankr.D.Idaho 3/12/09)

Foreclosure agents and servicers do not automatically have standing, In re Scott, 376 B.R. 285,290 (Bankr. D. Idaho 2007); Hwang, 396 B.R. at 767, and must show authority to act for the party which does.

That rule in turn applies Rule 7017, imposing FRCP 17's requirement that actions be prosecuted in the name of the real party interest. The right to enforce a note on behalf of a noteholder does not convert the noteholder’s agent into a real party in interest. “As a general rule, a person who is an attorney in fact or an agent solely for the purpose of bringing suit is viewed as a nominal rather than a real party in interest and will be required to litigate in the name of his principal rather than in his own name.”

Hwang, 396 B.R. at 767, quoting 6A Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 1553.

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If the right to foreclose is in dispute, the trustee (the agent trying to foreclose) must delay the sale. If they don’t, they may find themselves at risk to be personally sued for fraud. If they are trying to fraudulently trying to collect or foreclose and use the US postal service, they may have committed mail fraud. See 18 U.S.C. § 1341 & 1343

In Blodgett v. Martsch, 590 P.2d 298 (UT 1978), it was stated that "the duty of the trustee under a trust deed is greater than the mere obligation to sell the pledged property, . . . it is a duty to treat the trustor fairly and in accordance with a high punctilio of honor." The Supreme Court in Blodgett went even further and found that the breach of this confidential duty may be regarded as constructive fraud. See also McHugh v. Church, 583 P.2d 210, 214 (Alaska 1978).

In Cox v. Helenius, 103 Wn.2d 383,*,693 P.2d 683 (1985), in which the trustee knew that the right to foreclose was disputed and that the attorney for the trustor had failed to restrain the sale, the court held that the trustee should have either informed the attorney for the trustor that she had failed to properly restrain the sale or delayed foreclosure. As a result of the trustee's failure to do so, the sale was held void.

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constructive fraud n. when the circumstances show that someone's actions gives him/her an unfair advantage over another by unfair means (lying or not telling a buyer about defects in a product, for example), the court may decide from the methods used and the result that it should treat the situation as if there was actual fraud even if all the technical elements of fraud have not been proven.

Constructive Fraud Law & Legal Definition (from uslegal.com)

Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also by made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.

Constructive fraud is considered fraud under the law although deceptive intent is missing because it has the same consequences as an actual fraud would have. It is a finding imposed in the interest of fairness and justice, such as to prevent violation of a public or private trust or confidence, the breach of a fiduciary duty, or the use of undue influence.

Black's law dictionary defines constructive fraud as "all acts, omissions, and concelaments involving breach of equitable or legal duty, trust or confidence, and resulting in damage to another, 38 Cal Rptr. 148, 157; i.e. no scienter is required. Thus the party who makes the misrepresentation need not know that it is false."