Fraud in the Factum and Your Mortgage

In this battle of foreclosure many issues have been raised. Looking at the issues pertaining to the Security Instrument, either the Mortgage or the Deed of Trust, and actually reading and understanding exactly what is being said, it causes one to wonder about the deceit and the planning that has gone into preparing this document. The implications of misapplying the actions stated with the Security Instrument are cataclysmic. A question of the Security Instrument being a valid contract or not, as there was never a meeting of the minds.

A Unilateral Contract

The contract for the Security Instrument was written by a party that did not sign the aforementioned contract. It was a unilateral contract. The lender is a professional company that deals with the issues of the securitization of negotiable instruments every day. The borrower, through a consciousness of innocence, has not been schooled in understanding the Uniform Commercial Code, or in Texas referring to the State’s equivalence, which would be the Business and Commerce Code. The homeowner was a participant to the misrepresentation of the transactions that were to take place within the Security Instrument.

I am specifically talking about the Fannie Mae/Freddie Mac Uniform Instrument that pertains to the Mortgage or Deed of Trust contract. Each state has its own version of the Security Instrument. Let us take a look down the yellow brick road of this instrument and see what we can find.

Fraud in Its Basic Element

Fraud in its basic element is about deceit, and includes the deliberate concealment of material information in a setting of the fiduciary obligations. These fraudulent acts were designed to mislead us into believing that what is written within the contract is true and correct.

“Fraud vitiates even the most solemn promise to pay,” see U.S. vs. Throckmorton, 98 U.S. 61, 65.

This principle, established by the United States Supreme Court, is the foundation for the argument that the Security Instrument may be void. If fraud is present in the formation of the contract, the contract itself is vitiated. It is not voidable at the option of one party. It is void. The implications for foreclosure defense are profound. If the Security Instrument is void, the foreclosure cannot proceed because there is no enforceable lien to foreclose upon.

The Disjunctive Word “Or”

In looking at the verbiage pertaining to covenant “20” of the Security Instrument “Sale of Note; change of Loan Servicer”; Notice of Grievance:

“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 the Borrower.” (Emphasis added by this writer.)

The word “or” in itself is disjunctive. The definition as defined in the Merriam Webster defines the term disjunctive as “expressing an alternative or opposition between the meanings of the words connected, the disjunctive conjunction or.”

This is a gross misrepresentation of the Security Instrument stating that a choice could be made between the Note, or a partial interest in the Note, with the result being the same. This is a legal impossibility as the Security Instrument can only follow a properly secured Tangible Note. In taking the words “or” and the word “and” we can apply them into a math formula and look at the results.

The Math of “Or” vs. “And”

• = is read as equality and means “is equal to”
• != is read as “not equal to” or “does not equal”
• and = C
• or != and but requires an A part and a B part to = C
• A does not = C
• B does not = C
• A + B might = C

A properly secured Note would have both parts attached to the Note. Both the Tangible and the Intangible. The Intangible being the promise to pay, or the partial interest. The Partial Interest is nothing but a Transferable Record, whereas the Uniform Commercial Code Article 9, or here in Texas referring to the State’s equivalence, would be the Business and Commerce Code Chapter 9 applies, but Local Laws of Jurisdiction do not apply to Transferable Records.

The use of the disjunctive “or” in this covenant was not an accident. It was deliberately chosen to allow the lender to separate the note from the Security Instrument. By using “or” instead of “and,” the contract creates the illusion that the Security Instrument can follow either the entire note or just a partial interest in the note. This is a legal impossibility. The Security Instrument can only follow a properly secured tangible note. When the partial interest is separated from the tangible note, the Security Instrument has nothing to follow.

Fraud in the Factum

The Security Instrument could be considered as Fraud in the Factum. A mortgage fraud investigation examines whether the Security Instrument was formed through misrepresentation. The Security Instrument cannot follow a partial interest of the Tangible Note. This is a type of fraud where misrepresentation causes one to enter a transaction without accurately realizing the risks, duties, or obligations incurred. This can be when the maker or drawer of a negotiable instrument, such as a promissory note or check, is induced to sign the instrument without a reasonable opportunity to learn of its fraudulent character, or essential terms. Fraud in the factum usually voids the instrument under state law.

One could allege it was never a contract to begin with. An example is a contract to commit a crime. The only distinction which can be made amongst penalties is regarding crimes and contracts. No one can contract to commit a crime; it would be void. See State v. Baltimore & O.R. Co.

The Illusion of the Lender

In looking at the implied actions that were to take place within the Security Instrument, one would see that an illusion on the part of the Lender who is using fancy word crafting is taking place.

The fancy word crafting in the Security Instrument is designed to create an illusion. The homeowner is led to believe that the note and the Security Instrument are inseparable, that the mortgage follows the note, and that the bank will hold both for the life of the loan. The reality, concealed within the disjunctive language of covenant 20, is that the note can be sold separately from the Security Instrument, and the Security Instrument can purportedly follow a partial interest. This is the illusion. This is the trickery. And it is the basis for a fraud in the factum argument that could void the Security Instrument entirely.

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Joseph Esquivel, Mortgage Compliance Investigators. Copyrighted, all rights reserved.