Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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One of the debt elimination scams is based on the myth that after closing a mortgage that a borrower can simply rescind the transaction and is entitled to the release of the lien without having to return the funds advanced at closing. The scam artists claim that for a fee they will show a borrower how they can rescind the loan and still keep the house.

Borrowers are entitled to a statutory right of rescission under Federal law in respect of certain lending transactions. That right of rescission is typically for three days, but can be extended when the borrower isn't given two copies of the notice of the right of rescission at closing. (Usually, the borrower signs an acknowledgement of the receipt of the notice at closing, though a signed receipt is not strictly required but helps the lender overcome a proof problem.)

What the scam artists twist and distort is that somehow a borrower can exercise this right to rescind, while keeping the loan proceeds. This is utter hogwash.

Rescission can, in certain cases, be a robust and powerful borrower club. With a valid rescission, the borrower can actually escape interest and even various closing fees. But the principal still needs to be tendered and returned.

There was an interesting case last week out of Texas that discussed rescission using the vocabulary of conditions precedent:

[i]McDonald v. Franklin Credit Mgmt. Corp., No. 12-12-00029-CV (Tex. App. - Tyler, January 31, 2013)[/b]

As can be seen from the discussion of the case, this suit is a variant on the Quiet Title debt elimination scam.

The borrower is encouraged to pay thousands of dollars to the scam artists who will "coach" the borrower in bringing an action to quiet title and extinguish the endebtedness. This often begins with the specious "rescission". Most often, the borrower loses the house very quickly, but the borrower continues to pay the scam artists for months or years as the specious Quiet Title suit wends its way through the courts.

In the McDonald case, Charlie and Elaine McDonald seem to have bought into this debt elimination scam even before the market meltdown, possibly one of the scams marketed by one of the militias of the soveraign citizens movement. After purportedly rescinding (without tendering a return of principal), they deeded the property to Brent McDonald, whose relatiopship isn't identified, during the pendency of a suit againt Charlie and Elaine McDonald.

It seems that the theory suggested by the scam artists was that by deeding an interest to Brent, another member of the family, they could escape the effects of the order in the first suit. Then, without ever actually tendering the principal, Brent would sue for recovery of the property.

This is exemplary of all of the debt elimination scams. There is always a sprinkle of truth around which the valious lies and myths can be wrapped. In this instance, the elements of truth included that there exists a right of rescission. The myth is (a) that it can be exercised by all for more than 3 days and (b) that the lien can be rescinded without return of the principal.

The second element of truth is that a non-party to a suit is usually not bound by the order. (Thus by deeding the property to Brent, the McDonald's thought they could escape the consequences of the first judgment.) The myth is that this is effective when a plaintiff files a lis pendens, which puts the world on notice of the pendency of an action. Brent accepted the deed with constructive notice of the pendency of the suit. Brent could have intervened in the suit, but failed to do so. The lis pendens has the effect of getting the judgment ahead in priority of the deed to Brent.

Instead of focusing on the specific requirements of the Federal rescission statute, the Appellate Court focused on the McDonald's failure to plead that they had satisfied conditions precedent. Usually, in judicial foreclosures, it is the borrowers pleading conditions precedent as defendants. But when the borrowers bring an action as plaintiff, it is the borrowers that must necessarily bear the burden to both plead and prove conditions precent in conformance with the rules. The shoe is on the other foot!

Of course, the scam artists leave the details about conditions precedent out of their package of bogus pleadings for sale to idiots like the McDonalds. To focus on conditions precedent would be to remind the victims of the scam of one of the central myths upon which the fraud is based.


This case is simply instructive of another of the many ways the scam artists profit from the gullible. It seems to be outside of the record how many thousands or tens of thousands were paid by the McDonalds to the scam artists, who sit on the sidelines and collect monthly fees while cheering the McDonalds on in their totally specious suit.

The scam artists are the only winners!

Ben Franklin: "A fool and his money are soon parted!"
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