Notes, Mortgages and Signature Loans A promissory note is not negotiable in the consumer marketplace (general economy) until a depository institution (bank) takes ownership and deposits it into an account. (A consumer cannot buy groceries with a promissory note.) The account into which the deposit is made appears as an asset equal to the value of the note and a liability equal to the negative value of the note. The entries balance to zero. The record of this transaction is made in an accounting ledger that is subject to audit and public disclosure. This method conforms to the Generally Accepted Accounting Principles and the rules promulgated by the Federal Reserve Board.
The bank then draws a check from this account to pay the seller of the property being purchased. The seller’s bank accepts the check as a deposit, just like the first bank that accepted the note as the deposit. The note is the money owned by the maker, the bank customer, before the bank (lender) takes ownership and deposits it. The note or deposit is then transferred to the seller of the property in the form of a check to pay for the property. The first bank obtained ownership and possession of the note without risking any assets and in exchange for giving the bank the note and making it negotiable in the consumer market place, the bank customer agrees to pay the bank the value of the note, what the bank calls “principal,” plus interest and fees.
The idea of a “principal” is a fiction that represents the value of the note; it is not the actual note. There is no principal. The money for the property came from the buyer’s note. The buyer could not give the note to the seller directly because the banking system will not allow it, it would be considered counterfeiting without the bank being involved.
The bank must claim the existence of principal so that interest can be charged against something. The bank cannot charge interest against the note because it was used to buy the property. The bank is charging interest against the value of the note, what it calls the “principal.” The customer’s money, the note, was first deposited into the $0bank’s account and then transferred to the seller’s bank account. Only banks can do this because only banks have the license and the monopoly in the banking industry. Only banks have access to clearing houses (databases for commercial paper) for checks, consumers do not, so consumers are not able to negotiate checks or notes without the banks.
Example, a $100,000 promissory note on deposit: for Bank Customer (depositor): Asset Liability Balance + $100,000 – $100,000
The cost to the consumer, or bank customer, for this service is what the bank calls the “principal” plus interest and fees. The bank secures the payment of this money by having the depositor, the bank customer, sign a mortgage. A mortgage is a lien against property that gives the bank legal title and one hundred percent equitable interest until the customer acquires more equity by payment. The customer acquires legal title once the mortgage is satisfied. There are two transactions, one where the note buys the property and the other where the buyer pays the bank for providing the service of moving (birthing) the note into the economy to make it negotiable, otherwise known as the mortgage. The first transaction is called the note and the second is called the mortgage.
The mortgage is a bank receivable, an asset to the bank, and the bank wants the depositor of the note, its customer, to believe that the bank originated the funds for the purchase of the property and that paying on the mortgage is the way to pay it back. Because the customer is truly the depositor, the originator of the funds, it is the principal or the value of the note that is owed to the customer and not to the bank. Legally, the mortgage should be set aside as being null and void for failure of consideration and disclosure violations of the truth in lending law; however, experience tells us the best way to remedy the inequity of the arrangement is to sue the bank for the return of the deposit, “money lent.” Yes, many of our subscribers have forced many banks to withdraw their complaints in about three to six months of litigation (both secured and unsecured collection). In fact, it has worked perfectly in all of the collections described in our publications with the exception of mortgage and student loan collections. In these categories of collections, we have seen the banks default in some and are waiting for results of the rest, but over the last eight years and approximately 2,000 collections, no collector or creditor has succeeded in taking any property of our subscribers who follow the program, for any collection.
The bank is unable to identify the source of the funds for the principal it claims to be owed and against which it is collecting interest and fees. Because there are only two parties to the note and two parties to the mortgage (borrower and lender), and one of them cannot establish that it provided the funds for the account, we must conclude that the other party, the bank customer, provided the funds that created the account. If the bank truly provided the funds like it wants everyone to believe, then the bank would be able to identify the account that was debited when the loan account was created. In reality, the bank customer is paying the value of the note twice, once by trading his note for property and the second time by paying the bank what they call the principal, then he pays an additional two or three times the value of the original note in interest.
If the truth were admitted, an equitable arrangement would be where the bank is allowed to maintain its monopoly and only charge the customer a fee for creating money. The customer would buy property with his note through the banking system, and the bank would charge a fee for this, maybe a percentage of the note. The fee would be limited by law to less than the value of the note. Instead, the bank receives the value of the note at no cost plus two or three times the value of the note in interest and if you don’t pay, the bank gets the property as well.