If Paul Revere were alive today he would be riding through the town warning “The REMICs have failed!” However, the government these days would go, “Shhhhhh!”
Most average homeowners have no idea what a REMIC is – actually most attorneys have no clue …. so, you know many of the Judges are completely in the dark. REMICs are a form of IRS tax shelter sold to investors as part of the mortgage-backed securities package (Real Estate Mortgage Investment Conduit (“REMIC”) pursuant to I.R.C. §§860A-G).
The documents that killed the REMICs may actually help save your home.
A new report by Oppenheim Law reveals “the Black Magic of Securitized Trusts”. The largest key to REMICs is that they are required to be passive vehicles, meaning that
mortgages cannot be transferred in and out of the trust once the closing date has occurred, unless the trust can meet very limited exceptions under the Internal Revenue Code. I.R.C. §860G. The 90 day requirement is imposed by the I.R.C. to ensure that the trust remains a static entity. However, since the mortgage-backed securities trust controlling documents, the Pooling & Servicing Agreement (PSA), requires that the trustee and servicer not do anything to jeopardize the tax-exempt status; PSAs generally state that any transfer after the closing date of the trust is invalid.
What does that mean to the average homeowner in foreclosure? Check the recordation office and look for the “Assignment of Mortgage” on your property – generally found just before the Notice of Foreclosure is filed with the State if your loan was securitized. Looking through hundreds of these beauties there have been few, if any, that were timely assigned to the trusts. How can you quickly tell if the Assignment of Mortgage has failed to make it timely to the trust?
The Assignment of Mortgage [below] shows a 2006 Trust – and a fraudulent assignment in 2009 – 3 years AFTER the Trust had CLOSED! Not only was it too late – but the Trust could not accept it pursuant to the REMIC of RFMSI 2006SA4 PSA and as further defined in the Oppenheim Law report. Assignments of Mortgage are public documents.
What was not known until very recently, in fact Delaware Attorney General Beau Biden brought it out in his case Delaware v. MERS, lenders generally failed to follow the PSA and properly assign the mortgage loans to the Trusts. In the transcripts that AG Biden cited from In re Kemp, 440 B.R. 624, 626 (Bankr. D.N.J. 2010) (No. 08-18700) (Aug. 11, 2009), an employee for Bank of America responsible for servicing the securitized Countrywide mortgage loans testified under oath that Countrywide did not have a practice of delivering original documents such as the note to the Trust and was not in the habit of endorsing notes at the bottom, but favored allonges that they made as they went along. She further testified that allonges are typically prepared in anticipation of foreclosure litigation, rather than at the time the mortgage loans are purportedly securitized. Both of these facts are contrary to the requirements of the PSA that the note be endorsed in blank and delivered to the trustee at the time of securitization. Thanks to foreclosure defense attorney, Bruce H. Levitt, of South Orange, NJ - Bankruptcy Chief Judge JUDITH H. WIZMUR totally got it! See her Opinion here.
The trust investors have been suing Countrywide and other Wall Street banks for inflated appraisals, systematically abandoning underwriting guidelines and over-rated bonds. The investors did not yet know that many of the mortgage loans failed to make it timely into the trusts and that the REMICs had been damaged. In fact, recently the IRS has taken notice and already initiated an investigation into the “active” activities of these trusts and the tax implications from them. Scot J. Paltrow, Exclusive: IRS Weighs tax penalties on mortgage securities, REUTERS, April 27, 2011.
Here’s a fine example of a (too) late Countrywide Assignment of Mortgage made in 2010 to a CWABS 2005-3 Trust. Did they just figure the courts were going to be oblivious forever? 
This is FIVE (5) years too late! Oh yeah, the REMIC has or should have failed. And it appears there are thousands, if not millions of these gems filed all across America in every state property recordation office – you just have to look.
Law Professor Adam Levitin, Georgetown University, describes the conflict the following way in the Oppenheim Law report:
“The trustee will then typically convey the mortgage notes and security instruments to a “master document custodian” who manages the loan documentation, while the servicer handles the collection of loans. Increasingly, there are concerns that in many cases the loan documents have not been properly transferred to the trust, which raises issues about whether the trust has title to the loans and hence standing to bring foreclosure actions on defaulted loans. Because, among other reasons, of the real estate mortgage investment conduit (“REMIC”) tax trust of many private-label securitizations (“PLS”) . . . it would not be possible to transfer the mortgage loans (the note and the security instrument) to the trust after the REMIC’s closing date without losing REMIC status.”
Levitin further points out:
“As trust documents are explicit in setting forth a method and date for the transfer of the mortgage loans to the trust and in insisting that no party involved in the trust take steps that would endanger the trust’s REMIC status, if the original transfers did not comply with the method and timing for transfer required by the trust documents, then such belated transfers to the trust would be void. In these cases, there is a set of far-reaching systemic implications from clouded title to the property and from litigation against trustees and securitization sponsors for either violating trust duties or violating representations and warranties about the sale and transfer of the mortgage loans to the trust.”
Without valid assignments, attorneys say that standing and jurisdiction issues rise to the top and may be asserted at any time – even first time on appeal. If the pretender lender did not have a standing to non-judicially foreclose because the assignment of mortgage is void, logically everything thereafter would be a nullity – that could open up a can of worms beyond the pretender lenders’/servicers’ repair.
These documents appear to have been fraudulent and as lawsuits assert – were
intentionally prepared and executed to unlawfully confiscate the property from the homeowners. It appears it was easier to create the fraud and get paid by default insurance or credit default swaps than it was to modify they loans with the homeowners. Not only was there fraud on the homeowners, but also on the investors.
But could REMICs be why the investors don’t partner up with the borrowers? They were both duped. The borrowers unwittingly relied on the [inflated] appraisals and had no idea that the underwriting guidelines had been “systematically abandoned” – just like the investor claims. But there is one big difference…
If the investors include the borrowers, the fraudulent assignment of mortgages will surface and the REMIC fraud will float to the top like a dead body in a botched murder case…. and somebody will be stuck with paying the IRS – even if the investors win the case and get their investments back.
Could these fraudulent assignments save your home or undo the foreclosure? That’s a question to ask a competent foreclosure defense attorney and have him review your file.
Next, we need to follow the money… who actually got paid, how much and when??
NIcely done
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The only problem with this defense is that, rightfully or wrongfully, some judges are taking the position that the defendant in a foreclosure proceeding does not have standing to raise the issue of a late assignment which is violative of the terms of the PSA. Their reasoning is that so long assignor and assignee (i.e., the trust) don’t object to an assignment of the mortgage after the cut off date, then the foreclosure defendant has no right to complain. This results in the defendant being unable to use this defense. I don’t agree, but this has nevertheless been the ruling in at least a few cases.
Nobody said all Judges were pillars of integrity, astute or had clerks that could handicap a horse race. The issue is clearly standing and leads to jurisdiction that many attorneys have missed even pleading in trust cases. In order to foreclose, judicially or non-judicially, the Plaintiff must have standing to bring the claim. If the Assignment of Mortgage is faulty or in fraud there likely is no standing. An Assignment of Mortgage to a NY Trust is governed under NY Trust laws. Under New York Trust Law “every sale, conveyance or other act of the trustee in contravention of the trust…is void.” New York Estates, Powers and Trusts § 7-2.4. Further, given that New York Estates Powers and Trusts Law section 7-2.1(c) authorizes a trustee to acquire property “in the name of the trust as such name is designated in the instrument creating said trust property,” there should be little doubt that for transfer to an trustee to be effective, the property must be endorsed in the name of the trustee for the particular trust.
“New York trust law requires strict compliance with the trust documents; any transaction by the trust that is in contravention of the trust documents is void, meaning that the transfer cannot actually take place as a matter of law. Therefore, if the transfer for the notes and mortgages did not comply with the PSA, the transfer would be void, and the assets would not have been transferred to the trust. Moreover, in many cases the assets could not now be transferred to the trust.” Source: Congressional Oversight Panel, Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation, November 16, 2010 page 19. If Congress recognizes that these Assignments are void, which means the Plaintiff Trust has no standing – then any judge ridiculous enough to side with his banker buddies should be appealed… and hopefully, run into a Judge Rakoff-type appellate panel.
The problem is there have been too many bad foreclosure defense attorneys that have mucked up the water for the good guys causing many of these decent cases to have to be appealed. The point is – shove the lack of standing and jurisdiction at the courts, even on appeal. The borrower may not have the damages from the failure to properly and timely assign the mortgage loan docs to the trusts,* but he certainly can raise the issue that the Trust does not have standing to pursue a claim without a valid assignment. There are differences between mortgage lien and DOT states. In a mortgage lien state the title remains with the borrower – where in DOT the title is invested in a beneficiary or trustee and the chain of title may appear to be less of a problem, but isn’t MERS many times the DOT “trustee/beneficiary” who made the untimely fraudulent assignment?
Let’s look at this one other way – if the states can go after the banks for their fraudulent assignments filed in the state recordation offices and they are not parties to the PSA, it would seem plausible that a borrower, whose collateral was used to bait investors to buy into a trust, could make a successful defense when an assignment is void. As bank friendly and conservative as our Hawaii court system is – Dubin Law Offices in Honolulu have had 36 victories this year, the majority of which were NJF at the Writ of Ejectment (eviction) stage.
*At least not like the investors.
The quote for the week: When practicing appellate law, there are at least three immutable rules: first, take great care to prepare a complete record; second, if it is not in the record, it did not happen; and third, when in doubt, refer back to rules one and two. State Comp. Ins. Fund v. WallDesign Inc., 132 Cal.Rptr.3d 352 (Cal. Ct. App. Oct. 20, 2011)
It is a huge question whether the EPTL statute applies to corporate trusts. The whole of the statute seems to indicate it does not. This does not mean that NY trust law is forgiving for corporate trusts but raising EPTL as the basis for your argument in a REMIC context carries serious risk of negatively impacting your cases and others’ cases.
If raising EPTL is a problem then somebody ought to tell Congress and NY AG Schneiderman. Apparently, on good authority the Congressional Oversight Panel already raised the issue in their report and I doubt they lacked adequate authority. COP Report at page 19 stating:
“[I]n order to convey good title into the trust and provide the trust with both good title to the collateral and the income from the mortgages, each transfer in this process required particular steps. Most PSAs are governed by New York law and create trusts governed by New York law. New York trust law requires strict compliance with the trust documents; any transaction by the trust that is in contravention of the trust documents is void, meaning that the transfer cannot actually take place as a matter of law. Therefore, if the transfer for the notes and mortgages did not comply with the PSA, the transfer would be void, and the assets would not have been transferred to the trust. Moreover, in many cases the assets could not now be transferred to the trust. PSAs generally require that the loans transferred to the trust not be in default, which would prevent the transfer of any non-performing loans to the trust now. Furthermore, PSAs frequently have timeliness requirements regarding the transfer in order to ensure that the trusts qualify for favored tax treatment.”
Of course, the banks would hope that EPTL wouldn’t include them – but it appears that the opinion on that train has already left the station.
The issue is actually fraud and forgery – appears to be in the neighborhood of RICO. We now are finding that the mortgage documents were being used for various purposes other than sitting in static trusts… And it appears that’s why the endorsements were not timely or properly handled.
You miss the point. EPTL is not the sole source of NY trust law and if you cite to a statutory provision designed for estates and not REMIC trusts, you will lose the argument. NY common law is just as strict as the EPTL, if not more so, but to win the argument one must know the difference and cite to the correct law.
I agree with the position of the majority of the courts which have held that the homeowner does not have standing to raise the issue of the rights of the investors. I am, however, taking the position that the homeowner has standing to raise the issue that the Trustee of a REMIC Trust cannot claim the right to foreclose on a mortgage when the promissory note and mortgage were not transferred to the trust as a matter of fact. The issue remains to be determined as to whether or not the Trustee has standing to foreclose. If the loan is not in the trust, then the Trustee does not have standing to foreclose in the name of the trust.
The Congressional Oversight Panel has already given the green light to prosecute these banks and highlighted the RICO clues. With that said there is a Supreme Court case, ROBERT G. HOLMES, JR., PETITIONER v. SECURITIES INVESTOR PRO-TECTION CORPORATION, ET AL., 503 U.S. 258; 112 S. Ct. 1311; 117 L. Ed. 2d 532; 1992 U.S. LEXIS 1947; 60 U.S.L.W. 4225; Fed. Sec. L. Rep. (CCH) P96,555; 92 Cal. Daily Op. Service 2460; 92 Daily Journal DAR 4030; 6 Fla. L. Weekly Fed. S 89 (Decided March 1992), where O’Connor, J., joined by White and Stevens, JJ., con-curring in part and concurring in the judgment, expressed the view that “a plaintiff need not be a purchaser or a seller to assert RICO claims predicated on securities fraud, given that the relevant predicate offense is 32 of the 1934 Act (15 USCS 78ff(a)), a criminal provision as to which the purchaser-seller standing requirement is of no import.” And Scalia, J., concurring in the judgment, expressed the view that “(1) the purchaser-seller limitation applicable to private actions under Rule 10b-5 does not apply in civil RICO cases alleging Rule 10b-5 violations as predicate acts, given that the action under 18 USCS 1964 is con-gressionally created, unlike the action under Rule 10b-5, which action was created by the court itself;”
The question asked on Appeal: was “the Ninth Circuit correct when it held that SIPC need not be a ‘purchaser or seller’ of securities to sue under Section 1964(c), which provides that ‘any person’ may sue for ‘injury to his business or property’ ‘by reason of’ ‘any offense … involving fraud in the sale of securities … punishable under any law of the United States,’ wire fraud, or mail fraud in violation of Section 1962?”;”
Let’s face the facts – this was a scheme that was even patented. It wreaks RICO! Qui Tam if we must. The investors have sued for “inflated appraisals, systematically abandoned underwriting guidelines, and over-rated bonds – the homeowner had no control over any of these issues. In fact the investors had more opportunity and disclosure of the scheme than the homeowner who unwittingly participated and made his decision to borrow based upon the [fraudulent] appraisal. By 2006, the banks were no longer using appraisal as their basis for lending. They patented a process that used the borrower’s credit score, “ability and willingness to pay” to come up with a figure and then went shopping for an appraiser to meet the figure in a fraudulent inflated appraisal. Homeowners thought they were making a good investment and when they hesitated, there was a patented speech contrived by the banks that assured the homeowner he could refinance if he kept his credit score up.
The majority of homeowners had stellar credit. 8 out 10 called the banks for help before they missed a payment. They were told they had to miss 3 payments in order to get help – but that actually put them into default – where insurance monies kicked in and paid off the banks. There was never any plan to help the homeowner to anything, but out of their house – so the banks could continue to churn and burn. They wrote more loans than they can hold – the jig is up. To allow foreclosure and eviction to continue knowing that there is no where for these mortgages to go is to aid and abet the fraudulent activity – whether it is Obama, Holder, Geithner or Congress. There are more loans than the banks can legally hold – modification is a ruse just taking up time to get past the statute of limitation for fraud. Because that is exactly what this mortgage securities scheme was – a Ponzi scheme. A Ponzi scheme that created $700 TRILLION of debt. The homeowners did not do this – Wall Street did.
So, when it comes to the question of “can a homeowner point to the PSA and the forged and fraudulent assignment of mortgage?” We know that the banks know it is forged and fraudulent – push the fraud and RICO button because this was a securities fraud and the homeowner and his collateral are certainly unwitting indispensable 3rd parties. Damage to the homeowner: fraudulently inflated property value, inability to sell the property, inability to enjoy the property, inability to refinance the property, loss of equity and investment, clouded titles, and this scheme caused the economy to collapse – loss of jobs, hours, wages; all causing stress, divorce, health issues, death – this was a (literally patented) financial force majeure.
The continuing (and arguably greater) problem is that almost all these Trusts, including the REMIC trusts, are constituted under New York law [as "Deadly Clear" points out], but the cases being argued are in disparate States. The Judges in those other States are not familiar with the stringent requirements of NY Trust Law, which is very different from other States, and you get these uncomprehending looks from the Bench (and bad Decisions). Counsel raising these points are advised to be thorough in studying the NY Trust Law and know how it strictly structures the transactions. Note with particularity that the requirement that “any transaction by the trust that is not in compliance with the trust documents [i.e. the PSA] is void” will include a “deposit” by another of an asset into the Trust, and is not limited to acts of the Trustee, since the trustee is accepting the proffered late asset, albeit passively. Educating the Court is an uphill battle; it is not possible unless the advocate himself is fully prepped.
One of the issues I am bring before the federal court in Brooklyn is the NOD process that starts the foreclosure in all states is fraudulently created by parties that have no personal knowledge of any ownership rights of anyone mortgage loans and are not from the law firm as represented on the notice, in fact the whole process has been create by a inventor with a published application with the United States Patent and Trademark Office, and a filed copy write assigned to law firm in Texas with the U.S. National Bank Association as the Agent, what they have done is created their own debt collection practices. When I was reading the public statement of the Nevada Attorney General Office one thing he said that is the focus of the suit is ” no industry has the right to circumvent state statues” As I sit here looking at theis stuff I say to myself how the hell can they use a arts and science invention give it a trade name and use that trade name to create documents to start the foreclsoure process in all 5 states? I take that back world-wide ?
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“some judges are taking the position that the defendant in a foreclosure proceeding does not have standing to raise the issue of a late assignment which is violative of the terms of the PSA. Their reasoning is that so long assignor and assignee (i.e., the trust) don’t object to an assignment of the mortgage after the cut off date, then the foreclosure defendant has no right to complain.”
I think the judges are right as far as standing is concerned. What they overlook is that the foreclosing party has “unclean hands” rendering the equitable remedy of foreclosure unenforceable. By concealing the fact that untimely delivery was made to the REMIC trust in contravention of the explicit requirements of the PSA, a fraud has been perpetrated upon investors and the IRS. By enforcing foreclosure, the courts are aiding and abetting the commission and concealment of a fraud.
Furthermore, given the dishonesty of the assignor, one ought to also question whether the assignor can document that it actually owns and holds the note. For all we know, the note may actually be in the possession of another link in the chain of mortgage title.
How can investors object to something they don’t know about? After speaking to investor attorneys I’m pretty convinced that they didn’t know the mortgages weren’t assigned to the trust… and that they don’t want to address this because it affects their (lack of) due diligence, not to mention who gets stuck with the IRS bill?
I have one case in which the second mortgage lender proceeded to foreclose on the first mortgage and pretended it was foreclosing on the first mortgage, but attached the second mortgage note to its pleadings. The law firm for the second mortgage creditor also represents the first mortgage creditor. On motion to vacate the judgment for fraud (I got the case after the default judgment was entered) the second mortgage creditor claimed that the first mortgage note had been lost and the finally produced a copy of the first mortgage with a robosigned endorsement in blank. It is easy enough for the law firm representing both banks to order a copy of an instrument from the client, but I am convinced that the first mortgage holder does not know that its first mortgage was foreclosed by its own law firm in favor of another client of the law firm. This is an example of the note being in possession of another link in the chain of mortgage title. I now believe that the law firm is acting criminally because it is on notice that it is using a note belonging to one of its clients to foreclose in the name of the other. This is a good example of a double claim on the same indebtedness, but the courts in that state have so far dodged the issue.
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My understanding is that there is no statute of limitations on fraud. A massive class action lawsuit seems to be begging to be launched here. Peace.
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