Securitization is NOT a “Traditional Mortgage Loan” Operation

Securitization is a relatively new innovation given the operation of the traditional mortgage loan industry over the last 70 years.

What is routinely overlooked is the fact that this entire new process and product development has been patented in the USTPO extensively by the banks. The loans that were sold at the turn of the century through present day are NOT traditional mortgage loans. This fact is further complicated because there was no meeting of the minds when the contracts were formed. Additionally, there are multiple defects that should literally void documents or cause defective products to be recalled.

This is a very complex subject. Many times it is too complicated for the average foreclosure court and defense attorney without additional education. “These [securitization patent issues] are the arguments that need to be made but they need to be in the context of a complex business litigation court not in a foreclosure/equity court,” voiced an experienced paralegal to a law professor, “[T]hese loans require the knowledge of various areas of complex litigation law – securitization, patent, real estate, finance, trust, etc.  It’s not as simple as John Doe signed a note and mortgage, failed to pay the note and mortgage and therefore since we hold the note in our hot little hands we can take John Doe’s house.” 

The reason that this is not just a simple routine foreclosure process is because the new products that were sold to homeowners are defined in new patented processes. Patents are for “new” inventions or discovery – for new products and/or process.

35 USC § 100 – Definitions

When used in this title unless the context otherwise indicates—

(a) The term “invention” means invention or discovery.

(b) The term “process” means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.

35 USC § 101 – Inventions patentable

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

35 USC § 102 – Conditions for patentability; novelty and loss of right to patent  

(a) Novelty; Prior Art.— A person shall be entitled to a patent unless—
(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or
(2) the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122 (b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.

There are numerous patents on securitization, REMICs, Mortgage Electronic Registration Systems, Inc., etc. For example, Paperless process for mortgage closings and other applications [Click Here for MERS Patent PDF] “relates to paperless transactions and the mortgage industry in particular, and more specifically to the closing, registration and custody of electronic mortgages.” The patent even used new terminology – these are “electronic mortgages” – not traditional mortgages. It’s debatable whether the documents could even be called “mortgage” – it is more like a chit in comparison to all the shadow banking and backdoor antics that occurred.

This MERS patent was filed on January 18, 2005 with its Priority Date of February 10, 2004 and published October 26, 2010. This is considered a “new” invention. The patent acknowledges:

“[T]he mortgage closing process is traditionally very paper intensive and tedious. Borrowers must affix wet signatures to many, many documents and lenders subsequently must physically copy, distribute, register and store the signed documents.”

It might as well have read,

“Hey man, not us – no paper documents needed. We’ll give anybody one of these new electronic mortgages – as long as they can breathe. We’ll flood the market with these defective  loan products and force it down their throats.”

However, and remember this was written back in 2004 (or earlier), behind the scenes there were changes being made to local and federal statutes that would support this “new” methodology, albeit without full disclosure to the borrower. The patent continues:

“The Mortgage Industry Standards Maintenance Organization (MISMO) has laid the foundation for paperless, electronic mortgages by defining the SMART Document specification. SMART is an acronym for Securable, Manageable, Archivable, Retrievable, and Transferable.”

The problem here is that the homeowner (aka borrowers) were never informed that the traditional mortgage lending process had been materially altered.

In order to securitize these loans it appears that the documents MUST become electronically transferable and in order to achieve electronic transfer-ability the UETA statutes must be precisely followed and UETA section 16 in most states require “explicit agreement” by the mortgagor at the creation of the document.

These issues NEED to be raised in order to be adjudicated.

FLAW #1:  Making reference to Mortgage Electronic Registration Systems, Inc. in a mortgage does not appear to be sufficient to provide “explicit agreement” pursuant to the UETA statute. Notwithstanding the fact that Mortgage Electronic Registration Systems, Inc. is just a shell corporation and NOT the registry system which is actually owned and operated by MERSCORP, Inc. and the MERSCORP, Inc. membership. Even if the words “Mortgage Electronic Registration Systems, Inc.” were a trade name for the system (which it is not) it does not indicate an “explicit agreement” is being obtained from the borrower when he signs the mortgage.

Furthermore, there are states such as New York and Washington that have not yet endorsed the UETA and eSign statutes. Even if the federal statute becomes the fallback position – it does not waive the necessity for electronic transfer-ability (per the patents) in this “new”  patented securitization process.

“Your honor, how did that loan become an asset of the REMIC trust, as the plaintiff alleges, when there is no explicit agreement by the homeowners here to allow for the electronic transfer of the documents which is a necessary element in the securitization process?”

This is not a traditional mortgage process. The courts must begin to recognize the facts behind the securitization curtain are a truckload of patents – “new” patents designed to create “new” products that are essentially defective because the laws were not followed.

It’s as if we are wading through a sandbox with a lot of kids who had failed to follow the rules and would rather ask for forgiveness than for permission. This is not just some little
ministerial mistake and the cover-up goes so far up the ladder that it is appalling. Judges with integrity are beginning to realize the scam but in order for them to sink their teeth into the crux of the problem – the source or the root of the issues must be raised. These convoluted issues stem from the conception of the patented securitization and electronic process.

If there was ever a question as to the fraud that could be committed through the use of electronic signatures – just take a gander at the abuse of the securitization process.

As Adam Levitin stated in Standing to Invoke PSAs as a Foreclosure Defense:

“A major issue arising in foreclosure defense cases is the homeowner’s ability to challenge the foreclosing party’s standing based on noncompliance with securitization documentation. Several courts have held that there is no standing to challenge standing on this basis, most recently the 1st Circuit BAP in Correia v. Deutsche Bank Nat’l Trust Company. The basis for these courts’ rulings is that the homeowner isn’t a party to the PSA, so the homeowner has no standing to raise noncompliance with the PSA.

I think that view is plain wrong.  It fails to understand what PSA-based foreclosure defenses are about and to recognize a pair of real and cognizable Article III interests of homeowners:  the right to be protected against duplicative claims and the right to litigate against the real party in interest because of settlement incentives and abilities.”

It also fails to take into account that there are numerous (hundreds) of NEW patents that are in play with this process. These are not traditional mortgages! These documents are clearly defective loan products. From the lack of explicit agreement per UETA to the rigged LIBOR interest rates to the phony baloney ShellGame-MERS – a straw man and a fake, these loan documents should be scraped as defective products.

Professor Levitin continues:

“Let me put it another way.  Homeowners are not complaining about breaches of the PSA for the purposes of enforcing the PSA contract.  They are pointing to breaches of the PSA as evidence that the loan was not transferred to the securitization trust.  The PSA is being invoked because it is the document that purports to transfer the mortgage to the trust.  Adherence to the PSA determines whether there was a transfer effected or not because under NY trust law (which governs most PSAs), a transfer not in compliance with a trust’s documents is void.  And if there isn’t a valid transfer, there’s no standing.  This is simply a factual question–does the trust own the loan or not?   (Or in UCC terms, is the trust a “party entitled to enforce the note”–query whether enforcement rights in the note also mean enforcement rights in the mortgage…)  If not, then it lacks standing to foreclosure.” [Read more]

You honor, what is it about this information you do not understand, yet? The biggest problem, aside from the judiciary worrying about their pensions if the banks collapse (which isn’t going to happen if the 1% that fight the banks actually win their cases), is that foreclosure defense attorneys are not always prepared to bring up new arguments or demand in-depth discovery because it takes too much time per case and they often have hundreds of clients to represent. But these issues must be addressed. And if they cannot be addressed in a regular foreclosure court because of the complexity – then possibly panels need to be established and the elements argued to the more legally prepared and astute judiciary without a conflict of interest in that they own stock in the banks.

Finally, somebody please tell President Obama that maybe he ought to concentrate on the securitization Trolls that created the patents and swoop down and carry off these violators since they did not follow the procedures and violated their own patents.

Or maybe another Supreme Court determination like the recent DNA case is necessary. Because land recordation is the very essence, in other words, the DNA of our country.

In a recent Supreme Court DNA patent case Justice Thomas wrote, “We have ‘long held that this provision contains an important implicit exception'” that is, “Laws of nature, natural phenomena and abstract ideas are not patentable.'” [emphasis added]

At the very least, securitization documents should not be allowed to be called “mortgage loans.”

A special thank you to Alina, Jack, Deb, Steve and Deontos for their in-depth discussions. Please take the time to read through this important post and pass along to your friends and family.