When I worked for Goldman, and later McKinsey, professionals at each firm would joke about presentations that passed the weight test. That tag line referred to documents heavy enough to land on a client desk with an impressive “thunk” so as to seem intimidating even before opening them. The implication was that length could and did serve to finesse substance.
Paul Jackson’s nearly 2600 word post endeavoring to address our previous critique of his analysis appears to be a similar weight test exercise. I do not mean to suggest that Jackson is seeking to deceive; rather, as I posited before, his main sources continue to be unnamed attorneys who are come from the securitization industry, given how closely his arguments hew to American Securitization Forum party line. A journalist is only as good as his sources, and it appears that Jackson has made at most only token efforts to reach out beyond his circle of usual suspects. It ins’t much of a stretch to imagine that some, perhaps quite a few, of his sources have exposure to liability based on securities law opinions they have provided and hence would be particularly eager to muddy the water on these issues to deter investor lawsuits.
While Jackson also claims to have invested “weeks” of research into this topic, this pales compared to the career-spanning efforts of legal authorities like New York trust law experts Professor Ira Bloom and Professor Adam Levitin, who are in complete opposition to the Jackson assertions (and remember that Jackson is not even an attorney).
Despite his claims of speaking to “trust attorneys in New York”, his analysis he presents on that issue is such a gloss as to call into question either the expertise and/or objectivity of the individuals he conferred with. As we indicated, the other three top New York trust law experts concur with the Bloom/Levitin reading (they are if anything more forceful in their position). Why did Jackson not call Levitin, who is accessible, if he really wanted to give a fair treatment of this topic? Sadly, the caliber of this post strongly suggests that Jackson’s readings come directly or indirectly from securitization industry sources, rather than resulting from a bona fide effort to get to the bottom of these issues.
Despite its length, Jackson’s post effectively makes only two points, and we will address each in due course. But from an argumentation standpoint, it fails for two reasons:
1. In many cases, the rebuttals offered are simply irrelevant to the arguments at hand.
2. The post engages in considerable misrepresentation and straw-manning of the analysis we and others have made concerning the problems with mortgage securitizations
Jackson frames his entire post around this straw man: “issues surrounding securitization trust validity.” And he fails even in his effort to refute that issue effectively.
Note we have never treated the question of whether the trust were void (a possibility under New York law if no assets were conveyed to it as of closing) as the basis for our argument. It has always been an aside, a passing mention of a worst case scenario. The securitizations have serious problems, both under New York trust law (which governs virtually all mortgage securitizations) and the laws of many states, without considering this extreme scenario.
So the entire piece is effectively an effort to divert attention from the real argument, which continues to be that the attempt to transfer collateral was inadequate as it relates to the collateral. Thus the trust is unable to establish that is has standing to foreclose in its name. This means, to use Adam Levitin’s turn of phrase, that they may be “non-mortgage-backed securities”, effectively unsecured consumer paper, when they were sold as something with far better credit protection. Now clearly, banks are still able to foreclose in many cases, but the more borrowers and judges wise up to the problems that the securitization industry itself created, the more often foreclosures will be contested successfully.
Jackson’s irrelevant rebuttal focuses on one leg of the standard two-leg spurious rejoinder: the securitization document is valid (his focus) and and the mortgage is valid. Neither point is in dispute.
One can only conclude that Jackson and his sources do not understand the argument or do not want to address it.
But let’s have some fun and shred Jackson’s diversionary discussion anyhow.
His post covers two bases:
1. For New York trusts, intent is sufficient to achieve conveyance
2. The revelation in Kemp v. Countrywide, in which a Countrywide executive said that Countrywide customarily retained the notes (the borrowers’ IOUs) rather than transfer them to the securitization trusts, as required in the governing agreement (the pooling and servicing agreement, or PSA) is not potentially significant as we and others have argued
Let’s go to his New York trust argument. The reason New York trust law matters is that the trusts are the owners of the borrower notes and related liens (confusingly called “mortgages” or in some states, “deeds of trust”). Thus they are the parties that can foreclose, and they are pretty much always stipulated to be governed by New York law.
Jackson chides yours truly for not offering a legal analysis, which is amusing, since a legal analysis would run to at least the length of a law review article. He offers a teeny legal argument (which he incorrectly implies is tantamount to a legal analysis). I’m going to reproduce the entire section from his post:
It turns out that in New York common law, a single case, Brown v Spohr (1904), has become axiomatic in establishing the essential elements of a valid trust. Those elements, very specifically and verbatim:
1) A designated beneficiary;
2) A designated trustee, who must not be the beneficiary;
3) A fund or other property sufficiently designated or identified to enable title thereto to pass to the trustee; and
4) The actual delivery of the fund or other property, or of a legal assignment thereof to the trustee, with the intention of passing legal title thereto to him as trustee.Here, I want to zero in on the fourth element of a valid trust, as it is the most relevant. In particular, notice that “actual delivery” of the asset to the trust is not the sole method by which one can convey an asset into trust; a “legal assignment” to the trustee is considered equivalent to and, on the basis of this language, indistinguishable from actual delivery for the purposes of establishing the validity of, and conveyance into, a trust.
Regardless of whether via actual delivery or legal assignment, New York trust law also recognizes the foundational importance of “the intention of passing legal title” (emphasis mine) to the trustee. The language used clearly does not require “the act of passing of legal title” in order for a valid trust to exist, or for conveyance; nor should passing legal title to property be confused with either delivery or legal assignment of the same.
Yves here. This is pretty far off beam. First, even if a single case is a key precedent, reasoning from it in isolation is dangerous, and in this case, misleading. Second, he has conveniently excluded key context, which is the requirements of the pooling and servicing agreement.
While PSAs differ in some particulars, as a general rule they hew to this form:
In conjunction with that assignment the depositor will deliver for each mortgage loan… the following documents and things:
The PSA then goes on to discuss transferring the actual underlying assets in the form required which is endorsed properly through the chain of ownership showing all intervening endorsements from the party originating the loan to the last endorsee. Note that this is not simply stipulated in Article 2 of the PSA, which is where most people look for this language. It is set forth in this sort of detail, typically requiring specific endorsement (NOT endorsement in blank) in the custodial agreements or the trustee’s acceptance certificates. These indicate that the endorsements will be completed in the form required with the time frame set forth in the trust agreement.
And remember why endorsement is important. Promissory notes are negotiable instruments. If they are not endorsed properly, ownership has not been conveyed. If someone hands you a check made out to them and fails to endorse it over to you, you similarly cannot deposit it.
Now why does this matter? An important concept is that symbolic delivery, which is what this “legal assignment” amounts to, is kosher ONLY IF physical delivery cannot be effected. And various New York decisions take a pretty strict view of that matter. I’ve only pulled a few examples, but here is an appeals decisions that has been cited recently (and hence is considered valid as precedents) with germane language. From the New York Appeals courtMatter of Szabo, 1961:
This court has said: “The delivery necessary to consummate a gift must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonably permit; there must be a change of dominion and ownership; intention or mere words cannot supply the place of an actual surrender of control and authority over the thing intended to be given.” (Vincent v. Rix, 248 N. Y. 76, 83.)
Szabo is discussed in later decisions (see here, in 1984) as clarifying certain matters in Vincent v. Rix, which is the foundational case; in more recent decisions, Szabo and Gruen v. Gruen are cited as critical precedents.
Now let us go back to Jackson. Consider the language from Vincent that is reaffirmed in Szabo, that the delivery much be as perfect as circumstances permit. We had over 15 years of notes being endorsed thorough the full chain of title and delivered to the trustees before the securitization industry appears to have decided this was too much bother. So they can’t fall back on the excuse that the requirements the industry itself devised and kept commemorating in contracts on an ongoing basis were just too onerous to adhere to.
In addition, “there must be a change in dominion and ownership”. A note endorsed in blank back at the originator, or anywhere other than in the hands of the trustee, could easily by accident be treated as property of the party possessing it. These are bearer instruments if endorsed in blank, as we are told many were; if endorsed specifically, they are “owned” by the last endorsee. The only way to make sure that the note ownership was transferred would have been to endorse it properly, though the full chain of title, to the trustee (NY law actually calls for it to be endorsed to the specific trust, but we’ll skip that nicety for now). Thus the failure to deliver and properly endorse a negotiable instrument fails both the dominion and ownership standards.
Now is this reading definitive? Hardly, which is why matters like this are better left to recognized authorities in this space, and not the unnamed individuals Jackson prefers to consult. The mere incorporation of a few considerations that Jackson confidently breezes over based on his few weeks of chatting with sources and reading some cases shows that there are plenty of precedents favoring our reading.
This is why the entire discussion Jackson advances on “legal assignment” argument is a fail. So you can ditch the entire discussion on his post in the sections on “New York trust law, and the importance of intent” and “Controlling law and context”.
He also makes a leap in the next section, on the UCC. We’ve indicated repeatedly that the germane section of the UCC is Article 1, which allows parties to hold themselves to requirements other that those set forth in the UCC. The argument as to which section of the UCC is germane in interpreting a PSA is one that to my knowledge has rarely if ever been presented to a judge in a foreclosure case. And it would not have changed the outcome in Kemp. So Jackson declaring a decision that mentioned Articles 3 and 9 of the UCC in passing cannot be deemed to be definitive.
Now let us turn to the part of the post that deals with our arguments on Kemp v. Countrywide. Again, we have a lengthy argument that utterly misses our point. In this case, we weren’t as explicit as perhaps we might have been. But Jackson is big on projection; he makes an anticipatory warning in a tweet about not putting words in his mouth, and then goes and does precisely the same thing.
The really funny bit about this section is how confused it is. He actually concedes the point we are making, then twists himself in knots to make another spurious argument. Here is his critical admission:
There is a difference between a trust owning an obligation, versus having the ability to enforce it.
Did Jackson not get the memo? If the trusts can’t enforce their obligations, meaning foreclose, they have non-mortgage-backed securities! Glad to see you agree that the scenario that the industry critics are worried about is a legitimate concern.
But no, Jackson immediately reverts to saying anyone who says anything bad about securitizations is wrong and ignorant to boot:
One of my sources noted last week that if an attorney-in-fact held possession of a note indorsed in blank, it’s the same thing as the trust holding the same. Naked Capitalism’s Smith derided this view:
Huh? The servicer is not the attorney-in-fact for the trust in Kemp. If they were, the attorney for BofA would certainly have tried this argument. In fact (hah!), the judge notes the plain language of the PSA, that the loan was supposed to be delivered to the trustee, and all parties agree in the case that this requirement was not met. Does this attorney know ANYTHING about securitization?
I won’t ask Smith a similar question about her knowledge of servicing practices, as I should have explained my source’s remark more clearly. Every servicer I have ever seen in a private-market deal has a limited Power of Attorney that grants them the ability to act as attorney-in-fact for the trust they are a named servicer for. And it’s my understanding that an attorney-in-fact for the trust holding on to assets owned by the trust constitutes “actual possession” to the trustee itself.
Why is this argument barmy? It’s utterly circular logic and falls apart when examined.
Let’s go through the logic, and you also need to look at the Kemp decision, which Jackson either did not do or did very selectively. The bankruptcy judge understood clearly an issue we’ve raised earlier, that “Countrywide” is not one beast. Countrywide as servicer is most decidedly not the same as Countrywide as originator:
Pursuant to the PSA, Countrywide Servicing, and not Countrywide, Inc., was the master servicer for the transferred loans.
So query: by what mechanism can Countrywide as originator, one legal entity, legitimately transfer the notes to Countrywide as servicer, a different legal entity? A power of attorney allows a designated party to act in the place of a principal. That means it can never have rights or authority beyond those held by the principal; by nature, a principal cannot confer rights or powers it does not have.
You can’t convey possession of an asset you don’t possess via a power of attorney. This is a complete non-concept. The only way the notes can legitimately get from Countrywide as originator to Countrywide as servicer is via conveyance to the trust, which everyone in the Kemp case agrees did not happen! Per the judge:
Because the Bank of New York never had possession of the note, it can not qualify as a “holder” under the New Jersey UCC.
To put it more simply, any provisions of whatever standard form power of attorney that Countrywide as servicer was conferred by Bank of New York would be invalid to the extent those provisions relied upon possession of the note.
As we indicated earlier, Jackson has again reverted to a tactic we’ve seen in his earlier work, to focus on one point of an argument which he considers to be weak (in each case, incorrectly) and then try to pump it up to suggest all criticisms by the same parties are invalid. And as we’ve said repeatedly, if the industry thinks all it has to do is muddy the New York trust arguments, which was the focus of Jackson’s piece, it is smoking something very strong. From a recent post:
Thus even if the overarching issue remains unresolved due to continued timidity of investors, the odds are high that RMBS will have enough uncertainty regarding the ability of trusts to foreclose as to look more and more like unsecured consumer debt. That alone is a sufficiently damaging outcome that it ought to focus the mind of the ASF. Instead its reflex is to engage in classic shoot-the-messenger behavior, to attack those who point out the colossal mess the industry has created, and bury its head in the sand rather than work towards remedies.
Jackson’s posts provide compelling evidence that the securitization industry’s self-destructive stance remains unchanged.
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I think Szabo’s emphasis on actual delivery is significant because it’s dealing w/ a trust in the context of a gratuitous transfer. And whenever we have gratuitous transfer, the rights don’t actually pass until there’s been actual transfer (because a breach of a promise to give when there isn’t consideration is no breach at all as a matter of contract law [putting aside promissory estoppel, which is an equitable remedy rather than a legal one]).
Since the trusts at bar were purchasing notes rather than receiving gratuitous transfers, one could imagine that Szabo doesn’t control and that Brown v Spohr does.
That said, I think you’re right that this is all pretty speculative. I haven’t seen any cases at all that are solidly on point. The upshot is that Jackson’s confidence as well as Levitin’s and Bloom’s (and my previous confidence, for that matter!) is misplaced.
I guess, but the remedy is simple enough: they just have to send the notes to the foreclosing party prior to starting the foreclosure action. They don’t have to have them until the action is commenced.
But wouldn’t that concede that the original trust was fraudulent, violating those contracts and exposing them to all that tax liability?
Don’t they have to keep pretending the note was somehow already conveyed a long time ago, even if that means they have to now pretend they lost it or something?
Tax law may not track state trust law. It’s a different body of law, so the latter may not be determinative of the former. REMICs are pretty recent things, so there’s just not a lot authority on how they work.
You ignore the other issues related to New York trusts, which we have discussed in repeated past posts. They can operate only as stipulated in the trust agreement. They are not permitted to deviate. They have very specific stipulations per the PSA as to how they can receive notes. Out of time conveyance is not in accordance with its governing agreements, and hence a void act under New York law.
So you cannot convey now as you suggest, that’s a fail under NY trust law.
And Bloom has a publication history on New York trusts as long as your arm. Putting him and Jackson in the same sentence to suggest their opinions on this matter have even remotely the same degree of validity is ludicrous. I’m not claiming to be an authority, merely using one issue to illustrate that Jackson is out of his depth here.
Your scheme has other problems. REMIC trusts can only accept performing assets. Conveyance of a non-perfoming asset (a note of a delinquent borrower) is a “prohibited act”, subject to 100% tax. It also calls the true sale opinions issued by various law firms into question. Some bankruptcy trustees have been very upset to learn that promissory notes on the premises of BK’d entities under their supervisions are being conveyed out without their permission.
I don’t doubt Bloom is an expert, but there just seems to be a paucity of case law on point (which applies equally to the notion that failure to physically deliver the notes will void the trust), which suggests it’s an open question how a court would rule.
I will say that my initial reaction yeah several weeks ago was that these trust arguments were bunk; if nothing else, I was wrong, and none of it is clear at all.
There is a tremendous amount of case law on New York trusts. That is precisely why New York was chosen by the securitization industry in the first place, the law is very well settled. The fact that you aren’t well versed in it does not mean it does not exist. Mapping a PSA into well settled law is not that hard an exercise.
This is Levitin’s central point: who constructs a trillion-dollar house of cards on practices of uncertain legal standing?
For folks who may not be clear on this, there are two levels involved:
1) Trust formation, which authorizes the trustee to contract with financial institutions to place credit assets into the trust. Note that there are likely zero assets in trust at the time of formation;
2) The PSA, which is negotiated by the trustee o/b/o the trust.
Whatever the black-letter trust principles are in the jurisdiction, the creator of a trust has considerable latitude in further narrowing what constitutes valid delivery of assets into the trust, both at the first and second levels.
Yves
Are you and Bloom saying then that it is “ultra vires” for a trust to now accept the assignment of a note -one in default and also beyond the 90 day/2 year period and otherwise not within the parameters of the trust agreement?
Thus, if ultra vires, it “fails” as you say?
This is then a scary proposition, meaning that only a revision of the trust documents, with the consent of the certificate holders, and getting a pass from the IRS, is what is going to have to be done in order to convey a forecloseable interest to the trust???
I’m just repeating Bloom, Levitin, and the other NY trust experts, so don’t count my opinion independently (although I have been road testing their argument with securitization industry types since June who hate the implications but have a great deal of difficulty making refutations that work once examined).
But yes, aside from the fact I’ve never seen any one of them invoke “ultra vires” as part of their reasoning, that’s pretty much where they come out.
Yves, you a quickly becoming my hero. Everything you say is true. I saw it last year as a bk attorney in nevada. In a motion to lift stay the servicer would file an affidavit of wonership of the note, a copy of the deed of trust naming MERS as beneficiary, and a assignment purporting to assign the “note and underlying indebtedness” from MERS to Chase Home Finance LLC (by way of one actual example). Later in Nevada’s mediation program, the servicer would be required to produce a copy of the note. The note never had indorsements on it, it always named the origianl lender as payee. Therefore, the assignemnt from MERS to chase would be impossible, becasue MERS never owned the note. It is a conspiracy to create a counterfeit chain of title to cover up the fact that the notes were not in the securitization trusts. It is also a conspiracy to deprive the nevada homeowner of his right to negotiate with the actual note holder. However, my clients were bankrupt, and unable to persue the question in court. I wondered how long it would be until the fraudscam was exposed.
But keep in mind when Countrywide became insolvent, the FED, and the DEPT of Treasury pressured B of A ro adopt Countrywide, because if Countrywide had gone into bk court, all the notes that were not place correctly into securitization trusts would have been property of the bankruptcy estate; the investors would have been unsecured in the notes, and would have had unsecured claims, of itty bitty bankruptcy dollars. The fraudscam would have been exposed. What I’m saying is the the FED, the SEC, the Dept of Treasury, the PREZ, are conspiring with the too big to fails to cover-up this fraud. You are correct, the notes were not placed into the trusts, but expect the pension funds to not sue the big banks, as they will be made whole through QE, and forcing the banks to seek BK protection would be disadvantagous for the pension funds.
This is such a huge topic. But this post is too long already.
jpa- under the PSA, the notes were to be deposited into the Trust by the cutoff date,or in some cases,up to 60-90 days later. So if the note was is purportedly from the XYZ2004-3ABS,closing date 3rd qtr 2004, all the assignments of mortgage are being recorded now, in 2010,just prior to,and in many cases after,the judgement of foreclosure. This is where the robosigners and fake notaries come into play. The assignments are fabricated,forged,and backdated. I have not seen 1 (one) note out of thousands and thousands which I have seen that was recorded in a timely,legal,IRS compliant manner. So…….
I think your criticism of Szabo and Gruen is fair enough – that these both involve gratuitous transfers. That is not to say that these cases are not applicable. One case citing Szabo is Estate of Wooters, a US District Court case. 305 F. Supp.2d 80 (SDNY 2003). There the court emphasized that the transfer must proceed to the point of no return – in that case, transfer or record on the stock books of the corporation. But, that case involved a gift as well.
For a note, it would be physical endorsement or actual delivery of the note endorsed in blank.
But, I would agree that Szabo does not entirely cut it, but, I do like the language “point of no return” in the citing cases. I think the securitizers always contemplated that there was no “point of no return “- they wanted flexibility to substitute out notes, and, further, realized that the option arms were designed to fail and would be soon refinanced anyway so why bother.
Nor, though, do I find that Brown v Spohr, 180 NY 201, 209 [1904]) is at all dispositive in that it does not involve the transfer of a promissory note to the trust. Brown v. Spohr concerns the elements required to create a trust in the absence of a trust agreement, or, at least that is how I see it. The discussion of intent etc. really has to do with the intent to create a trust, not whether there was an intent to deliver a note to the trust which would override all other state law as to the requirements as to the conveyance of negotiable notes.
I say all this, though not a trust expert at all. I just read the cases and see if they say what people say they say.
Still, I do wonder how the large firms issued their opinions with no hands on due diligence by sampling whether the actual facts bore any relationship to the assumptions of fact in the opinions.
ELEMENTS OF CONTROL FRAUD THEATER:
*Nice Suits
*Well Styled Hair
*Golf Clubs
*MBA’s From “Prestige Stores” (Ivy League Academia)
*Weighty “Reports”
*Well-paid “Experts”
*Obscure Terminology and Convoluted Language
*Government “Friends”
*Fawning Media
*Lizard-Brain Marketing
*Citizen Apathy, Ignorance and Lack of Experience in governance… abetted by an American Exceptionalism Myth and a duopoly constantly telling them what a perfectly brilliant electorate they are while INTENTIONALLY degrading their ability to meaningfully participate (gerrymandering, bogus campaign reform, candidate ‘pre-screening’ by dominating interests protecting the status-quo).
HOW TO FIGHT AGAINST CONTROL FRAUD THEATER?
Sure it would be nice if governments were helpful… and they might be if they saw it as in their interest.
But first it has to be YOUR government. So YOU must take up the task. Did you know that the REQUIREMENT behind Government OF the people, BY the people and FOR the people?… it’s that YOU need to participate in ways meaningful enough to have some experience of pragmatic problem solving.
We need a politics that encourages a competent citizenry… not the cultivation of a malleable herd of consumers.
(You know… like cattle… they consume only so long as its useful to those that herd them… and cattle are burdened with no decisions… its nice while it lasts.)
Capability ENABLES Responsibility!
http://culturalengineer.blogspot.com/2008/10/capability-enables-responsibility.html
Re-Igniting the Enlightenment: On Building Landscapes for Decision
http://culturalengineer.blogspot.com/2010/12/re-igniting-enlightenment-on-building.html
First, even if a single case is a key precedent, reasoning from it in isolation is dangerous, and in this case, misleading.
Too kind. Trust law was centuries old in 1904. Anyone who cites a single legal case and claims understanding of the broader field which it treats, particularly a field as esoteric as trust law, is a moron.
Thank you for reading Jackson’s latest piece of propaganda so that I don’t have to. It is obvious he has an agenda, and a dishonest one at that.
I don’t practice in New York, but I’ll bet that the Statute of Frauds in NY looks pretty much like similar laws everywhere else. In a nutshell, the conveyance of the Note MUST BE IN WRITING. Full stop. The whole point of that rule is so that crap like this is never in dispute. You either convey the Note properly, or you don’t own it. It can’t be cured after the fact. Jackson’s latest piece of garbage seems to try to ignore 300+ years of law on this issue.
Are we missing the point that these are “non-performing” assets that are being transferred after the closing dates in these trusts?
Verbage straight out of each and every PSA forbids both assignments (transfers sometime upto but not beyond 90 days) after the closing date of the trust and the assets must be performing.
That is a violation of legal binding contract executed by the Trustee, Master Servicer and Issurer.
I’m sure Jackson thinks he helping the banks, and I’m just as sure the banks wish he would shut up. The last thing the banks want is some layman arguing their position in such a slip-shod manner.
The testamony or representation that asserts that Countrywide did not deliver 96% of the notes and liens that were sold to an intermediary or the bond issuing trust is probably true in the main. I say in the main in that there may be instances where the note and its accompanying lien were properly assigned and delivered.
Given the time certain due date for delivery, the bonds that exist now have no to insufficient collateral backing. That gives rise to an actionable cause for a breach of reps & warranties missrepresentation. What should be occuring is a chain reaction of actions suits back to the originator of the breach.
Mr. Jackson clearly has an agenda that is intended to forestall or mitigate potential putback litigation. The facts speak on their own and his polemic is merely clutter.
It is unfortunate that there are voices such as Mr. Jackson who clutter up the world with propaganda that is of such ill purpose.
As an amused loyal reader, I’ll chime in again.
A note may be transferred without proper indorsements. It happens all the time. Kemp even discusses this possibility at length. The PSA even contemplates this event. The transferee then has the right to force the transferor to indorse the note after the fact.
To fund the trust it should be sufficient under NY law to transfer the notes, even if not physically delivered and even if indorsements are missing. The cases about failed trusts involve trusts where nothing is conveyed to the trust, not where something is conveyed, but there is a breach of a warranty or a missing indorsement.
The Kemp case is a bit anomalous in that the case turns on the which person is the correct person to file the proof of claim in a bankruptcy. The court held that the originator of the loan that had sold the loan was not the proper person. The court went on to explain that the purchaser of the loan could have filed the proof of claim once the purchaser obtained the note, properly indorsed. The court also would have permitted the servicer to file the claim as agent for the owner – but only if the owner has possession with proper indorsements. The moral of the story is that the owner should be the one to submit the proof of claim and that requires tidying up the paperwork, even if done after the fact, as long as it is completed prior to filing the proof of claim.
I still think some of the pundits are missing the key concerns here. The lesson from Kemp is that the trusts need to obtain possession of the notes and receive intervening indorsements in order to enforce the notes, i.e., foreclose or file bankruptcy claims.
The big issue here is that by failing to get contemporaneous endorsements, there may be intervening rights that have priority over the trusts’ rights in the same note. For example, if Lehman originated or owned a note and transferred it to a trust without the required indorsement or delivery of the note itself. Then Lehman filed for bankruptcy and now the trust goes to Lehman for an indorsement. That may make the trust an unsecured creditor in the Lehman bankruptcy and may mean that Lehman would be the proper party to enforce the note.
“The lesson from Kemp is that the trusts need to obtain possession of the notes and receive intervening indorsements in order to enforce the notes, i.e., foreclose or file bankruptcy claims.”
And, so then you concur that if these action creating a true conveyance areas ultra vires for the trust, the trust cannot even accept these defaulted notes at this time??
No, I don’t concur that “if these action creating a true conveyance areas ultra vires for the trust, the trust cannot even accept these defaulted notes at this time.” What happened is that when the proof of claim was filed the note wasn’t properly endorsed and owned by the person submitting the claim. I believe that absent additional facts a trust can cure the problems today for incomplete conveyances a couple of years ago. Further, that if the trust obtains the indorsements and possession of the notes, it should be permitted to file a foreclosure through a servicing agent the next day.
I would say that in order to do what you suggest, the trust agreement needs to be amended.
The Trustee has no authority to take an action in violation of the trust agreement. I am told by an authority on NY trusts that his provision of NY EPTL Law applies.
§ 7-2.4 Act of trustee in contravention of trust
If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.
So, taking a note in default is void – among other things. The trustee has no power to take the note – it is an ultra vires act. As a representative of the interests of the certificate holders, the trustee is obligated to seek repayment of the funds paid for the note not delivered as required by the trust agreement.
I do agree that the trustee has no powers beyond what are expressed in the trust or implied by law as a result.
The PSA that I read (the one for GSAMP TRUST 2007-NC1) Section 2.03(c) of the PSA specifically contemplates causing the responsible party (the one conveying the mortgages to the trust) to “use its best efforts to cause to be remedied a material defect in a document constituting part of a Mortgage File.”
As a result, it sure seems as though the trustee/custodian could permit fixing the defectively conveyed documents (these need to have been included in the list of mortgages and related notes that were to have been conveyed but were not physically delivered or which may be missing an indorsement or two) after the fact. This does not mean that the custodian/Trustee must accept documents not properly conveyed upon formation of trust, only that it would be permitted. It is possible that permitting a late cure could be a breach of the Trustee’s fiduciary duty (as was the certification that the trustee had inspected all notes at the closing).
Is there a specific provision that states something to the effect that the trustee is prohibited from accepting a note after an event of default or one that was not properly delivered at the closing? If there is such a provision, then clearly fixing the problems now would not be permitted.
GasMan
It would be useful to read Professor Bloom’s and Thomas Adams’ affidavit in Yves recent post:
http://www.nakedcapitalism.com/2010/12/american-securitization-forum-tells-monstrous-whoppers-in-senate-testimony-on-mortgage-mess.html#comments
As Thomas Adams says at paragraph 22 of his affidavit:
“Based upon the information provided to me and the documents that I have reviewed I can state that the allegation that the Trust obtained this promissory note on July 29, 2008 would violate the REMIC provisions ofthe IRS tax code for a number of reasons. First, the loan was in default on July 29, 2008. Therefore the loan could not have been a “qualified mortgage loan” under the IRS tax code because a qualified mortgage loan is a performing mortgage loan. Second, the alleged transfer to the trust was after the closing day and after the certificates were issued, in effect, the Plaintiff is claiming to have transferred an asset to a trust that has by its own terms been closed for more than two years at the time the alleged transfer took place.”
GASman,
You are reading sections of the PSA out of context. The PSA provided for cures to the mortgage file to be completed within very limited time parameters. Conveyance of the note beyond the stipulated time frame creates big time problems from a REMIC and trust perspective. Conveyance of a note into the trust outside the time parameters (ninety days after closing; certain cures permitted ninety days to six months after closing, this is a crude wash) is simply not contemplated, hence not permitted. A New York trust can act only as set forth in its governing agreements; any deviation is a void act.
In addition, conveying a non-performign loan into a REMIC trust is also a bad idea. It’s a prohibited act, subject to a 100% tax.
Postponed House Judiciary hearing scheduled for tomorrow, Wednesday:
Hearing on: Foreclosed Justice: Causes and Effects of the Foreclosure Crisis — Part II
Wednesday 12/15/2010 – 10:00 a.m.
As per the Committee’s web site this am.
The hearing for panel II was supposed to be held originally on 12/02/2010. The witness list for Panel II is here:
http://judiciary.house.gov/hearings/hear_101202.html
I think it not to be a coincidence that the Jackson paper was just released.
@degavuagain: those docs you linked to are must-reading for foreclosure fiasco junkies.
Here’s a fun one: forged attorney signatures on foreclosure filings.
http://www.propublica.org/blog/item/false-attorney-signatures-cast-new-doubts-on-foreclosures
Don’t you think Jackson’s third attempt to justify the pretense that the notes’ not having been properly conveyed into the trusts is no big deal may have been motivated by L. Randall Wray’s HuffPo exposé? Here’s the link to Part 2, in which he suggests that the banks are hurrying the foreclosures now in order to close out the trusts (at pennies on the dollar) before the law suits gain traction. Part 1 quoted the MERS manual, which “recommended that mortgage servicers retain the “wet ink” notes that borrowers signed.” “to speed the foreclosure process — in other words, to run foreclosure mills.” “It now seems most likely that the fraudulent practices were recommended as a means to speed the illegal foreclosures we are now witnessing.” The manual makes it clear that MERS was set up to facilitate foreclosure.
http://www.huffingtonpost.com/l-randall-wray/post_1423_b_795802.html
Nationwide, the number of people who show up in court with or without and attorney is less than 1%. In some places,it is exactly 0%. If no one shows up on the homeowners’ behalf,then who cares what the plaintiff presents to the court? The trust doesn’t exist? foreclosure granted! Documents notarized by a nonexistent notary? foreclosure granted! Amounts due and owing lumped up by an average of $6,800.00 in bk court, according to Katherine Porter? foreclosure granted! ABCDE assignments,endorsements ignored? foreclosure granted! Chain of title hopelessly broken, clouded for all time? foreclosure granted! Junk fees piled on? foreclosure granted! MERS purporting to transfer both the mortgage and the note,even though they state specifically in court that they never hold the note?
foreclosure granted! Anyone mildly annoyed as to what is going on, and why? Anyone see a clouded future for jurisprudence?
Thank you Yves; All you needed to do was mention his favourite saint, St. Aurius the divine and golden shill, and he showed us what entropy really means I like the way he blathers about the issues and then goes away somewhere to his own little mental dictionary where everything means what he thinks it does as opposed to the law.
If you do this again, they will put someone else up to answer it, and they will flame out as they seek the height and burn through the oxygen required for a along winded rant. I wonder who they will put up next to say silly things?
Yves, well-done mate! Hit me up at mortgagefrauds@aol.com for some “inside info” I have to share with you that I think you will enjoy and hopefully find enlightening!
Nye
I don’t know squat about law but it seems to me that the basic validity of “conveyance” has to be of vital concern to judges everywhere. No matter how much pressure is exerted by the banks, judges realize that unless they create law that makes conveyance clear and enforceable the result will be that no one will want to invest in securities that rely on it.
The issue transcends the specific situation here. If judges set bad precedents they risk having the courts clogged with conflicting claims of all sorts for years to come. The requirement to have a clear chain of title seems to be pretty essential.
Your repeated assertion that most of these PSAs are under New York State law confirms that Trusts want to afford themselves the most protection they can get based on the largest coherent body of settled opinion. It is highly unlikely that New York judges today are willing to upset that apple cart by upsetting precedents that have resulted in a bounty of treasure for their state.
Jackson is a hack and clearly out of his depth. However, like one of Shakespeare’s clowns, he affords comic relief though not the wisdom. I always like to read you when your arguments are steel on flint. Jackson is a great fool – oops, I meant foil.
From what I read out of all these PSA’a are the trust isn’t constituted until the depositor assigns his mortgage loan interest/s into the trust and certifies the act. The certificates that represent interests in the trust are then distributed . There is big trouble in little china if these trust where empty. That is securities fraud.Not to mention the trust was never formed in the first place.
There is a substantial difference in the trust being formed via the subsequent acquisition of mortgage loans and one that is created out of mortgage loans.
The depositor seems to be the “Trustor” as opposed to just some purchasing agent.
Just some quick comments.
1. The PSA states that in states where allowed, MERS can maintain the status of nominee for the beneficiary and assignments would not need to be executed.
2. For Countrywide Trusts, CW was the custodian of the documents, so they would retain the documents.
3. The PSA does grant power of attorney status to the servicer. Also, as MERS members, it can be effectively argued that the MERS membership agreement creates a power of attorney status.
4. The MERS Deed of Trust states that the borrower gives MERS the right to foreclose, if necessary.
In reverse order:
4. is meaningless. Only the noteholder can foreclose, even the ASF had argued that point, “the mortgage [which is the deed of trust] follows the note.” MERS has said repeatedly in depostions, that it has nothing to do with the note. To be a “holder” you both have to have possession and have an owner. Someone can act as an agent of a noteholder, but MERS cannot act independently as you imply. And in 45 of 50 states, the note and the deed of trust cannot be separated, yet that is what MERS purports to do.
3. As I said above, and you apparently did not read, any power of attorney will be defective if the notes never got into the possession of the trust.
2. This is another irrelevancy as far as this post is concerned. Countrywide can act as custodian for the trust ONLY as an agent of the trust. If the notes were never conveyed to the trust, Countrywide cannot act as custodian. Everyone in Kemp agreed the notes were not conveyed OR transferred. They would have had to go through the intermediary parties listed in the PSA. That did not happen.
1. This is irrelevant. Assignment of the lien is a different matter than conveyance of the note. In 45 states, the note dominates.
Patrick Pulatie- MERS has nothing to do with the note, and questionable rights to the mortgage. Without the note, they are SOL, even though they STILL insert language to slide it through. The note,the mortgage,the obligation, the revenue stream- all held by separate entities. Who’s on first?
For those seeking more light than heat, recommended: http://www.mondaq.com/unitedstates/article.asp?article_id=113272
Many would benefit if they read the linked article. There is much misinformation being treated as Gospel.
Oh yeah, SNR Denton’s done the rounds here. Didn’t go well.
“SNR Denton Provides Intellectually Dishonest, Flawed Defense of Mortage Securitizations”
http://www.nakedcapitalism.com/2010/10/snr-denton-provides-intellectually-dishonest-flawed-defense-of-mortage-securitizations.html
Yes, as ScottS correctly points out, you are nearly two months behind where this argument stands. The SNR piece was also debunked in Senate Banking Committee testimony on November 16.
Yves,
You choose to dismiss such arguments out of hand, either from Jackson or myself. Fine, we will disagree because it would take 20 pages to truly present all the arguments either way. Suffice to say that the best homeowner attorneys that I work with would not present such arguments in courts for quality reasons.
Here is a question for you. What is the remedy for everything you present? What do you expect to happen as the final outcome for each homeowner?
What about the rest of you, the ones in foreclosure? What do you expect?
Sorry to be so simplistic but, which is it, foreclosures or trusts, it would seem the trusts are the horse and foreclosures are the cart. To me, it has to be sorted at the trust level first, as it holds the key with regards to cascade. Foreclosures are a side effect, with out the actions of the originators and their minions, we would not be having this conversation…eh.
The mere size of this problem, both volume / $$$$$, begs the question, whose veracity is to be trusted, the originators or the detractors. It would seem in hind sight that the originators created this mess and there fore of less than sparkling repute.
Skippy…vagary’s of influence peddling aside (politics et al) why would anyone believe any thing these institutions said.
BTW,
Lets suppose your note argument is correct, and I don’t believe that the argument is as simple as you try and make it.
The Note simply “reverts” back to the original lender and they can foreclose. Also, you may argue that the original lender is out of business, but only under a very few occasions have I seen one whereby the corp was actually closed and completely liquidated.
Next, you can try and make an argument referring to MERS being on the Deed and therefore the Note and Deed are separated. All that would be required is for the lender to go to court and ask the court to allow the foreclosure to occur. I have seen this occur where there were defects in the Deed, and the court said yes to the foreclosure.
And in the meantime, since the note never made it into the trust, the sponsor of the deal has to reimburse the trust for the amounts paid for the note – What a put back!
So, in real estate/UCC terms, this could work.
But, it is not at all true that only on a few occasions has the originating bank closed – there are 151 FDIC banks that have failed this year according to calculated risk.
Still, it gets murkier as to the damage done to whether good title is then delivered, if the names of those providing mortgage releases are not those shown on the recorded instruments, or, if on its face, the release appears to have been robo-signed.
You’re an interesting guy, Pat.
No one said that the note owner (who, we’ll soon see, is the originator) can’t foreclose. You’re constructing a strawman.
The originator can’t stuff the note back in the trust, since it’s too late. So, again, as Adam Levitin said, these are non-mortgage-back insecurities.
If the investors want to make the case that they didn’t receive what they paid for, then they are free pursue the originators for their money back.
The investors may face tax consequences for the defective REMICs that they were invested in.
But NO ONE is saying that it’s impossible to foreclose once the true owner is found. But MERS has made that exceedingly difficult.
From your web site:
“For securitization to occur, and remember that securitization provides up to 80% of the total dollar volume for mortgage lending, methodology must exist that will allow for the tracking of mortgage loan ownership in securitized trusts, and without the problems of attempting to record each and every assignment.
An entity such as MERS, or MERS in a different form is absolutely necessary to meet the demands of securitization. A separate entity should be established, private in nature, with no lender or banking ownership, and separate from the government. It should allow for the public tracking of mortgage ownership, freely and readily accessed through the Internet. By such a manner, the issues related to MERS and the controversy over foreclosure, and beneficiary status, can be eliminated.
I fully realize that many will take exception to this concept. However, if securitization is ever to be restarted, and the housing market to recover, such a standard practice must be implemented.”
You haven’t made the case that securitization in desirable. to anyone aside from the fraudulent brokers, fraudulent originators, and fraudulent servicers.
And given the conceptual and practical problems MERS has evidenced, I see no argument for anything like MERS to exist.
You are missing the point, utterly. No one wants the original lender to foreclose. That’s a complete disaster for the MBS trust, and worse, the trustee who provided multiple certifications that the trust has all the assets it was promised in good order.
Dejuvuagain,
Those banks were taken over by the FDIC. They were then sold to other banks. The Purchase Agreements covers all details. So, you are wrong.
It takes an investor lawsuit to force the buy back. The homeowner could not do so. Any of their actions to stop the foreclosure would likely be acting as third party beneficiaries, and courts would not permit that.
Again, what do you or others claim as the remedy? If you can prove what you argue, what should happen with the homeowners?
I am waiting……….
Also,
What’s the solution? Dismantle MERS. Any trusts with the note legally in their hands can foreclose. Any originators that did a sloppy job transferring notes now owns the note and owes the investors the original value of the note, plus the inevitable REMIC tax liabilities.
If investors or originators want to work out a mod with the homeowners, then by all means. If they don’t, then don’t.
The only thing complicating it is the horrendous cock-up called MERS. And you go to bat for them on your web site because … ?
Patrick,
With all due respect, you really have gone into these issues in any real depth, and appear to be primarily if not entirely operating from a “dirt law” perspective, and have not considered at all how the multiple legal considerations here interact, namely, IRS (REMIC) rules, the UCC, New York trust law, state-based real estate law, and securities law. You can’t look at dirt law in isolation when discussing securitization. In addition, your arguments on MERS are largely if not entirely inaccurate.
IN addition, you are wrong on FDIC sales, particularly recent ones. The banks are on average deeply insolvent, to the tune of 20%+ negative equity.
The FDIC quickly sells the branches and deposits to keep the bank looking open. If it’s lucky, it might also sell some of the loan book. But most of the loan book stays with the FDIC to be sold separately.
And what does this have to do with MBS trusts, anyhow? One of the major reasons for the complexity of MBS securitizations was to create bankruptcy remoteness.
You really need to read our past posts on this, you are way behind on the argument.
If you are going to quote from my website about MERS, why don’t you quote the entire rational, instead of a selective quote? Also it might help to read everything on the website.
Without securitization, either involving private securitization or Fannie and Freddie, there would be little money for home lending. Most funds do come through Wall Street, so the lenders could only lender what existed for their deposits. Without securitization, this money ends, and the entire housing industry crashes and never recovers.
Since you did not read the entire website, I will let you know. I have done over 4000 loan examinations for homeowners. Many of the arguments homeowner attorneys use today, I was the first to promote. Currently, I am providing services for banks, going after other banks. I blame all parties in what has happened.
I chose to change the business model because I grew tired of all the fraud that I saw from homeowners. These homeowners called up proclaiming how they were defrauded, but in 98% of the cases, they were at the least, “willing victims”. Most knew what they were doing, and gladly participated in the actions. If any had been declined for a loan, they would have kept going until someone approved them. This is not innocence.
Curtrently, I don’t give a damn about who was right or wrong. I care about what was right or wrong. And, I am actively engaged in projects that will come to light in the first quarter of 2011 that will be a game changer in evaluating loans.
This is what else was written about MERS….
Prior to securitization and also the expansion of National Banks, the recording of deeds and later their assignments was a relatively easy process. That is because the entities doing the lending typically had branches in or near to the counties that they were lending. Furthermore, they did not have that significant of a volume of business. This made the process of recording deeds and assignments simple and effective.
The securitization would necessarily mean that a change to the process would have to occur. Securitized trusts could contain up to 8000 loans spread across over 500 counties in the U.S. Most of these counties did not have the capabilities for electronic recording. Therefore, for effective securitization of products, local people would have to be hired and maintained on a daily basis to effect the assignments as necessary.
Assuming that a trust had 5000 loans in it, the following processes would have had to occur all within the time period of generally 30 days between the cut-off date and the closing date of the trust.
* The originating lender would need to complete an assignment of the Deed and have it notarized. It would need to be assigned to the purchasing lender. The entire loan package would then be delivered to the purchasing lender.
* The purchasing lender would need to cut a check to each recorder’s office, and then employ someone to take that deed and the check and have it recorded in the local county. Once recorded, the purchasing lender would then need to create a new assignment to the Sponsor of the trust. The loan package including the assignment would again be transferred to the Sponsor.
* The sponsor would have to cut a check to reach recorder’s office, and then employee someone to take that deed and the checking and haven’t recorded in the local county. Then the Sponsor would have to create a new assignment of the deed to the Depositor and then deliver the entire loan package to the Depositor.
* Now, the Depositor must cut checks, and then send the assignments out for recording to each county. When accomplished, since the Depositor has “established” the Trust, it must complete new assignments to the Trust, cut checks, and have everything recorded again.
The total process for the 5000 loans and four assignments per loan must be accomplished within the 30 days from the cut-off date to the closing date. Obviously, it is readily apparent that this cannot be done.
For securitization to occur, and remember that securitization provides up to 80% of the total dollar volume for mortgage lending, methodology must exist that will allow for the tracking of mortgage loan ownership in securitized trusts, and without the problems of attempting to record each and every assignment.
An entity such as MERS, or MERS in a different form is absolutely necessary to meet the demands of securitization. A separate entity should be established, private in nature, with no lender or banking ownership, and separate from the government. It should allow for the public tracking of mortgage ownership, freely and readily accessed through the Internet. By such a manner, the issues related to MERS and the controversy over foreclosure, and beneficiary status, can be eliminated.
“Without securitization, either involving private securitization or Fannie and Freddie, there would be little money for home lending. Most funds do come through Wall Street, so the lenders could only lender what existed for their deposits. Without securitization, this money ends, and the entire housing industry crashes and never recovers.”
This isn’t much of a rationale. You do know that banks can lend more than their deposits, right? That’s what makes them a bank and not your rich relative.
I don’t know if you’ve noticed, but the housing “industry” (construction? lending? home prices?) has already crashed. The crash happened because securitization allowed the originators to flip fraudulent loans onto investors, which caused a housing bubble.
If the originators had to hold the loans, there wouldn’t have been such a crash.
Securitization pushed the fraudulent lenders to create a legally dubious entity to deny counties their recording fees and muddy up hundreds of years of well-settle property law.
As I said, no good rationale for securitization.
I gave my solution above. Render under Caesar that which is Caesar’s. Render unto Countrywide that which is Countrywide’s. Let them foreclose or mod as they see fit.
And don’t worry, I’m going through your web site thoroughly. I like this part a lot:
“Myth # 3: Prove the Note
I get more calls about this tactic than all others. The basic idea is for me to exam the Securitization of the loan so that they can show that the lender does not have the Note, or have the “Wet Signature” note, and therefore cannot foreclose for “lack of standing”.”
You confuse “lenders” and trusts. It’s the trusts that ostensibly own the note, so have power to foreclose. But do they have the note? Not according to their PSA. So they can’t delegate the servicer to foreclose for them.
Patrick,
I suggest you bone up on the history of the mortgage securitization industry. Big hint: it started in a serious way after the 1986 tax reform act which created REMIC trusts. Another big hint: despite your assertions to the contrary, that all those onerous horrid steps are just too costly for the securitization industry to bear, the entire industry DID follow all those steps from 1986 through the early 2000s.
And your logic is spurious:
In business, buyer costs determine product pricing (in that in the long term, businesses cannot sell below costs), but customer demand determines product attributes. The securitization industry basically entered into a massive bait and switch. They adulterated their product by giving investors PSAs that set forth the same procedures that had been in place since the late 1980s, but chose on the quiet not to adhere to them to fatten their bottom lines. The proper course of action would instead be to change the contracts to conform to the new procedures. But they presumably knew investors would see this as a cheapening of their legal protections and would either withdraw from the market or demand other concessions, such as higher yield (in finance, pretty much everything can be solved by price).
So having proper disclosure to investors, which is what ought to have occurred, may not have led to any net gain in profit for the securitizers.
Again,
What do all of you desire as the remedy for homeowners? Will someone address that?
Well, it looks like a red herring. Why are you introducing the topic of remedies for homeowners? Remedies for what, exactly?
What do all of you desire as the remedy for homeowners? Will someone address that? Patrick Pulatie
This Depression alone would justify a global remedy merely for pragmatic reasons. The nature of fractional reserve banking adds further justification. And the hard and patient work of Yves and others documenting related crimes is invaluable for raising public awareness.
At some point, even the bankers will beg for a bailout unless they wish to face angry, dispossessed jurors.
I’ve written well over 50,000 words on this topic. This post was already overly long at 2800 words, and I still had to give some arguments short shrift.
I suggest you go to the category “Real Estate” and read my posts starting in August. I’ve discussed remedies in previous posts. I’d never get to new material if I have to recite the main points of my prior work in every post.
With all respect and awe for Yves, none of the cases cited (including Jackson’s) appear to be applicable to these facts. Arguing over these cases and their nuances is a distraction, perhaps intentional.
GASman makes very astute observations above, all of which I agree with. To his recommendations, I would add that the real problem occurs, practically, where a note has been irretrievably divested from its related mortgage.
In general, there should always be *someone* with the right to foreclose (even if the right person is not the one who sued). However, where the note and mortgage have parted ways and that defect is not remediable (such as in the case of bankruptcy of an intermediary), this may not be the case. It may be that literally no one, at this time, has the right to foreclose. (However, that is not going to result in discharge of that lien.) The relevant parties each have part of the transaction, with each such part being either worthless or worth far less than it should be, with its accompanying doc. Further purchase/sale transactions between the parties in interest (and heirs/assigns) appear necessary. This means further costs for investors, and delays attendant to finding needles in haystacks that marrying the documents back up may entail. These delays will affect borrowers/homeowners, and ultimately, their property is still encumbered by the lien, until it is discharged.
“Gifting” is a term of art often used for conveyance of assets to a trust. I will admit to not being as far down the curve here as I am on some other areas of the law, but I am advised by attorneys working on securitization litigation than when plaintiffs have argued that precedents that involve the gifting of assets don’t apply to business trusts, judges have very little sympathy.
In general, there should always be *someone* with the right to foreclose (even if the right person is not the one who sued). However, where the note and mortgage have parted ways and that defect is not remediable (such as in the case of bankruptcy of an intermediary), this may not be the case. It may be that literally no one, at this time, has the right to foreclose. (However, that is not going to result in discharge of that lien.)
If no one has the legal right to foreclose, which it seems may often be the case, then the liens would become moot if the people simply stopped paying the mortgages.
If enough people did that, we could break the bank tyranny from below.
Richard,
I bring up the issue of remedy because if anyone is going to argue that the securitization or foreclosure is flawed, they must have an idea of what they expect to be the remedy for the homeowner.
One cannot argue that something is wrong without a remedy. Also, for it to be wrong, there must be causation for the homeowner.
That’s too many things wrapped up together. First, it’s important to distinguish the securitization issue from the foreclosure one. The post is about securitization, so the stuff about foreclosures is a distraction.
However:
The various types of foreclosure fraud are symptomatic of a disdain for due process that is in turn, sometimes, symptomatic of a desperate attempt to manage a giant record-keeping screwup; other times it’s just crooks who started out as crooks. That won’t get fixed easily – it may well take longer to sort out than it did to perpetrate it in the first place. But it’s absurd to state that “One cannot argue that something is wrong without a remedy.” That can’t possibly be right, can it? It would mean “If a problem is big enough, all you can do is ignore it, and silence the dissenters”. Bonkers.
Similarly with securitization, where the immediate problem seems to be that the assets thought to back RMBS may not back them at all (more corner cutting on process and infrastructure and legal framework). That leads off into all manner of horrors for banks, lawyers and others. But again, pretending the problem doesn’t exist, or hiding it somehow, so that BAU 2004-7 can be restored, is insanity.
So one shouts about the problem.
The remedy for homeowners who have been fraudulently foreclosed on is to sue the fraudster foreclosers for damanges.
The remedy for homeowners who are massively underwater as a result of the housing bust – the bubble itself being a result of the fraudulent lending of the fraudster banksters and their friends – is up to them.
Homeowners can stop paying their mortgages, if that represents a rational economic route for them, since because of the opaque nature of MERS, no one actually seems to be able to show that the correct mortgage owner is in any case receiving the correct mortgage payment. (Who the hell wants to pay fraudulently inflated fees and charges to these charlatans? And who wants another entity with proper legal standing to come after you, say, a few years down the line, even after you’ve been foreclosed on by a fraudulent party?)
Or else, as Iowa AG Miller today, and others here have said, the homeowner and the true mortgage owner, once that has been discovered (don’t hold your breath) can work out a mutually satisfying principal reduction together.
As a last resort, the true mortgage owner, once that has been discovered (again, don’t hold your breath), can indeed decide to foreclose.
But foreclosure should only be sanctioned by our courts if all the paperwork is in order, that is, that the party with legal standing can demonstrate that all elements were correctly conveyed, in a timely fashion. So good luck with that.
In relation to other matters such as ABS suddenly found to be without backing, trusts empty, 100% tax demands on REMICs from the IRS, well, homeowners, unless they are investors in said trusts, are unlikely to be concerned, except indirectly.
Homeowners most probably would like to see the laws of the land properly enforced, and for the trusts, MERS &c not to evade federal taxes, state property taxes, or courthouse fees, things that securitization/trust process and MERS seem to have been explicitly set up to allow them to do.
Patrick,
The remedy is for the actual note holder to foreclose, plain and simple. Once a mortgage loan becomes non-performing, the PSA typically requires that it be taken out of the trust, often falling to the servicer to dispose of. The servicer may or may not have to advance scheduled payments into the trust and thus the impetus for the servicer to foreclose quickly.
What is veiled behind your apologist’s rhetorical screen of 80% liquidity provided by the secondary market is a Ponzi-bubble in which all major participants benefited GREATLY. That is, until the music stopped. In the Ponzi-bubble setting, establishing ownership of mortgages by time-honored legal and procedural mechanics be damned – ka-ching, ka-ching, ka-ching, baby. This is such a historical anomaly I can’t begin to tell you.
If Bank A negligently or recklessly collected the income from a note actually held by Bank B, the cause of action lies with Bank B to compel A to disgorge its unjust enrichment or, much more likely, A and B will settle and clarify that A assigned all right, title and interest to B. Then B can foreclose on borrower.
I’m afraid that, as an attorney who normally represents borrowers, my response to the lament that it’s all just so complicated to unwind this whole mess note by note is “Tough shit.” The fairness principal clearly dictates: “You play, you pay.”
I wonder if there’s a certain elitist horror underlying the aversion to the prospect of well-educated people spending the rest of their working lives slogging through the minutiae of mortgage paperwork cleaning up the empty bottles, syringes, and puke the morning after. Again, my friend, I tell you sincerely from the bottom of my heart: “Tough shit.”
Yves –
Just curious…why the personal vitriol against this guy?
If I didn’t know better, Mr. Jackson stood you up on a date or called your shoes ugly.
I get that you disagree with his positions. What I don’t get is why you are singling this guy out – he’s hardly alone in his positions.
Your policy arguments should be able to stand on their own – they always have before. I’m guessing Mr. Jackson, since I haven’t seen him step onto the sandlot and start name-calling, is simply hoping you spell his name right and link to his articles correctly. I know I would be. No press is bad press, right?
Just the two cents form someone who has lurked here for some time, and enjoys learning the things you’ve had to teach. I’m getting put off, however, by the name-calling – I have to parse your posts to learn something, trying to strip out your personal attacks.
I think if you read the post more carefully, you will notice that there aren’t any personal attacks in it. What name calling? What personal vitriol?
Lurking,
I suggest you look at my posts under the category “Media Watch”. I routinely shred articles, once in a while op-eds, that are disingenuous or intellectually dishonest. This is post is similar to other critiques I’ve written. The big difference is that this post is a bit longer due to the density of the material and that Jackson and I are now engaged in a back and forth. But, for instance, pretty much anything I have written about Timothy Geithner is vastly harsher than my discussion of the logical and factual underpinnings of Jackson’s posts.
We have a culture in the US where it is somehow deemed as shrill to call things by their proper names, such as propaganda and PR. That predispostion says more about our level of self-censorship than the accuracy of the descriptions.
As for Jackson in particular, I suggest you look at the post that started this back and forth, in which he first inaccurately accused critics of Lender Processing Services of making unfounded allegations when he had done NO research of his own (his position was roundly disproven by a long Reuters investigative report). in that article, as Richard Smith pointed out, he went from incorrectly accusing LPS critics of error, which was bad enough, to charging all critics of bad mortgage and foreclosure practices of lying and fraud!
So I find it a more than a bit peculiar that you come here concern trolling and imply somehow that I am engaging in emotional attacks (a frequent tactic to discredit women, I might add, you’d never dare try anything resembling your sexist comments on a man) and that Jackson is a wronged party, when he has attacked the reputations and integrity of a broad swathe of people, with no evidence for any of his charges.
And why do I care? This is the most important political battle in motion right now. The stakes are vastly higher than Jackson’s reputation, as much as he appears to be willing to throw it under the bus to serve the securitzation industry. This mess affects not just homeowners all over the US (even ones without mortgages, via the effects of foreclosures on property values generally) but all taxpayers, since part of the reason we are seeing these outcomes was due to the failure to clean up the financial services industry during the crisis. This may, I stress may, be such a monstrous mess that it will open up another opportunity to rein in overly powerful banking interests that increasingly operate outside the rule of law. Jackson, even if unintentionally, is trying to deter examination the magnitude of this problem, which serves to impede finding out who is responsible, holding them to account, and devising proper remedies
The Richard Smith post links back to the Jackson post in question:
http://www.nakedcapitalism.com/2010/12/collateral-damage-more-than-paul-jacksons-reputation-at-risk.html
Thanks for the reply.
Just to clear the air, I don’t view emotion as a gender handicap, as you imply. (Ten years as a trial lawyer has taught me that one ignores the emotional elements of any argument at her or his own peril – because the jury most certainly will not ignore it.)
I was simply wondering why the personal interest in repeatedly calling Mr. Jackson to the carpet, vs. his more general references to an unnamed group of people (whose commonality is more or less limited to a viewpoint regarding the foreclosure crisis, etc.). And, I appreciate your candor on the reason why – it isn’t really personal.
I’m not defending Mr. Jackson, or calling him a wronged party. I could care, really. He has taken a position publicly, just as you and Mr. Smith have. Anyone in that business ought to have a fairly thick skin. I’m just trying to sort through information on the topic, and understanding motives helps in that regard.
Cheers, and keep up the good work.
Let’s cut through the bull shall we?
The note isn’t necessary to foreclose see Corpus Juris Bills and Notes
It is evidence of the debt. that debt can be proved by other evidence.
Where is the other evidence? Where are the wire transfers remittances or transmittal statements ? Cancelled checks? Fed Ex receipts?
How where the funds originated? What account did they come out of?
It’s such a damn fraud. The proof is without the note the banks are stuck. If they actually gave a consideration out of an existing sum of money they would be able to show it. They can’t.
The simple reason for this is these notes are directly monetized out of the FED.
People can ramble on about MERS. Their true purpose has nothing to do with the recordation of the DoT. It’s the private recording of the transfer (really circulation) of the notes themselves that they wanted. What we have is a secondary circulating currency. They might not have the velocity of Federal Reserve Notes but they can be converted into them a multiplicity of ways.
Why would they want to hide the transfer of the notes? I don’t know… maybe INCOME TAX? Equitable defenses of the note’s Maker? Claim of Set-off against profits? All of the above?
We know these have several negotiations. Who has seen a note in a court record with even one correct negotiation past the first party?
How else can explain so many facial errors on the note?
All in all ….the note is borked.ALL Parole evidence that could show a sale and /or transfer is borked. They are using forgeries , uttering and perjury but they are still producing defective negotiations even with manufactured evidence.
Why?
If your going to lie why would you screw up the lie???Repeatedly?
it’s so easy to prove a debt! Even in assumpsit! All you have to do is prove the consideration. The law won’t presume a gift. Why can’t they do this?
Something is seriously BORKED
Your premise is incorrect. In judicial foreclosure states, you have to have the note in order to initiate foreclosure proceedings.
I wish that where true. There are many ways to establish ownership of the note with collateral evidence. I’m really referring to the “best evidence” rule. The original is best evidence. Copies suffice now a days even without the proper affidavits. You can force the plaintiff to give bond/indemnity if they won’t/can’t produce the original. A Florida appeals court called it “removing it from the stream of commerce”.
The law is very clear in judicial foreclosure states, you need to have the note to foreclose. Florida’s rocket docket is engaging in so many procedural abuses as to not be a sound basis for generalization. As the scrutiny has increased, most but not all judges have backed off and are being more careful re procedure. And I hear that in many other jurisdictions, many judges who again got lax re procedure were taken aback by the robo signing scandal are now being more strict.
If they actually gave a consideration out of an existing sum of money they would be able to show it. They can’t.
The simple reason for this is these notes are directly monetized out of the FED. indio007
Interesting point!
People can ramble on about MERS. Their true purpose has nothing to do with the recordation of the DoT. It’s the private recording of the transfer (really circulation) of the notes themselves that they wanted. indio007
Agreed, someone else made this point too; how do performing vs non-performing notes get assigned in real time to the correct tranches otherwise?
What we have is a secondary circulating currency. They might not have the velocity of Federal Reserve Notes but they can be converted into them a multiplicity of ways. indio007
I’ve wondered what alternative private currencies might already be in existence.
Why would they want to hide the transfer of the notes? I don’t know… maybe INCOME TAX? indio007
I like the way you think.
Bloody-well smashing today, Yves!!! You are on fire and posses passion, guts, and erudition!
This Patrick cat asking about the homeowners would be like asking “what should we now do about the Iraqis in Bhagdad since we destroyed their infra-structure and they are now left in a state of sheer terror, inhaling war chemicals including depleted uranium?” The American homeowners were simply marks for the hordes of securitizing fraudsters (as you keenly pointed out–essentially the last decade, or so)!! “Fraud as a Business Model”, pointed out by a journalist today-that’s the essence of securitzation/MERS.
And thanks again to your loyal ones-I especially liked the comments by the Nevada attorney. Please carry on for us little people, Yves!
Yves,
I’ve been following all news related to my case online and I have to say you’ve done a wonderful job in your writing(s). Keep up the great work!!!
Regards,
John Kemp
http://judiciary.house.gov/hearings/hear_101215.html
read the following
http://www.c-span.org/Watch/C-SPAN3.aspx
listen to the shit hitting the fan
Listening to the witnesses was like reading Karl’s posts and the comments.
Everyone gets the message and some pretend otherwise.
The fraud was perpetuated on all those juicy funds. The poor j6p was used by the banksters to enable the fraud. The funds had all the money for the taking NOT your dumb neighbor.
Its time for the fund mgr to hire an evaluator to go around to all of “their” properties and do a PHYSICAL inventory and evaluation of THEIR HOLDINGS.
GEE! They might find out that they are holding an empty bag and that they are entitled to “putbacks” and that the banksters will have fines and taxes to pay.
Wanna listen to the ASF lie their ass off?
Today’s Congressional testimony on mortgage fraud…
http://www.c-spanvideo.org/program/ForeclosureC