Clearinghouse and Trustees Defined From Garfield’s Glossary: Some of the new entries

CLEARINGHOUSE: A company or government sponsored entity that either takes physical possession of transactional documents and records them on its own books. An accepted clearinghouse’s records is used as business records to prove ownership of a particular security or other transactional document. Cede and Company and others are the clearinghouse for quadrillions of dollars of transactions. It is unclear and indeed doubtful that the unregulated mortgage backed certificates sold investors are registered with any conventional clearinghouse, despite the fact that these certificates did have a secondary market in which the trading volume of these certificates was traded in low volume. Structured Investment Vehicles (SIV) created by investment bankers as part of the scheme to issue mortgage backed securities and other asset backed securities are a hybrid between a trustee and a clearinghouse. These companies, mostly offshore, were used as the “repository” for the alleged notes and mortgages and deeds of trust, assignments, assumptions and allonges in many transactions. It is believed that SIV’s may no longer be in use. However, those documents that were allegedly sent to SIV Trustees fall into the following categories according to SIV records (a) lost, never reached their destination (b) were intentionally destroyed at the request of the party transmitting the documents to the SIV Trustee or (c) were lost after reaching their destination. Virtually no documents are recorded as in “safe keeping” of the SIV Trustee in any SIV. The reason for this is presumed to be (a) plausible deniability and (b) direct coverup of the actual terms of the the notes. The true character of most of the loans (i.e., that they were doomed to go into default and that the nominal interest rate would never be reached) was hidden by a a multilevel pooling system creating obfisucation and confusion to all but persons with very sophisticated knowledge and understanding of deriviate securities projects to wit: By pooling the notes with a loan wholsesaler (aggregagtor), establishing a new Trustee over the pool (presumably superceding the SIV Trustee and the Trustee on the Deed of Trust), and then repooling the pools into tranches within a special purpose vehicle that issued certificates of asset backed securities, and appointing a Trustee to represent the owners of the certficates (note that it is unclear if this “trust arrnagement arose at the time of the transaction or was fabricated for litigation). Lastly MERS is an intended clearinghouse that appears to violate the state recording laws  of every state in the union. The purpose of MERS was to establish a recording system for assignments and transafers of various notes, allonges, and related documents parallel to the recording system in place in each of the states. State law in most if not all cases requires the transfer of an interest in real property to be recorded. MERS was used to avoid disclosure, payment of taxes, fees and stamps that were due to States and counties and to add to the obfuscation of ownership of the note or mortgage. The use of MERS in lieu of recording assignments split the note and the mortgage under the UCC, thus separating the security isntrument from evidence of the obligation — because the only legla act MERS could perform would have been trnasfer of the note. The Mortgage, which is an interest in real property could not be transferred without complaicne with the state’s recording laws, requiring the recordation and payment of fees and taxes. MERS has since been suspended from operating in California and many states are looking at the possibility of either suspending MERS or demanding that MERS and its constituent customers (banks, wholesalers, investment banks, SIVs, Trustees, SPVs, Investors) pay the recording fees and taxes, along with interest, and penalties and perhaps a fine.


A person or legal entity charged with owning, controlling and/or managing assets for another person or legal entity (beneficiary). Legal Trustees are created by a Trust Agreement or Trust Document which names the Trustee, described the duties of the Trustee and names the beneficiary(ies). Constructive or resulting trustees arise by operation of common law, statutory law or both. For example, the Trustee on a Deed of Trust is named as having certain powers and duties on behalf of a named beneficiary. However, under common law, and in certain states, statutory law, the same Trustee owes a fiduciary duty to not only the named beneficiary, but to the homeowner (Grantor) as well, thus requiring the Trustee to function in a transparent fashion to both the legal and constructive or resulting beneficiaries. Such a Trustee is under a duty to verify that the beneficiary has not transferred or otherwise disposed of the beneficial interest, or encumbered it under some agreement, hypothecation or guarantee. In non-judicial states there are four successive Trustees —- the Trustee on the Deed of Trust, the Trustee of the SIV, the Trustee of the Pooled Assets and the Trustee for the owners of the certificates of asset backed securities. It is unclear to what extent the original Trustee on the Deed of Trust is completely or partially replaced by the successive Trustees in the securitization process. Documents vary. However the boilerplate language we have seen from Deutsch Bank and other institutions utilize the standard language from form books that lawyers use in the creation of documents to protect the Trustee from being required to perform duties at the Trustee’s expense instead of being able to charge expenses to the corpus of the Trust or from the beneficiaries, to wit: in the case of Trustees for owners of certificates the Trustee is empowered to take legal action on their behalf ONLY if the investors agree to such action and agree to pay for it. The Corpus of the Trust is the certificates and not the “loans” that were allegedly pooled and re-pooled, thus there is no corpus  or res to charge. Hence, where one sees “U.S. Bank, as Trustee for holders of Asset Backed Securities Series 2007A-01”, one should seek proof of authority to represent from both the lawyer allegedly representing these certificate holders and allegedly representing the Trustee and perhaps others.Other Trustees arise in litigation as where a petitioner files for bankruptcy protection and the U.S. Trustee’s office gets involved or where a receiveer is appointed to conserve the bankruptcy estate and collect rents.

4 Responses

  1. Valuable discussion ! I am thankful for the details ! Does someone know where I could possibly get access to a fillable CA TR-205 version to fill out ?

  2. Dan there is more!! check out the presentations on this site and the US map on foreclosures.

  3. This document shows that the title company, MERS and others had information they were keeping from me before, during and after closing.

  4. MERS Recommended Foreclosure Procedures for


    Version 1.1, 11 November 1999

    A deed of trust in which the Mortgage Electronic Registration Systems, Inc. (MERS) is named as beneficiary requires special non-judicial foreclosure procedures. MERS was created to avoid the cost and delays caused by assignments of mortgages and deeds of trust. To avoid the need to prepare and record an assignment with the County Recorder’s office, MERS holds title as nominee for the true mortgagee/beneficiary of the mortgage/deed of trust and as transfers occur, they are recorded on the MERS computer in a book entry systems similar to the transfer of stocks.

    The MERS procedure for tracking the ownership of mortgages has a direct effect on the foreclosure process. On MERS loans, MERS is shown as the record beneficiary and therefore a MERS foreclosure is brought in the name of MERS. However, at the time of sale the true beneficiary is determined by MERS and the Trustee’s Deed Upon Sale is recorded in the name of that true beneficiary. There are no assignments, additional taxes or costs when foreclosing under the MERS’ foreclosure procedures.

    To achieve this result, the following non-judicial foreclosure guidelines are recommended:

    On MERS loans, MERS will show as the beneficiary of record. Foreclosures should be commenced in the name of MERS. To effectuate this process, MERS has allowed each servicer to choose a select number of its own employees to act as officers for MERS. Through this process, appropriate documents may be executed at the servicer’s site on behalf of MERS by the same servicing employee that signs foreclosure documents for non-MERS loans.

    Until the time of sale, the foreclosure is handled in same manner as non-MERS foreclosures. At the time of sale, if the property reverts, the Trustee’s Deed Upon Sale will follow a different procedure. Since MERS acts as nominee for the true beneficiary, it is important that the Trustee’s Deed Upon Sale be made in the name of the true beneficiary and not MERS. Your title company or MERS officer can easily determine the true beneficiary. Title companies have indicated that they will insure subsequent title when these procedures are followed.

    Normally, where the name of the grantee under the Trustee’s Deed Upon Sale is different than the name of the foreclosing entity, the Trustee’s Deed Upon Sale states that the “Grantee was not the foreclosing beneficiary.” This designation triggers the imposition of transfer taxes on the sale. It is important to note that in a MERS foreclosure sale, even where the property reverts, the name of the grantee will be different than the name of the entity foreclosing. Nonetheless, the Trustee’s Deed Upon Sale should state that “The Grantee was the foreclosing beneficiary.” This is because MERS merely holds title as nominee for the true beneficiary; it is the true beneficiary that has actually foreclosed and acquired title.

    Finally, should a bankruptcy be filed, servicers should use the same procedures they use for other investor loans. Motions for Relief from Stay should be brought by the real party in interest, namely “Mortgage Electronic Registration Systems, Inc. as record holder and nominee for the true beneficiary _________.” On Proofs of Claim, both the servicer and Mortgage Electronic Registration Systems, Inc. should be jointly named. The address to be used is the servicer’s address so that all trustee payments go directly to the servicer.

Contribute to the discussion!

%d bloggers like this: