Lex, Lies and Losers

Maher Soliman suggested that we consider throwing the SPV Trusts into receivership. Here was my response:

MSOLIMan: Forcing the trust into receivership might be a good idea — or even forcing into involuntary bankruptcy. But be careful here. While the Trustee maintains that a trust exists and that the trustee has powers over the subject matter (res) of the trust, my analysis indicates that by the very nature of a REMIC, whose last word is “Conduit” there are questions about the existence of this “Trust.”

First since the SPV is REMIC and a REMIC is a conduit and must be a conduit to maintain its non-tax status (thus preventing double taxation of the investors) Thus the SPV, often referred to as a Trust does not exist as a trust. By definition there can nothing in it. It serves as a distribution tool and the indenture of each and every bond purchased by investor contains language of conveyance in which it is the investor and not the SPV/Trust that will supposedly own the underlying mortgages and notes.

Adding to the conclusion is the fact that most indentures admit that the attached list of underlying mortgages and notes are not real but will replaced with real ones whenever the CDO manager gets around to it.

Adding to that confusion is the fact that the conveyance is from a party who does not own the loan in the first place and you end up with an empty “Trust.”

That leaves the possibility that a second trust was created equitably or legally by granting the Trustee powers to act on behalf of the owners of mortgage-backed securities. Careful reading of the indenture leads one first to conclude that some powers to represent the investors exist but then later, deep into the indenture, are restrictions on that power that transform the agency to a contingent agency. Thus no trust seems to exist and even the power of agency is contingent, based upon specific express written consent from the investors and their agreement to pay costs and fees and their agreement to hold the Trustee harmless.

The US Bank as trustee for the owners of mortgage backed securities series 2007-1234 is neither an agent nor a trustee. And there is no trust. The ONLY party, as I have repeatedly said, who can seek to enforce the obligation (probably without the help of the non-negotiable note executed by borrower and probably without the help of the mortgage or deed of trust) is the hedge fund or pension fund that bought the security. But none of them are doing so and there are some pretty good reasons for them doing so.

10 Responses

  1. Sorry – here is the beginning of the slideshow:


    Dan Edstrom

  2. Securitization Accounting slideshow from Deloitte & Touche LLP

    Accounting for the Sale of Assets

    FAS 140 info

    This is a slide show …

    http://www.americansecuritization.com/uploadedFiles/Sec%20101_Ann%20Kenyon%201pm.ppt#336,10,FAS 140: Accounting for the Sale of Assets Gain / Loss on Sale: Process

    Dan Edstrom

  3. The one to put into “receivership” is the one holding the asset on their books (my opinion only). This would presumably be the Federal Savings Bank (I believe this would be Residential Funding in my case – from the previous posting).

    Dan Edstrom

  4. Hmmm,
    This is from the supplemental prospectus (424B5) for my loan/securitization

    Read this very carefully (I would recommend reading any that apply to your loan!)

    The following is from http://www.secinfo.com/dsvRa.z46u.htm#16v4






    [jump to bankruptcy risks section]

    The transfer of the mortgage loans from the
    seller to the depositor is intended by the
    parties to be and has been documented as a
    sale; however, the seller will treat the
    transfer of the mortgage loans as a secured
    financing for accounting purposes as long as
    the limited mortgage loan purchase right
    referred to in this prospectus supplement
    remains in effect. If the seller were to become
    bankrupt, a trustee in bankruptcy could attempt
    to recharacterize the sale of the mortgage
    loans as a loan secured by the mortgage loans
    or to consolidate the mortgage loans with the
    assets of the seller. Any such attempt could
    result in a delay in or reduction of
    collections on the mortgage loans available to
    make payments on the offered certificates. The
    risk of such a recharacterization with respect
    to the mortgage loans may be increased by the
    seller’s treatment of the transfer of these
    mortgage loans as a secured financing for
    accounting purposes. See “Description of the
    Certificates–Limited Mortgage Loan Purchase
    Right” in this prospectus supplement.

    [skip rest of document]

    Dans Comments:
    The trust does not fully “own” the notes. The trustee does not fully “own” the notes. Residential Funding “owns” the notes but has pledged them to others (the depositor). The depositor then sold (or more likely pledged) them to the trust (and/or trustee?). The trustee does not seem to be the owner in this case (my opinion). Therefore any non-judicial foreclosure brought about by the trustee is invalid as they do not own the note (my opinion). Who do I work with to get current on my loan as the servicer, the originator, a debt collector and the trustee (of the mortgage pool trust) are all involved in foreclosure but none of these entities are authorized to do a forbearance or modification?

    Dan Edstrom

  5. The hocus pocus you speak of with a phantom trust and powers of a trustee are further support of the facts…the FSB created this nightmare to shield it self from regulators.

    The FSB is outlawed from high risk and contaminant lending and yet they sit on the asset the entire duration of the reclaimation effort in a recovery for the asset.

    You cannot split a beny from a lender…they do with MERS and that MERS is an allie and not a foe. Can we not request enforce through action or otherwise empower MERS to stop from any further assignements. Maybe under an injunction or other means to circumvent the mass volume of foreclosures – until the courts rule?


  6. To Ronald:

    My only expertise comes from this site, but the understanding is that, while the party may have acquired the note legitimately, your priority must be to challenge that legitamacy— given that county recorders must record every time that a note changes hands, the fact that it has changed hands without being recorded (which is the likely situation) is prima facie evidence that their holding of the note is NOT legitimate. And the county recorder should back you up… depending of course on the local laws in your area. But the point is, just because they got their hands on the note doesn’t mean they should have. And presuming it so is a dangerous path, since it clears the way for truly illegitimate claims to be pressed. If the recorder didn’t record it, the transaction didn’t happen. And they should have the burden of proving that it did, which would require them to produce the chain of custody information.

  7. Thought you would be interested in THIS article ( http://www.cnbc.com/id/31917218 ) on CNBC today regarding CALPERS suing the securitizers:

    “The nation’s largest public pension fund has filed suit in California state court in connection with $1 billion in losses that it says were caused by “wildly inaccurate” credit ratings from the three leading ratings agencies.

    “The suit from the California Public Employees Retirement System, or Calpers, a public fund known for its shareholder activism, is the latest sign of renewed scrutiny over the role that credit ratings agencies played in providing positive reports about risky securities issued during the subprime boom that have lost nearly all of their value.

    “The lawsuit, filed late last week in California Superior Court in San Francisco, is focused on a form of debt called structured investment vehicles, highly complex packages of securities made up of a variety of assets, including subprime mortgages. Calpers bought $1.3 billion of them in 2006; they collapsed in 2007 and 2008.

    “The AAA ratings given by the agencies “proved to be wildly inaccurate and unreasonably high,” according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities “were seriously flawed in conception and incompetently applied.”

  8. p.s

    If the Note is endorsed “In Blank”, or an Allonge is attached to a photo copied original Note…..we should still fight the Court to Compel the Plaintiff for all the Discovery Documents pertinent to the Securitization Issue.

    Do you have specific cases where Lenders have produced Pooling and Servicing agreements, Ledgers, Original Wet Ink Notes with all of the appropriate Endorsements on the back?

    I think a new tactic being employed up front is for the Plaintiff to attach an Alonge on the back of the Photocopied Note as to infer it is being Negotiated lawfully. This is a trick because the origional Note will be either lost or endorsed in Blank or Endorsed by 5-6 entites in the Chain of Title.
    However, this Allonge is tricky enough to fool Judges at the initial stages.

    Compel the Plaintiff to produce Discovery.

  9. Atty Ryan


    The questions pertaining to case law on Trusts/Remic standing as legal entities is no different than most “standing” related cases. Neil’s said many times that these Pension Hedge Funds who are the true “holders” in due course WILL NOT come forward therefore the bulk of your questions regarding detailed case law about securitization cannot be addressed. They simply won’t be compelled to produce real evidence if they don’t implicate themselves by attaching to the lawsuit as a party in interest.

    When you ask about the Judge granting standing using the Note and Assignments, you need to be more clear.
    1. Is the Note in the name of the same party acting as Plaintiff?
    2. Was the Mortgage properly assigned and before the file went to foreclosure?
    3. Was Power of Attorney filed allowing Plaintiff to act on behalf of Pretender Lender?
    4. Was the Note properly negotiated according to UCC Code? (Owning the Note is different than holding and vice versa)
    5. An assignment of Mortgage is not an assignment of the Note regardless of what the Plaintiff states in their Material Statements and Admissions.

    Raise all these questions to get a hearing and avoid Summary Judgment. Summary Judgment must only occur when no issue of material fact exists.

    Good luck


    I am a lawyer in situations in every case in which judges are taking the position that if the entity seeking to enforce a note and deed of trust can produce paper that is admissible in court, in the form of the note that has been endorsed, along with an assignment of deed of trust, to that entity, that a prima faci case will have been made that this entity has standing to enforce the note and deed of trust. I need more ammunition in the form of statutory and case law, and have not had the time to research these issues yet.

    Has anyone briefed, or otherwise know where the law can be found that: 1) establish that there must be a chain of consideration between the original funding source (the pre-“pretenda lender” hedge fund or pension fund that bought the initial security) and the purported current holder of the note, if the purported current holder of the note is to have the right to enforce the note and deed of trust? 2) that the purported current holder of the note has the burden of proving the chain of consideration? 3) establishes that money going into a mortgage backed securities series pool from mortgage payments that do not go to the specific holder(s) of the note in question, though the debtor’s account is credited, but to certificate holders according to their priority pursuant to the terms of the pooling agreement, can be used to negate the deed of trust? 4) establishes that when there is money going into a mortgage backed securities series pool from other 3rd party sources such as credit default swap proceeds, other credit default insurance proceeds, private mortgage insurance, other insurance or guarantees, U. S. Troubled Asset Relief Program funds (TARP bailout funds), or from income from a cross-collateralized or over-collateralized source, or otherwise, this fact can be used to negate the deed of trust?

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