More Investors Are Suing Chase: Cheer them on!

Submitted by Beth Findsen, Esq. in Scottsdale, Az


One of the many things I find interesting in this lawsuit is that FINALLY the pretender lenders are at least being referred to as originators and not banks, lenders or any of the other things that had most people believing.

Here too investors sue the rating agencies, Moody’s, S&P, Fitch paving the way for borrowers to make virtually the same allegations against the appraisers and the pretender lender who hired the appraiser.

The only thing left for the investors is to realize that the only way they are actually going to mitigate losses is by creating an entity that negotiates modifications directly with borrowers. Otherwise these intermediaries in the securitization chain are going to continue cleaning their clocks.

Here are some morsels you too might find interesting

7. The true facts that were misstated in or omitted from the Offering Documents
(1) The Originators systematically disregarded their stated underwriting
standards when issuing loans to borrowers;
(2) The underlying mortgages were based on appraisals that overstated the
value of the underlying properties and understated the loan-to-value ratios
of the Mortgage Loans;
(3) The Certificates’ credit enhancement features were insufficient to protect
Certificate holders from losses because the underwriting deficiencies
rendered the Mortgage Loans far less valuable than disclosed and the
credit enhancement features were primarily the product of the Rating
Agencies’ outdated models. As such, the level of credit enhancement
necessary for the Certificates’ risk to correspond to the pre-determined
credit ratings was far less than necessary; and
(4) The Rating Agencies employed outdated assumptions, relaxed ratings
criteria, and relied on inaccurate loan information when rating the
Certificates. S&P’s models had not been materially updated since 1999
and Moody’s models had not been materially updated since 2002. These
outdated models failed to account for the drastic changes in the type of
loans backing the Certificates and the Originators’ systemic disregard for their underwriting standards. Furthermore, the Rating Agencies had conflicts of interest when rating the Certificates.
8. As a result, Lead Plaintiff and the Class purchased Certificates that were backed by collateral (i.e., the Mortgage Loans) that was much less valuable and which posed greater risk of default than represented, were not of the “best quality” and were not equivalent to other investments with the same credit ratings. Contrary to representations in the Offering Documents, the Certificates exposed purchasers to increased risk with respect to delinquencies, foreclosures and other forms of default on the Mortgage Loans.

21 Responses

  1. RE: Chase lawsuit by investors in ABS

    Here is the link to the complaint. As soon as they file their opposition on or before June 21, 2010, that will be posted as soon as possible.

    If you have trouble with the link, search for 83JJMACK in scribD and docs will come up.

  2. This is the very latest update on the Chase lawsuit brought by the investors (institutional). There is a new lead plaintiff and a new case number. This is in reference to Beth Findsen, ESQ above headline post.

    Court: United States District Court, Eastern District of New York
    Case Number: 2:08-cv-01713
    Judge: Hon. Edward Korman
    Case Contacts: David R. Stickney, Timothy A. DeLange, Matthew P. Jubenville

    This case alleges violation of the Securities Act arising from JP Morgan’s sale of mortgage pass-through certificates using false and misleading offering documents. The offering documents failed to disclose, inter alia, that (i) the underwriting standards used by the loan originators had systematically ignored their stated standards; (ii) JP Morgan ignored its standards and guidelines when evaluating and acquiring the loans; (iii) the stated appraisal standards were not followed when valuing the properties collateralizing the loans and the corresponding loan-to-value ratios; and (iv) the pre-established ratings assigned to each tranche of Certificates did not reflect the true quality of the loans.
    On March 26, 2008, a complaint was filed against J.P. Morgan and its related entities in New York State Court, Nassau County, captioned Plumbers’ & Pipefitters’ Local #562 Supplemental Plan & Trust and Plumbers’ & Pipefitters’ Local #562 Pension Fund v. JP Morgan Acceptance Corporation I, et al., 08-cv-1713 (the “J.P. Morgan Action”). On January 8, 2009, following a stipulation to removal to federal court, the plaintiffs in the J.P. Morgan Action issued a PSLRA notice. MissPERS filed its motion for appointment as lead plaintiff on March 23, 2009. Iron Workers Mid-America Pension Plan and the Structural Ironworkers Local Union No. 1 Pension Trust Fund filed a competing motion for appointment as lead plaintiff.
    On November 24, 2009, Judge Edward R. Korman entered an order adopting Magistrate Judge William Wall’s Report and Recommendation that MissPERS be appointed sole Lead Plaintiff. On March 8, 2010, Lead Plaintiff filed the Consolidated Class Action Complaint and on May 7, 2010, Defendants filed motions to dismiss. Lead Plaintiff’s oppositions are due June 21, 2010.

  3. Simon

    Sometimes you can find who purchased tranche certificates to your trust. If you go to the prospectus and/or PSA, it will list the names of the tranche (class) certificates – such as A1, A2, M1, M5 – etc. It will also tell you that the certificates (except residual tranches) are first sold to the security underwriters (usually find under Conveyance of Mortgage Loans (in PSA) and/or Method of Distribution (in Prospectus). Search name of trust with each tranche. Such as “2006 ABC” and “A2”. You may find that some tranches are with the government, that some were sold to other security underwriters and utilized in a CDO, and that some were sold to entities such as PERS.

    Any investors in CDOs or in MBS (such as PERS and government) is not a creditor according to TILA and Fed Res Opinion. But the security underwriter to the CDO could be construed as an “investor” along with the direct security underwriter to your Trust.

    You can also use this information to play their game. If they want to argue that MBS security investors are the creditor (even though Federal Reserve says no) – then the certificate tranche holder with the largest position (the tranches are proportional) is the holder with the largest position. Under this ‘game’, the largest tranche holder must identify itself to you as the “creditor” to be disclosed under the TILA Amendment.

  4. Mark

    Cited here before – but way back. 4foreclosureFraud also cites – see

    page 20 for the reference.

    Impossible for your loan to still be in the Trust. A Trust is only for current receivable pass-through.

  5. Angelo,
    Thanks for the help.

  6. mark
    Google northeastern law journal, go to the journals section and its the feb 2010 vol. 1, itsa really long read 248 pgs. so enjoy

  7. ANON:
    When you say “Bottom line – search for parties who may have purchased tranches in addition to the security underwriters. Most of these sold tranches will only be for pass-through of current receivables.”, are you referring to a search made by way of legal discovery?

    wow…please dont be sorry the explanation is long & complicated.this is not your fault or doing and this is info we will not receive elsewhere , important for anyone fighting this mess. i can not express my gratitude for your posts enough.!!
    thank you again

  9. Anonymous- You say foreclosure cannot be assigned to the trust if there is improper knowledge of default, so assignments later-after default are improper “NorthEast Law Review.
    1. can you give me the proper name of the NorthEast Law Review article.
    2. Would you say that any mortgage in default by more then15 payments over 6 plus years would be out of the SPV pool and back to whom ever is the True owner/lender., and all assignments claiming to be still under the Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates, Series, is nothing more then ‘BullShit” Now.after the default and after the date of the foreclosure, and after the bankruptcy was filed.

  10. Ian and Simon and Zurenarrh

    This is going to be long – and I am sorry.

    All PERS was entitled to is an income stream. That is all a MBS security is – pass-through of income stream.

    Ian is right – assignments to “trustee” are missing and done long after “trusts” closed. More important, there cannot an assignment with a “skipped” assignment/sale. Subject mortgage loans in complaint were ACQUIRED by JP Morgan Chase – there must first be an assignment to JP Morgan – before any assignment of receivables to a trust. Your PSA will state that all assignments showing a complete chain of assignment from the originator – must be “delivered” to the Trust. Also, there is no assignment of the mortgage/DOT to the Trust – the mortgage is also only “delivered” to the trust.

    Assume that tranche holders “investors” are the “creditor”. Because – foreclosure actions are done by the “trustee on behalf of certificate holders to ABC Trust.” First, all certificates to trust were sold to the security underwriter (so they would be creditor) – except residual tranches are not sold to security underwriter. Security underwriters then can sell certificates to other parties. But, security investors in pass-through tranches cannot be the creditor. So, PERS – who invested in MBS only – cannot be a creditor. Furthermore, PERS sold their securities (at a loss). This is the same as the government’s (Maiden Lane) in which Federal Reserve purchased “dead” MBS. If the government was the creditor – they could modify mortgages themselves. But they are not the creditor because they only purchased dead MBS.

    Therefore, we would have to look at tranches that are not a pass-through – to determine the creditor (foreclosures are never a pass-through). That is, the “certificate holder” (tranche holder) that remains after the pass-through tranches have paid or failed (they did fail.).

    REMICs are set up to be a 100% pass-through (or loss IRS status) (there is another side issue here – foreclosure cannot be assigned to trusts if there is “improper knowledge” of default – so any assignments later – after default – are “improper ) (Northeastern Law Review). So are there any tranches that are not a pass-through?. Yes, these are the residual tranches – not sold to the security underwriter. The servicer usually owns the residual “equity” tranche.

    A bank can only keep loans on a “accrual” status for a certain amount of time. After that, non-performing loans are placed on “non-accrual” status and charged-off. Within an SPV pool – as the loans become non-accrual – the loans are subordinated to bottom residual tranches (servicer owned). While, formerly SPVs were slow to remove charge-offs now, given FASB 166 and 167, the QSPEs must be brought back on balance sheet – and this includes charge-offs. Most of these transfers have already occurred.

    So, the equity tranche residual “certificate” holder – the “servicer” would be the “creditor” according to the process. But, the Federal Reserve Interim Opinion says the servicer is NOT the creditor if they servicing for another. Quote:

    “Section 131(f) of TILA addresses the treatment of loan servicers under the assignee liability provisions in Section 131 as well as the provisions of Section 131(g) which were added by the 2009 Act. Under TILA section 131(f)(2), a party servicing the mortgage loan is not treated as the owner of the obligation if the obligation was assigned to the servicer solely for the administrative convenience of the servicer in servicing the obligation. Accordingly, the requirements of
    Sec. 226.39 do not apply to a loan servicer in this circumstance, even if the servicer holds legal title to the loan.”


    So the party the servicer is serving for – is the Creditor. This would be the party that purchased the loans from the onset – in this case JP Morgan Chase (for which, as stated above, the assignment/sale is ‘missing'”). But Chase, will not usually keep non-performing loans – they will sell as a “portfolio'” to distressed debt buyers. Either Chase kept collection rights – or they sold them. That is what you have to find out. That tells you your current creditor – and that current creditor will account for the foreclosure “recovery” on it’s balance sheet.

    One last thought – the Federal Reserve Interim Opinion also emphasizes the importance of balance sheet accounting as to the Creditor. They do this by addressing “Repurchases”. Quote:

    “In some cases, the original creditor or owner of the mortgage loan may sell or transfer the legal title to secure business financing, pursuant to a repurchase agreement that obligates the original creditor or owner to repurchase the loan within a short period, typically a month or less. Under Sec. 226.39(c)(2) of the interim final rule, if
    the original creditor or owner does not recognize the transaction as a sale of the loan on its books and records for accounting purposes, the acquiring party is not subject to the disclosure requirements of Sec. 226.39. However, if the transferor does not repurchase the mortgage
    loan, the acquiring party must make the disclosures required by Sec. 226.39 within 30 days after the date that the transaction is recognized as an acquisition in its books and records.”

    Remember – trusts and trustees have no accounting “books.”

    Bottom line – search for parties who may have purchased tranches in addition to the security underwriters. Most of these sold tranches will only be for pass-through of current receivables. Then you have to look at the equity residual tranche – which is usually held by the servicer (sometimes you can find this in the Registration Statement (S-3)). Then look at servicer’s parent – who originally purchased the loan. They are Creditor – unless they sold it elsewhere. Therefore, only the security underwriters “parent” can tell you whether or not they are still your creditor. Under TILA Amendment – you have a right to know your creditor. And, as I have said before, if this was not disclosed to you – not only is foreclosure fraudulent but, also, you were deprived of the right to negotiate directly with your creditor – which, by the way, was the Congressional Intent for the passage of the TILA Amendment – now the law.


  11. I have to state, you chose your words well. The ideas you wrote on your encounters are well placed. This is an incredible blog!

  12. Anon, I second ian–where is the DOT? I’m in Mississippi so was heartened to read about this!

  13. ANONYMOUS- PERS holds certificates (securities) which gives them the right to certain of the income stream from current mortgage note payments, which are forwarded by the servicer? If the payment stream (note, or obligation evidenced by the note) has been singled out for this purpose, then where is the mortgage or deed of trust all this time? Also, in the PERS suit, mention is made of the sponsor to depositor leg to the trust legs of the assignment of the note, but misses out on “by the way, these assignments are always missing in foreclosure complaints, and as such render them (the foreclosure complaints) void, but very few judges or attorneys here in the US know anything about it. All we see are the bogus “lender” to MERS to Trust “chain of assignments. Please elaborate when you catch your breath after the lengthy explanation below! Keep it coming. Regards, Ian

  14. This book is free and can help explain more details about the process involved behind all of the mess with the banks, bailouts and how to get the rightful title to your homes.

  15. Re: Not enough credit protection was available to larger parts of the trust

    I read an AIG sales pitch somewhere that stated they only sold credit default insurance on the top Aaa layers and never layers underneath the top.

    Granted, a lot of the Aaa layer turned to crap, but even more of the lower layers/tranches turned to crap, which had no protection at all. So, I think the plaintiff’s are likely alleging that the offering statements(sales pitches) painted a picture that credit protection was included without disclosing how limited that protection actually was.

  16. Anonymous,

    Then who IS THE CREDITOR?

  17. @ anonymous

    Once again a wonderful follow-up!

    Problem is finding enough attorneys that can even argue the merits let alone judges that will take the time to learn it, it is a daunting task.

    The media will never print it for many reasons, the main one being money and those that control all the media.

    It all comes back to, ” the truth will set you free” provided you’re ready to receive it!

  18. Am I missing the link to this case? Anyone have more info on securitization cases. This can be very big.

  19. The above lawsuit clearly demonstrates what Mississippi PERS, lead plaintiff, purchased. From the complaint – refer to the following (emphasis is mine):

    1) Mississippi PERS – on behalf of a class consisting ot all persons or entities who purchased or otherwise acquired beneficial interest in the Certificates.
    2) Certificates are securities entitling holder to PAYMENTS from pools of mortgage loans.
    3) JP Mortgage Acquisition Corp. (Sponsor) purchased the underlying mortgage loans.
    16) Depositor is the “Issuer of Certificates.”
    28) Mortgage pass-through certificates are securities in which holders interest represents an equity interest in the “issuing” trust. The pass-through certificates entitle the holder to payments from pools of mortgage loans.
    30) Depositor securitizes the pool of loans so that the right TO THE CASH FLOWS from the inventory can be sold to investors.

    Now from me

    All certificates to a trust are sold to the security underwriters before any pass-through securities are sold to security investors. Only pass-through of CURRENT cash payments – receivables that are removed from security underwriter’s PARENT Corp. balance are passed through. These cash payments are not linked to any individual mortgage loans and only to the “pool” of receivables. It is clear from the above complaint points that security investors do not purchase anything more than a “beneficial” interest in a security pass-through DERIVED from a current receivable cash payment pool. These security investors have no action against individual borrowers and only against the bank that purchased the mortgage loans and securitized the CURRENT cash flows (that is all that can be securitized).

    The May 2009 TILA Amendment clearly states that security investors are NOT the creditor: From the Federal Reserve Interim Opinion – defining “covered person/Creditor” for disclosure of mortgage loan creditor.:

    “To become a “covered person” subject to Sec. 226.39, a person must become the owner of an existing mortgage loan by acquiring legal title to the debt obligation. Consequently, Sec. 226.39 does not apply
    to persons who acquire only a beneficial interest in the loan or a security interest in the loan, such as when the owner of the debt obligation uses the loan as security to obtain financing and the party providing the financing obtains only a security interest in the loan. Section 226.39 also does not apply to a party that assumes the credit
    risk without acquiring legal title to the loans. Accordingly, an
    investor who purchases an interest in a pool of loans (such as mortgage-backed securities, pass-through certificates, participation interests, or real estate mortgage investment conduits) but does not directly acquire legal title in the underlying mortgage loan, is not covered by Sec. 226.39.”


    Clearly security investors are not the creditor. Further, in foreclosure actions, not only is the creditor falsely identified, but also mortgage loans may have never been accepted by the Trust – or have been subsequently sold numerous times. Foreclosure attorneys,however, will continue to wrongly name the trustee, acting on behalf of certificate holders to a trust, as the CURRENT creditor.

    Bottom line 1) All certificate (tranches) to the trust are first sold to the security underwriter. 2)all that is passed on is current cash flows to security “beneficial” pass-through investors who are NOT the Creditor. 3) Naming a Trust, which was structured many years ago, as the CURRENT Creditor is false as a Trust is only for current cash payment pass-through, has no balance sheet to account for recovery, – and the Trust information is old – there is no verification that mortgage loan “pass-through” stayed in the Trust and/or has not been subsequently sold.

  20. This here may help someone also!

    Make sure you click on: –>Affidavit Against MERS


  21. Very enlightening. It really breaks down the securitization process.

    I hope the plumbers and pipefitters prevail.

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