Talcott Franklin P.C.


Investors are the ostensible owners of securitization trusts, but these trusts are not always administered in a manner that is in the investors’ interests.  In many cases, this is a result of conflicts of interest by the trust administrators.  For example, in some cases:

¬Servicers and trustees have failed to pursue repurchase claims against mortgage originators

¬Servicers have failed to modify loans even when such modifications are in the best interest of borrowers, investors, and the economy

¬Servicers and trustees have failed to properly account for losses to the trust, potentially creating a future insolvency situation

¬Servicers have engaged in predatory and abusive practices to the detriment of borrowers and investors


Securitization creates barriers to investor advocacy

¬Individual action can be limited by no action clauses, class action certification requirements, and free rider problems

¬Collective action can be limited by inability to identify other certificateholders and legitimate need to protect proprietary trade information

¬Navigating arcane trust structures requires detailed knowledge of legal relationships and contractual rights involved in securitization


Create a forum where investors can receive legal advice on a collective basis without revealing proprietary trade information

¬Holdings submitted under attorney-client privilege for legal analysis of potential for collective action with other clearing house participants

¬Issues identified and collective interests assembled in manner that does not disclose confidential information

¬Procedure for retaining investor holdings modeled after Fortune 100 trade secret policies

¬Regular Forums address topics of interest to the legal rights of investors


Q.What does it cost to join the clearing house?

A.Nothing.  Nominal pre-negotiated legal fees are assessed only if you request action on your behalf after you join the clearing house and submit your holdings.  Legal fees for collective action are not charged unless you decide to move forward with the proposed collective action and agree to incur the fees.  Those fees are negotiated prior to engaging in the proposed collective action to fit the circumstances, and can be billed hourly or at a flat rate, contingent on certain outcomes or success-based, or some combination of these.  However, if you ask nothing and do not take advantage of the opportunity to engage in collective action, then you pay nothing.

Q.Why should I join the clearing house? Can’t I receive the benefits by being a free rider?

A.By trying to be a free rider, you may not receive any benefits.  The collective action may not take place without your participation.  Further, some claims settle on the certificates instead of on the entire loan pool.  If the initial claims settle on the certificates, you might not be in a position to recover later.  Finally, joining the clearing house demonstrates to your investors that you are doing everything possible to maximize their return on investment.  The clearing house is being well publicized.  “There was nothing I could do,” may not prove to be a valid excuse for inaction, particularly where there is no cost to join.

Q.Who is running the clearing house?

A.Talcott Franklin P.C., a newly-formed law firm founded by an attorney well versed in securitization and trade secrets.  The attorney is:

¬Co-Author of Mortgage and Asset Backed Securities Litigation Handbook (West 2008) and Emergency Economic Stabilization Act Handbook (West 2009)

¬Former equity partner and deputy chair of the litigation department at Patton Boggs LLP

¬Former intellectual property counsel, American Airlines, Inc.

¬Author of Protecting the Brand (Barricade Books 2003)

Q.May I retain my own legal counsel in joining or taking action through the clearing house?  If so, how are they paid?

A.You may retain your own legal counsel in joining or taking action through the clearing house.  Your counsel will execute a co-counsel agreement with the Firm allowing for joint representation, and your counsel can even serve as the Firm’s contact in giving you notice regarding your interests.  Unless you make other arrangements, your counsel will be compensated on the same basis as the Firm, consistent with the applicable ethical rules and work performed on your behalf.  With the exception of the nominal fee associated with a request to analyze collective action, and assuming all applicable laws and ethical rules permit it, we do not expect that you will pay more for joint representation: we suggest that the fees paid be shared by the Firm and your counsel.

Q.Why start a new law firm for the clearing house?

A.The clearing house works best when it receives the broadest possible participation administered in an environment that minimizes conflicts of interest.  Starting a new firm reduces the possibility of conflicts from legacy relationships preventing the clearing house from performing its essential functions.  Further, law firms are a good source for new clearing house participants.  Limiting the Firm’s focus encourages referrals to the clearing house because the referring lawyer’s help will be needed to do the work (assuming an absence of conflicts of interest) and the Firm does not have the ability (let alone the time) to try and “poach” the client from the referring firm.

Q.Does the Firm have the resources to do the work?

A.Through contracts with respected organizations, the Firm has the capability to perform all administrative functions needed to operate the clearing house, as well as the limited legal services set forth in the engagement letter.  The TrancheTM program, the Firm’s proprietary software co-invented by the Firm’s principal, is a powerful application that greatly increases the Firm’s efficiency in performing its RMBS legal work. The Firm intends to obtain the assistance of attorneys outside the Firm to share in performing additional legal work on behalf of clearing house participants.  This is a superior option to having one firm attempt to do most or all of the legal work, as consolidating the work at one firm will discourage other attorneys from referring clients to the clearing house, prevent clients who have established relationships with other attorneys from joining the clearing house, and limit the creativity, perspective, and experience applied on behalf of clearing house clients.

Q.Is the clearing house designed to encourage litigation?

A.No.  Individual investors have approached trust administrators with legitimate concerns, only to be told that without sufficient voting rights, the administrator is uncomfortable taking action.  Amending a PSA is difficult because effective campaigning is virtually impossible.  The clearing house will give investors the ability to work collectively with trust administrators for everyone’s mutual benefit.  In the vast majority of cases, collective action produces a negotiated result instead of litigation.  On the other hand, without a forum for collective action, individual investors are left with litigation as their only recourse.

Q.How do recoveries obtained as part of a clearing house collective action work?

A.There are several potential scenarios, and for each assume a recovery of $500,000, $75,000 in legal fees, $5,000 in expenses other than legal fees, and three investors (two in the clearing house and one free rider) that each hold a third of the certificates and would share equally in the recovery under the waterfall:

(1) The trustee is directed to hire the firm on the terms of the engagement letter and does so.  The $500,000 recovery goes into the trust and the $75,000 legal fee and $5,000 expenses are deducted from the waterfall, with the remaining $420,000 distributed to all three investors (~$140,000 each).  Thus, the free rider does not avoid paying the fees.

(2) The trustee does not hire the firm but obtains the recovery itself working with the clearing house investors through the firm.  The $500,000 recovery goes through the waterfall.  The free rider takes its share ($166,666) without paying a fees or expenses.  The clearing house participants receive the remaining $333,333 distribution, and pay $75,000 legal fees plus $5000 in expenses (receiving $139,166 each).

(3) Same as #2 but the trustee agrees and is entitled to reimburse fees and costs of recovery from the recovery proceeds.  The outcome is the same as #1 and the free rider does not avoid paying fees or expenses.

(4) The trustee stands aside and the clearing house investors negotiate directly with the accused wrongdoer.  The accused settles with the clearing house participants for $500,000.  The certificateholders pay $75,000 in legal fees and reimburse the $5000 expenses, for a net recovery of $210,000 each.  The free rider gets nothing.

Q.Are all expenses incurred in pursuing rights through the clearing house covered by the Firm?

A.Unless otherwise negotiated in advance of any particular representation, you are responsible for expenses related to the pursuit of rights through the clearing house.  Such expenses and potential liabilities could include trustee indemnity requirements when requesting certain actions, costs of hiring a company to review loans for breaches of warranty, court filing fees, expert witness fees, and other expenses related to litigation.  In some cases, success fees can be negotiated with a vendor, but please note that in many jurisdictions: (1) expert witnesses cannot be paid based on the outcome of the case; and (2) lawyers are not permitted to share fees with non-lawyers.  You do not, however, incur any expenses unless you request the Firm to pursue certain action on your behalf or participate in collective action.

Q.    What is the relationship between the Association of Mortgage Investors (AMI) (which evolved from the Mortgage Investors Coalition (MIC)) and the RMBS investors clearing house?

A.    AMI is an occasional client of the firm, and participants in the clearing house are clients of the firm.  Clearing house participants do not need to join AMI, and AMI members are not required to participate in the clearing house.  The firm hopes that its clients will take advantage of both opportunities, but hiring the firm for one purpose does not indicate an endorsement of the firm’s other work any more than hiring any other law firm indicates an endorsement of all that firm’s clients.

2 Responses

  1. As both investors AND borrowers got looted by the same predicate RICO actors, wouldn’t it be sensible to have ONE clearing house?

    It can focus on the same intermediaries, such as investment banks, as being the source of the economic terrorism.

    Sustainable solutions must include the group called homeowners.

    Intermediaries may have a 1st Amendment right to talk, but having been paid and having no capacity to sue, no one has a duty to listen to their duplicity any more.

    Solution: We need ONE clearinghouse, ONE action and ONE cause of action: RICO.

  2. This is proof that our foreclosure defense and offense lawyers need to start their own local, regional and national clearing house to share knowledge, strategy and t promote the interest of their clients.

    The enemy has daily conference calls, they have weekly meetings, they have monthly seminars, they have yearly conventions, they have created lobbying organizations, they have procured the systems they needed to defraud the American consumer with total impunity.

    We need to do better than that. We need to get together to fight for justice.

    Mr. Garfield and others that started giving information in the last three years are heroes in the eyes and minds of millions of people out there.

    Keep up the good work!!!!

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