Trustee Involvement Signals Shift in RMBS Litigation

trustee intercession on behalf of bondholders

Isaac Gradman…Commentators Concur: Trustee Involvement Signals Shift in RMBS Litigation

Wednesday, February 2, 2011

Commentators Concur: Trustee Involvement Signals Shift in RMBS Litigation

A few weeks ago, I published an article suggesting that the increased cooperation of MBS trustees may signal the turning point in bondholder litigation.  It seems I’m not alone in reaching this conclusion.The following week, on January 27, Adam Levitin, associate law professor at Georgetown University and vocal commentator on banks’ potential liabilities stemming from subprime lending, published a blog post entitled, “Clash of the Titans: RMBS Edition.” The post does a great job of summarizing the key early litigation in this space, including linking to some articles from The Subprime Shakeout, while also analyzing where this trend may be heading. 

Levitin’s verdict?  That the storm we’ve long predicted is coming.  Levitin writes, “We’re about to witness the main event in financial institution internecine warefare: investment funds (MBS buyers) vs. banks (MBS sellers).”  The catalyst he identifies is that a group of large institutional investors has banded together and filed suit, in what Levintin calls the first “A-list litigation.”  This would be the case filed by Dexia, New York Life, and TIAA-CREF, among others, against Countrywide and BAC.

Besides including the usual slew of allegations regarding loosening guidelines, breaches of underwriting reps and warranties and misrepresentations regarding lending standards, Dexia and the other plaintiffs raise (for the first time I can recall in either bondholder or insurer litigation) chain of title issues regarding whether ownership of the note and deed was properly transferred through the securitization chain.  The Complaint discusses in detail the revelations of Linda DeMartini from Kemp v. Countrywide that Countrywide routinely did not transfer the mortgage note when it sold a loan into securitization.  Such errors became meaningful after the Massachusetts Supreme Court handed down the Ibanez decision, holding that the entity foreclosing had to able to show that they were the holder of the note and deed at the time they initiated foreclosure proceedings.  As Levitin points out, the Dexia complaint merely scratches the surface on chain of title issues, but it gives credibility to an argument that was long dismissed by the banks a mere technicality.

Levitin also agrees with my opinion that trustee intercession on behalf of bondholders could only mean the tide is turning.  In that regard, Levitin writes, “It looks like the trustees see that it’s checkmate once the investors get to the collective action threshold and are finally squeezing the servicers… This ain’t gonna end pretty.”

One day after Levitin’s article came out, industry publication Debtwire reported a similar trend.  In an article entitled, “JPMorgan slowly loosens grip on loan files in bitter EMC, WaMu buyback disputes” (subscription only), reporter Allison Pyburn, whose writing has long reflected a strong handle on these issues, states:

This week, JPMorgan also agreed to relinquish 400 of the 902 loan files requested that serve as collateral for Bear Stearns Mortgage Funding Trust 2007-AR2, according to a letter filed Wednesday in Delaware Chancery Court in Wilmington. The case, Wells Fargo Bank v. EMC Mortgage Corp., has investor standing in 42% of the deal and loan level data alleged to prove a breach of the 902 loan files requested on 20 September.

Movements by the bank to turn over loan documents to trustees investigating buyback disputes could represent a shift of power between banks and investors seeking buybacks, said an RMBS investor and lawyer familiar with the disputes.  A JPMorgan Chase spokesman declined to comment.

Make no mistake about it, loan files are the key to unraveling this whole mess.  Once bondholders obtain possession of these critical documents–and eventually they will–they will be privy to a mountain of fodder for rep and warranty and misrepresentation claims, and losses will flow back to the originators and underwriters of these toxic loans.  The servicers (a.k.a. the originators and keepers of the files related to many of these loans) have been able to sit on their hands and refuse to turn over loan files thus far because passive trustees and arduous procedural hurdles have stood between the bondholders and loan access rights.  When this changes–and all evidence suggests that it already is–servicers will be left without a leg to stand on, and the files will be produced, either voluntarily, or by court order.  Brace yourself for the beginning of a wild ruckus.

16 Responses

  1. IAN,

    Litton has told my homeowner’s insurance policy issuers that LITTON is the loss payee.

    Interesting that the supposed servicer can be a loss payee.

    This latest mailing from Litton claims that there has been some ‘transfer or sale’ of the mortgage to Bank of New York Mellon. Nothing was on file yet with the county.

    The mortgage was recorded in 2005. Cutoff date for CWABS 2005-10 should have been no later than December of 2005.

    What had occurred in 2009 was the NOD. Then, within days, the Substitution of Trustee signed by Litton’s robosigner ‘Marti Noriega’. The notary signature does not match up with the content that was to be signed per the state of TX. That notary is on a list of robo-singers. People at Litton were sharing a notary stamp. They just have not been ‘outed’ like Bly was.

    Now, after those two 2009 vintage documents, the next documents were a Proof of Claim with the BK court in 2010. A month LATER, in 2010, Litton’s Lyman penned a signature to the ASSIGNMENT that is the bogus ‘single-step’ assignment that they were NOT supposed to do to have it be valid per the PSA. I have limited copies of her signature but they already have a distinct difference. That assignment would seemingly really assign the mortgage into that REMIC trust!!!!!!!

    OK, now in 2011, this piece of junk mail is sent from a Litton location purporting to SOMEHOW have completed as ‘transfer or sale’ of the mortgage to Bank of New York Mellon. No papers were provided showing how.

    A new MIN is shown. That is strange too. Oh, yeah, if the mortgage got assigned to the REMIC that is not a MERS member, did that cause the old MIN to ‘die’?

    I can only say that I think this is like a piece of junk mail but they will claim it has some purpose.

    HOW during a BK STAY? Both this and the 2010 assignment were during BK STAYS.

  2. concerned-good for you! Now you know that the NOD was mailed by Litton, have you checked the notary stamp/seal/date, the cutoff date for the trust,compare to list of 200+ robosigners available at foreclosurehamlet, then google for cases with same robosigner. Also, who does the lender’s insurance policy name as payee? Have you checked the MERS MIN# investor lookup tool? Keep us posted.

  3. Ian,

    With this latest fabrication, I knew immediately that it was actually mailed by LITTON.

    With the documents Litton has been producing, (using MERS of course), it is really getting stranger all the time.

    The transfer that was SUPPOSED to occur per the PSA should NOT have the mortgage actually ‘owned’ by the certificate-holders. That is accomplished with the multi- stage set of assignments that is required by the PSA.

    The SINGLE-step assignment Litton generated AFTER the foreclosure was on-going for more than a year, was DIRECTLY to the certificate-holders.

    That is CONTRARY to the rules for the REMIC that this trust is supposed to also comply with.

    Now to have a sale or transfer TO this ‘Bank of New York Mellon’ directly would supposedly have the certificate-holders or the trustee taking this ACTION.

    We KNOW the supposed investors are never contacted. I do not see how the supposedly PASSIVE trustee for the certificate-holders has any authority to sell or transfer the mortgage from the Trust to itself.

    It looks like another VERY self-serving document has been created, just like the 2010 assignment that Litton farbricated.

  4. @ Jan van Eck,

    I know someone who has an AWL loan. How would they contact the corp in NY?

  5. DyingTruth,

    Your argument is full of HOLES in Federal BK court, especially in CA.

    Read MY replies to YOU.

  6. “TRUSTEE INVOLVEMENT”- try this if you can: if you gather together 10 NODs for say, BONY, for 10 different borrowers, you will probably notice that each of the 10 has a different address for BONY, the “trustee”, which is another address for the servicer. The trustee has no employees carefully monitoring each NOD, or the trust for that matter. So the NOD, purportedly being brought by the trustee, is instead being brought by the servicer without the trustee’s knowledge, or, for that matter, the securities holders of that particular trust. Just as Neil and others have held all along. Comments?

  7. So here you go. Now we finally have the secondary market duking it out among themselves over money or credits or debt whatever you want to call it. While mainstreet is caught in the crosshairs and just goes to work trying to earn a living and just live a life.

    All this time, effort and money spent by the secondary to figure out who owes what and what amount. And all this time, effort and money is transferred yet again among themselves, the secondary market, and very little will go to mainstreet. And therein lies the out-ethics of it all and the out exchange that wall street/banks foist onto the public. All for money – and you wonder how countries and people are poor and broke or just living week to week at their jobs. Imagine if all this time, money and effort was expended into improving our lot in life on the planet. Well, I’m afraid 80% of the population just want to live a life and 2.5% want to keep others down & weak and 17.5% are connected to the 2.5% which unknowingly or knowingly support the bad 2.5%.

    All the duking out now because of defaulting loans and where’s my money. And a few saying hey wait a minute something is not right here and began to look. I guess wall street/banks forgot to recognize that you have to boost the mainstreet economy as well and/or their scram was hoped on nobody looking or fighting back – dam those free thinking Americans. The wall street/banks/congress are basically in Treason against the American public. Treason defined as betrayal after trust. Go Ghostbusters.

  8. Still want to know if investors will deduct foreclosure proceeds received from “damages” requested in investor lawsuits. As attorneys for some investor lawsuits have told me — NO — because they do not get the foreclose proceeds.

    Will see.

  9. Neil’s Post is behind the learning curve. There is already a broken dam and the flood of paperwork including the internal files are already in the possession of other adverse interests. These are the credit insurers, players like Radian Insurance Group of Philadelphia. They have hired forensic examiners to determine if the claims being made by the debt buyers are based on falsified loan documents, and when they get a whiff that the brokers played fast and loose, then they refuse the claim. All you critical internal file documents are already in the hands of these insurers, as you can bet that all the loans in controversy are already the subject of insurance claims to Radian, AMBAC, and AIG. Send your discovery requests there; you should not get any resistance, as they have no desire to pay those claims.

  10. to “Concerned:”
    and others: you are all missing the boat on this. There really is an entity named “Americas Wholesale Lender,” it is just not the Countrywide/Bank of America entity. AWL is a New York Corporation with offices in New York State; it has nothing to do with Countrywide. AWL is the proper owner of your loan, and the Countrywide players have no authority to go file proof of claim, assignments, or anything else. Your Note on its face and within the four corners of the instrument is with AWL, not these other guys. Get in touch with AWL and negotiate your Release.

  11. Remember az bill SB 1259 support. bYThis TUESDAY. See Findsenlaw post. Please support it. The tide is turning slowly but surely. Truth and justice must prevail it is the only thing thst might save the little guy

  12. Maybe it’s time a group of homeowners got together and Sue these rogue judges ( rogue is too kind a word but lying under oath is gonna be called a paperwork issue) remember they are in the poeples court and the poeple need to remove these bas…..

  13. Who will they force the “putback” on to when the “Originator” (i.e. Ameriquest) has long been dead???

  14. Concerned,
    Like I’ve said before JUDGES WILL BREAK THE LAW FOR LITTON BECAUSE GOLDMAN SACHS OWNS THEM AND THEIR PENSIONS AND PAYS THEIR BILLS. No one has ever won against them in California, Judges are acting in collusion with them.

  15. That ‘mangled Proof of Claim’ had nothing that showed any connection between the original ‘lender’ and the entities that filed the POC. There was 1) no power of attorney, 2) no assignment because it did not exist until the following month, and 3) a copy of a copy of something that was not the actual tendered note, with only a stamp on it that indicated it was obtained from the TITLE Comapny — this ‘thing’ did not have any type of assignment and there is a HUGE area on the page that is available.

    Is this the way the Trustees are seeking to avoid showing the records?

  16. OK. I have one of those ‘CountryWide loans’, the ones that only indicate “America’s Wholesale Lender – A Corporation” as the lender (a lie).

    Loan originated in 2005.

    I was ‘set up’ with a supposedly permanent ‘AG Mod’ in 2009 that was immediately breached by Bank of America. Servicing moved to Litton on the day the payments were to start per the mod.

    I was told by Litton in 2009 that my ‘investor’ was CWABS 2005-10 with Bank of New York Mellon as Trustee.

    Funny thing, Litton got Quality to issue a NOD in 2009. No assignment was in view.

    In 2010, with a BK filed and the stay in place, Litton first provided the Proof of Claim. Then, in the following month, they filed an assignment that was dated in 2010.

    That nice new assignment was EXACTLY the type of ‘A to D’ assignment that is NOT compliant with the PSA.

    Now in 2011, I have been notified that Bank of New York Mellon has either gotten the mortgage ‘transferred or sold’ to themselves. They are showing it as THEM being the new ‘Creditor’.

    They also are showing a new MERS Identifier Number for the loan.

    WTF-raud?

    Explain this. The Creditor that I had filed a mangled Proof of Claim in my BK case changes to a different ‘entity’ during the BK?

    HUH? Is this their justification for having another chance at filing a different POC with the court?

    I do not see how this is allowable. But I’m also wanting to know what they could be ‘UP TO’?

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