Congressional Oversight Panel, “Banks cannot prove they own the loans…”


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Coming Home to Roost – Congressional Oversight Panel, “Banks cannot prove they own the loans…”


In the recent filing November 9, 2011 of an Ohio case, Deutsche v. Holden, in the Court of Common Pleas in Summit County, (Akron) Ohio, defense attorneys submit that the note had not been transferred pursuant to the PSA therefore the foreclosing entity (Deutsche) did not own the note and mortgage.

Holden‘s Motion to dismiss cites the November 16, 2010 Congressional Oversight Panel’s (COP) report titled “Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation” as well as the PSA and New York trust law.

Senator Ted Kaufman warned that the COP investigation found evidence that he stated as the worse case scenario, “considerably grimmer” where “robo-signers served to conceal the fact the banks cannot prove that they own the mortgage loans that they claim to own.”

Holden cites the COP Report at page 19 stating:

“[I]n order to convey good title into the trust and provide the trust with both good title to the collateral and the income from the mortgages, each transfer in this process required particular steps. Most PSAs are governed by New York law and create trusts governed by New York law. New York trust law requires strict compliance with the trust documents; any transaction by the trust that is in contravention of the trust documents is void, meaning that the transfer cannot actually take place as a matter of law. Therefore, if the transfer for the notes and mortgages did not comply with the PSA, the transfer would be void, and the assets would not have been transferred to the trust. Moreover, in many cases the assets could not now be transferred to the trust. PSAs generally require that the loans transferred to the trust not be in default, which would prevent the transfer of any non-performing loans to the trust now. Furthermore, PSAs frequently have timeliness requirements regarding the transfer in order to ensure that the trusts qualify for favored tax treatment.”

Like most of the mortgage loan documents-to-trust manipulation, Holden’s assignment is 5 years too late.  The REMIC has failed.  Hopefully, Judge Cosgrove will mount the stallion of integrity and ride through Akron alerting the good folks of Summit County that Governments can no longer tolerate the use of misrepresentation, opaque, and confusing language in drafting, maintaining and executing financial instruments.

Clarity and precision are indispensable for the creation of credit and capital through paper. The foreclosure shall therefore be dismissed with prejudice.

Politicians must not forget what their greatest thinkers have been saying for centuries: All obligations and commitments that stick are derived from words recorded on paper with great precision.

Above all, governments should stop clinging to the hope that the existing market will eventually sort things out. “Let the market do its work” has come to mean, “let the shadow economy do its work.” But modern markets only work if the paper is reliable.

All documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries. It is only by recording and continually updating such factual knowledge that we can detect the kind of overly creative financial and contractual instruments that plunged us into this recession.

Governments can also tighten and increase the penalties. You lie, misrepresent, mislead, commit fraud, aid & abet, fail to inspect and perform significant due diligence – you pay steep fines AND go to jail. Period. You fail to report or blow the whistle – you are an accomplice, you too pay fines and go to jail.

Mortgage-backed securities were KNOWN in the industry to have inflated property appraisals, systematically abandoned underwriting guidelines and over-rated bonds. These material misrepresentations were unknown to the borrowers and to the actual investors, the workers whose retirement and pension funds were gambled away. Broaden the securities laws to enable borrowers, whose collateral was inflated and used to bait investors, to file suit against the culprits for fraud.

“Government’s main duty now is to bring the whole toxic environment under the rule of law where it will be subject to enforcement. No economic activity based on the public trust should be allowed to operate outside the general principles of property law.

Financial institutions will have to serve society and fully report what they own and what they owe — just like the rest of us — so that we get the facts necessary to find our way out of the current maze.” (quoted from Hernando de Soto 2009).

Government can, and by all means should, regulate derivatives. Frankly, it’s not likely Americans (or the rest of the world for that matter) would even wince if a prison were to be built in the Marshall Islands and these banksters hauled off for 5-10 years. It certainly didn’t work to de-regulate them.

As always, please pass this post along to your friends and family – and of course to your friends in the judiciary.  Knowledge is powerful.



12 Responses

  1. @iwantmynpv – a couple to few months ago, I read the IRS was undecided: to tax or not to tax. It does amaze me how these things are kept quiet. Here is one article from 2009 which speaks to
    “commercial mtg loans” :

    IRS Widens Net on Mortgage Securitizations

    Many analysts expect that imminent defaults on commercial mortgage loans will alter deal terms.
    In response, the IRS issues guidance on why some changes to loans held in securitized trusts won’t forfeit tax benefits.
    Robert Willens – | US
    September 21, 2009

    Many commercial mortgage loans are held in
    “securitization” vehicles, such as real estate
    mortgage investment conduits (REMICs) and
    investment trusts. In each case, the entity is
    not subject to tax with respect to its income;
    instead, its income is taxed to its beneficial
    owners. As a result, ensuring that an entity’s
    status as a REMIC or investment trust is
    preserved is of paramount concern.

    For an entity to qualify as a REMIC, all the
    interests in the entity must consist of one or
    more classes of “regular interests,” and a
    single class of “residual interests.” In
    addition, these interests must be issued on the
    “start-up day.” An entity qualifies as a REMIC
    only if — as of the close of the third month
    beginning after the start-up day and at all
    times thereafter — substantially all of the
    entity’s assets consist of “qualified mortgages”
    and “permitted investments.” A mortgage is not a
    qualified mortgage unless it is transferred to
    the REMIC on the start-up day.

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    Regulation Section 1.1001-3(b)
    Section 860 of the U.S. Tax Code
    IRS Revenue Procedure 2009-45
    ..Under the tax code, specifically Regulation
    Section 1.1001-3(b), a “significant
    modification” of a debt instrument produces a
    deemed exchange of the original debt instrument
    for a new debt instrument. Accordingly, one or
    more significant modifications of loans held by
    a REMIC may terminate the qualification if the
    modifications cause less than substantially all
    of the assets of the REMIC to be qualified
    Certain modifications, however, are not deemed
    significant. In particular, if a change in terms
    is “occasioned by default or a reasonably
    foreseeable default,” the change is not a
    significant modification.

    Further, Section 860F(a)(1) imposes a tax on
    REMICs equal to 100% of the net income derived
    from “prohibited transactions.” The disposition
    of a qualified mortgage is a prohibited
    transaction, unless the disposition is in
    accordance with the foreclosure, default, or
    imminent default of the mortgage.
    In effect, the Internal Revenue Service has now
    taken steps to expand the notions of default,
    imminent default, and reasonably foreseeable
    default. The government’s purpose is to ensure
    that the impending modifications to commercial
    mortgage loans — that most analysts are
    predicting — do not cause REMICs and investment
    trusts linked to these transactions to forfeit
    their favorable tax status.

    “If the modifications meet these requirements,
    the IRS will not challenge a vehicle’s
    qualification as a REMIC and will not contend
    that the modifications are prohibited
    transactions.” — Robert WillensTherefore, Rev.
    Proc. 2009-45 applies to a modification of a
    mortgage loan held by a REMIC or an investment
    trust if:

    The premodification loan is not secured
    by a residence that contains fewer than five
    dwelling units and is the primary residence of
    the issuer of the loan;
    · As of the end of the three-month period
    beginning on the start-up day, no more than 10%
    of the stated principal amount of the total
    assets of the REMIC were represented by loans
    meeting this description: at the time of the
    contribution to the REMIC, the payments on the
    loans were then overdue by at least 30 days or a
    default was reasonably foreseeable;

    The holder or servicer “reasonably
    believes” there is a “significant risk” of
    The holder or servicer reasonably believes that the modified loan presents a significantly reduced risk of default.

    If the modifications meet these requirements,
    the IRS will not challenge a vehicle’s
    qualification as a REMIC and will not contend
    that the modifications are prohibited transactions. Moreover, in these cases the IRS will not challenge a vehicle’s classification as
    a trust (on the grounds that the modifications manifest a “power to vary investments”).

    The Revenue Procedure applies to loan modifications effected on or after January 1, 2008. Thus, the IRS is taking preemptive steps
    to head off any collateral damage, such as loss of favorable tax status, that might accompany what might well be a significant incidence of loan modifications in the commercial mortgage

    Contributing editor Robert Willens, founder and
    principal of Robert Willens LLC, writes a weekly
    tax column for

    1There is no maximum period after which default
    is per se not foreseeable. In appropriate circumstances, a holder or servicer may reasonably believe that there is a significant
    risk of default even though the foreseen default
    is more than one year in the future.”

    The other day I posted some material alleging the loans required seasoning to be securitized but that they were not seasoned and that WS devised its own illegal plan to skirt the rules, a 6 mo. “escrow” or guarantee on payments, while the rules state the payments must have been made by the borrower only prior to securitization. Again, if this is true, it’s likely none of the loans qualified for securitization and any income to the investors would be taxable. But that’s weird, too, and because I’m not an accountant or other financial guru, I can only surmise that our loans are paid for, but the investors don’t own them because pursuant to trust rules they can’t. If those payments streams are in fact taxable, but are not being taxed, it appears a major “pass” to WS and a get out of jail card. Taxing the investors would acknowledge the wide-spread fraud, would it not?

  2. Why isn’t the IRS swooping in to fully dismantle the Trusts yet. That is what I have been screaming for 5 years now.

    You are not a REMIC, you didn’t convey to the Truestte for the benefit of… too bad- pay the taxes at the Trust level!

  3. This is the best news I have read all month. Thank You to the judges who are finally not letting the banks , brokers, and notorys rip off and destroy the American dream.

  4. The Congressional Oversite Panal findings are a MUST READ…..thanks for the link within this post.

  5. @people in MA:

    Regarding Culhane: Despite the judge’s apparent laborious efforts, his
    ultimate decision was, well, garbage. For instance, citing some MA statute, he says an unrecorded assignment is binding. Yes, your honor, that’s true, but please re-read the statute you cite. The assignment is ONLY binding on the parties thereto, and most specifically binding on the assignOR (“ABC”) regardless of the authority of the person signing it on behalf of ABC to do so. No where does that statue state that it is binding on third parties, i.e., the homeowner. The plain language of the statute just says that if a certain defined person representing abc executes an assignment, abc is stuck and bound by it. In other words, if MaryJane executes an assignment on behalf of ABC, if Mary Jane holds one of the statutorily defined positions with ABC, ABC may not repudiate the assignment. The judge (Judge Wm G Young, MA DC) misconstrues the statute and has inadvertantly (I hope inadvertantly) introduced bench law by way of his own errant interpretation. So sorry, your honor, but that’s the way I see it.
    Relying on this errant interpretation of a statute, and this seems to be the whole place he hung his hat, the judge found the assignment of the deed of trust by MERS to be proper. In fact, he had cited to another statute which undermines MERS’ authority to assign a deed of trust but then inexplicably rules in favor of his errant interpretation of this one. Now how long is it gonna take to dispel this myth yet again?
    I applaud the judge’s initiative in taking the time to understand some of the intracies of securitization, as these days judges surely must take the time, but in the final analysis, the decision seems more a display of that newly learned information than one following law.

  6. When you draft your pleadings, make sure to motion the court to take Judicial Notice of that Congressional Oversight Panel report.

  7. I did not mean to endorse the ruling in Culhane v als which I linked, altho it is interesting.
    The dc’s ultimate decision is a pig in a serious amt of lipstick, regardless of how well-meaning the judge may have been. As long as courts use the words ‘mortgage’ and ‘deed of trust’ interchangeably, and thus misconstrue the relationships and rights of the parties, their decisions imo will not and cannot be based on fact.

  8. @nlight – how many times? a lot, I guess. However, judges, well, some anyway, are finally making it their business to understand the machinations of Wall Street and MERS and the nasty evil tricks played on
    investors and homeowners alike, i.e., the good citizens of this country. When considering the mountains of paperwork truly necessary for an alleged lender to come after our homes, the judges need to remember that it was not we, the homeowners, who formulated a business plan which would ultimately require that kind of massive production nor require the judiciary to get a mini-degree in securitization, etc. The distain should be pointed at the parties who deserve it and ultimately, it will be. Hopefully, in time for some of us to remain homeowners.

  9. About a year ago, I opined that one may not contract away one’s right.
    Someone asked me for verification and I couldn’t come up with a specific case about something I just know inherently from years in classes, books, and cases. A case recently posted by dinsfla and btw, thanks, dinsFLA – always glad to see MERS and ALS get it), which is a great read anyway especially if you share my ‘fondness’ for MERS, goes into this specifically on page 43:

  10. How many times this has to be proven before anyone does anything about it. When the judges finally know that the documents were presented into court with fraud, lies and deception, they should automatically throw the book at those who brought this kind of crime upon the court!

    Anyone else would have been thrown out of court and sanctioned heavily, if not reported to some authority that could punish them for the fraud, where is the FBI when we need them? This is outrageous that these bankster lawyers keep getting away with fraud upon the court, while many people sitting in jail for much lesser crime!

    Dismissal with prejudice is great, we love hearing about that, now we would love to hear that the judges are also taking a stronger stand and not allow those who bring fraud upon the courts back through the doors! They should expect by now that those coming into court on behave of banks will submit fraudulent documentations, and warn them of harsh punishments if they pursue further! Instead, they keep coming back with the same hoping that this time, this judge will not notice and that they will get away with it as they may have previously; enough is enough!

  11. MERS Is A Dummy Entity That Should Be Disregarded To Expose Self-Transfers And Other Conflicts Of Interest:

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