Why Void Assignments are Void Not Voidable


In the wake of the California Supreme Court’s decision in Yvanova and its progeny, the legal community has accepted the unacceptable (and the ridiculous). The bottom line of the decision is that a void assignment can be the basis for a lawsuit for wrongful foreclosure but it cannot be the basis of a defense to the foreclosure itself.  Thus you can sue for the illegal and fraudulent use of a fabricated instrument reciting a transfer of ownership of a note and/or mortgage, but you can’t stop the illegal foreclosure which is based on the same fraudulent instruments.

In order to reach this conclusion the court was required to twist legal reasoning beyond common sense logic. The court held that a void assignment could be ratified; and since it could be ratified, the assignment was not void but voidable. Somehow the court also reached the conclusion that in a wrongful foreclosure lawsuit the same assignment could be treated as void and not voidable.

In my opinion, this was a political decision, not a legal decision. Despite the constitutional requirement of separation of powers, many courts start by making two public policy assumptions:  (1) the banks needed protection and the courts needed to provide that protection and (2)  the homeowners were in default and they should not be the beneficiary of the windfall that would occur in decisions that favored the banks.

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The entire premise of the California Supreme Court was wrong. The specific example in that decision was a purported assignment after the cutoff date specified in the pooling and servicing agreement that supposedly served as the basis for the creation and maintenance of a trust. The court said that somehow the assignment outside of the cut off period could be ratified.  This decision has been expanded by other courts to mean that any void assignment could be potentially ratified and therefore was voidable.

 Internal Revenue Code §§860D, 860F(a), 860G(d) A REMIC or special purpose vehicle (SPV) is an entity that is created for the specific purpose of being a tax-free pass-through for interest income generated by pooled mortgages.

Here are the reasons why a purported assignment after the cutoff date cannot be ratified:

  1.  The Internal Revenue Code does not permit it. Having elected to be treated as a REMIC, the purported trust is bound by law, which requires an “open window” for transactions to be limited to a 90 day period. Ratification of an action that violates the Internal Revenue Code would be an illegal act.
  2.  Ratification of an action that violates the Internal Revenue Code would also be a stupid act —  one which would convert all revenue by all participating parties to ordinary income for tax purposes, even if that revenue included return of capital.  Therefore there is no reasonable business purpose for ratification.
  3.  The trustee of a REMIC trust does not have the power to ratify or even control or observe the business operations of the REMIC trust. Hence ratification by the trustee is impossible.
  4.  The named trustee for the remake trust is prohibited from actively administering the affairs of the REMIC trust.  Hence ratification by the trustee would be illegal and void especially if the trust instrument recited that the instrument is governed by the laws of the state of New York.
  5.  The certificate holders and the named trustee of the REMIC trust are prohibited from receiving reports and are further prohibited from even making inquiries regarding the status of any alleged trust assets.  Without knowledge, ratification is impossible.
  6.  The certificate holders are not beneficiaries of the REMIC trust. In most cases the indenture to the certificates purchased by investors specifically exclude any interest or title to any debt, note or mortgage. Hence, ratification by the certificate holders is impossible.  Any contrary conclusion could only be based on a finding that the REMIC trusts never existed.  That in turn would lead to an array of other problems.
  7.  Even if the certificate holders were construed to be beneficiaries of a REMIC trust, the terms of the putative trust instrument prohibit beneficiaries from actively or passively being involved in the operations of the REMIC trust.  Hence ratification by the certificate holders is not only impossible, but contrary to the express provisions of the putative pooling and servicing agreement that purportedly serves as the trust instrument.
  8.  Ratification of an instrument that has no legal existence adds nothing to the instrument nor the rights purportedly transferred by virtue of the instrument (assignment).

15 Responses

  1. Storm, ok, so the IRS fines 100% of the monies actually received.

    Transfer to the trust, however, is governed by the trust’s operating agreements, not IRS rules. Late transfer is considered a void transaction by such, and likely NY trust law.

  2. SIR:An admirable exegisis.I have been complaining for some timeNieland buddy bloggers donot seem tounderstand if one is expounding a “wish”say so but if arguing the law then citations and authority need to be furnished .Some readersmight follow the wish list and get really damaged

  3. The Internal Revenue Code neither makes the late assignment of the DOT to the Trust illegal nor renders it void. Rather, the receipt of income from the late- transferred asset may be a “prohibited transaction” subject to a 100% tax penalty. 26 U.S.C. § 860F(a). If the late transfer of the DOT unnecessarily exposed the asset to a 100% tax penalty on income generated from the asset, the trustee might be liable to the Trust’s beneficiaries for wasting or mismanaging the Trust’s property. See In re Hubbell’s Will, 97 N.E.2d 888, 892 (N.Y. 1951). But because such waste or mismanagement affects only the Trust beneficiaries and does not directly contravene any positive law or offend public policy, the late assignment of the DOT was not void ab initio based on the application of the REMIC provisions. See Moss v. Cohen, 53 N.E. 10 (N.Y. 1899). Similarly, even if the transaction led to a complete loss of the Trust’s tax-favored REMIC status, that loss would be incurred by the beneficiaries of the Trust, not the public at large, and so does not offend public policy.

    The post by Garfield is just more proof he’s incompetent, and/or he’s just trying to scam homeowners into buying the different worthless services he provides.

    Go to http://www.livingliesthetruth.com, where Garfield’s nonsense is exposed.

  4. One interesting aspect of that Letter is that the Trustee is described as “an independent third party” whom received assignment of the Trust Securities (the RMB Securities, i.e., certificates, not the notes) for the Trust.

    Someone confirm I read that correctly, please!

  5. The 26 U.S. Code § 860F – Prohibited Transactions page I referenced below in another remark contains a link in the IRS tab which provides a very interesting read of and IRS Determination Letter of 2015, but which cannot be used as precedent as it’s considered an individual case, not broad. Yet, similar in every way to all the trusts I’ve known regarding the structure and flow of trust activity.

    At least, even after 10 years now, I found items I was not completely aware. It’s hard to read, will likely take two readings to get the gist.


    The tax conclusions by the IRS are specific to this case but probably all other trusts as well, however. These findings, by themselves, are not the relevant parts. It does arrive at specific conclusions as to the transfers in this case, but well describes them as to what is, or is not allowed.

    Note the document has a large number of redactions, stated as variable names like “Year-1”, “Year-2”, etc which are blank-listed on the first page as a Legend, not disclosed for internal use. Those values/names would be interesting if disclosed.

  6. stanbsch, he can’t support his schizophrenic arguments. He’s still scamming feckless homeowners to sell his scam audits.

  7. I know the IRS penalty My point is that blogs like Neil need tobe careful and accurate.You cando it if you wish ie its NOT PROHIBITED

  8. Stan,

    26 U.S. Code § 860F

    Prohibited Transactions

    It’s not an IRS rule.

  9. Isn’t a Trust created (and in many cases actually stated within the contract that they can only be held in obeyance of NY or Delaware law) in NY or Delaware only governed by NY or Delaware Law (besides the Federal ones)? I mean, how does a Cali. Judge get the right to (mis)construe (ie., change the meaning/terms of) a contract, clearly created and entered into by an out of state entity?

  10. I like the judge’s statement that “homeowners have legal rights to combat wrongful
    and outrageous business practices”

    He identified 11 acts of misconduct to include fraud, breach of contract and inflicting emotional distress on homeowners.

    I’m just not sure about pursuing arguments of title when unfair and deceptive practices is a defense that’s not hard to support and the threshold is low to show the bank profited from its actions which cause financial harm to the defendant.

    If there is no harm to the defendant or an amount the court can award for the loss tonthe defendant I’m not sure why there would be a case. I’m not a lawyer. There does seem to be a co flick if a homeowner is trying to get. Clear title on a home where they have not paid the note or suffered an actual financial loss

  11. Maxim – That which is void from the beginning cannot become valid by lapse of time.

  12. The IRS REMIC rules do not prohibit anything They merely provide penalties if the Trust does not comply
    The IRS has been totally complicit by with full knowledge over the years since 2006 permitting so called REMIC trusts to flaunt the rules with impunity Ever hear of one declared invalidated
    The certificate holders ARE beneficiaries What would one call getting tax free distributions. ?
    I enjoy your blog but sometimes?? That’s why I am always urging you to support your erudition by Citing legal Support

  13. I’d like to know where the judges get this reasoning, where the homeowner gets a windfall? On average a 20% down payment, closing costs, fees, principle and interest ($1,000.00 payment = $132.00 average of principle), etc..maintenance, insurance (in some cases multiple policies), taxes, and all improvements. These costs are all borne by the homeowner, not the lender, hence they get the windfall, by deception, fraud, theft, conversion, counterfeiting, and cheating. Garbage the entire premise!

  14. Great info in CA success in pushing bill to reinstate homeowner bill of rights provisions that expired this year but more so require standing from filing of NOD. Perhaps will address this or are we at mercy of Wall Street courts?

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