GET THAT PSA: Alabama judge denies securitization trustee standing to foreclose

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SINGLE TRANSACTION THEORY CORROBORATED: INVESTOR-HOMEOWNER DEAL

“The court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with the terms of its own pooling and servicing agreement and further did not comply with New York law in attempting to obtain assignment of plaintiff Horace’s note and mortgage,” the judge’s order, signed March 25 and filed with the court Wednesday, said. “Horace is a third-party beneficiary of the pooling and servicing agreement … without such … plaintiff Horace and other mortgagors similarly situated would never have been able to obtain financing.”

ALABAMA! BORROWER IS THIRD PARTY BENEFICIARY OF PSA!

EDITOR’S NOTE: As Jon Lindemen has been continually saying, GET the PSA (Pooling and Servicing  Agreement). Shotgun the discovery and retreat to “just give me the PSA.” This court, simply following normal existing law, looked at the PSA and agreed with the borrower that since the pool did NOT receive the loan in accordance with the terms of the PSA, the Trustee didn’t have any interest in it.

The pretenders have contended that they could effectuate a remedy by submitting the absent or corrected paperwork (even if it is forged and fabricated). But as Judge Shack said in New York and many other Judges and lawyers around the country, there is something inherently wrong with even a validly executed assignment of a receivable from a loan that is already in default. The PSA is the governing instrument for the transaction with the investor. The investor obviously never agreed to take loans that were already declared in default. That is the OPPOSITE of what the investors wanted and the Opposite of what they were told.

Which leaves us, as I have said all along, with the fact that there was no securitization of ANY debt in most cases. It was an illusion and it can’t be fixed. That leaves some sham entity on the recording books of the county in which the property is located as being the “lender of record.” But they have a real problem — they are not the creditor and they never were. With the receivable instantly split from the security instrument (mortgage or deed of trust) that leaves an unsecured debt to an undisclosed and unknown party — with no room for “declaration fo default,” “Notice of sale”, or summons in foreclosure, eviction, UD, FD or anything else.

In the end, this IS that simple. Making it complicated might save the ass of the mega banks for a while, but this can’t last. Application of existing law on property, contracts and lending, leaves the creditor with remedies, but none of them include foreclosure.

Alabama judge denies securitization trustee standing to foreclose
by KERRI PANCHUK

Friday, April 1st, 2011, 2:41 pm

An Alabama circuit court in Russell County has issued a summary judgment this week in the case of Horace v. LaSalle Bank, preventing the bank from foreclosing due to irregularities with the assignment of a promissory note.

The ruling prevents defendant LaSalle Bank – as the trustee holding the plaintiff’s securitized mortgage – from proceeding with a foreclosure because the trust failed to follow its own pooling and servicing agreement, and did not follow applicable New York law when trying to “obtain assignment of Horace’s note and mortgage,” according to the court order.

Without proof the mortgage had been assigned to the trust, in this case a Bear Stearns-related mortgage trust, the trustee lacked standing to foreclose, the court found.

Specifically, the homeowner alleged LaSalle only “produced a collateral file that included the original, wet-ink, signed note in the case,” according to court records. That note contained a single endorsement in blank, which came from the originator of the mortgage, Encore Credit Corp. While the loan was sent through the securitization process – going through two other parties before reaching the trustee – the only assignment on record was from Encore.

“Accordingly, the endorsement chain … does not comply with that required by the PSA,” Judge Albert Johnson wrote in an order granting summary judgment and permanently enjoining LaSalle from foreclosing on the property, a home in Phenix City, Ala.

“The court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with the terms of its own pooling and servicing agreement and further did not comply with New York law in attempting to obtain assignment of plaintiff Horace’s note and mortgage,” the judge’s order, signed March 25 and filed with the court Wednesday, said. “Horace is a third-party beneficiary of the pooling and servicing agreement … without such … plaintiff Horace and other mortgagors similarly situated would never have been able to obtain financing.”

Horace’s attorney, Nick Wooten, said the judge’s decision proves “the securitization process totally and completely failed,” and that many of these “assets were not transferred.”

It does not mean the party gets a free house, however, he said. Rather, Wooten said the issue is “allocation of real losses,” and the next step would be to determine who is the proper foreclosing party.

But Shaun Ramey, an attorney representing LaSalle Bank, said the ruling contradicts existing court opinions and is a debacle for trusts handling loans that have been in default for years.

“They (opposing attorneys)  … say this does not mean the person gets a free house, but my response is it sure looks like that because my client holds the note, and they can’t foreclose.”

He added that if the note holder can’t foreclose, “then it calls into question who can foreclose?”

Ramey said when removing the securitization issues from the case,  he believes under Alabama law the actual holder should have absolute foreclosure rights. The LaSalle ruling seems to contradict other Alabama cases, he said, namely U.S. Bank v. Congress.

In U.S. Bank v. Congress, an Alabama judge ruled that a former homeowner challenging a foreclosure had no third-party standing to challenge the terms of the pooling and servicing agreement connected to the trust. Ramey said he believes the cases are similar.

“The most surprising aspect of the (LaSalle) order is that the holding suggests the mortgagor is a third-party beneficiary to (the pooling and servicing agreement),” Ramey said. He believes the recent decision “definitely shows there is no defined rule.”

But for Wooten, the homeowner’s attorney, the latest decision illustrates just how deep the nation’s securitization issues go.

“There were thousands of documents moved where there was no chain of assignments,” Wooten said. “The problematic side is what are we going to do about the fact that this didn’t occur? My only wish after being in this fight for the three and a half years is that we will get an honest evaluation of what is really wrong, so we can as a country get back on our feet. If we don’t get control of servicing, they will drive us into a depression that will take 20 years to get out of.”

The case involves certificate holders of Bear Stearns Asset Backed Securities I LLC, asset-backed certificates series 2006-EC2. It also names as defendants Mortgage Electronic Registration Systems, Encore Credit Corp., EMC Mortgage Co. and Bank of America (BAC: 13.37 +0.30%).

Write to Kerri Panchuk.

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