TAPE Recording Shows “Trustee” is NOT the party with Fiduciary Powers or Obligations

One of the interesting things about Arizona Law is that it is perfectly legal to tape record a telephone conversation without the knowledge or consent of the parties to that call.

I have a tape recording of a conversation between a borrower up in Scottsdale and an officer of Deutsch bank who is in charge of “Asset Acquisition.” His name might well be on the documents in your case. In that conversation he says that Deutsch is the “beneficiary”.. “for the “benefit of the investors”. He says that the whole arrangement is “counter-intuitive” (used that word more than once). Although the beneficiaries are the investors and Deutsch is named as Trustee, the Trustee has nothing to do. That is because the servicer (One West in the conversation) actually has complete discretion on all issues including modification. As to whether the loan was modifiable he explicitly deferred to the servicer.

Thus he is saying that notwithstanding appearances and what would be logical the ACTUAL arrangement is that the servicer has all power over the assets that have been conveyed to investors. He never mentioned the “Trust” (remember my contention is that there is no trust, that the SPV is merely a conduit vehicle for aggregating the assets and revenue streams from borrowers, insurers, counterparties on CDS etc.) He even refers to the servicer as having “fiduciary” obligations but shies away from any reference to Deutsch having fiduciary duties.

In my opinion, this tape both confirms my opinion and supplements it with a surprising detail, to wit: the servicer is the one with the power of a “Trustee” and not the named “Trustee” (in this case Deutsch). But the power of the real trustee (servicer) is limited to the provisions of the note, excludes third party payments from insurers, counterparties and federal bailouts, and is without reference to the encumbrance allegedly created by the Deed of Trust (Mortgage).

Boiling this down to its essential elements, the owner of the “asset” (the loan) is a group of investors who accepted certificated or non-certificated interests conveying to them a percentage interest in the flow of funds (principal and interest) and ownership of the note. The reference to a “Trust” is nominal (in name only) and the reference to a “Trustee” is both nominal and misleading. The beneficiary under the Deed of Trust, as seen by this representative of Deutsch is also the investor in that Deutsch is only named as a straw man for the investors as a convenience and with the result that the true beneficiaries are not disclosed.

Therefore, on its face, the beneficiary on the original Deed of Trust, the beneficiary named in the instruments used to securitize the loan, and the beneficiary in fact are all different. The original note also names a payee that is different from the payee under the assignments, which is different from the payee under the instruments of securitization and different from the actual party (the servicer) who receives those payments. In practice, according to this officer, the actual payee under the securitization documents (the investors) is different than the parties receiving payment and enforcing payment.

The effect of this “counterintuitive” arrangement is that the beneficiary and the party who represents themselves as the proper holder in due course or owner of the loan are different. All of this presumes that the loan was in fact properly, legally and successfully assigned and securitized — a question of fact since there are multiple conditions to acceptance of the assignment and multiple conditions subsequent (replacement of loan with another, buy back of the loan etc.), which are also questions of fact as to whether those conditions subsequent did or did not occur. In addition there are subsequent events (third party payments in accordance with insurance contracts, credit default swaps and other credit enhancements written into the securitization documents) that are also questions of fact.  And in either related or non-related context, there is the fact that many of these special purpose vehicles (“Trusts”) have been dissolved with the “assets” resecuritized into brand new securities sold to new investors.

Residential Funding Real Estate Holdings, LLC – Option One Mortgage Corporation

from June Reyno:

Once all of this information has been compiled with all their names, titles, addresses, signatures, company affiliation– we should then begin submitting these (i.e. notary public signatures) to various state agencies for confirmation and verification that these “people” are actually who say they are on the paper closing statements (if it can be found) along with the foreclosure processing paperwork from the mortgage servicers. The real class liars in the industry.

These notary public “signatures” can in fact be confirmed because they must be registered with the State Dept. We can demand a “viewing” of that persons’ notary journal in their possession at all times and no one elses. And, whether the named person as it is typewritten in the foreclosure dcouments…”Vice President” who signed payoff statements from the Bank actually holds that “typed in” title and whether they were actually and physically present at the time the notary public verified identification of that person.

By the looks of the hundreds of fradulent paperwork I have personally examined thus far and viewing the names of people pushing foreclosure we do mistakenly think (and the judges mistakenly think this way too unfortunately) that nothing except hard, cold cash green money was exchanged at the closing table to purchase the collaterallized debt obligation. No such thing with securitization is there?

I’m betting with the sensible majority that no one ever paid or had any kind of “liquid cash” to show at closing and that it is by paper appearance only to convince and mislead others that these impostors paid for the property they actually stole from the homeowner upon foreclosure and that the investor was similarly ripped off who put up the money so that only a select few companies by design (going back decades + could line their pockets in the future with billions and billions of $$$ in profit to throw into their corporate treasure chest collected from suffering hardworking middle income American taxpayers!

A perfect example of equity stripping is our San Diego home we lived in for 20+ years. It was foreclosed on 2 years before and we didn’t know it because we sought bankrutpcy protection. We were evicted from our home and thrown out on the street by the foreclosure mill lawyers hired by the Bank and their realtor cohorts March 14, 2009. They succeeded because the pretender lender submitted false forged documents to the court and the Judges.

We purchased the house for $192,900 in July 1989. Our principal balance was reduced to $164,000 under a new loan with Washington Mutual. Throughout the refinancing period in which we borrowed from our equity period we were paying an average amount of about $1,500-$2,500 per month over the course of 20+ years. In April 2006, our house came in on an inflated appraisal value of $650,000. From that, we drew out about $34,000 on equity at refinance which all went back to the economy and for the purpose of preserving our good credit standing with our creditors. The principal balance came to $588,000 according to Option One Mortgage Corporation. Residential Funding Real Estate Holdings, LLC unlawfully purchased the property without notice by bidding against themselves on the auction (again without our knowledge and we were under bankrutpcy protection) for $361,200 when they foreclosed and assigned the house to Litton Loan Servicing/Option One Mortgage/Quality Loan Servicing San Diego. In March 2009 (when I was unlawfully charged with trespassing, vandalism and re-entry of property believing we were protected under the the BK laws and after and unlawful Judgement from the UD Court and was placed under arrest by the San Diego Police Dept.) Island Source II, LLC purchased the house for $211,500 (claiming they are [innocent] Bonafide Purchasers of value under CC 1161(a) for $211,500.

This month, March 12, 2010 Island Source II, LLC dba: Homecomings Financial Network in Minnetonka MN sold it to “InSource Financial Services, Huntington New York”, again, and again in violation of the Bankruptcy automatic stay; selling and transferring this time to a community homebuyer for $385,000 despite our opposition noticesand letters stating our intent to preserve interest filed with the County Recorder’s Office. The Judges [innocently] joined in on the pretender lenders fraud upon the court. Later, our appellate lawyer whom we trusted followed them to go against our interest and helped them to continue living the lie.

We were stripped of $450,000+ in equity.

Is this you?

Our house payment at last refinance in May 2006 $3,919.60 then in April 2008 the ARM adjusted to $5,800.00 monthly payment. Whaaat! Our house was sold and wrongfully foreclosed like millions of other American families who were steered into securitized mortgage loans without their knowledge but no Judge or the court or law enforcement cared enough to help us correct these hurtful and malicious acts.

Where was our “Fiduciary ” Trustee as named in our mortgage contract that should have been of our choice to explain the terms of our mortgage contract to us at the closing table?

Bondholders Get It Now and Are Firing Servicers

Thanks to Gator Bradshaw

Editor’s Comment: Like I said, the investors and the homeowners have a lot of interests in common. When they finally get together and compare notes, they find a giant donut hole where assets or money were supposed to be. The amount of theft or undisclosed fees and profits staggers the imagination. It would take 200 like Bernie Madoff to even get close.

Watch these lawsuits and the news reports. As the investors start firing the servicers (who probably don’t have any authority now anyway) and start hiring new servicers they will be performing due diligence. As they trace the paperwork and discover the incurable gaps in title, ownership, credit and money trails, you will find them changing the narrative considerably from blame the borrower to how can we work with borrowers to minimize our losses?

And wait until they figure out that millions of foreclosed homes are NOT being held for the investors in inventory and hundreds of thousands of homes “sold” have toxic titles where the proceeds of sale were not given tot he investors either. I’m no psychic but I’ll bet those investors will be surprised and pretty damned angry.

see subprimeshakeout.blogspot.com

see bondholders-considering-plan-to-tell.html

With lawsuits against servicers grinding a slow path through the court system, investors are looking to make an end-run around the intransigent banks who are refusing to service mortgages in accordance with bondholder wishes. Their solution to break through the gridlock surrounding so-called “toxic” mortgage-backed securities? Use the mechanisms in their pooling and servicing agreements (PSAs)–the agreements that govern the creation, maintenance and payment streams of mortgage-backed securities–to remove conflicted servicers from their roles and insert friendly institutions willing to service the loans consistent with the best interests of the investors.

According to one group of prominent investors (hereinafter the “Securitization Syndicate”), who asked to remain anonymous because the plan is still in the works, investors with large holdings in mortgage-backed securities are beginning to join forces to petition securitization Trustees to relieve Master Servicers from their posts. Under the terms of most PSAs (which tend to vary little from trust to trust), the Master Servicer is required to service loans in such a way as to maximize investor returns. However, due to recognized conflicts of interest (such as significant holdings in junior mortgages and an interest in accumulating fees from delinquent loans), servicers instead have frequently breached these obligations and refused to liquidate or modify loans that borrowers are incapable of repaying.

The problem is that, under the terms of most PSAs, the only party with the power to do anything about a breach of an obligation by a Master Servicer is the Trustee. Trustees are generally large financial institutions that are paid a fee to oversee the flow of money through the securitization waterfall and to carry out certain administrative tasks. Though the Trustee may remove a Master Servicer, because the Trustee was designed to play a fairly passive role, it is not required to enforce servicer breaches on its own initiative.

Instead, bondholders must petition the Trustee to take action. In this regard, most PSAs require that at least 25% of the Voting Rights (evidenced by beneficial ownership of 25% of the bonds) give notice to the Trustee of a breach by the Master Servicer before triggering any obligations by the Trustee. Only when the Trustee fails to remedy the breach within 60 days after such a petition may the bondholders bring legal action on behalf of the Trust.

However, most PSAs also provide the following: “The Holders of Certificates entitled to at least 51% of the Voting Rights may at any time remove the Trustee and appoint a successor trustee.” (quoted from the representative PSA for Countrywide Alternative Loan Trust 2005-35CB) Anticipating that the Trustee will not take action against the Master Servicer, and reluctant to engage in yet another protracted legal battle to enforce servicers’ obligations, the Securitization Syndicate is shooting for a more ambitious goal: amass a 51% interest in one securitization so that they may remove the Trustee, appoint a friendly successor, and get that successor to fire the Master Servicer.

Sound difficult? It will be. Most prudent investors seek to diversify their holdings so that they do not hold too high a percentage in any one securitization, let alone any one asset class. Finding a few investors with large enough holdings in one particular securitization to obtain 51% could be a challenge. Finding institutional investors willing to take on large financial institutions with which they have longstanding relationships–and risk being portrayed as opposed to politically popular loan modifications–may be even harder.

Yet, according to one member of the Securitization Syndicate, “all it takes is one. What do you think will happen if we tell a Trustee or a Master Servicer, ‘you’re fired’? What will happen the next time we notify a Trustee that we’ve caught a servicer breaching its obligations? I think you’ll find they begin to sit up and take notice.”

I would tend to agree with this assessment. Many large banks earn significant fees from serving as the Trustee or Master Servicer of securitizations, and would not want to lose those revenues. Further, while many institutional investors may be reluctant to go out on a limb an take on a major bank, just one reported instance of this plan being successful will likely create a chain reaction. Soon, many bondholders will be open to joining forces and taking on Servicers and Trustees who aren’t honoring their fiduciary duties.

With Treasury officials admitting last month to the failure of their efforts to cajole servicers into modifying loans or working with borrowers to allow short-sales (the sale of the property for an amount less than the amount owed on the mortgage), maybe it’s time that institutional investors take matters into their own hands. Large funds such as CalPERS, whose investment portfolio took a hit of over $56 billion in the last fiscal year, should be eager to find a way to cut their losses and rid their books of their large holdings in mortgage-backed securities.

This can only be done with the cooperation of servicers, who have the sole power to modify a loan, foreclose, or allow a short sale, and who have generally been responsible for dragging their feet and keeping these loans in stasis. When servicers refuse to service loans in the best interests of the ultimate owners, which they’re contractually-obligated to do, they should be shown the door just like anyone else that fails to perform their basic job functions. The question is whether any of these institutional investors will have the courage to break ranks and stand up to banks that have demonstrated unparalleled influence in Washington and on Wall Street.

Donald W. Bradshaw Esq.
Law Office of Donald W. Bradshaw
303 SE 17th Street #309-218
Ocala, Florida 34471
Phone: (352) 484-1145
Fax: (352) 484-1117
gator.bradshaw@yahoo.com

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