COURT DECISION SAYS REMIC HAS NO RECOURSE AGAINST COLALTERAL: ARE REMICs UNSECURED????

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see Article by Lane Powell PC Scott M. Edwards and Daniel A. Kittle

I hate to be petty but if you look back to my articles in 2007-2008 you will see that I predicted that ultimately, the way this was done in practice (as opposed to the way the Trusts were created in writing — as opposed to the way the trusts were conceived and codified under the Internal Revenue Code) — neither the beneficiaries nor the Trust have a secured interest in the property.

That means they have no interest in the mortgage and that means that neither the beneficiaries nor the Trust can foreclose because they have no right to foreclose on any mortgage or deed of trust. But the problem is that the beneficiaries are the people who are owed the money — unfortunately payable in a manner that differs in amount and method substantially different than the payment described in the note.

The court noted that its HomeStreet decision identified five statutory requirements for the deduction: (1) the taxpayer must be a “banking, loan, security, or other financial business;” (2) the amount deducted must be “derived from interest” received; (3) the amount deducted was received because of loan or investment; (4) “primarily secured” by a first mortgage or deed of trust; and (5) on “nontransient residential real property.” According to the court, there was no dispute that four of the five requirements were satisfied; the only issue was whether REMICs are “primarily secured” by the underlying mortgages.

On this issue, the court held that to satisfy the “primarily secured” by a mortgage or deed of trust requirement, the bank claiming the deduction must have “some recourse” against the collateral.  The court found that a REMIC investor has “no direct or indirect legal recourse” against the underlying mortgages.

I have no time to elaborate at the moment. But the argument raised by legal beagle Ron Ryan, Esq. in Tucson, Arizona turns out to be correct — 7 years later. The note and mortgage were fatally split; and the note itself was destroyed physically because its terms became irrelevant to the obligation owed to the real creditor. Hence it is impossible to be a holder in due course or a party entitled to enforce (HDC or PETE) on a mortgage loan that was either originated or “transferred” (always without consideration) within the context of a securitization scheme.

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