Foreclosure Defense: Financial Insitutions Attempt to Cure an Uncurable Position Through BuyBacks



Dear Mario:

Both you and Dawn brought up the question about the buy-back of certificates on asset-backed securities. Dawn feels there is added urgency since the investment banks are buying these back to settle claims of fraud coming from the investors who purchased them in the first place. She might be right. The faster you get into court the less likely they are able to come up with documentation to counter your claim regarding assignments, holder, and holder in due course (see today’s blog posts).

I think Dawn has it right that at least part of the motivation for doing this is to at least give themselves the argument that says “Well, even if the borrower WAS right, we have taken care of the problem and so we can foreclose now.” Dawn is most likely correct in her assessment of the intentions of the lenders to use and anything else they can lay their hands on to (1) at least force the burden of proof onto the borrower and (2) maybe convince a judge that this is an easy way out of what would otherwise be complex litigation.

However, a holder in due course is one by definition holds title without taint of wrongdoing or defenses. Legally, my opinion (in Florida where I am licensed) would be that

  • (1) the buyback only removes the one (and ONLY) class of possible claimants who might be bona fide purchasers for value without notice of wrongdoing and therefore holders in due course — which gives rise to our argument that there might have been a holder in due course but the “lender” or foreclosing party never was a holder in due course and now the only class of people who could have been holders in due course are gone, according to the latest position now asserted by the lender
  • (2) the purchase by a person who committed part of the wrongful behavior that tainted title to the negotiable instruments does not remove the taint
  • (3) the buyback is suspect because the Seller might have reassigned, pledged or otherwise diminished his capacity to sell the certificates on asset backed securities
  • (4) the actual owner of the assignments and notes is not known and could be the Special Purpose Vehicle Corporation that issued the securities but also could could be one of half a dozen other entities — thus they may have purchased the wrong thing from the wrong people
  • (5) any of these entities might have and probably did enter into cross agreements, insurance agreements, and guarantee agreements including credit default swaps and insurance on the revenue flow from the notes
  • (6) the “lender” still must trace the specific note to a specific set of certificates on asset backed securities that are specifically backed by notes and mortgages including the one in this case and that no other series of asset backed securities and no other SPV issued certificates indicating they were backed by a pool of loans whose description included this particular note and mortgage and
  • (7) they would have to show by someone who can be cross examined and who actually states in his affidavit of “personal knowledge” that ALL of the certificates on ALL of the asset backed securities that are backed in part by ANY portion of the this Note and Mortgage are accounted for by the buyback. To say that I doubt that they will ever be able to do that is an understatement.
  • (8) Is this just another scheme (like the write-down scheme forcing the loss on investors) whereby the investment bank will make even more profit and fees that were and are undisclosed to the borrower ad which should be credited to the borrower?
  • (9) Why would ANYONE purchase worthless paper (certificates on asset backed securities) whether it was a buyback or anything else? This is a question asked in many cases by many judges in many opinions. The obvious answer is that the transaction is a mask for something else on someone’s agenda.
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