About Those 1099 and Other Tax Filings from Servicers and Banks …

The problem for everyone involved is that in reality the investors made nothing and merely received a portion of their own money as though it had come from the trust. But it didn’t come from the trust because the trust didn’t even have a bank account. If the banks had disclosed the truth of the matter the investors would have known this is a Ponzi scheme. Imagine what would happen if someone claimed sub S treatment when the corporation they had formed did no business, had no bank account and never had any business activity, never had any assets or liabilities and never had any income or expenses.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER. HIRE AN ACCOUNTANT OR OTHER QUALIFIED TAX ANALYST

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Few people can say they understand the Internal Revenue Code (IRC), and far fewer understand the statute that gave birth to the idea of a REMIC pass through entity (REAL ESTATE MORTGAGE INVESTMENT CONDUIT). The banks lobbied heavily for this section because it left open doors that could be exploited for the benefit of banks selling the “investment products” to the huge detriment of (1) the investors who advanced money into what turned out to be a nonexistent trust, (2) borrowers who were coaxed into signing “closing” documents as though the party named on the documents was lending them money, and (3) the US Government and the taxpayers who ultimately picked up the tab for a “bailout” of banks who had lost nothing from the actual “loans” nor the “mortgage bonds” because the banks were selling them not buying them. The bailouts from the US Treasury and the Federal Reserve in reality only added to the pornographic profits made by the banks by rewarding them with payments on losses incurred by others.

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Follow the money. Because of tacit agreements with Bush and Obama administrations the IRS has been granting repeated safe harbor extensions to the banks and servicers who have filed documents that  say that a REMIC was formed. Such filings were mostly false.  The problem is that the money and the acquisitions of “loans” MUST be through the trusts in order to get pass-through treatment. Without pass-through treatment, (like a sub S corporation) the cash received by investors is taxable income — even the portion, if any, that is attributable to principal. But the banks have been telling investors that they are getting the interest payment that they signed up for — according to the Prospectus and Pooling and Servicing Agreement. What they are actually getting is their own money back from the investment they  thought they made.

[NOTE: The part attributable to principal would be taxable because the notes themselves, even if they were valid, are not the source of income to investors as far as the investors know. The source is supposedly the REMIC Trust — an entity that was created on paper but never used. In reality the source was a pool of dark money consisting entirely of investor money. But the banks and servicers are reporting to the investors that the money they are receiving is “income”from interest due from the REMIC Trust that never operated. The banks and services are obviously not reporting the cash as part of a Ponzi scheme. So the investors are paying taxes on the return of their own money. Hence the part of the payment from the “borrower” that has been designated as “principal” is reported as “interest” in reports to the investors. In reality the money from “borrowers” merely dumped into a dark pool along with all the other money received from investors.  The entire “loan closing” and subsequent foreclosures are a charade adding the judgment from a court of law that is treated as giving a stamp of approval for everything that preceded the judgment.]

The problem for everyone involved is that in reality the investors made nothing and merely received a portion of their own money as though it had come from the trust. But it didn’t come from the trust because the trust didn’t even have a bank account. If the banks had disclosed the truth of the matter the investors would have known this is a Ponzi scheme. Imagine what would happen if someone claimed sub S treatment when the corporation they had formed did no business, had no bank account and never had any business activity, never had any assets or liabilities and never had any income or expenses.

*

The forms filed with the IRS are fraudulent. The 1099 issued to borrowers who avoided deficiency judgments are fraudulent because they come from entities that had no loss and never had the authority to collect or enforce. In reality if the true facts were followed there would be no taxable event for getting their own money back from their “investment.” But the way it is reported, the investors are getting “income” on which they owe taxes. The real taxes on real income should come from the banks that stole a large part of the money advanced by investors. It’s like Al Capone — in the end it was income tax that brought him down.

*

Instead the investors are being taxed for interest received and are exposed to more taxes when they get money reported as “principal.” Neither the investors nor the borrowers should be paying taxes on any money or “benefit” they reportedly received (because there was no benefit). So the end result is that the banks made all the money, paid no taxes, and are taking a deduction for payments made to investors and for waivers of deficiency on loans they never owned.

*

I have been telling borrowers for years to send the IRS a latter or notice in which they flatly state that the  form filed with the IRS was wrong, fraudulent and inoperative. The borrower received no benefit from the bank or servicer that filed it. Hence no tax is due. Thus far I have seen no evidence that the IRS is attempting to enforce the payment of income taxes from people who have challenged the the authenticity of the report. The IRS apparently does NOT want to be in the shoes of the banks trying to prove that the bank who filed the form owned the loan when they already know that the transaction was not actually a loan and that the “loan closing” transaction was the the result of the unauthorized and fraudulent use of investor money.

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Eventually the truth comes out. The problem for the banks is that they stole money and didn’t pay tax on their ill-gotten gains. Every time a “servicer” “recovers” “servicer advances” they are taking more money from investors because every “advance” was taken from a pool of money that consisted solely of investor cash. When they “recover” it they book it as return of capital rather than pure income which is what it really is, even if it is illegally obtained.

*

If they admitted what it was then the banks would be required to pay huge sums in taxes. But they would also be facing angry investors who, upon realizing that every cent they received was their own money and not return on capital “invested” into a trust, would press claims and in many cases DID press claims and settled with the bank that defrauded them. So the banks and servicers are attempting to avoid both jail and huge sums in back taxes that would put a significant dent in the “deficit” of the U.S. government caused by the illegal and fraudulent activity of the banks.

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3 Responses

  1. IRS Form 938 lists all the REMICs and is available online from the IRS. So far, I have yet to see one “trust” listed as it is named by the criminals.

    As far as the IRS Code:

    26 U.S.C. 860G:

    a) Definitions

    For purposes of this part—

    (1) Regular interest
    The term “regular interest” means any interest in a REMIC which is issued on the startup day with fixed terms and which is designated as a regular interest if—

    (A) such interest unconditionally entitles the holder to receive a specified principal amount (or other similar amount), and

    (B) interest payments (or other similar amount), if any, with respect to such interest at or before maturity—

    (i) are payable based on a fixed rate (or to the extent provided in regulations, at a variable rate), or

    (ii) consist of a specified portion of the interest payments on qualified mortgages and such portion does not vary during the period such interest is outstanding.
    The interest shall not fail to meet the requirements of subparagraph (A) merely because the timing (but not the amount) of the principal payments (or other similar amounts) may be contingent on the extent of prepayments on qualified mortgages and the amount of income from permitted investments. An interest shall not fail to qualify as a regular interest solely because the specified principal amount of the regular interest (or the amount of interest accrued on the regular interest) can be reduced as a result of the nonoccurrence of 1 or more contingent payments with respect to any reverse mortgage loan held by the REMIC if, on the startup day for the REMIC, the sponsor reasonably believes that all principal and interest due under the regular interest will be paid at or prior to the liquidation of the REMIC.

    (2) Residual interest
    The term “residual interest” means an interest in a REMIC which is issued on the startup day, which is not a regular interest, and which is designated as a residual interest.

    (3) Qualified mortgage
    The term “qualified mortgage” means—

    (A) any obligation (including any participation or certificate of beneficial ownership therein) which is principally secured by an interest in real property and which—

    (i) is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC,

    (ii) is purchased by the REMIC within the 3-month period beginning on the startup day if, except as provided in regulations, such purchase is pursuant to a fixed-price contract in effect on the startup day, or

    (iii) represents an increase in the principal amount under the original terms of an obligation described in clause (i) or (ii) if such increase—

    (I) is attributable to an advance made to the obligor pursuant to the original terms of a reverse mortgage loan or other obligation,

    (II) occurs after the startup day, and

    (III) is purchased by the REMIC pursuant to a fixed price contract in effect on the startup day. [1]

    (B) any qualified replacement mortgage, and

    (C) any regular interest in another REMIC transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC.
    For purposes of subparagraph (A), any obligation secured by stock held by a person as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as so defined) shall be treated as secured by an interest in real property. For purposes of subparagraph (A), any obligation originated by the United States or any State (or any political subdivision, agency, or instrumentality of the United States or any State) shall be treated as principally secured by an interest in real property if more than 50 percent of such obligations which are transferred to, or purchased by, the REMIC are principally secured by an interest in real property (determined without regard to this sentence).

    (4) Qualified replacement mortgage

    The term “qualified replacement mortgage” means any obligation—

    (A) which would be a qualified mortgage if transferred on the startup day in exchange for regular or residual interests in the REMIC, and

    (B) which is received for—

    (i) another obligation within the 3-month period beginning on the startup day, or

    (ii) a defective obligation within the 2-year period beginning on the startup day.

    (5) Permitted investments

    The term “permitted investments” means any—

    (A) cash flow investment,

    (B) qualified reserve asset, or

    (C) foreclosure property.

    (6) Cash flow investment

    The term “cash flow investment” means any investment of amounts received under qualified mortgages for a temporary period before distribution to holders of interests in the REMIC.

    (7) Qualified reserve asset

    (A) In general
    The term “qualified reserve asset” means any intangible property which is held for investment and as part of a qualified reserve fund.

    (B) Qualified reserve fund
    For purposes of subparagraph (A), the term “qualified reserve fund” means any reasonably required reserve to—

    (i) provide for full payment of expenses of the REMIC or amounts due on regular interests in the event of defaults on qualified mortgages or lower than expected returns on cash flow investments, or

    (ii) provide a source of funds for the purchase of obligations described in clause (ii) or (iii) of paragraph (3)(A).

    The aggregate fair market value of the assets held in any such reserve shall not exceed 50 percent of the aggregate fair market value of all of the assets of the REMIC on the startup day, and the amount of any such reserve shall be promptly and appropriately reduced to the extent the amount held in such reserve is no longer reasonably required for purposes specified in clause (i) or (ii) of this subparagraph.

    (C) Special rule
    A reserve shall not be treated as a qualified reserve for any taxable year (and all subsequent taxable years) if more than 30 percent of the gross income from the assets in such fund for the taxable year is derived from the sale or other disposition of property held for less than 3 months. For purposes of the preceding sentence, gain on the disposition of a qualified reserve asset shall not be taken into account if the disposition giving rise to such gain is required to prevent default on a regular interest where the threatened default resulted from a default on 1 or more qualified mortgages.

    (8) Foreclosure property
    The term “foreclosure property” means property—

    (A) which would be foreclosure property under section 856 (e) (without regard to paragraph (5) thereof) if acquired by a real estate investment trust, and

    (B) which is acquired in connection with the default or imminent default of a qualified mortgage held by the REMIC.

    Solely for purposes of section 860D (a), the determination of whether any property is foreclosure property shall be made without regard to section 856 (e)(4).

    (9) Startup day
    The term “startup day” means the day on which the REMIC issues all of its regular and residual interests. To the extent provided in regulations, all interests issued (and all transfers to the REMIC) during any period (not exceeding 10 days) permitted in such regulations shall be treated as occurring on the day during such period selected by the REMIC for purposes of this paragraph.

    (10) Issue price
    The issue price of any regular or residual interest in a REMIC shall be determined under section 1273 (b) in the same manner as if such interest were a debt instrument; except that if the interest is issued for property, paragraph (3) of section 1273 (b) shall apply whether or not the requirements of such paragraph are met.

    (b) Treatment of nonresident aliens and foreign corporations
    If the holder of a residual interest in a REMIC is a nonresident alien individual or a foreign corporation, for purposes of sections 871 (a), 881, 1441, and 1442—

    (1) amounts includible in the gross income of such holder under this part shall be taken into account when paid or distributed (or when the interest is disposed of), and
    (2) no exemption from the taxes imposed by such sections (and no reduction in the rates of such taxes) shall apply to any excess inclusion.

    The Secretary may by regulations provide that such amounts shall be taken into account earlier than as provided in paragraph (1) where necessary or appropriate to prevent the avoidance of tax imposed by this chapter.

    (c) Tax on income from foreclosure property

    (1) In general
    A tax is hereby imposed for each taxable year on the net income from foreclosure property of each REMIC. Such tax shall be computed by multiplying the net income from foreclosure property by the highest rate of tax specified in section 11 (b).

    (2) Net income from foreclosure property
    For purposes of this part, the term “net income from foreclosure property” means the amount which would be the REMIC’s net income from foreclosure property under section 857 (b)(4)(B) if the REMIC were a real estate investment trust.

    (d) Tax on contributions after startup date

    (1) In general
    Except as provided in paragraph (2), if any amount is contributed to a REMIC after the startup day, there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is received equal to 100 percent of the amount of such contribution.

    (2) Exceptions
    Paragraph (1) shall not apply to any contribution which is made in cash and is described in any of the following subparagraphs:

    (A) Any contribution to facilitate a clean-up call (as defined in regulations) or a qualified liquidation.

    (B) Any payment in the nature of a guarantee.

    (C) Any contribution during the 3-month period beginning on the startup day.

    (D) Any contribution to a qualified reserve fund by any holder of a residual interest in the REMIC.

    (E) Any other contribution permitted in regulations.

    (e) Regulations

    The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations—

    (1) to prevent unreasonable accumulations of assets in a REMIC,

    (2) permitting determinations of the fair market value of property transferred to a REMIC and issue price of interests in a REMIC to be made earlier than otherwise provided,

    (3) requiring reporting to holders of residual interests of such information as frequently as is necessary or appropriate to permit such holders to compute their taxable income accurately,

    (4) providing appropriate rules for treatment of transfers of qualified replacement mortgages to the REMIC where the transferor holds any interest in the REMIC, and

    (5) providing that a mortgage will be treated as a qualified replacement mortgage only if it is part of a bona fide replacement (and not part of a swap of mortgages).

    26 U.S. Code § 860D – REMIC defined

    § 860D – REMIC defined

    (a) General rule For purposes of this title, the terms “real estate mortgage investment conduit” and “REMIC” mean any entity—

    (1) to which an election to be treated as a REMIC applies for the taxable year and all prior taxable years,

    (2) all of the interests in which are regular interests or residual interests,

    (3) which has 1 (and only 1) class of residual interests (and all distributions, if any, with respect to such interests are pro rata),

    (4) as of the close of the 3rd month beginning after the startup day and at all times thereafter, substantially all of the assets of which consist of qualified mortgages and permitted investments,

    (5) which has a taxable year which is a calendar year, and

    (6) with respect to which there are reasonable arrangements designed to ensure that—

    (A) residual interests in such entity are not held by disqualified organizations (as defined in section 860E(e)(5)), and

    (B) information necessary for the application of section 860E(e) will be made available by the entity.

    In the case of a qualified liquidation (as defined in section 860F(a)(4)(A)), paragraph (4) shall not apply during the liquidation period (as defined in section 860F(a)(4)(B)).

    (b) Election

    (1) In general

    An entity (otherwise meeting the requirements of subsection (a)) may elect to be treated as a REMIC for its 1st taxable year. Such an election shall be made on its return for such 1st taxable year. Except as provided in paragraph (2), such an election shall apply to the taxable year for which made and all subsequent taxable years.

    (2) Termination

    (A) In general

    If any entity ceases to be a REMIC at any time during the taxable year, such entity shall not be treated as a REMIC for such taxable year or any succeeding taxable year.

    (B) Inadvertent terminations If—

    (i) an entity ceases to be a REMIC,

    (ii) the Secretary determines that such cessation was inadvertent,

    (iii) no later than a reasonable time after the discovery of the event resulting in such cessation, steps are taken so that such entity is once more a REMIC, and

    (iv) such entity, and each person holding an interest in such entity at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of such entity as a REMIC or a C corporation) as may be required by the Secretary with respect to such period, then, notwithstanding such terminating event, such entity shall be treated as continuing to be a REMIC (or such cessation shall be disregarded for purposes of subparagraph (A)) whichever the Secretary determines to be appropriate.

    (Added Pub. L. 99–514, title VI, § 671(a), Oct. 22, 1986, 100 Stat. 2311; amended Pub. L. 100–647, title I, § 1006(t)(2)(A), (16)(A), (19), Nov. 10, 1988, 102 Stat. 3419, 3423, 3426; Pub. L. 101–508, title XI, § 11704(a)(8), Nov. 5, 1990, 104 Stat. 1388–518.)

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    Any argument appears MUST indicate that the securitization is not being challenged itself but that the assignment or transfer into the securitized trust was void and invalid precluding the defendants from a beneficial interest in the DOTs and therefore the defendants were directing the wrong parties to issue NODs and subsequent foreclosure documents. For federal, see Barrionuevo v. Chase Bank, N.A. (2013) U.S. Dist. LEXIS 113482 or WL 4103606 (N.D. Cal., 2012) and Subramani v. Wells Fargo Bank N.A. (2014) U.S. Dist. LEXIS 10426 and WL 309437 (N.D. Cal., Oct. 30, 2013)
    Note: needs to be updated for Jenkins argument (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497,) the ruling the opposition is currently relying on lately along with Gomes v. Countrywide Home Loans, Inc, (2011) 192 Cal.App.4th 1149

    DELAWARE – GLASKI ARGUMENT
    Pursuant to the Del. Code Ann. Title 12 Chapters 35 and 38 and the well-reasoned Glaski Opinion (Glaski v. Bank of America (2013) 218 Cal.App.4th 1079) that any attempted assignment (or “transfer”) of a Deed of Trust or Mortgage to the purported trust after the Closing-Date is void with the exception of the 26 U.S.C. (Internal Revenue Code or IRC) § 860D et seq. (Title 26, Subtitle A, Chapter 1, Subchapter M, Part IV, § 860D(a)(4) – REMIC defined)which allows an additional 90 days after the Closing-Date for the purported trust to otherwise maintain its status as a REMIC entity (See PSA/Form 424B5 approximately the first paragraph of page 120 of 234 et seq. entitled “FEDERAL INCOME TAX CONSEQUENCES General” stating REMIC status is required under Sections 860A through 860G of the “Internal Revenue Code” of 1986).
    “Every direct or indirect assignment, or act having the effect of an assignment, whether voluntary or involuntary, by a beneficiary of a trust of the beneficiary’s interest in the trust or the trust property or the income or other distribution therefrom that is unassignable by the terms of the instrument that creates or defines the trust is void. No beneficiary may waive the application of this subsection (a).” (Chapter 35, Trusts, Subchapter III, General Provisions § 3536(a); also see § 3540 which requires a “trustee” keep from subjecting the Trust to taxes imposed by corresponding provisions of IRS laws.)
    “For the purposes of this title, the terms “real estate mortgage investment conduit” and “REMIC” mean any entity…as of the close of the 3rd month beginning after the startup day and at all times thereafter, substantially all of the assets of which consist of qualified mortgages and permitted investments” (26 U.S.C. § 860D(a)(4)).
    Said ASSIGNMENT also meant Plaintiff’s purported “Mortgage” was not a “qualified mortgage” having not complied with 26 U.S.C. 860G(a)(3) pursuant to the PSA/424B5 (See PSA/424B5 approximately page 122 of 234 in the 16th paragraph under the section entitled “FEDERAL INCOME TAX CONSEQUENCES General” which states that in order for a “qualified mortgage” it has to be “transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC, (ii) is purchased by the REMIC within the 3-month period beginning on the startup day…” See 26 U.S.C. 860G(a)(3)(A) et seq.) and was not allowed, nor transferrable into the “Trust” ab initio. For the foregoing and other reasons stated herein, this means the assignment of the purported DOT and was void, the purported Trust WFB claims to be the Trustee for did not own or contain Plaintiff’s “mortgage” and therefore any authority to foreclose utilized by defendants derived from said ASSIGNMENT was also void.
    For the reasons stated, both recorded purported “assignments” were never legally or factually effective because they were void (not voidable) and WFB was not a real party in interest as the purported “Trustee” for the purported “Trust”, nor a person entitled to enforce (WFB was never a lender; the attempts to take the purported Note by transfer via the ASSIGNMENT was void; no indorsement nor the original purported Note (or a copy thereof) has been produced; WFB was never entitled to receive payments under the purported Note and was never therefore the “Note Holder” under ¶ 1 of the purported Note, nor a Person Entitled to Enforce under ¶¶ 7, 9, 11 or any other paragraph in the purported Note or DOT.) the purported Note or DOT (See Glaski v. Bank of America, Id. citing Wells Fargo Bank, N.A. v. Erobobo (2013) 39 Misc.3d 1220(A)[] 2013 WL 1831799 and In re Saldivar (Bankr. S.D. Tex., June. 5, 2013, No. 11-10689) 2013 WL 2452699) and not a beneficiary with the right to invoke or cause to be invoked the power of sale (See https://www.wellsfargo.com/downloads/pdf/com/finance/real-estate/Conduit_Loan_Servicing.pdf , which admits that, just as in this case, once the “loan” is “securitized” there is no longer a lender. By the terms of the controlling contract, the DOT, the lender is also the beneficiary (see ¶(C) of the DOT, Exhibit “1”). The DOT further states: 1) that the Borrower owes the lender the amount allegedly borrowed (but to no one else); 2) that the DOT as the security Instrument secures to lender the repayment of the “loan” (but to no one else); 3) in the borrower and lender “UNIFORM COVENANTS” (“UC”), provisions are replete throughout the DOT as applicable to the lender (but to no one else); 4) that among other things, only the lender may accelerate the “Loan” (no one else). WFB admits there is no lender therefore no acceleration may occur (UC 18.); 5) in the “NON-UNIFORM COVENANTS” (¶22), only the lender shall be entitled to collect all expenses, provide notice of default, substitute a trustee (¶ 24) or invoke the power of sale (¶ 22). In other words, based on WFB’s own public admission on its website, it is not a lender and pursuant to the security instrument (the DOT), WFB cannot invoke the power of sale due to the securitization of the purported “Loan” and cannot foreclose pursuant to the DOT because it is not the lender (the void ASSIGNMENT notwithstanding).).
    See 26 USC § 860F – Other Rules…(a) 100 percent tax on prohibited transactions
    A debtor may, generally, assert against an assignee all equities or defenses existing against the assignor prior to notice of the assignment, any matters rendering the assignment absolutely invalid or ineffective, and the lack of plaintiff’s title or right to sue; but if the assignment is effective to pass legal title, the debtor cannot interpose defects or objections which merely render the assignment voidable at the election of the assignor or those standing in his or her shoes (emphasis added) (Corpus Juris Secundum (“C.J.S.”), 6A C.J.S. Assignments § 132 (database updated May 2012)).
    The current edition of American Jurisprudence states the same rule more succinctly, while adding the rationale:
    The obligor of an assigned claim may defend a suit brought by the assignee on any ground that renders the assignment void or invalid, but may not defend on any ground that renders the assignment voidable only, because the only interest or right that an obligor of a claim has in the assignment is to ensure that he or she will not have to pay the same claim twice (6 Am.Jur. 2d Assignments § 119 (database updated May 2012)).
    Argument that there is no prejudice is incorrect. In truth, the potential prejudice is both plain and severe. Foreclosure by the wrong entity does not discharge the homeowners’ debt and leaves them vulnerable to another action on the same not by the true creditor.
    While courts have held that a non-party to a contract cannot enforce the contract unless he or she is an intended third-party beneficiary (Here labeled as a “standing” issue), Plaintiff is not seeking third-party status. Here, Plaintiff is not attempting to enforce the terms of the instrument(s) of assignment; to the contrary, Plaintiff is claiming the assignment is void ab inito. Plaintiff raises the attempted securitization process as evidence that neither title nor possession of the note passed to the Defendant seeking to foreclose. Thus, Plaintiff is seeking to use the breaches of assignment pursuant to the PSA as evidence that Defendants seeking to foreclose is not the owner of the note. This is not a case wherein the assignment is rendered voidable at the election of the assignor or assignee, but void. A contrary ruling would lead to an absurd result that Defendant could foreclose on Plaintiff’s Property though not a valid party to the deed of trust or promissory note, which means Defendant lacks “standing” to foreclose.
    Cal. U. Comm. Code § 1304: “Every contract or duty within this code imposes an obligation of good faith in its performance and enforcement.”
    With reference to foreclosure of mortgages, a party seeking to enforce the rights associated with a mortgage must prove that they are a real party in interest to have “standing” in court. Restatement of Property (third) states:
    Only the proven mortgagee may maintain a foreclosure action. The requirement that a foreclosure action be brought only by the actual mortgagee is at the heart of the issues with foreclosure irregularities. If the homeowner or the court challenges the claim of the party bringing a foreclosure action that it is the mortgagee (and was when the foreclosure was filed), then evidentiary issues arise as to whether the party bringing the foreclosure can in fact prove that it is the mortgagee. The issues involved are highly complex areas of law, but despite the complexity of these issues, they should not be dismissed as mere technicalities. Rather, they are legal requirements that must be observed both as part of due process and as part of the contractual bargain made between borrowers and lenders (Restatement (Third) of Prop. (Mortgages) § 5.4(c) (1997)).
    SECURITIZATION TRANSACTION
    In 1986 Congress changed the tax code. One of these changes was the creation of the Real Estate Mortgage Investment Conduit (REMIC) (26 U.S.C. (“IRC”) § 860). 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. This allowed investors to purchase shares or certificates in a mortgage pool that was only taxed once at the investor level. The REMIC rules allowed the mortgage pools to collect interest income from the pool and disburse that income to the certificate holders tax- free at the pool level. Prior to the REMIC, interest income from pooled mortgage investments were taxed twice, once at the pool level and again at the investor level.
    REMIC rules are very specific and to qualify as a REMIC under federal and state tax codes the SPV had to meet very stringent requirements (IRC 860 requires the REMIC trust be a “closed entity” and “bankruptcy remote.” In addition, both New York and Delaware Codes provide governing law that REMICs must conform to tax-free pass-through requirements). With respect to RMBS the controlling trust document is known as the Pooling and Servicing Agreement (PSA). One function of the PSA is to establish the rules governing the trust such that the trust’s activities and management conforms to IRC 860. If the trust did not conform it could lose its REMIC status and its tax-free pass-through status.
    REMIC structure allows SPV’s to create tremendous efficiency in the capital markets. A secondary market was created where mortgage loans could be turned into bond-like securities and traded on an open market. The capital markets adapted quickly and entire institutions were created to service this new financial instrument. The SPV allowed originators of residential and commercial mortgages access to capital and a competitive market where they could sell their loans. Aggregators and depositors facilitated mortgage pooling. Investment banks and commercial banks turned the mortgage pools into securities and marketed them to investors. Servicing agents monitored the loans in the pool trusts for the pool trustees. Pool trustees act on behalf of the trust certificate holders (Investors.)

  2. Excellent!

  3. Reblogged this on Deadly Clear and commented:
    Faux mortgage and note documents. These were NTMs (non-traditional mortgages). In other words these were securities transactions with zero disclosure to the homeowner who provided the collateral.

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