Adam Levitin: Why the PSA Violations Must Be Heard

Levitin makes an important distinctions between “enforcing” the PSA and REFERRING to the PSA to show that the loan never made it into the trust. If the loan never made it into the trust, then the trust is not a proper party. It means that the trustee has no rights or authority in connection with the loan. It means that the servicer is making false claims that it is authorized to collect or enforce the debt. It means that the attorneys for the banks and servicers are proffering false evidence to the detriment of both the borrower and the creditor.

Note that people who have really done the research continually come back to the UCC, which is adopted in all 50 states as statutory law — Article 3 as to the enforcement of the note and Article 9, as to enforcement of the mortgage. If the rule of law were followed and attorneys and judges were following the statutes in each state, most of the foreclosures would ever have occurred.

Standing to Invoke PSAs as a Foreclosure Defense

posted by Adam Levitin

A major issue arising in foreclosure defense cases is the homeowner’s ability to challenge the foreclosing party’s standing based on noncompliance with securitization documentation. Several courts have held that there is no standing to challenge standing on this basis, most recently the 1st Circuit BAP in Correia v. Deutsche Bank Nat’l Trust Company. (See Abigail Caplovitz Field’s cogent critique of that ruling here.) The basis for these courts’ rulings is that the homeowner isn’t a party to the PSA, so the homeowner has no standing to raise noncompliance with the PSA.

I think that view is plain wrong.  It fails to understand what PSA-based foreclosure defenses are about and to recognize a pair of real and cognizable Article III interests of homeowners:  the right to be protected against duplicative claims and the right to litigate against the real party in interest because of settlement incentives and abilities.

 

The homeowner is obviously not party to the securitization contracts like the PSA (query, though whether securitization gives rises to a tortious interference with the mortgage contract claim because of PSA modification limitations…). This means that the homeowner can’t enforce the terms of the PSA.  The homeowner can’t prosecute putbacks and the like.  But there’s a major difference between claiming that sort of right under a PSA and pointing to noncompliance with the PSA as evidence that the foreclosing party doesn’t have standing (and after Ibanez, it’s just incomprehensible to me how this sort of decision could be coming out of the 1st Circuit BAP with a MA mortgage).

Let me put it another way.  Homeowners are not complaining about breaches of the PSA for the purposes of enforcing the PSA contract.  They are pointing to breaches of the PSA as evidence that the loan was not transferred to the securitization trust.  The PSA is being invoked because it is the document that purports to transfer the mortgage to the trust.  Adherence to the PSA determines whether there was a transfer effected or not because under NY trust law (which governs most PSAs), a transfer not in compliance with a trust’s documents is void.  And if there isn’t a valid transfer, there’s no standing.  This is simply a factual question–does the trust own the loan or not?   (Or in UCC terms, is the trust a “party entitled to enforce the note”–query whether enforcement rights in the note also mean enforcement rights in the mortgage…)  If not, then it lacks standing to foreclosure.

It’s important to understand that this is not an attempt to invoke investors’ rights under a PSA. One can see this by considering the other PSA violations that homeowners are not invoking because they have no bearing whatsoever on the validyt of the transfer, and thus on standing.  For example, if a servicer has been violating servicing standards under the PSA, that’s not a foreclosure defense, although it’s a breach of contract with the trust (and thus the MBS investors).  If the trust doesn’t own the loan because the transfer was never properly done, however, that’s a very different thing than trying to invoke rights under the PSA.

I would have thought it rather obvious that a homeowner could argue that the foreclosing party isn’t the mortgagee and that the lack of a proper transfer of the mortgage to the foreclosing party would be evidence of that point.  But some courts aren’t understanding this critical distinction.

Even if courts don’t buy this distinction, there are at least two good theories under which a homeowner should have the ability to challenge the foreclosing party’s standing. Both of these theories point to a cognizable interest of the homeowner that is being harmed, and thus Article III standing.

14 Responses

  1. Or we could just cut to the chase and not have to worry about the difficulties involved in taking objection as a third party to the rules of someone else’s agreement. The PSA requirements are generally intended to protect a trust’s REMIC status, they are supposed to comply with the IRC or else lose their tax free status. Transfers after the trust closed, transfers of a defaulted loan are prohibited under federal tax law (though the latter can be cured with a credit enhancement). An untimely assignment is an attempt to pass off a non-permitted asset as a “qualified mortgage loan” to avoid tax penalties. A contract for an illegal purpose is void.

  2. Reblogged this on Deadly Clear and commented:
    Excellent presentation.

  3. The article is very enlightening.

    Uniform Commercial Code (U.C.C.) – ARTICLE 3 § 3-203.(b) reads on the lines that transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.

    If there is anything, for example, ABC, XYZ or PSA that could be used to prove fraud in validating or invalidating holder in due course, all courts may need to consider it as a matter of evidence to prevent any future multiplicative claims on a property. No one knows what politicians do when they bring new laws.Therefore, the courts may need to follow UCC or whatever the law that exists to protect homeowners to prevent duplicate claims on their property. PSA is one of such to prove fraudulent assignment of mortgage.

    While talking about politicians, please write effective letters toState senators to bring laws to prohibit deficiency judgement as it is discriminatory in such States where there is no protection to prohibit, in view of the equal protection clause guaranteed by the UNITED States constitution. Deficiency judgement is duplication and an insult to injury, especially, when the foreclosure is illegal.

  4. GMACM Mortgage Loan Trust 2006-J1

    SIC: 6189 – ASSET-BACKED SECURITIES
    State location: MN | State of Inc.: DE | Fiscal Year End: 1231

    GMACM Mortgage Loan Trust 2006-J1

    State of Inc.: DE , ( have a certified certificate from secretary of state ,for Delaware, STATING THAT THIS ALLEGDED TRUST WAS NEVER FORMED,REGISTERD, AT ANY TIME, WITH THERE STATE. )

    DELAWARE STATUTORY TRUSTS
    INTRODUCTION

    Under the Act, no creditor of a beneficial owner or of a trustee in its individual capacity
    has the right to obtain possession of, or otherwise exercise legal or equitable remedies with
    respect to, the property of the Delaware Statutory Trust

    Trust relationships have existed under the common law for centuries. Courts allowed
    property ownership to be divided such that a fiduciary would hold legal title to property on
    behalf of another who was said to hold equitable title. However, such trusts were not legal
    entities; rather, they were simply fiduciary relationships between a trustee and a beneficiary. The
    desire to have an entity that would be created pursuant to and governed by a statutory framework
    that would provide legal certainty fueled the enactment of the Delaware Statutory Trust Act1 (the
    “Act”) in 1988. The Act expressly designates trusts formed thereunder (“Delaware Statutory
    Trusts”) as legal entities and provides a statutory regime to govern their existence. Although
    other jurisdictions have similar statutes, Delaware is the undisputed forum of choice for the
    creation of a statutory trust.
    PURPOSES
    The Delaware Statutory Trust is used in a variety of transactions and structures.
    Delaware Statutory Trusts are used as vehicles for investment, as legal entities for the conduct of
    business, and as special purpose entities for the holding of title to assets. The flexibility of the
    Act as to the operation, management and activities of the trust and the limited liability granted to
    beneficial owners have made Delaware Statutory Trusts the perfect vehicle for a diverse range of
    business transactions.
    In the real estate context, Delaware Statutory Trusts serve in a number of different types
    of transaction structures. In connection with liability concerns, Delaware Statutory Trusts are
    used to hold title to real estate. Title to the property is held by the trust as a legal entity, and the
    beneficial owners enjoy the protections of limited liability afforded by the Act.
    Delaware Statutory Trusts also are used in connection with tax matters. Delaware
    Statutory Trusts are used to serve as the entity to hold title to real estate and to qualify as a “real
    1 12 Del.C. § 3801 et seq.
    – 2 –
    RLF1-3371137-2
    estate investment trust” for tax purposes. Additionally, Delaware Statutory Trusts are utilized as
    entities to hold title to real estate for purposes of investment and the tax advantages afforded in
    1031 exchanges. With respect to transfer taxes, Delaware Statutory Trusts are employed in some
    jurisdictions to reduce transfer taxes associated with transfers of title.
    Insolvency matters are the reason Delaware Statutory Trusts are used in many types of
    real estate related structured financing transactions. Title to property is held by the trust for the
    benefit of a beneficial owner rather than directly by such party, and it is the trust that serves as
    the borrower under a loan. An objective in such structured financing transactions is to insulate
    the property from the insolvency of the underlying beneficial owner.
    In addition to the foregoing uses, Delaware Statutory Trusts frequently are chosen to hold
    title to property in order to take advantage of the provisions of the Act that allow for series
    within the Delaware Statutory Trust. The series provisions of the Act are an advantage in
    finance transactions that wish to avoid the hassles associated with the mechanics of multiple
    and/or frequent transfers of title. In such transactions, the Delaware Statutory Trust maintains
    legal title while equitable title is transferred among beneficiaries of the trust.

    FORMATION
    Formation of a Delaware Statutory Trust is fairly easy. Under the Act, the following is
    required for a Delaware Statutory Trust to exist: (i) a governing instrument (typically a trust
    agreement), (ii) a certificate of trust filed with the Office of the Secretary of State of the State of
    Delaware (the “Delaware Secretary of State”), (iii) one or more trustees, and (iv) one or more
    beneficial owners.

    A. The Governing Instrument

    A governing instrument is the document or documents governing the creation and
    internal affairs of the trust and the conduct of its activities.2 The governing instrument ( psa ) must be
    in writing and executed on or prior to the filing of the certificate of trust. There is no
    requirement as to the length of the governing instrument, and with proper drafting the agreement
    can be straightforward and uncomplicated. With respect to the substance of the governing
    instrument, the Act sets forth a broad framework for the creation and operation of Delaware
    Statutory Trusts. This broad framework allows great flexibility within a governing instrument,
    2 12 Del.C. § 3801(c).
    – 3 –
    RLF1-3371137-2
    giving parties wide contractual freedom as to the terms of the governing instrument and the
    resulting operation of the trust.

    B. The Certificate of Trust

    The Act requires the filing of a certificate of trust for each Delaware Statutory Trust

    The certificate of trust is filed with the Delaware Secretary of State and is the only document that
    needs to be filed with the Delaware Secretary of State in connection with the creation of the
    Delaware Statutory Trust.

    The certificate of trust is required to contain the name of the trust and
    the name and address of one trustee in the State of Delaware.

    Additional matters may be
    included in the certificate of trust, though most parties choose to include such matters in the
    governing instrument instead. Particularly attractive to transaction parties is the responsiveness
    and accessibility of the Delaware Secretary of State. Facsimile copies, as well as conformed and
    counterpart signature pages, are accepted, and certified copies of certificates of trust and good
    standing certificates can be obtained on an expedited basis – in as quickly as an hour.

    C. Trustees

    Every Delaware Statutory Trust must have at least one trustee and may have more than
    one trustee. A trustee may be a beneficial owner and may be a natural person or a business
    entity. A Delaware Statutory Trust must have at least one trustee in the State of Delaware.4

    D. Beneficial Owners
    Under the Act, a beneficial owner is defined as one who is the owner of a beneficial
    interest in a Delaware Statutory Trust.5 The Act leaves it to the governing instrument to set out
    the details of the rights, obligations and activities associated with beneficial ownership.

    A
    beneficial owner may acquire its interest through the contribution of cash, property or services
    rendered or the promise to make such a contribution. However, the Act also allows a person to
    become a beneficial owner of a Delaware Statutory Trust without making or promising to make a
    contribution. Under the Act, unless the governing instrument provides otherwise, a beneficial
    owner is entitled to the same limitation of personal liability extended to stockholders of private,
    3 12 Del.C. § 3810.

    4 If a natural person, the trustee must be a resident of Delaware.

    If the trustee is a legal
    entity, it must have a principal place of business in Delaware. An exception exists for trusts that
    are or that will become a registered investment company under the Investment Company Act of
    1940. See Section 3807(b) of the Act.
    5 12 Del.C. § 3801(a).
    – 4 –
    RLF1-3371137-2
    for profit corporations for profit organized under the General Corporation Law of the State of
    Delaware.6

    RIGHTS IN TRUST PROPERTY

    Unless the governing instrument provides otherwise, a beneficial owner of a Delaware
    Statutory Trust has an undivided beneficial interest in the property of the Delaware Statutory
    Trust. In addition, except to the extent provided otherwise in the governing instrument

    , a
    beneficial owner of a Delaware Statutory Trust has no interest in specific property of the
    Delaware Statutory Trust. Unless provided otherwise in the governing instrument, a beneficial
    interest is freely transferable.

    Under the Act, no creditor of a beneficial owner or of a trustee in its individual capacity
    has the right to obtain possession of, or otherwise exercise legal or equitable remedies with
    respect to, the property of the Delaware Statutory Trust.

    DELAWARE STATUTORY TRUSTS
    INTRODUCTION

    Under the Act, no creditor of a beneficial owner or of a trustee in its individual capacity
    has the right to obtain possession of, or otherwise exercise legal or equitable remedies with
    respect to, the property of the Delaware Statutory Trust

    Trust relationships have existed under the common law for centuries. Courts allowed
    property ownership to be divided such that a fiduciary would hold legal title to property on
    behalf of another who was said to hold equitable title. However, such trusts were not legal
    entities; rather, they were simply fiduciary relationships between a trustee and a beneficiary. The
    desire to have an entity that would be created pursuant to and governed by a statutory framework
    that would provide legal certainty fueled the enactment of the Delaware Statutory Trust Act1 (the
    “Act”) in 1988. The Act expressly designates trusts formed thereunder (“Delaware Statutory
    Trusts”) as legal entities and provides a statutory regime to govern their existence. Although
    other jurisdictions have similar statutes, Delaware is the undisputed forum of choice for the
    creation of a statutory trust.
    PURPOSES
    The Delaware Statutory Trust is used in a variety of transactions and structures.
    Delaware Statutory Trusts are used as vehicles for investment, as legal entities for the conduct of
    business, and as special purpose entities for the holding of title to assets. The flexibility of the
    Act as to the operation, management and activities of the trust and the limited liability granted to
    beneficial owners have made Delaware Statutory Trusts the perfect vehicle for a diverse range of
    business transactions.
    In the real estate context, Delaware Statutory Trusts serve in a number of different types
    of transaction structures. In connection with liability concerns, Delaware Statutory Trusts are
    used to hold title to real estate. Title to the property is held by the trust as a legal entity, and the
    beneficial owners enjoy the protections of limited liability afforded by the Act.
    Delaware Statutory Trusts also are used in connection with tax matters. Delaware
    Statutory Trusts are used to serve as the entity to hold title to real estate and to qualify as a “real
    1 12 Del.C. § 3801 et seq.
    – 2 –
    RLF1-3371137-2
    estate investment trust” for tax purposes. Additionally, Delaware Statutory Trusts are utilized as
    entities to hold title to real estate for purposes of investment and the tax advantages afforded in
    1031 exchanges. With respect to transfer taxes, Delaware Statutory Trusts are employed in some
    jurisdictions to reduce transfer taxes associated with transfers of title.
    Insolvency matters are the reason Delaware Statutory Trusts are used in many types of
    real estate related structured financing transactions. Title to property is held by the trust for the
    benefit of a beneficial owner rather than directly by such party, and it is the trust that serves as
    the borrower under a loan. An objective in such structured financing transactions is to insulate
    the property from the insolvency of the underlying beneficial owner.
    In addition to the foregoing uses, Delaware Statutory Trusts frequently are chosen to hold
    title to property in order to take advantage of the provisions of the Act that allow for series
    within the Delaware Statutory Trust. The series provisions of the Act are an advantage in
    finance transactions that wish to avoid the hassles associated with the mechanics of multiple
    and/or frequent transfers of title. In such transactions, the Delaware Statutory Trust maintains
    legal title while equitable title is transferred among beneficiaries of the trust.
    FORMATION
    Formation of a Delaware Statutory Trust is fairly easy. Under the Act, the following is
    required for a Delaware Statutory Trust to exist: (i) a governing instrument (typically a trust
    agreement), (ii) a certificate of trust filed with the Office of the Secretary of State of the State of
    Delaware (the “Delaware Secretary of State”), (iii) one or more trustees, and (iv) one or more
    beneficial owners.
    A. The Governing Instrument
    A governing instrument is the document or documents governing the creation and
    internal affairs of the trust and the conduct of its activities.2 The governing instrument must be
    in writing and executed on or prior to the filing of the certificate of trust. There is no
    requirement as to the length of the governing instrument, and with proper drafting the agreement
    can be straightforward and uncomplicated. With respect to the substance of the governing
    instrument, the Act sets forth a broad framework for the creation and operation of Delaware
    Statutory Trusts. This broad framework allows great flexibility within a governing instrument,
    2 12 Del.C. § 3801(c).
    – 3 –
    RLF1-3371137-2
    giving parties wide contractual freedom as to the terms of the governing instrument and the
    resulting operation of the trust.
    B. The Certificate of Trust
    The Act requires the filing of a certificate of trust for each Delaware Statutory Trust.3
    The certificate of trust is filed with the Delaware Secretary of State and is the only document that
    needs to be filed with the Delaware Secretary of State in connection with the creation of the
    Delaware Statutory Trust. The certificate of trust is required to contain the name of the trust and
    the name and address of one trustee in the State of Delaware. Additional matters may be
    included in the certificate of trust, though most parties choose to include such matters in the
    governing instrument instead. Particularly attractive to transaction parties is the responsiveness
    and accessibility of the Delaware Secretary of State. Facsimile copies, as well as conformed and
    counterpart signature pages, are accepted, and certified copies of certificates of trust and good
    standing certificates can be obtained on an expedited basis – in as quickly as an hour.
    C. Trustees
    Every Delaware Statutory Trust must have at least one trustee and may have more than
    one trustee. A trustee may be a beneficial owner and may be a natural person or a business
    entity. A Delaware Statutory Trust must have at least one trustee in the State of Delaware.4
    D. Beneficial Owners
    Under the Act, a beneficial owner is defined as one who is the owner of a beneficial
    interest in a Delaware Statutory Trust.5 The Act leaves it to the governing instrument to set out
    the details of the rights, obligations and activities associated with beneficial ownership. A
    beneficial owner may acquire its interest through the contribution of cash, property or services
    rendered or the promise to make such a contribution. However, the Act also allows a person to
    become a beneficial owner of a Delaware Statutory Trust without making or promising to make a
    contribution. Under the Act, unless the governing instrument provides otherwise, a beneficial
    owner is entitled to the same limitation of personal liability extended to stockholders of private,
    3 12 Del.C. § 3810.
    4 If a natural person, the trustee must be a resident of Delaware. If the trustee is a legal
    entity, it must have a principal place of business in Delaware. An exception exists for trusts that
    are or that will become a registered investment company under the Investment Company Act of
    1940. See Section 3807(b) of the Act.
    5 12 Del.C. § 3801(a).
    – 4 –
    RLF1-3371137-2
    for profit corporations for profit organized under the General Corporation Law of the State of
    Delaware.6
    RIGHTS IN TRUST PROPERTY
    Unless the governing instrument provides otherwise, a beneficial owner of a Delaware
    Statutory Trust has an undivided beneficial interest in the property of the Delaware Statutory
    Trust. In addition, except to the extent provided otherwise in the governing instrument, a
    beneficial owner of a Delaware Statutory Trust has no interest in specific property of the
    Delaware Statutory Trust. Unless provided otherwise in the governing instrument, a beneficial
    interest is freely transferable.
    Under the Act, no creditor of a beneficial owner or of a trustee in its individual capacity
    has the right to obtain possession of, or otherwise exercise legal or equitable remedies with
    respect to, the property of the Delaware Statutory Trust.

  5. This article appears to be from 2011, or at least all of the comments are… In any event, possession and attaching a copy of the note to the Complaint are sufficient under “bearer paper”. That is why the only folks that still issue bearer bonds are centralized banks, if you can track em… you know the true amount of dollars in circulation…

  6. just got my certified letter from secretary of state of delalware, stating that the trust has never been registered with there state , never ever. sign by secretary of state, also got on from sos of ny, and sos, of mn, all sating the same.

    now all close your eyes , what do you see. thats right nothing equals nothing.

    all registered wall street , mine only. hahahah

  7. GMACM Mortgage Loan Trust 2006-J1 CIK#: 0001352221 (see all company filings)
    SIC: 6189 – ASSET-BACKED SECURITIES
    State location: MN | State of Inc.: DE | Fiscal Year End: 1231
    (Assistant Director Office: 5)

    this is what was filed. with commission. i do believe that . state of inc. mean were the Delaware statutory trust was incorporated.

    as a single legal ENTITY. BY LAW

  8. no ucc filed with secretary of state, delaware, either. not registered trust,. as they stated to the security and exchange commission. fraud trust. how much more do you need.

    http://www.americanbar.org/content/dam/aba/events/real_property_trust_estate/symposia/2009/tara_hoffner_7_192_aba2009_spring_materials_delaware_statutory_trusts_3_.authcheckdam.pdf

  9. The Act prohibits lenders from foreclosing where the death of a joint tenant or tenant by the entirety of the property dies and the property was transferred by devise, descent, or operation of law. 12 U.S.C.A. § 1701(j)-3(d)(3).

    2. In addition, the Act protects relatives who gained property through transfer after the borrower’s death. 12 U.S.C.A. § 1701(j)-3(d)(5).

    3. The Act also protects spouses and children—a lender cannot exercise its due-on-sale option when the spouse or children of the borrower becomes the owner through transfer, sale, or gift, or when the transfer resulted from divorce, separation, or other property agreement and the spouse of the borrower is now the owner. 12 U.S.C.A. § 1701(j)-3(d)(6) & (7).

    4. Finally, a lender cannot exercise its due-on-sale option when the property is transferred into a living trust and the borrower of the mortgage remains a beneficiary of that trust, as long as the transfer does not affect the rights of occupancy in the property. 12 U.S.C.A. 1701(j)-3(d)(8).

    The Garn-St. Germain Act protects family members from unauthorized lender enforcement of a due-on-sale clause in the above situations. As long as the heir does not assume the loan, or refinance or modify the loan, the heir does not personally owe money to the lender. When the loan continues to be under the original borrower’s name,

    2. In addition, the Act protects relatives who gained property through transfer after the borrower’s death. 12 U.S.C.A. § 1701(j)-3(d)(5).

    3. The Act also protects spouses and children—a lender cannot exercise its due-on-sale option when the spouse or children of the borrower becomes the owner through transfer, sale, or gift, or when the transfer resulted from divorce, separation, or other property agreement and the spouse of the borrower is now the owner. 12 U.S.C.A. § 1701(j)-3(d)(6) & (7).

    4. Finally, a lender cannot exercise its due-on-sale option when the property is transferred into a living trust and the borrower of the mortgage remains a beneficiary of that trust, as long as the transfer does not affect the rights of occupancy in the property. 12 U.S.C.A. 1701(j)-3(d)(8).

    The Garn-St. Germain Act protects family members from unauthorized lender enforcement of a due-on-sale clause in the above situations. As long as the heir does not assume the loan, or refinance or modify the loan, the heir does not personally owe money to the lender. When the loan continues to be under the original borrower’s name,

    The Ibanez case itself is actually very simple. The issue before the court was whether the two securitization trusts could prove a chain of title for the mortgages they were attempting to foreclose on.
    There’s broad agreement that absent such a chain of title, they don’t have the right to foreclose–they’d have as much standing as I do relative to the homeowners. The trusts claimed three alternative bases for chain of title:
    (1) that the mortgages were transferred via the pooling and servicing agreement (PSA)–basically a contract of sale of the mortgages
    (2) that the mortgages were transferred via assignments in blank.
    (3) that the mortgages follow the note and transferred via the transfers of the notes.

    The Supreme Judicial Court (SJC) held that arguments #2 and #3 simply don’t work in Massachusetts. The reasoning here was heavily derived from Massachusetts being a title theory state, but I think a court in a lien theory state could easily reach the same result. It’s hard to predict if other states will adopt the SJC’s reasoning, but it is a unanimous verdict (with an even sharper concurrence) by one of the most highly regarded state courts in the country. The opinion is quite lucid and persuasive, particularly the point that if the wrong plaintiff is named is the foreclosure notice, the homeowner hasn’t received proper notice of the foreclosure.

    Regarding #1, the SJC held that a PSA might suffice as a valid assignment of the mortgages, if the PSA is executed and contains a schedule that sufficiently identifies the mortgage in question, and if there is proof that the assignor in the PSA itself held the mortgage. (This last point is nothing more than the old rule of nemo dat–you can’t give what you don’t have. It shows that there has to be a complete chain of title going back to origination.)
    On the facts, both mortgages in Ibanez failed these requirements. In one case, the PSA couldn’t even be located(!) and in the other, there was a non-executed copy and the purported loan schedule (not the actual schedule–see Marie McDonnell’s amicus brief to the SJC) didn’t sufficiently identify the loan. Moreover, there was no proof that the mortgage chain of title even got to the depositor (the assignor), without which the PSA is meaningless:
    Even if there were an executed trust agreement with the required schedule, US Bank failed to furnish any evidence that the entity assigning the mortgage – Structured Asset Securities Corporation [the depositor] — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale.
    So Ibanez means that to foreclosure in Massachusetts, a securitization trust needs to prove:

    (1) a complete and unbroken chain of title from origination to securitization trust

    (2) an executed PSA, and as all legal contract, as a PSA is, must be sign by all the proper partys.

    (3) a PSA loan schedule that unambiguously indicates that association of the defaulted mortgage loan with the PSA. Just having the ZIP code or city for the loan won’t suffice.

    (Lawyers: remember Raffles v. Wichelhaus, the Two Ships Peerless? This is also a Statute of Frauds issue–the banks lost on 1L contract issues!)

    Thus SPE provisions are imposed to set limitations on how business is conducted. Some common SPE provisions include:
    • Prohibitions against the acquisition or ownership of any material asset other than (i) the property that is the subject of the proposed transaction (the “Property”), and (ii) such incidental personal property as may be necessary for the operation of the Property.
    • Prohibitions or restrictions on the company’s ability to take on additional debt.
    • Requirements that the company at all times maintain its separate existence and good standing and refrain from certain types of amendments to its governing documents, fail to preserve its existence as an entity duly organized.
    • Restrictions or outright prohibition of the company acquiring any subsidiaries, merging with or consolidating with another entity, or commingling any of its assets with those of any other entity, including parent companies and affiliates.
    • Requirements that the company pay its own debts from its own assets and maintain its own separate books and records.
    • Provisions forbidding the company from serving as guarantor for another entity’s debts or obligations.37

    http://corporate.findlaw.com/corporate-governance/delaware-the-jurisdiction-of-choice-in-securitisation.html

    On January 17, 2002, the State of Delaware enacted the Asset-Backed Securities Facilitation Act, 6 Del. C. § 2703A (the “ABSFA”). The ABSFA effectively creates a safe harbour under Delaware state law for determining what constitutes a true sale in securitisation transactions. – See more at: http://corporate.findlaw.com/corporate-governance/delaware-the-jurisdiction-of-choice-in-securitisation.html#sthash.K6LvgvEE.dpuf

    The ABSFA first provides that “[a]ny property, assets or rights purported to be transferred, in whole or in part, in the securitization transaction shall be deemed to no longer be the property, assets or rights of the transferor.”[1] Given the foregoing provision, to the extent Delaware law applies, the traditional legal criteria used in determining what constitutes a true sale in the context of a securitisation is intended to be irrelevant.The ABSFA further states that “[a] transferor in the securitization transaction … to the extent the issue is governed by Delaware law, shall have no rights, legal or equitable, whatsoever to reacquire, reclaim, recover, repudiate, disaffirm, redeem or recharacterize as property of the transferor any property, assets or rights purported to be transferred, in whole or in part, by the transferor.”[2] The ABSFA also provides that “[i]n the event of a bankruptcy, receivership or other insolvency proceeding with respect to the transferor or the transferor’s property, to the extent the issue is governed by Delaware law, such property, assets and rights shall not be deemed part of the transferor’s property, assets, rights or estate.”[3] The foregoing provisions facilitate reaching the conclusion that a true sale exists in the context of a securitisation transaction where Delaware law applies.A number of issues exist that may preclude the ABSFA’s application to a particular securitisation transaction, including whether federal law will preempt the ABSFA in making a true sale determination and whether Delaware law generally, and the ABSFA in particular, will apply to a transfer in a securitisation transaction. Although not yet judicially tested, the ABSFA is nevertheless a reason to seriously consider whether the parties to a securitisation transaction should choose for Delaware law to apply to their contractual relations –

    A DST is formed pursuant to a written governing instrument, i.e., the trust agreement, and the filing of a certificate of trust with the Delaware Secretary of State. There are only three requirements in a certificate of trust.
    • name of the DST;
    • address of at least one trustee; and
    • date of effectiveness if different from the date of filing.29
    The DST must always have at least one Trustee residing, incorporated, or otherwise situated in the State of Delaware.30 This requirement is sometimes met by having a person or entity in Delaware serve as a nominal “Delaware Trustee” with limited or no management authority.

    • name of the DST; GMACM MORTGAGE LOAN TRUST 2006-J1. ??????? NO WHERE TO BE FORMED!!!!!!!!!!!!!!

    While Delaware LLCs and DSTs may be organized for any lawful purpose (except some insurance-related purposes as to LLCs) lenders and underwriters often require that the LLC or DST be restricted to having only a single purpose. Thus SPE provisions are imposed to set limitations on how business is conducted. Some common SPE provisions include:
    • Prohibitions against the acquisition or ownership of any material asset other than (i) the property that is the subject of the proposed transaction (the “Property”), and (ii) such incidental personal property as may be necessary for the operation of the Property.
    • Prohibitions or restrictions on the company’s ability to take on additional debt.
    • Requirements that the company at all times maintain its separate existence and good standing and refrain from certain types of amendments to its governing documents, fail to preserve its existence as an entity duly organized.
    • Restrictions or outright prohibition of the company acquiring any subsidiaries, merging with or consolidating with another entity, or commingling any of its assets with those of any other entity, including parent companies and affiliates.
    • Requirements that the company pay its own debts from its own assets and maintain its own separate books and records.
    • Provisions forbidding the company from serving as guarantor for another entity’s debts or obligations.37

  10. The Act prohibits lenders from foreclosing where the death of a joint tenant or tenant by the entirety of the property dies and the property was transferred by devise, descent, or operation of law. 12 U.S.C.A. § 1701(j)-3(d)(3).

    2. In addition, the Act protects relatives who gained property through transfer after the borrower’s death. 12 U.S.C.A. § 1701(j)-3(d)(5).

    3. The Act also protects spouses and children—a lender cannot exercise its due-on-sale option when the spouse or children of the borrower becomes the owner through transfer, sale, or gift, or when the transfer resulted from divorce, separation, or other property agreement and the spouse of the borrower is now the owner. 12 U.S.C.A. § 1701(j)-3(d)(6) & (7).

    4. Finally, a lender cannot exercise its due-on-sale option when the property is transferred into a living trust and the borrower of the mortgage remains a beneficiary of that trust, as long as the transfer does not affect the rights of occupancy in the property. 12 U.S.C.A. 1701(j)-3(d)(8).

    The Garn-St. Germain Act protects family members from unauthorized lender enforcement of a due-on-sale clause in the above situations. As long as the heir does not assume the loan, or refinance or modify the loan, the heir does not personally owe money to the lender. When the loan continues to be under the original borrower’s name,

    The Ibanez case itself is actually very simple. The issue before the court was whether the two securitization trusts could prove a chain of title for the mortgages they were attempting to foreclose on.
    There’s broad agreement that absent such a chain of title, they don’t have the right to foreclose–they’d have as much standing as I do relative to the homeowners. The trusts claimed three alternative bases for chain of title:
    (1) that the mortgages were transferred via the pooling and servicing agreement (PSA)–basically a contract of sale of the mortgages
    (2) that the mortgages were transferred via assignments in blank.
    (3) that the mortgages follow the note and transferred via the transfers of the notes.

    The Supreme Judicial Court (SJC) held that arguments #2 and #3 simply don’t work in Massachusetts. The reasoning here was heavily derived from Massachusetts being a title theory state, but I think a court in a lien theory state could easily reach the same result. It’s hard to predict if other states will adopt the SJC’s reasoning, but it is a unanimous verdict (with an even sharper concurrence) by one of the most highly regarded state courts in the country. The opinion is quite lucid and persuasive, particularly the point that if the wrong plaintiff is named is the foreclosure notice, the homeowner hasn’t received proper notice of the foreclosure.

    Regarding #1, the SJC held that a PSA might suffice as a valid assignment of the mortgages, if the PSA is executed and contains a schedule that sufficiently identifies the mortgage in question, and if there is proof that the assignor in the PSA itself held the mortgage. (This last point is nothing more than the old rule of nemo dat–you can’t give what you don’t have. It shows that there has to be a complete chain of title going back to origination.)
    On the facts, both mortgages in Ibanez failed these requirements. In one case, the PSA couldn’t even be located(!) and in the other, there was a non-executed copy and the purported loan schedule (not the actual schedule–see Marie McDonnell’s amicus brief to the SJC) didn’t sufficiently identify the loan. Moreover, there was no proof that the mortgage chain of title even got to the depositor (the assignor), without which the PSA is meaningless:
    Even if there were an executed trust agreement with the required schedule, US Bank failed to furnish any evidence that the entity assigning the mortgage – Structured Asset Securities Corporation [the depositor] — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale.
    So Ibanez means that to foreclosure in Massachusetts, a securitization trust needs to prove:

    (1) a complete and unbroken chain of title from origination to securitization trust

    (2) an executed PSA, and as all legal contract, as a PSA is, must be sign by all the proper partys.

    (3) a PSA loan schedule that unambiguously indicates that association of the defaulted mortgage loan with the PSA. Just having the ZIP code or city for the loan won’t suffice.

    (Lawyers: remember Raffles v. Wichelhaus, the Two Ships Peerless? This is also a Statute of Frauds issue–the banks lost on 1L contract issues!)

    Thus SPE provisions are imposed to set limitations on how business is conducted. Some common SPE provisions include:
    • Prohibitions against the acquisition or ownership of any material asset other than (i) the property that is the subject of the proposed transaction (the “Property”), and (ii) such incidental personal property as may be necessary for the operation of the Property.
    • Prohibitions or restrictions on the company’s ability to take on additional debt.
    • Requirements that the company at all times maintain its separate existence and good standing and refrain from certain types of amendments to its governing documents, fail to preserve its existence as an entity duly organized.
    • Restrictions or outright prohibition of the company acquiring any subsidiaries, merging with or consolidating with another entity, or commingling any of its assets with those of any other entity, including parent companies and affiliates.
    • Requirements that the company pay its own debts from its own assets and maintain its own separate books and records.
    • Provisions forbidding the company from serving as guarantor for another entity’s debts or obligations.37

    http://corporate.findlaw.com/corporate-governance/delaware-the-jurisdiction-of-choice-in-securitisation.html

    On January 17, 2002, the State of Delaware enacted the Asset-Backed Securities Facilitation Act, 6 Del. C. § 2703A (the “ABSFA”). The ABSFA effectively creates a safe harbour under Delaware state law for determining what constitutes a true sale in securitisation transactions. – See more at: http://corporate.findlaw.com/corporate-governance/delaware-the-jurisdiction-of-choice-in-securitisation.html#sthash.K6LvgvEE.dpuf

    The ABSFA first provides that “[a]ny property, assets or rights purported to be transferred, in whole or in part, in the securitization transaction shall be deemed to no longer be the property, assets or rights of the transferor.”[1] Given the foregoing provision, to the extent Delaware law applies, the traditional legal criteria used in determining what constitutes a true sale in the context of a securitisation is intended to be irrelevant.The ABSFA further states that “[a] transferor in the securitization transaction … to the extent the issue is governed by Delaware law, shall have no rights, legal or equitable, whatsoever to reacquire, reclaim, recover, repudiate, disaffirm, redeem or recharacterize as property of the transferor any property, assets or rights purported to be transferred, in whole or in part, by the transferor.”[2] The ABSFA also provides that “[i]n the event of a bankruptcy, receivership or other insolvency proceeding with respect to the transferor or the transferor’s property, to the extent the issue is governed by Delaware law, such property, assets and rights shall not be deemed part of the transferor’s property, assets, rights or estate.”[3] The foregoing provisions facilitate reaching the conclusion that a true sale exists in the context of a securitisation transaction where Delaware law applies.A number of issues exist that may preclude the ABSFA’s application to a particular securitisation transaction, including whether federal law will preempt the ABSFA in making a true sale determination and whether Delaware law generally, and the ABSFA in particular, will apply to a transfer in a securitisation transaction. Although not yet judicially tested, the ABSFA is nevertheless a reason to seriously consider whether the parties to a securitisation transaction should choose for Delaware law to apply to their contractual relations –

    A DST is formed pursuant to a written governing instrument, i.e., the trust agreement, and the filing of a certificate of trust with the Delaware Secretary of State. There are only three requirements in a certificate of trust.
    • name of the DST;
    • address of at least one trustee; and
    • date of effectiveness if different from the date of filing.29
    The DST must always have at least one Trustee residing, incorporated, or otherwise situated in the State of Delaware.30 This requirement is sometimes met by having a person or entity in Delaware serve as a nominal “Delaware Trustee” with limited or no management authority.

    • name of the DST; GMACM MORTGAGE LOAN TRUST 2006-J1. ??????? NO WHERE TO BE FORMED!!!!!!!!!!!!!!

    While Delaware LLCs and DSTs may be organized for any lawful purpose (except some insurance-related purposes as to LLCs) lenders and underwriters often require that the LLC or DST be restricted to having only a single purpose. Thus SPE provisions are imposed to set limitations on how business is conducted. Some common SPE provisions include:
    • Prohibitions against the acquisition or ownership of any material asset other than (i) the property that is the subject of the proposed transaction (the “Property”), and (ii) such incidental personal property as may be necessary for the operation of the Property.
    • Prohibitions or restrictions on the company’s ability to take on additional debt.
    • Requirements that the company at all times maintain its separate existence and good standing and refrain from certain types of amendments to its governing documents, fail to preserve its existence as an entity duly organized.
    • Restrictions or outright prohibition of the company acquiring any subsidiaries, merging with or consolidating with another entity, or commingling any of its assets with those of any other entity, including parent companies and affiliates.
    • Requirements that the company pay its own debts from its own assets and maintain its own separate books and records.
    • Provisions forbidding the company from serving as guarantor for another entity’s debts or obligations.37

  11. That Levitin article quoted above is 5 years old to the day. And exactly what have TPTB done to rectify the falsification and fracturing of the UCC? Zip.

    To expect any change from legislators who, to a man or woman, ALL take their marching orders from Wall Street is a fool’s quest. They’ll not go peacefully. They’ll need the persuasion of tar and feathers.

  12. The recent foreclosure rulings on PSAs do differentiate between voidable transfers and void transfers. There is some possibility to convince the court that the transfer is void, and therefore the homeowner has the right to argue it as a defense. Excellent article.

  13. You must do discovery to get the facts you can use against the banks…here, to show the note was deposited into the trust LATE and violated the PSA. Call for help to Consumer Rights Defenders at 818.453.3585 today….ask for Steve.

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