2d Circuit: If Trusts Are Not REMICs then Qui Tam Would Have Survived

Here again the Truth seems to be the third rail of litigation if it is in any way related to the bogus “REMIC” “Trusts” or their “certificates” or their status in foreclosure litigation. None of it is real. Here again we have a case that bends down to pick up pennies while 100 dollar bills are flying overhead. This court says that if the allegation had been that the trusts didn’t qualify as REMICs, the ruling would have beneficial to the relator in this whistle-blower action.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see https://www.ropesgray.com/newsroom/alerts/2017/01/Second-Circuit-Affirms-Dismissal-of-Mortgage-Backed-Securities-New-York-State-False-Claims-Act-Case.aspx?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original

Nobody wants to touch that third rail. Nobody wants to say that they don’t believe the trusts were in actuality Real Estate Mortgage Investment Conduits (REMICs). But it is simple: Either the trust operated and acquired loans or it didn’t. If it did, then it is a potential REMIC. If it didn’t, it cannot be a REMIC.

All evidence, admissions from the banks and servicers, and direct allegations and testimony of the banks and servicers point to inescapable conclusions:

  1. In many cases the trust documents were incomplete, thus giving rise to no trust at all. Nonetheless the banks managed to file them on SEC.gov and then had the temerity to have a state court in a foreclosure proceeding take “judical notice” of the incomplete document on a government website. [Hint: Since it was not a government document — i.e. a document created by a government agency — judicial notice probably doesn’t apply.]
  2. In virtually all cases the trusts were not funded — i.e., they never received the proceeds of sale of certificates that the underwriter created.
  3. Therefore in virtually all cases the trusts were either nonexistent or not operating. They had no balance sheet and no income statement. They had no bank account. They had nothing. They have not registered anywhere as an entity organized and existing under the laws of any state nor were the alleged trusts registered to do business in any state. Property not transferred to a trust is not ever subject to administration by any trust. Hence the property is not held “in trust.” Hence there is no legal trust, REMIC or otherwise.
  4. Hence the REMIC requirements under the Internal Revenue Code 26 U.S.C. 860 have not been met. In fact, the entity was never used. Hence the “investors” (a) never invested in a REMIC and (b) are NOT entitled to preferential tax treatment as though the investors were the beneficiaries of a special purpose vehicle for whom REMIC status is claimed by “interested” third parties, who were making 100% profit on the sale of bogus Mortgage Backed Securities” (MBS), much the same as any boiler room pushing penny stocks.
  5. That means the qui tam action referred to above should have been successful but they assumed something that was not true — that at least the trusts were real and complete and were funded with money and stocked with actual loans. None of that happened. So they mistakenly alleged that the loans were not properly underwritten while while true does nothing to advance the cause under a claim for damages to the state under the False Claims Act.
  6. But it also means that the “certificates” were not exempt from securities regulation, which in turn means that the sale and trading of the securities violated virtually every known law and rule concerning the sale or trading of securities. The 1999 exclusion does not apply because the certificates were bogus and not backed by real estate mortgages.

The continuing failure of courts and lawyers to at least make inquiry into these facts reveals a pattern in which fear of the third rail prevents justice. It is tantamount to taking the blindfold off lady justice.

Note: The banks and servicers seem to be heavily relying upon the existence of “assignments” into the name of a carefully worded trustee for a vaguely worded trust. There is never any hint that the trust paid for the loans that are now identified by reference in either an assignment or a mortgage loan schedule (MLS) that is fabricated for each foreclosure.

Thus the alleged “trust” cannot possibly be the “owner” of any loan, debt, note or mortgage. At best, if the trust actually exists on paper in complete form, such an assignment or such an MLS could only be evidence that the alleged trust is only a holder with no disclosed rights to enforce coming from the actual owner.

Also note that at no time do you see an allegation that identifies the trust as a legal person or entity. In any normal lawsuit there would be an allegation that “Plaintiff, XYZ Trust, is a common law trust organized and existing under the laws of New York State, pursuant to a trust instrument dated the __ day of ____, 2007.” You don’t see that because if that allegation was made then at trial the allegor would need to prove it. It gets sticky when it comes down to the details. Who exactly was the Trustor” (the party creating the trust)? But confronting the bogus assumptions upon which the banks and servicers rely has turned out to be a third rail.

Instead the banks and servicers succeed by misdirection and everyone seems to identify the Plaintiff as , for example, U.S. Bank, when the wording clearly indicates that U.S. Bank is not a party to the lawsuit and only appears as Trustee for a presumed trust that is not well-identified. When it comes down to the sticky details it turns out that the attorneys for the “Plaintiff” (judicial states) has been hired by a “servicer” (whose power is derived from the bogus trust). The law firm has no contact with the alleged “Trustee” in whose name nothing has been placed in trust. Thus the entire foreclosure business turns out to be based upon false self servicing statements and presumptions.

8 Responses

  1. Banks & servicers succeed by misdirection like a wolf in a wild field shredded everything we build for easy target! From WFB to BSI due to Modification hope the lawyer will continue the case

  2. It is very difficult to “secure” loans with warehouse lines-of-credit, such as New Century claimed they did and they stole the money, while using it for their own business expenses….all documented through the Delaware Bankruptcy Court. They were handing over, Suzzanne Uhland reorganization attorney, and her cronies, loans that did not belong to some of these lenders. Many of these loans were in default from non-payment by New Century who was supposedly servicing the loans, taking the payments, escrows, diverting them.

    Almost 10 years in and still the judge is giving these cats a bite at the apple, when my paperwork presented is 100% solid.

    The point, some of these situations vary…it is a very long story, but my loan, never securitized, with Ocwen, debt collection, acting like a REMIC, Impossible!

  3. Kaliforia – it is more than the paper – it is the money trail. For valid mortgage (or any) securitization, an asset must first exist on the financial balance sheet of a bank. When that asset is securitized, it is removed from the balance sheet to an off-balance sheet conduit. If the asset defaults, it is removed from the off-balance sheet conduit and put back to the on balance sheet for collection or disposition. In the case of the REMIC private entity trusts, none of the loans took that required path. They went straight to an off-balance sheet conduit without ever being first classified as an asset – on balance sheet – first. Thus, the securities in the REMICs were never derived from true assets as is required for valid securitization. When the crisis hit the media, Financial Accounting rules, FASB 166 and 167, required that the trusts be taken back onto the security underwriters (actual owners of the loan) balance sheets. But, this was impossible because the loans never came from a balance sheet to begin with. Therefore, to save the economy from total collapse (as the government claimed it would), the government purchased the CONDUIT “toxic securities” instead of the actual loans, and placed the toxic securities into their own REMIC trust to then be sold to distressed debt buyers. In effect, the securities were never valid and cannot be continued to be treated as such.

    This is why, as you say, there was never any “valid” paper. There could never be valid paper for loans that were never on anyone’s balance sheet to begin with. Enron was perhaps the first to use this fake conduit scam. And, if one recalls Enron, the CEOs later said that the financial engineering was so complicated that they knew the courts would not be able to figure it out.

    Once true securitization is understood, all real pieces fit. There was no true securitization here, and that is why the pieces do not fit, and one will never make them fit. .

    Then the next question to ask is — why were the loan never a valid on balance sheet asset to begin with, thus, not capable of valid off balance sheet securitization?

    All, ultimately failed, due to above. Although the government bailed out the duped “investors,” the homeowner victims were left holding the bag, and trying to explain to courts the inconsistencies. The Courts have replied, generally, with — “Frankly, my dear, we don’t give a damn.” .

  4. @ ANON

    Respectfully, your contributive commentary skips over the gaps of the high points, such that the question appears misstated: “How could the trusts not be funded?”

    Certainly, the putative REMIC trust(s) were FUNDED — ostensibly by monies from “investors” — whom were/are both undisclosed and unknown (even the FBI could not get to the bottom of that rabbit hole on the issue of ownership).

    Based upon the balance of your comment(s), I believe the intended question would have been: “How could the trusts not be [backed by an/any ASSET(s)]?”

    Thus, your answer is generally correct: “The [transactions for] loans were never valid … to [begin] with.” Without any valid “paper”, there is/are no existing ASSET(s) ( the res) to back the REMIC trust’s securitization.

    The logical extrapolation is: The ASSET (a valid loan) was never consummated by ALL NAMED ACTORS ON THE PAPER(s); hence, the fraud on the investors in the REMIC trust, and the fraud on the property owners that is continuing to be perpetrated by the “servicer(s)”.

    Regardless of the venue — whether judicial or non-judicial — the foregoing supports, at a minimum, a cause of action against ALL NAMED ACTORS ON THE PAPER(s) for fraud at the inception of the transaction. The build-up continues thereafter.

  5. Good article. But, you don’t state why. How could this happen? How could the trusts not be funded? Only one answer — the loans were never valid mortgage loans to being with. Only a transfer of debt collection rights — done by assignment. No funding necessary by a transfer of debt collection rights. Need to state WHY this occurred. Answer is obvious.

  6. These foreclosure suits are simply the Servicers attempting to step into the role of Trustee (via PSA Power of Attorney) and performing as a collection agent on their own costs and fees associated with the loan, not so much the loan itself. But, as they drag these cases out, their interest becomes more and more of the resulting proceeds of sale, often hitting in excess of 100% of the actual sale, leaving nothing to the trust they claim to be representing.

  7. Our mortgage was foreclosed when the suit to enjoin foreclosure was not dismissed. Could anyone tell us whether the foreclosure is void because of this? Is so, what could we do to make sure it is void? Thank you.

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