1. What does it mean if the mortgage foreclosure action brought against you is a bank as Trustee?
Approximately 95% of mortgages in recent years have been packaged and sold on Wall Street as a securitized Trust. Investors in these Trusts bought securities consisting of certificates backed by mortgages. In foreclosure cases where the Plaintiff is a securitized Trust, there is a growing movement among courts to require the Trust to establish the unbroken chain of transfers, deliveries and acceptances of the mortgage note from the Originator to the Sponsor to the Depositor and finally to the Trust. In the heady days of the market, the players did not spend the time and money to properly document transfers of mortgages and notes. Trusts often do not know exactly what mortgages they own. Original Notes were lost or destroyed. What this means is that if the Plaintiff cannot prove it owns the mortgage, the foreclosure cannot proceed.
2. An unbroken chain of ownership must exist before a foreclosure sale can occur.
A Plaintiff that fails to adequately trace the loan from the original lender to the Plaintiff faces defenses to the foreclosure including that the Plaintiff lacks standing, failed to join indispensable parties, and failed to state a cause of action. A requisite chain of assignments must be recorded or filed in the foreclosure action to prove Plaintiff is the real party in interest to enforce the mortgage note. Plaintiff may be unable to show a chain of assignments from the Originator to the Sponsor who organized the securitization of the mortgage, to the Depositor and finally to the Trustee. Each of these parties must be included within the chain of assignments and endorsements, or in the case of a blank endorsement, there must be both a delivery and an acceptance receipt to document the transfer and delivery of the bearer note from the Originator to the Sponsor, from the Sponsor to the Depositor, and from the Depositor to the Trust. Plaintiff must also show that this Note and Mortgage were part of the res of the Trust and that they were transferred to the Trust within the window of time between origination and cutoff dates that the Trust could accept assets. See generally, In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008); In re Kang Jin Hwang, 396 B.R. 757 (Bankr. C.D. Calif. 2008); In re: Shelter Development Group, Inc., 50 B.R. 588 (Bankr. S.D. Fla. 1985); In re Foreclosure actions, 2007 WL 4034554 at *1 (N.D. Ohio 2007). Where a plaintiff does not own a mortgage at the time of filing a foreclosure action, the case must be dismissed for failing to comply with statutory requirements of standing.
3. Who are the various parties involved in my mortgage transaction?
The documents originally signed by the homeowner at the loan’s origination include the Mortgage and Note. The Mortgage must be properly assigned to the named Trust, generally in the following sequence:
a. Assignment from Originator to Sponsor;
b. Assignment from Sponsor to Depositor;
c. Assignment from Depositor to the Trust.
The Originator wrote and funded the original mortgage transaction. The Sponsor is the party who organized the securitization process and submitted the necessary registration statements to the SEC. The Depositor would be the last party in the chain of transfer to own the mortgage note before transfer to the Trust. The Trustee is the owner of the mortgage note for the benefit of the parties who invested in the bonds issued by the Trust. There is also a Master Document Custodian who is designated by the PSA to maintain custody and control of all the original notes and mortgages. MERS is another entity involved in these transactions. MERS stands for Mortgage Electronic Registration Systems and it is basically the file cabinet that maintains an electronic database of these mortgages.
You may only have dealt with a loan Servicer. There are various servicers involved too, including a Master Servicer and a Default Servicer. Importantly, the Servicer does not own the Note and Mortgage, it merely is in charge of collecting your payments and servicing the loan. The foreclosure lawsuit cannot be brought in the name of the Servicer as they are not the real party in interest and do not have standing to foreclose on your home.
4. The purpose of securitized trusts and limitations of transfer.
In the event that the Plaintiff asserts there was an equitable transfer, the Trust has no authority to accept an equitable transfer of a note. Each transfer must be a true sale for purposes of creating a bankruptcy remote structure which was the very purpose of the securitization process. Each transfer must follow the specific steps designated in the structure as set forth in Section 2.01 entitled Conveyance of Mortgage Loans of the Pooling and Servicing Agreement which is the document that set up the Trust (“PSA”). Additionally, all steps in the transfer process must be true and complete sales between the parties in order to qualify the Trust for what is called REMIC qualification under the Internal Revenue Code for Real Estate Mortgage Conduit securitization trusts, or REMIC trusts.
The purpose of the securitization process was to make the mortgage note legally protected from any claims a bankruptcy trustee or the FDIC might assert against the originator of the loan. This requires a series of true sales and transfers pursuant to the mandatory transfer rules of the Pooling and Servicing Agreement. True sales and transfers were required in order to obtain a certain tax status as a REMIC trust.
In addition to a lack of proper assignment of the Mortgage, in many cases, the Plaintiff is unable to show proper endorsement on the Note or the delivery certificates for any endorsement in blank. Without this, the Plaintiff should not be able to foreclose on your home. Many states provide that a mortgage follows the note and only a note is required to foreclose (virtually ignoring the necessity of a proper assignment). However, even in those cases, if the Plaintiff has lost the Note, or if the note was not properly transferred pursuant to the terms of the Trust, how can the Mortgage lien be enforced?