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View Diary: Bombshell MERS Ruling:Process Illegal (144 comments)

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  •  Nah, (3+ / 0-)

    This is a simple case of agency law.  MERS has solved the problem at least in Colorado by filing as nominee for the named bank owner and getting specific authority from each bank to do what it needs to do to file these foreclosures.  This is just an old case before they started using the "fix."   Some lawyer who did the original thing will probably get sued for forgetting something as simple as agency law, but really, nothing else here except for delays in cases filed some time ago.  Not new cases that they are filing right.

    •  This addresses only half the problem (14+ / 0-)

      MERS can align themselves with the trustee for the MBS (mortgage backed security trust) that claims ownership all they want, but that doesn't mean the MBS actually owns the mortgage.

      In many cases, the homeowner isn't willing to fight, especially in non-judicial foreclosure states, so the servicing bank ends up with the house on behalf of the MBS.

      However, you have to consider how a property gets into the MBS in the first place. An originating bank makes a loan and then sells it on to an investor within the first few months. MERS believes that changing an entry in a spreadsheet is all they needed to transfer ownership of the note. The note was never transferred correctly to the new ownership entity (in most cases), because MERS thought they could obivate that step.

      Wrong. The title chain is broken. And it will cost the banks. All MBSs are structured under NY state trust laws, which govern how assets are transferred into the trusts. And the notes can't be retroactively transferred in without breaking the trusts. (The particular trust structure was selected for maximum tax efficiency, transfer assets incorrectly, and boom go the tax benefits.)

      So, digging into the MBSs will reveal that most of them are actually assetless. Sucks to be investors in them - sucks even more to be a bank issuing these pieces of crap when the investors come looking for clawbacks.

      Probably will suck even worse to be a taxpayer should the banks look for another bailout once this mess really starts to be unwound.

      •  None of the stronger claims there (1+ / 0-)
        Recommended by:
        Terra Mystica

        have been born out by case law.  This case, for example, specifically notes that the notes can be transferred by mere assignment or by physical transfer of the notes.  It's an open question whether the banks have that documentation, of course.

        re: tax benefits: there's no reason to think at the moment that redoing the assignments (or memorializing them) would mess up the REMIC qualification.

        Lotsa open questions and lotsa evidentiary issues, but it's too early to say there's a defect that threatens the trust itself.

        •  The REMIC question is valid (5+ / 0-)
          Recommended by:
          alizard, Brian B, ilex, KJG52, yaque

          The PSA that governs the Trust explicitly state the date on which the Trust closes.  No mortgages can be added (by assignment) after that date with the exception of those mortgages that are removed and replaced via the PSA agreement. To make matters worse, the PSA almost always contains clauses that preclude the Trust from receiving notes that are already in default. So, even if there wasn't a close date or a provision that allowed for late transfers they couldn't transfer the note to the Trust at the time of foreclosure because the note itself is already in default.

          If such transfers did occur in violation of the PSA the Trust can lose its REMIC status. The penalty under the IRS code for illegal assignments is confiscation 100% plus interest and penalties that accrue from the time of the alleged transfer or the creation of the trust.

          Further, if a majority of the notes weren't actually transferred to the Trust at the time of creation, then under NY Law the Trust doesn't exist. If the Trust doesn't exist it can't have the REMIC status granted to said trust.

          •  It's valid, but the answer isn't clear. (0+ / 0-)

            Compliance w/ the trust document doesn't determine the REMIC status.  That's trust law, REMIC is tax law.  Two totally different things.

            The argument that the trust doesn't exist is near crazy.  If the trusts exchanged consideration for assignment, there's a res and a trust at that point.  Even if it didn't at that point, then a trust exists whenever the trust bank account is opened and any funds are put in it.  

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