Securitization Workshop for Attorneys January 29th 2011 in Los Angeles

Securitization Workshop for Attorneys January 29th 2011 in Los Angeles

By Daniel Edstrom

Join us for our 2nd Securitization Workshop for Attorneys being held in Los Angeles on January 29th, 2011.  Visit the event webiste for more information: http://securedocumentresearch.eventbrite.com and visit our product page for a super early registration price if you sign up by December 31, 2010: http://dtc-systems.net/products/securitization-workshop-attorneys-los-angeles-ca-january-29th-2011/

Description of event:

SECURITIZATION WORKSHOP FOR ATTORNEYS
 January 29th, 2010 – in Los Angeles, CALIFORNIA

 [Location will be determined soon]

SECURE DOCUMENT RESEARCH

Auburn, CA 95603; ph: 530.888.9600

DTC Systems, Inc.

info@dtc-systems.comhttp://www.dtc-systems.net

 Presented by:

Secure Document Research and DTC Systems, Inc.in Association with the Garfield Continuum and Neil F. Garfield, Esq.
http://livinglies.wordpress.com
REGISTER EARLY, LIMITED SEATING IS AVAILABLE

Continue reading “Securitization Workshop for Attorneys January 29th 2011 in Los Angeles”

Patt Morrison on Southern California Public Radio

Patt Morrison on Southern California Public Radio

Listen to the recorded version of the Patt Morrison’s show on scpr.org

http://www.scpr.org/programs/patt-morrison/2010/12/14/who-really-owns-your-housecould-mortgage-transfers/

Guests:

Katherine Porter, visiting professor of bankruptcy, consumer finance & secured credit at the Harvard Law School

Daniel Edstrom, head of the securitization auditing firm DTC-Systems

Securitization issues related to foreclosures and paperwork is discussed.

Katherine Porter states that Wrongful foreclosure is when the house is foreclosed on and there  is no default.  This is an interesting definition because in nearly all cases in securitization, the loans are current.  The obligation is not in default because the Securitization Trustee and the investors have received all payments.  So nearly all Securitization foreclosures are wrongful foreclosures?  That is the elephant in the room that nobody wants to look at.

Why are the loans current in securitization?  Because the servicers and securitization trustees are required and obligated to make the payments whether or not they receive the payment from the homeowner.

The Chart Heard Around the World

By Daniel Edstrom 

The following are excerpts from testimony submitted by the Honorable New York Supreme Court Justice F. Dana Winslow.  Submitted as an attachment is my Securitization Reverse Engineering diagram of my families loan / securitization.  It is now part of the Congressional Record.  

  

F. DANA WINSLOW
NYS SUPREME COURT JUSTICE
Before the House of Representatives
DECEMBER 2, 2010

ON 

CAUSES AND EFFECTS OF THE
FORECLOSURE
CRISIS
 

HOUSE OF REPRESENTATIVES COMMITTEE ON THE JUDICIARY 

 FORECLOSED JUSTICE:
CAUSES AND EFFECTS OF THE FORECLOSURE CRISIS 

Hon. F. Dana Winslow
December 2, 2010 

Excerpts:  

Difficulty arises in multiple unrecorded transfers of the legal
ownership of the Mortgage (with or without the transfer of the Note)
and with tracing and proving the chain of title. I refer the Committee
to the attached diagram [Attachment “A”] obtained on the internet,
which I believe to be both a nonsensical and accurate depiction of the
problems concerning mortgagee chain of title. 

Exhibit “A”:Securitization Reverse Engineering Attachment 

  

  

  

 

 

 

Professor Adam Levitin Shreds American Securitization Forum Defenses

Sunday, December 5, 2010

[From Naked Capitalism: http://www.nakedcapitalism.com/2010/12/adam-levitin-shreds-the-american-securitization-forum-defense-of.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29]

Adam Levitin Shreds American Securitization Forum Defenses

It isn’t clear why the American Securitization Forum decided to walk into a buzzsaw, but the carnage is proving to be an amusing spectacle.

For readers who have not followed this wee saga, mortgage securitization abuses are increasingly looking to be a mess of Titanic proportions. The securitization industry created complex and specific procedures for getting the loans into the securitization legal vehicle, a trust. (The loan, meaning the borrower IOU, is called the note; confusingly, the lien is separate and called a mortgage or in some states, a deed of trust).

These procedures were complex for very good legal reasons. These securitizations had to pick their way very carefully through a thicket of issues: state-based real estate law; the Uniform Commercial Code; the desire to create bankruptcy remoteness (so if the originator went bust, the investors would not be exposed to the risk of lenders to the originator trying to get the notes back out of the trust); securities regulations; tax law; trust law.

These provisions were adhered to for nearly two decades. But sometime in the early 2000s, it appears that the industry simply quit observing the requirements of its own contracts, called pooling and servicing agreements. And the worst is that there are no simple fixes for the resulting mess.

If the breakdown was as widespread as it appears to be, at a minimum, in the overwhelming majority of states, it will become more and more difficult to foreclose as consumer lawyers and judges wise up to these issues. And in a worst case scenario, it is entirely possible in some, perhaps many cases, no assets got the the trusts by closing, which would make them void under New York law, which governs virtually all mortgage securitization trusts (even if true, investors may choose not to pursue that theory in a lawsuit, but more evidence of pervasive problems may lead investors use related theories to press to have the deal unwound, which is still a pretty dire outcome).

The American Securitization Forum which represents originators (it also has investors as members, but investors and independent observers see the ASF as very much originator-oriented) has decided to come out guns-a-blazing against critics. The problem is, however, that it has neither the law or facts on its side. Its strident attacks are looking a wee bit desperate.

In recent Congressional hearings, the ASF executive director Tom Deutsch provided testimony that was truly astonishing (see here and here). It asserted, in effect, that extremely clear and easy to interpret language in the PSA about how the notes were to be conveyed to the securitization meant the opposite of what they said. The contracts call for a “complete” or “unbroken” chain of endorsements. The ASF testimony argued that that very same language meant the very opposite, that no such thing needed to happen. And the testimony peculiarly personalized the attack, fixating on Georgetown law professor Adam Levitin. Even though he has almost become a fixture on Congressional panels on this topic, he is far from the only expert to have argued for this interpretation.

Levitin deigned to address the ASF argument, and his post, “Fisking the American Securitization Forum’s Congressional Testimony,” is engaging. I suggest you read it in its entirely. Here are some of the key bits:

My first thought was “gosh, ASF’s awfully defensive. They sure seem spooked.” And on looking at the details of the ASF’s rebuttal, my sense is they’re on very shaky ground if these are the best arguments they have….

ASF takes me to task because the argument I make about PSAs is not supported by caselaw. Duh. Of course it isn’t. These issues have never been litigated. The whole point I’ve been making is that there are a bunch of unresolved legal issues. I’m not the one who decides what the outcome is. I can only offer my semi-learned opinion. But just as my argument lacks caselaw support, so too does that of the ASF. At least I’m not the one who built a $1.2 trillion dollar private label residential mortgage securitization industry hinging on uncertain law…..

ASF argues that the language in many PSAs requiring a “complete” or “unbroken” chain of endorsements only means that there must be a chain of endorsements legally sufficient to effectuate the transfer of the note to the trust…

There are a few problems with this argument. First, if the ASF is correct in its claim that the loans are transferred by sale under Article 9 of the UCC, the legal sufficiency of the endorsements should simply be irrelevant. In making this claim, ASF seems to be conceding that PSAs are the governing law for RMBS transactions.

Second, it’s worth looking at the entire language used in PSAs, not the selectively quoted language referred to by the ASF. For example, consider the PSA for Securities Asset Backed Receivables LLC Trust 2005-FR3, dated July 1, 2005, § 2.01(b), July 1, 2005. It provides that the depositor will deliver to the trust:

“the original Mortgage Note bearing all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee, endorsed ‘Pay to the order of _____________, without recourse’ and signed (which may be by facsimile signature) in the name of the last endorsee by an authorized officer.”

Note the bold language (my emphasis; the italics are original). There can be no question that this language is calling for every endorsement from the originator to the trust, and cannot be satisfied with a single endorsement in blank. For deals with this language, at least, ASF’s testimony is demonstrably wrong.

Now, it is important to note that not every PSA has such language…The incidence of various PSA language is unknown, but certainly there are a good number of PSAs where there has to be a complete chain of endorsements.

Another inconvenient fact is, contrary to the ASF assertions, that judges are also looking for the chain of endorsements to make sense, without reference to the PSA. By happenstance, April Charney sent a Florida decision today which illustrates how the lack of proper endorsements derailed a foreclosure (April has graciously included me in her frequent updates to various groups of lawyers involved in foreclosure defense).

Order for BAC Home Loans Servicing v. Stentz

This order is short and make for instructive reading. The note in question was indorsed (bankruptcy courts use “indorse” for “endorse”) in blank, something the ASF says is perfectly kosher. The Florida judge is not entirely comfortable with that, noting that Florida law requires that the party prosecuting a foreclosure both own and be the holder of the note. He dismissed the case without prejudice, but notice the requirements he stipulates for any amended complaint (boldface mine):

1. Allege additional facts, not conclusions of law, that specifically set forth the and identify the present owner of the note and mortgage and the present holder of the note and mortgage and in so doing deraign the chain of ownership/holdership since the loan’s inception.

2. Allege additional facts why the note is indorsed in blank and specifically deny, if that be the case, that it or an interest has been pledged to another….

5. Allege and identify all documents, by attachment, upon which Plaintiff relies to establish ownership of the note and mortgage.

Now look at the mess we have here. How, pray tell, are the plaintiffs going to prove how the note traveled from originator to its purported current owner in the absence of having the note endorsed with a full and unbroken chain of assignments? How are they going to prove a negative (as in 2, that it wasn’t pledged to another party? How will the plaintiffs prove the transfers? A basic feature of negotiable instruments like mortgage notes is that they are transferred by delivery, not by contract or assignment, AND that the party making the transfer must endorse the instrument so that it is payable to the recipient (or it can be endorsed in blank).

Oh, and if the borrower’s attorney is at all savvy, he will find the PSA for this loan. If the plaintiffs try to claim the conveyance chain was different than that stipulated in the PSA (something the ASF also tried to argue was fine), and the borrower’s counsel points out the discrepancy. This judge looks to be the sort that would find it troubling.

Here, again by virtue of synchronicity via April Charney yesterday, is another example of a judge, this time in Ohio, refusing to foreclose. One of the reasons is the chain of assignments is broken (see the part I boldfaced):

Case: CV-09-706959
Case Caption: PROVIDENT FUNDING ASSOCIATES, L.P. vs. TAMARA TURNER, ET AL
Judge: TIMOTHY MCCORMICK
Room: 20C JUSTICE CENTER
Docket Date: 11/09/2010
Notice Type: (JEPC) JOURNAL ENTRY NOTICE
Notice ID/Batch: 16552802 – 875214

To: JAMES R DOUGLASS

MOTION OF THE DEFENDANTS PHILLIP TURNER AND TAMARA TURNER TO DISMISS FOR PLAINTIFF’S LACK OF STANDING TO FILE THE FORECLOSURE IS GRANTED. PLAINTIFF DID NOT PRESENT EVIDENCE TO THE COURT THAT IT OWNED THE SUBJECT PROMISSORY NOTE AS OF THE DATE OF THE FILING OF ITS COMPLAINT IN THIS CASE AND COULD NOT, THEREFORE, PROVE THAT IT HAD STANDING TO FILE THIS CASE. SEE WELLS FARGO BANK V. JORDAN, 2009 OHIO 1092 (8TH DIST. CT. APP., MAR. 12, 2009). MERS COULD NOT ASSIGN THE NOTE AS IT NEVER HELD THE PROMISSORY NOTE. THERE IS NO EVIDENCE THAT THE ALLONGE WAS EVER AFFIXED TO THE NOTE. VIRTUAL BANK PURPORTS TO INDORSE THE NOTE TO THE PLAINTIFF, BUT THERE IS NO EVIDENCE THAT VIRTUAL BANK HELD THE NOTE AT THE TIME OF THE INDORSEMENT. VIRTUAL BANK IS ALSO NOT THE PAYEE ON THE NOTE. COMPLAINT DISMISSED WITHOUT PREJUDICE. AS PLAINTIFF DID NOT HAVE STANDING TO FILE THIS CASE, THE COUNTERCLAIM IS ALSO DISMISSED WITHOUT PREJUDICE. (FINAL)
COURT COST ASSESSED TO THE PLAINTIFF(S).

CLDLJ 11/09/2010
NOTICE ISSUED

Ohio and Florida require that the party foreclosing be the owner of the note. But even in states like California, which appear merely to require that the foreclosing party be a holder, “holder” signifies more than mere possession. In IndyMac Federal v. Hwang, the judge cites the California Commercial Code (3301 (a) and 1201 (20)) and UCC (3-301 (a) and 1-201 (20)):

For an instrument payable to an identified person (such as a note in this case), there are two requirements for a person to qualify as a holder: (a), the person must be in possession of the instrument and (b) the instrument must be payable to that person.

These examples prove a basic point. There is good reason why the PSAs stipulated a complete, unbroken chain of endorsements. The absence of them creates huge problems, independent of the requirements of the PSA, in enforcing the note.

As we said in our New York Times op-ed,

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

The ASF, perversely or perhaps predictably, is persisting in being part of the problem rather than part of the solution.

More on this topic (What’s this?)

Never Trust a CEO Who Does This… (Investment U, 11/4/10)

Set to Go Off (Financial Armageddon, 10/25/10)

Read more on Trust, Securitization at Wikinvest

Topics: Banana republic, Banking industry, Credit markets, Legal, Real estate

Email This Post Email This Post Posted by Yves Smith at 6:07 am

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Split: The Note and the Deed of Trust (Redux)

The Note and Mortgage are split in judicial states the same as the Note and Deed of Trust in non-judicial states.

Split: The Note and the Deed of Trust (Redux)

by Daniel Edstrom

The Note and Mortgage are split in judicial states the same as the Note and Deed of Trust in non-judicial states.

The first issue is that the note was sold in 2005 but the Deed of Trust appears to have been left behind.  For the uninitiated, if the Note and Deed of Trust are split, this causes a nullity.  A nullity means the security interest is lost and the debt becomes unsecured.  In securitization this is standard operating procedure and is one of the issues that we are left to face.  Upwards of 60,000,000 homes may be unencumbered leaving those who own the notes on these houses with no power of sale.  And more considering MERS wasn’t the only party involved in splitting the note from the security instrument.

Who owns these loans if they are unsecured?  That was the whole purpose of creating the securitization diagram in the first place.

The result?  More questions, few answers. Continue reading “Split: The Note and the Deed of Trust (Redux)”

Obligations and Defaults

We now jump ahead in the story and skip all the details of securitization including when, if and how your loan was allegedly transferred into the mortgage loan pool (the securitization trust).

If you haven’t heard of John Courson,

I want to change that.

John is the President and CEO of the Mortgage Bankers Association.

by Daniel Edstrom

Mr. Courson believes that it is a moral imperative to keep your financial obligations.  If you haven’t seen the video here http://www.thedailyshow.com/, you should.

Now let’s look at the alleged obligations and who is actually obligated.  This will lead us down the road to defaults and who is actually in default.  If you have a mortgage, you by default are the obligor because you are the one with the “obligation” to repay.  The note you signed is not the obligation but is evidence of the obligation.  The obligation arose when money was advanced by a “creditor” and you accepted the money.  So even if the note doesn’t exist there is still an obligation.  A default occurs when you fail to meet the terms of your obligation.  In days gone by this would be the end of the story, but thanks to Wall Street financial engineering we haven’t even reached the beginning yet.

We now jump ahead in the story and skip all the details of securitization including when, if and how your loan was allegedly transferred into the mortgage loan pool (the securitization trust).  We will just assume for the sake of argument that your loan is in the pool and that everything is A-OK, which is what the big banks with the robo-signing blues are saying anyway.  The SEC Filings are the governing documents and because they are typically a thousand pages of legal gibberish, you have to understand what words mean, such as “obligation” and “default”.  Let’s start with default.  Here is what US Bank, N.A., which acts as Trustee on thousands of securitized trusts says a default is (from http://www.usbank.com/cgi_w/cfm/commercial_business/products_and_services/corp_trust/terms_ps.cfm#d): Continue reading “Obligations and Defaults”

Just When You Thought You Knew Something About Mortgage Securitizations

Dan Edstrom is a guy who is in the right place at the right time. His profession? He performs securitization audits (Reverse Engineering and Failure Analysis) for a company called DTC-Systems.

We thank the guys from zerohedge.com for this article!

Make sure you visit them today to learn more…

Just When You Thought You Knew Something About Mortgage Securitizations

by williambanzai7

Dan Edstrom is a guy who is in the right place at the right time.

His profession? He performs securitization audits (Reverse Engineering and Failure Analysis) for a company called DTC-Systems.

The typical audit includes numerous diagrams including the following:

  1. Transaction Parties and Flow (similar to the chart below, but much easier to understand)
  2. Note exchanged for a bond Foreclosure parties
  3. Priority of Payments from the Security Instrument (Mortgage, Deed of Trust, Security Deed or Mortgage Deed)
  4. Priority of Payments from the Pooling and Servicing Agreement

This diagram shows that they are not following the borrowers instructions in the security instrument Continue reading “Just When You Thought You Knew Something About Mortgage Securitizations”

Securitization: What is it?

The idea behind securitization is that a lender can make a loan and immediately sell the loan so that their capital is not tied up for 30 years. In reality it doesn’t quite work this way.

fig.1

The idea behind securitization is that a lender can make a loan and immediately sell the loan so that their capital is not tied up for 30 years.  In reality it doesn’t quite work this way.

In the classic securitization example, a company that originates loans sets up an agreement with a warehouse lender (GMAC, Morgan Stanley, Bank of America, Wells Fargo, etc).  The agreement typically provides that the warehouse lender will provide the capital for the loan to the originator and the originator will provide the loan to the warehouse lender for securitization.

Continue reading “Securitization: What is it?”

Securitization Blog Online …

DTC Systems.net, we provide a reverse engineering and failure analysis of Securitization for Residential Mortgages

Welcome to DTC Systems.net!

We provide Reverse Engineering and Failure Analysis of Securitization for Residential Mortgages.

Please stay tuned for posts discussing these issues in detail.   Currently we have a Securitization Workshop for Attorneys scheduled for December 11, 2010 in Auburn, CA (near Sacramento).

This is an 8 hour conference geared for attorneys, paralegals, loan auditors and others who need to understand how Wall Street created these complex transactions.

More information on this will be posted shortly.