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Challenge of Assignment of Mortgage

The document discusses securitized mortgages and the requirements for foreclosure when a trust is the plaintiff. It explains that trusts must prove ownership by establishing an unbroken chain of transfers from originator to sponsor to depositor and finally to the trust. It also outlines the various parties involved such as originator, sponsor, depositor, trustee, and servicer.

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141 views2 pages

Challenge of Assignment of Mortgage

The document discusses securitized mortgages and the requirements for foreclosure when a trust is the plaintiff. It explains that trusts must prove ownership by establishing an unbroken chain of transfers from originator to sponsor to depositor and finally to the trust. It also outlines the various parties involved such as originator, sponsor, depositor, trustee, and servicer.

Uploaded by

nutech18
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as RTF, PDF, TXT or read online on Scribd
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Challenge Securitized Mortgages

Proof of Ownership of the Mortgage Note as it Relates to the Securitized Trust


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?

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