Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Has anyone here figured out if Delaware law voids ultra vires acts by a trustee, the way New York law does? The Delaware statute on trusts (Title 12, Chapter 38) doesn't seem to speak to the issue, and incorporates the common law to apply to questions not otherwise addressed in the chapter (or in the trust instrument). I don't have the legal research tools to figure out what the common law says about ultra vires acts. Anyone?
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Under the common law, ultra vires is any act that is beyond the scope of the enumerated acts granted in the corporation's charter, article of incorporation, by-laws, or any similar founding document.  Ultra vires acts are usually void or voidable, depending on the act.  
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Thanks. Do you have any case references for Delaware? The acts in question would be failing to adhere to the trust's requirements regarding delivery of the mortgage documents, possibly endangering their preferential tax status.
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I'm not an attorney and this isn't legal advice:


Under the common law, ultra vires is any act that is beyond the scope of the enumerated acts granted in the corporation's charter, article of incorporation, by-laws, or any similar founding document.  Ultra vires acts are usually void or voidable, depending on the act.

We have discussed ultra vires in several good threads.

I personally agree with Mr. Ropers analogy and feel that this is NOT a very robust defense to foreclosure.  It would appear that a party to the transaction would be the one to complain about an ultra vires act.  This typically would NOT be a homeowner.  I feel in the foreclosure arena MOST transactions would be voidable and not void.  This would include a robosigned document.  It is very easy for the Plaintiff to say that while the person that executed a document may not have authority to sign the document, we ratify the document and give it full force.  I think you are going to be hard pressed to find a bank in the chain to say someone acted ultra vires.

12/10/10 at 07:06 PMReply with quote#8

The Equitable One said
Clearly the research needs to be done in each case and making any assumptions would be a mistake.

This is exactly RIGHT.  Make no assumptions.  The choice of law provision is either expressly written into the trust indenture and/or other pooling and servicing agreement or it isn't.

Mike said
My trust documents also state that a New York common law trust will be formed.  So does this mean that NY trust law is binding on the formation/transfer of assets into the trust?

As discussed above Professor Adam LEVITIN makes the argument that New York trust law will control the transfer of assets into the trust.  This guy is clearly very bright and certainly is articulate.  And he argues that where the provisions of the trust are very precise that the trust cannot deviate from these in the purchase of the mortgage collateral.

Frankly, I am unpersuaded on several counts and still do not believe that this is going to be a particularly effective argument, but I want to emphasize that I have NOT read or studied ANY New York cases in this area of the law.  I do not believe that there have been ANY cases decided in which the precise question presented has been decided.

Generally speaking, I believe that the core of Mr. LEVITIN's argument is an ultra vires argument.  Ultra vires, which in Latin means "beyond the powers", is the legal concept which recognizes that an entity's power and authority may be and often is limited by the express provision of its chartering documents.

While it is now very common for corporations to be granted broad and even sweeping powers within their corporate charter, usually the articles of incorporation, these can also be expressly and purposefully limited.

For example, a corporation might be chartered for the purposes of operating a railroad or the purpose of operating a state bank.  Very often, the articles of incorporation will include a variety of express authorizations as to the sorts of things that the corporation is authorized to do.  And the articles might even include express prohibitions.

In some instance, the restrictive covenants might reflect a purposeful acknowledgement that the newly chartered entity will not encroach upon some business operated by one of the various chartering investors, partners or principals.

Limitations or restrictions might preclude the enterprise from embarking on certain new lines of business not authorized.  Or the restrictions might limit the business to operation within a particular geographic area or jurisdiction.  Or even without restricting either business line or geography, the restrictions might expressly preclude the enterprise from borrowing money or encumbering certain assets of the corporation.

It is easiest to see and understand the concept of ultra vires within the context of a contractual arrangement which expressly oversteps the defined boundaries of the corporate charter.

For example, suppose that the articles of incorporation expressly prohibit an entity from borrowing money or encumbering the entity's real property by mortgage.  And further suppose that the entity's board of directors or officers were to undertake to borrow money or to mortgage corporate property in express violation of these restrictive covenants within the corporate charter.

In such an instance, the very act of the loan -- the promissory note and mortgage -- might very well be VOID.  The lender should have obtained and inspected the corporate charter to ascertain whether the board or the officers of the corporation had the actual authority to enter into a mortgage loan.

But the concept probably also has its limits.  Suppose, for example, that a corporation had a provision in its charter which expressly prohibited corporate funds from being spent on travel and entertainment expense for officers and directors.  Further suppose that in spite of this prohibition, that the corporation's board was to authorize the corporation to enter into a banking arrangement to include debit cards to be issued to the board members for use with authorized expenses.

Suppose that a corporate employee made a reservation at a hotel for a traveling board member.  Further suppose that a director checked into a hotel and used the corporate debit card for payment.  The bill was paid by the card issuer.  Later, upon audit, inappropriate expenses for travel and entertainment were identified.

Is the arrangement for the night's lodging a VOID arrangement because the hotel failed to inspect the corporation's charter to learn of the limitations?

Can the company demand its money back from the hotel or the card issuer?

While it seems pretty clear that recovery might be had from the board member, it is less clear whether the card issuer or the hotel had a duty of inquiry.  (Most likely, the card issuer had such a duty, but the hotel did not.)

Incidentally, this dicussion is NOT with reference to any particular cases, but rather simply analysis arising out of what I remember from discussion of corporations, partnership and agency law from more than three decades ago in an undergraduate course on the subject.

There is a common sense aspect to this.  One can hardly expect a merchant engaged in small, nominal transactions to make a thorough inspection of the charter as to corporate authority in respect of every transaction.  But happily, cash and carry trade, or payment by a card issuer removes some of the risk.  The small business has the money.

A key defensive protection for the small business person faced with questions about corporate authority is whether the person had the apparent authority to engage in the transaction.  That is there is the actual authority of the entity and there is the apparent authority of those acting on its behalf.


Bringing this back around to mortgages and trusts, it seems to me that Mr. LEVITIN offers to investors in mortgage certificates a very strong argument that the trust provisions set forth rather explicitly what is to be transferred into a trust, how such transfers are to be made and WHEN such transfers are permissible.

But these same ultra vires arguments may be less effective when asserted by a borrower who argues that the loan was transferred into a trust too late.

The hotel which has extended its hospitality to a director engaging in overnight stay has a right to be paid and an expectation of payment.  The investor who relied upon the travel and entertainment provision in making his investment, similarly has a good argument that the officers and directors should be held responsible for the ultra vires expendatures. 

It is a somewhat unreasonable result to suggest that the director should be permitted FREE LODGING at the expense of the hotel due to the corporation's violation of its charter.

So it seems to me that the question of enforcement of the provisions of a trust indenture or a pooling and servicing agreement and the effects of any ultra vires activities is going to turn out to be more of a matter for the trustee and certificateholders than for the mortgage borrowers.


None of this alters the standing argument which is discussed extensively elsewhere within this Forum.


Finally, I would note that while the law of the place where the subject property is located is likely to control the mortgage, deed of trust, security deed or other security instrument, and the trust law specified within a choice of law provision of the trust indenture will control the trust's authority, the commercial law of the place of delivery of the instrument is most likely to control the negotiation of the promissory notes. 

This is because negotiation requires indorsement and delivery and the negotiation is completed by delivery.  For this reason, a line of ancient cases almost everywhere holds that the law of the place of delivery holds.  This used to be New York, when all of the institutional custodians operated out of New York City.  But this is no longer the case.  The physical location of the institutional custodian may control the negotiation.  This can be important as to allonges.


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