If Paul Revere were alive today he would be riding through the town warning “The REMICs have failed!” However, the government these days would go, “Shhhhhh!”
Most average homeowners have no idea what a REMIC is – actually most attorneys have no clue …. so, you know many of the Judges are completely in the dark. REMICs are a form of IRS tax shelter sold to investors as part of the mortgage-backed securities package (Real Estate Mortgage Investment Conduit (“REMIC”) pursuant to I.R.C. §§860A-G).
The documents that killed the REMICs may actually help save your home.
A new report by Oppenheim Law reveals “the Black Magic of Securitized Trusts”. The largest key to REMICs is that they are required to be passive vehicles, meaning that mortgages cannot be transferred in and out of the trust once the closing date has occurred, unless the trust can meet very limited exceptions under the Internal Revenue Code. I.R.C. §860G. The 90 day requirement is imposed by the I.R.C. to ensure that the trust remains a static entity. However, since the mortgage-backed securities trust controlling documents, the Pooling & Servicing Agreement (PSA), requires that the trustee and servicer not do anything to jeopardize the tax-exempt status; PSAs generally state that any transfer after the closing date of the trust is invalid.
What does that mean to the average homeowner in foreclosure? Check the recordation office and look for the “Assignment of Mortgage” on your property – generally found just before the Notice of Foreclosure is filed with the State if your loan was securitized. Looking through hundreds of these beauties there have been few, if any, that were timely assigned to the trusts. How can you quickly tell if the Assignment of Mortgage has failed to make it timely to the trust?
The Assignment of Mortgage [below] shows a 2006 Trust – and a fraudulent assignment in 2009 – 3 years AFTER the Trust had CLOSED! Not only was it too late – but the Trust could not accept it pursuant to the REMIC of RFMSI 2006SA4 PSA and as further defined in the Oppenheim Law report. Assignments of Mortgage are public documents.
What was not known until very recently, in fact Delaware Attorney General Beau Biden brought it out in his case Delaware v. MERS, lenders generally failed to follow the PSA and properly assign the mortgage loans to the Trusts. In the transcripts that AG Biden cited from In re Kemp, 440 B.R. 624, 626 (Bankr. D.N.J. 2010) (No. 08-18700) (Aug. 11, 2009), an employee for Bank of America responsible for servicing the securitized Countrywide mortgage loans testified under oath that Countrywide did not have a practice of delivering original documents such as the note to the Trust and was not in the habit of endorsing notes at the bottom, but favored allonges that they made as they went along. She further testified that allonges are typically prepared in anticipation of foreclosure litigation, rather than at the time the mortgage loans are purportedly securitized. Both of these facts are contrary to the requirements of the PSA that the note be endorsed in blank and delivered to the trustee at the time of securitization. Thanks to foreclosure defense attorney, Bruce H. Levitt, of South Orange, NJ - Bankruptcy Chief Judge JUDITH H. WIZMUR totally got it! See her Opinion here.
The trust investors have been suing Countrywide and other Wall Street banks for inflated appraisals, systematically abandoning underwriting guidelines and over-rated bonds. The investors did not yet know that many of the mortgage loans failed to make it timely into the trusts and that the REMICs had been damaged. In fact, recently the IRS has taken notice and already initiated an investigation into the “active” activities of these trusts and the tax implications from them. Scot J. Paltrow, Exclusive: IRS Weighs tax penalties on mortgage securities, REUTERS, April 27, 2011.
Here’s a fine example of a (too) late Countrywide Assignment of Mortgage made in 2010 to a CWABS 2005-3 Trust. Did they just figure the courts were going to be oblivious forever?
This is FIVE (5) years too late! Oh yeah, the REMIC has or should have failed. And it appears there are thousands, if not millions of these gems filed all across America in every state property recordation office – you just have to look.
Law Professor Adam Levitin, Georgetown University, describes the conflict the following way in the Oppenheim Law report:
“The trustee will then typically convey the mortgage notes and security instruments to a “master document custodian” who manages the loan documentation, while the servicer handles the collection of loans. Increasingly, there are concerns that in many cases the loan documents have not been properly transferred to the trust, which raises issues about whether the trust has title to the loans and hence standing to bring foreclosure actions on defaulted loans. Because, among other reasons, of the real estate mortgage investment conduit (“REMIC”) tax trust of many private-label securitizations (“PLS”) . . . it would not be possible to transfer the mortgage loans (the note and the security instrument) to the trust after the REMIC’s closing date without losing REMIC status.”
Levitin further points out:
“As trust documents are explicit in setting forth a method and date for the transfer of the mortgage loans to the trust and in insisting that no party involved in the trust take steps that would endanger the trust’s REMIC status, if the original transfers did not comply with the method and timing for transfer required by the trust documents, then such belated transfers to the trust would be void. In these cases, there is a set of far-reaching systemic implications from clouded title to the property and from litigation against trustees and securitization sponsors for either violating trust duties or violating representations and warranties about the sale and transfer of the mortgage loans to the trust.”
Without valid assignments, attorneys say that standing and jurisdiction issues rise to the top and may be asserted at any time – even first time on appeal. If the pretender lender did not have a standing to non-judicially foreclose because the assignment of mortgage is void, logically everything thereafter would be a nullity – that could open up a can of worms beyond the pretender lenders’/servicers’ repair.
These documents appear to have been fraudulent and as lawsuits assert – were intentionally prepared and executed to unlawfully confiscate the property from the homeowners. It appears it was easier to create the fraud and get paid by default insurance or credit default swaps than it was to modify they loans with the homeowners. Not only was there fraud on the homeowners, but also on the investors.
But could REMICs be why the investors don’t partner up with the borrowers? They were both duped. The borrowers unwittingly relied on the [inflated] appraisals and had no idea that the underwriting guidelines had been “systematically abandoned” – just like the investor claims. But there is one big difference…
If the investors include the borrowers, the fraudulent assignment of mortgages will surface and the REMIC fraud will float to the top like a dead body in a botched murder case…. and somebody will be stuck with paying the IRS – even if the investors win the case and get their investments back.
Could these fraudulent assignments save your home or undo the foreclosure? That’s a question to ask a competent foreclosure defense attorney and have him review your file.
Next, we need to follow the money… who actually got paid, how much and when??