Pooling and servicing agreements PSA how it works in Judicial foreclosure states like Florida

21 Apr

THE ROOT OF FORECLOSURE DEFENSE The Pooling and Servicing Agreement (PSA) is the document that actually creates a residential mortgage backed securitized trust and establishes the obligations and authority of the Master Servicer and the Primary Servicer. The PSA is the heart and root of all securitized based foreclosure action defenses. The PSA establishes that mandatory rules and procedures for the sales and transfers of the mortgages and mortgage notes from the originators to the Trust. It is this unbroken chain of assignments and negotiations that creates what is called “The Alphabet Problem.” In order to understand the “Alphabet Problem,” you must keep in mind that the primary purpose of securitization is to make sure the assets (e.g., mortgage notes) are both FDIC and Bankruptcy “remote” from the originator. As a result, the common structures seek to create at least two “true sales” between the originator and the Trust. One of the defenses used by the famous Foreclosure Defender, April Charney is the following: PLAINTIFF FAILED TO COMPLY WITH APPLICABLE POOLING AND SERVICING AGREEMENT LOAN SERVICING REQUIREMENTS: Plaintiff failed to provide separate Defendants with legitimate and non predatory access to the debt management and relief that must be made available to borrowers, including this Defendant pursuant to and in accordance with the Pooling and Servicing Agreement filed by the plaintiff with the Securities and Exchange Commission that controls and applies to the subject mortgage loan. Plaintiff’s non-compliance with the conditions precedent to foreclosure imposed on the plaintiff pursuant to the applicable pooling and servicing agreement is an actionable event that makes the filing of this foreclosure premature based on a failure of a contractual and/or equitable condition precedent to foreclosure which denies Plaintiff’s ability to carry out this foreclosure. You therefore have in the most basic securitized structure the originator, the sponsor, the depositor and the Trust. I refer to these parties as the A (originator), B (sponsor), C (depositor) and D (Trust) alphabet players. The other primary but non-designated player in my alphabet game is the Master Document Custodian for the Trust. The MDC is entrusted with the physical custody of all of the “original” notes and mortgages and the assignment, sales and purchase agreements. The MDC must also execute representations and attestations that all of the transfers really and truly occurred “on time” and in the required “order” and that “true sales” occurred at each link in the chain. Section 2.01 of most PSAs includes the mandatory conveyancing rules for the Trust and the representations and warranties. The basic terms of this Section of the standard PSA is set-forth below: 2.01 Conveyance of Mortgage Loans. (a) The Depositor, concurrently with the execution and delivery hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the Trustee for the benefit of the Certificateholders, without recourse, all the right, title and interest of the Depositor in and to the Trust Fund, and the Trustee, on behalf of the Trust, hereby accepts the Trust Fund. (b) In connection with the transfer and assignment of each Mortgage Loan, the Depositor has delivered or caused to be delivered to the Trustee for the benefit of the Certificateholders the following documents or instruments with respect to each Mortgage Loan so assigned: (i) the original Mortgage Note (except for no more than up to 0.02% of the mortgage Notes for which there is a lost note affidavit and the copy of the 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 in the name of the last endorsee. To the extent that there is no room on the face of any Mortgage Note for an endorsement, the endorsement may be contained on an allonge, unless state law does not so allow and the Trustee is advised by the Responsible Party that state law does not so allow. If the Mortgage Loan was acquired by the Responsible Party in a merger, the endorsement must be by “[last endorsee], successor by merger to [name of predecessor]“. If the Mortgage Loan was acquired or originated by the last endorsee while doing business under another name, the endorsement must be by “[last endorsee], formerly known as [previous name]“; A review of all of the recent “standing” and “real party in interest” cases decided by the bankruptcy courts and the state courts in judicial foreclosure states all arise out of the inability of the mortgage servicer or the Trust to “prove up” an unbroken chain of “assignments and transfers” of the mortgage notes and the mortgages from the originators to the sponsors to the depositors to the trust and to the master document custodian for the trust. As stated in the referenced PSA, the parties have represented and warranted that there is “a complete chain of endorsements from the originator to the last endorsee” for the note. And, the Master Document Custodian must file verified reports that it in fact holds such documents with all “intervening” documents that confirm true sales at each link in the chain. The complete inability of the mortgage servicers and the Trusts to produce such unbroken chains of proof along with the original documents is the genesis for all of the recent court rulings. One would think that a simple request to the Master Document Custodian would solve these problems. However, a review of the cases reveals a massive volume of transfers and assignments executed long after the “closing date” for the Trust from the “originator” directly to the “trust.” I refer to these documents as “A to D” transfers and assignments. There are some serious problems with the A to D documents. First, at the time these documents are executed the A party has nothing to sell or transfer since the PSA provides such a sale and transfer occurred years ago. Second, the documents completely circumvent the primary objective of securitization by ignoring the “true sales” to the Sponsor (the B party) and the Depositor (the C party). In a true securitization, you would never have any direct transfers (A to D) from the originator to the trust. Third, these A to D transfers are totally inconsistent with the representations and warranties made in the PSA to the Securities and Exchange Commission and to the holders of the bonds (the “Certificateholders”) issued by the Trust. Fourth, in many cases the A to D documents are executed by parties who are not employed by the originator but who claim to have “signing authority” or some type of “agency authority” from the originator. Finally, in many of these A to D document cases the originator is legally defunct at the time the document is in fact signed or the document is signed with a current date but then states that it has an “effective date” that was one or two years earlier. Hence, we have what I call the Alphabet Problem.

AFFIRMATIVE DEFENSES AND COUNTRCLAIMS RELATED TO POOLING & SERVICING AGREEMENTS 1. Plaintiff failed to comply with the foreclosure prevention loan servicing requirement imposed on Plaintiff pursuant to the National Housing Act, 12 U.S.C. 1701x(c)(5) which requires all private lenders servicing non-federally insured home loans, including the Plaintiff, to advise borrowers, including this separate Defendant, of any home ownership counseling Plaintiff offers together with information about counseling offered by the U.S. Department of Housing and Urban Development. 2. Plaintiff cannot legally pursue foreclosure unless and until Plaintiff demonstrates compliance with 12 U.S.C. 1701x(c)(5). 3. Plaintiff failed to provide separate Defendants with legitimate and non predatory access to the debt management and relief that must be made available to borrowers, including this Defendant pursuant to and in accordance with the Pooling and Servicing Agreement filed by the plaintiff with the Securities and Exchange Commission that controls and applies to the subject mortgage loan. 4. Plaintiff’s non-compliance with the conditions precedent to foreclosure imposed on the plaintiff pursuant to the applicable pooling and servicing agreement is an actionable event that makes the filing of this foreclosure premature based on a failure of a contractual and/or equitable condition precedent to foreclosure which denies Plaintiff’s ability to carry out this foreclosure. 5. The special default loan servicing requirements contained in the subject pooling and servicing agreement are incorporated into the terms of the mortgage contract between the parties as if written therein word for word and the defendants are entitled to rely upon the servicing terms set out in that agreement. 6. Defendants are third party beneficiaries of the Plaintiff’s pooling and servicing agreement and entitled to enforce the special default servicing obligations of the plaintiff specified therein. 7. Plaintiff cannot legally pursue foreclosure unless and until Plaintiff demonstrates compliance with the foreclosure prevention servicing imposed by the subject pooling and servicing agreement under which the plaintiff owns the subject mortgage loan. 8. The section of the Pooling and Servicing Agreement (PSA) is a public document on file and online at http://www.secinfo.com and the entire pooling and servicing agreement is incorporated herein. 9. The Plaintiff failed, refused or neglected to comply, prior to the commencement of this action, with the servicing obligations specifically imposed on the plaintiff by the PSA in many particulars, including, but not limited to: a. Plaintiff failed to service and administer the subject mortgage loan in compliance with all applicable federal state and local laws. b. Plaintiff failed to service and administer the subject loan in accordance with the customary an usual standards of practice of mortgage lenders and servicers. c. Plaintiff failed to extend to defendants the opportunity and failed to permit a modification, waiver, forbearance or amendment of the terms of the subject loan or to in any way exercise the requisite judgment as is reasonably required pursuant to the PSA. 10. The Plaintiff has no right to pursue this foreclosure because the Plaintiff has failed to provide servicing of this residential mortgage loan in accordance with the controlling servicing requirements prior to filing this foreclosure action. 11. Defendants have a right to receive foreclosure prevention loan servicing from the Plaintiff before the commencement or initiation of this foreclosure action. 12. Defendants are in doubt regarding their rights and status as borrowers under the National Housing Act and also under the Pooling and Servicing Agreement filed by the plaintiff with the Securities and Exchange Commission. Defendants are now subject to this foreclosure action by reason of the above described illegal acts and omissions of the Plaintiff. 13. Defendants are being denied and deprived by Plaintiff of their right to access the required troubled mortgage loan servicing imposed on the plaintiff and applicable to the subject mortgage loan by the National Housing Act and also under the Pooling and Servicing Agreement filed by the plaintiff with the Securities and Exchange Commission. 14. Defendants are being illegally subjected by the Plaintiff to this foreclosure action, being forced to defend the same and they are being charged illegal predatory court costs and related fees, and attorney fees. Defendants are having their credit slandered and negatively affected, all of which constitutes irreparable harm to Defendants for the purpose of injunctive relief. 15. As a proximate result of the Plaintiff’s unlawful actions set forth herein, Defendants continue to suffer the irreparable harm described above for which monetary compensation is inadequate. 18. Defendants have a right to access the foreclosure prevention servicing prescribed by the National Housing Act and under the Pooling and Servicing Agreement filed by the plaintiff with the Securities and Exchange Commission which right is being denied to them by the Plaintiff. 16. These acts were wrongful and predatory acts by the plaintiff, through its predecessor in interest, and were intentional and deceptive. 17. There is a substantial likelihood that Defendants will prevail on the merits of the case.

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4 Responses to “Pooling and servicing agreements PSA how it works in Judicial foreclosure states like Florida”

  1. email4jimmy@earthlink.net April 21, 2011 at 4:59 pm #

    How does it work in Non Judicial State like California?

  2. Randy Frodsham April 21, 2011 at 5:44 pm #

    OK, now please address this same scenario in the setting of a non-judicial state. Thanks.

    • Tim McCandless April 29, 2011 at 11:21 am #

      Foreclosure Defense: Burden of Proof in Non-Judicial States
      I have been helping a homeowner in Virginia to stave off a foreclosure based on the bank’s lack of authority to foreclose. Initially, the homeowner proceeded in the case pro se (without an attorney). After receiving a foreclosure notice, the homeowner filed suit against the bank challenging its right to foreclose. The bank responded that Virginia is a non-judicial foreclosure state, so that the owner cannot question the bank’s right to foreclose and thus arbitrarily convert her foreclosure from non-judicial to judicial. As expected, the judge sided with the bank and dismissed the homeowner’s case without giving her a fair chance to hold the bank to the burden of proving its authority to foreclose.

      When the homeowner came to my office, we got a “second bite at the apple” after the homeowner filed for bankruptcy and challenged the bank’s status as a creditor in bankruptcy. During the bankruptcy proceeding, the bank made the same argument: that Virginia is a non-judicial state, that their filings with the county records pertaining to appointment of substitute trustees and other foreclosure-related documents established a prima facie case of their right to foreclose, and that it had to be the end of the story.

      In response, we explained to the judge that not all challenges to a bank’s right to foreclose are equal. While foreclosure-related filings (even though often blatant and self-serving lies by the bank) may be entitled to some prima facie validity, their validity can successfully be challenged by producing specific evidence contradicting the bank’s filings. In other words, although the bank produced a document stating “I, the bank, am the holder of the note and can enforce the debt,” we also produced specific documents showing that the bank could not in fact have been the holder of the note (and addressing other deficiencies). The crucial distinction here was that we did not just “allege” that the bank was wrong. We produced specific documents showing that the bank’s statement could not have been true, or at least a substantial question existed as to its veracity.

      The judge sided with us and noted in his ruling in open court that (paraphrasing) “while documents such as a deed of appointment and similar filings enjoy some degree of prima facie validity, in this case the homeowner has produced sufficient evidence to at least cast serious doubt upon the validity of such documents.” The judge then admonished the bank’s counsel not to proceed with foreclosure unless the bank’s defective filings were rectified.

      The moral of the story is that, while it may be impossible in a non-judicial state to challenge a foreclosure by merely questioning (through contrary allegations and mere disagreement) the bank’s right to foreclose, it is certainly possible to challenge the bank’s right to foreclose by adducing specific documentary evidence sufficiently contradicting the bank’s prima facie case. Even if your case is as weak as the bank’s, it still may be enough to defeat the initial prima facie validity of the bank’s case and have your day in court, as long as you come forth with more than just bare allegations.

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