Posted on 06/10/2011 12:41:30 PM PDT by Palter
“Failure to strictly comply with the terms of the PSA means that the loan at issue was never properly transferred to the trust”
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Not only did the Honorable Archie C. Brown destroy MERS, he discusses the PSA and securitzation failures in great detail…
From the ruling…
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The contention that the contract between MERS and First Franklin provided MERS with an ownership interest in the note, as the court in RFC held, stretches the concept of legal ownership past the breaking point. The Legislature used the word “owner” because it meant to invoke a legal or equitable right of ownership. Viewed in that context, although MERS owns the mortgage, it owns neither the debt nor an interest in any portion of the debt, and is not a secondary beneficiary of the payment of the debt.
Plaintiffs in RFC also argued that MERS had the authority to foreclose by advertisement as the agent or nominee for the Lender, who held the note and an equitable interest in the mortgage. The court in RFC disagreed, holding that it failed under the statute because the statute explicitly requires that, in order to foreclose by advertisement, the foreclosing party must possess an interest in the indebtedness. MCL 600.3204(1)(d). Thus, the Legislature’s choice to permit only servicing agents and not all agents to foreclose by advertisement must be given effect.
The court in RFC opined that the separation of the note from the mortgage in order to speed the sale of mortgage debt without having to deal with all the “paper work” of mortgage transfers appears to be the sale reason for MERS’ existence. The flip side of separating the note from the mortgage is that it can slow the mechanism of foreclosure by requiring judicial action rather than allowing foreclosure by advertisement. To the degree there were expediencies and potential economic benefits in separating the mortgagee from the noteholder so as to speed the sale of mortgage-based debt, those lenders that participated were entitled to reap those benefits. However, it is no less true that, to the degree that this separation created risks and potential costs, those same lenders must be responsible for absorbing the costs.
Defendants argue that RFC is not on point because First Franklin pooled and transferred its interest in the loan, the Mortgage and Note, into a securitized trust over which USB became the trustee. First Franklin endorsed the Note to the order of First Franklin Financial Corporation, which thereafter endorsed the Note in blank, transferring it to USB and or USB’s agents; Exhibit A to Plaintiff s Brief.
Defendants further argue that MERS, as First Franklin’s nominee, drafted a recordable Assignment of Mortgage assigning the Mortgage together with the Note and all other obligations secured by said Mortgage to USB, as trustee, dated December 17,2009.
Defendants conclude by stating that on December 30,2009, the Assignment was recorded in the Washtenaw County Register of Deeds, and therefore, as a result of all of these actions, USB was the record owner of both the Mortgage and the Note in advance of any foreclosure.
Plaintiff’s in response, request that this Court declare that USB, successor to the trustee First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Securities, Series 2006-FF18 has no interest in the mortgage loan that is the subject matter of this action and cannot foreclose, judicially or otherwise, that loan. Plaintiffs’ contend that USB never actually received ownership of the Plaintiffs’ mortgage loan because the loan was not ever properly transferred to USB according to the terns of the First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Certificates, Series 2006-FF18′s Pooling and Service Agreement (“PSA”), and the assignments that occurred in this case did not follow the law of trusts in the State of New York to validly transfer the trust to USB. The Court was provided a copy of the PSA at an earlier hearing for its review. The Court finds, upon reviewing the PSA, that the trust was created on December 1, 2006 and had a closing date of December 28, 2006. PSA pages 36-37. The closing date establishes when the trust assets musts be transferred to the trust.
Merrill Lynch Mortgage Investors, Inc., is the depositor. PSA p. 38. Pursuant to Section 2.01(A), the depositor has to deliver the mortgage loan to the trustee, in this case USB. Plaintiff contends that there should be an endorsement from First Franklin Financial Corp to Merrill Lynch, and an endorsement from Merrily Lynch to the trustee (originally LaSalle Bank National Association) or, at least an endorsement in blank by Merrill Lynch. The Court finds that there is only an endorsement from First Franklin, a division of National City Bank, to First Franklin Financial Corp, then an endorsement by First Franklin Financial Corp in blank. Plaintiffs’ Exhibit B. PSA Sec. 201(A) requires that the Mortgage Note shall include all intervening endorsements showing a complete chain of title. Plaintiffs’ Exhibit A. Since the Note never passed to Merrill Lynch the trust could not have validly received it.
PSA Sec. 201(E) requires the depositor to deliver originals of any intervening assignments of the Mortgage,with evidence of recording thereon. Plaintiffs’ Exhibit A. The record before the Court is that the only assignment of the mortgage that was recorded was the assignment from MERS to USB, as trustee. Plaintiffs’ Exhibit C. However it is clear from the record that the mortgage note was actually transferred from the originator ofthe loan, First Franklin, a division of National City Bank, to First Franklin Financial Corp. The Court finds that the transfer of the mortgage note from First Franklin to First Franklin Financial Corp also transferredthe underlying mortgage. However, this transfer was never reduced to a mortgage assignment that was recorded with the Washtenaw County Register of Deeds, presumably because MERS purportedly held legal title to the mortgage itself but had nothing to do with this particular transfer. The Court further finds that PSA Sec. 201(E) was not complied with because the transfer from First Franklin to First Franklin Financial Corp. was’ never recorded.
Defendants’ failure to strictly comply with the terms of the PSA means that the loan at issue was never properly transferred to the trust. Any transfer of mortgage loans, such as Plaintiffs, was mandated to comply with New York Trust law and the terms and conditions of the PSA governing conveyance of mortgage loans into the Trust. PSA pp 155 and 36. This the Defendants did not do.
The Court finds that the “Assignment”, recorded on December 30, 2009 in the Washtenaw County Register of Deeds, serves to transfer nothing. The alleged conveyance failed to comply with the terms and conditions of the PSA and New York Trust law which governs the PSA. The alleged conveyance stated that MERS assigned the Mortgage and Promissory Note to USB, however, there has been no evidence presented to support the chain of the required assignments and endorsements of the mortgage and note as required by the terms and conditions of the PSA.
Other than First Franklin, a division of National City Bank, none of the Defendants owned the indebtedness, owned an interest in the indebtedness secured by the mortgage, or serviced the mortgage.
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So there you have it folks. I believe this is the second ruling of its kind with the first coming out of Alabama…
We might have something here that may be catching on…
Full opinion below…
You are clueless.
So anything involving MERS is null and void?
Even an insanely booming home market would not have been able to hide the problem, however. There would still be tragic situations (such as the unexpected death of a mortgage paying home owner who had no death benefit insurance and no heirs to try to take care of the mortgage by selling the house) in which the purported MERS assigns of the mortgage would attempt to foreclose, only to find as here that they could not. Can you imagine what this would look like on a title if they did it right... a million owners or however many shares the mortgage got divided into?
THAT is the other thing I’ve been saying for the last umpteen months too. As this charlie-foxtrot mushrooms, there will be an increased cost and drag on buying foreclosed properties to quiet the title.
I, as an investor, won’t buy foreclosed properties now, because most all of them have MERS on the title at some point, and I don’t feel like paying thousands to a lawyer on every house I’d buy just to clear the title. Real estate valuations are deteriorating badly enough as it is without adding the expense and hassle of quieting the title.
If there never was a serious intention to honor the civil contract, then yes we have crime.
Except that’s not why the courts are doing it, they’re doing it as a loophole to let people who don’t pay their mortgage keep their homes.
I’m not debating that there is a problem here with the way these transfers are done.
I’m simply asking in an age of economic turmoil what it will ACCOMPLISH. The RESULT of applying this carte blanche would be CHAOS.
Why not just declare every mortgage using MERS null and void, then all of us whose money will be lost in the resultant banking collapse will at least have a free and clear house to contend with?
It still might make sense to purchase distressed homes if you’re a prospective landlord. I hear rentals are doing quite well.
Again, what does this do to normal people with jobs, homes mortgages, money in the bank, and, oh, JOBS?
If applied ot every mortgage that uses MERS...here’s what happens:
-70% of mortgages are wiped clean
-nobody can get a new mortgage
-while home values plummet, few people have a loan so that’s a wash
-100 million more people lose their jobs as the entire system collapses
My son’s grandkids might live in a reasonably upward society someday. The rest of us are doomed 10 times worse than we were already.
How many first- or second-payment defaults are there with mortgages? A statistically insignificant number I’d be willing to wager. Those who DO take out mortgages with an intent to defraud the lender should be charged criminally.
That said.....comparing a struggling homeowner, (even if he or she bit off more than they could chew), who defaults on a mortgage with what these conniving and finagling banksters have done is just plain wrong.
The mortgage passes through MERS, but does the title?
It is interesting that the Judge left standing First Franklin as the owner of the mortgage but First Franklin won’t be able to produce the note to lien on or if First Franklin does produce a note without investors names on it, then they (First Franklin) will be open to other lawsuits because they sold and were paid for selling the mortgage already. Fascinating.
As far as contract law goes, this decision is written in as plain english as possible from a layman’s reading.
It’s not the home buyers fault wall street screwed up the paperwork while trying to make a fast buck.
The modern English word “canard” meaning “lie” came from an old Canadian French proverb which translates “to half sell a duck,” the Canadian French word for “duck” being “canard.”
Instead of ducks being half sold, now houses are.
The law was never intended to cover half-sold houses.
Perhaps the originating lender should be forced to re-eat their mortgage and then take their chances with a foreclosure if the home occupant will not pay.
And the biggest “deadbeats” are the lowlife bankers who created money from nothing to loan it out at interest.
I’m talking about the originating bank’s transactions. If they attempt to sell their mortgage in a legally non kosher manner, and do it a lot, and have reason to know it is not kosher, this would be crime on their part. Not the home owner’s part.
That sounds pretty reasonable...although half of them are out of business.
That’s true... but the instances would have not been enough to start causing investor heads to pop up and say “Whaaaa?” If the housing market had remained stable, these kinds of cases would have made for interesting bedtime reading for property lawyers and mortgage geeks.
NOW, however, with so many homes being underwater, so many people being out of work on a long-term basis with no sign of improvement in people’s ability to service debt... these cases are literally cracking open the doors to hell for mortgage finance companies. They’re realizing (too late) that they forged a petard most stoutly, and now “the little people” intend to hoist them upon it.
As to millions of owners: No. When this is done properly, you don’t see a bunch of owners on the deed or trust recording. You see a trust company or banks running the trust as the lienholder or trustee. RMBS have been sold in the US for decades now. There have been pools of mortgages for decades too. What failed here was the idea that some idiot could create a computerized mousetrap that could adhere to the real estate law of all 50 states, hide the transfers from the county clerks, and still be upheld in court.
It means free homes for all!
No really, it means that when the bank sold their mortgage they did not comply with the law. That makes the sale of the mortgage improper, and the people who foreclosed cannot foreclose because they do not hold the proper lien.
How this plays out in the end, who knows. I suppose if the sale of the mortgage was improper, than the original mortgage holder still holds the rights to foreclose and I suppose ultimately they just unwind these transactions and then foreclose.
BUT the larger issues are things like, can you ever get clear title to your home? You work and pay for 30 years only to find out that the paper trail is so complex that you cannot actually ever own your home and land free and clear, because there is nobody with the ability/authority/assurance to say that you complied with all the terms.
Congress will have to intervene at some point, I think. How and in what way I dunno. Over my head beyond the rudimentary level.
I am not at all disagreeing with the rule of law part of this...so don’t misunderstand me.
My problem with the whole thing is how it will be used, it will be used as yet another way to get people who never should have bought a house, a free house.
Meanwhile, the rest of us will suffer from the fallout created by this next part of the whole mess.
Then, oh joy, I guess it goes to Uncle Sam. Or whoever ate that bank’s losses when it went under.
Bingo, we have a winner.
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