Below is a collaboration of excerpts from some posts on the subject and at the end is the actual complaint.
Although the this example is based on a single loan in the trust, the trusts usually hold upwards of 5,000 loans.
With that said, if one note was not transferred, it is safe to assume that all notes were not transferred according to the testimony given by the witness.
To further this assumption, according to the testimony given, if this trust did not transfer the notes, how many other trusts followed the same procedures, or lack of there of?
From our experience, when there is one “irregularity”, there are usually two. If there are two, there are thousands…
First from Naked Capitalism…
Countrywide Admits to Not Conveying Notes to Mortgage Securitization Trusts
Testimony in a New Jersey bankruptcy court case provides proof of the scenario we’ve depicted on this blog since September, namely, that subprime originators, starting sometime in the 2004-2005 timeframe, if not earlier, stopped conveying note (the borrower IOU) to mortgage securitization trust as stipulated in the pooling and servicing agreement. Professor Adam Levitin in his testimony before the House Financial Services Committee last week described what the implications would be:
If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever. The chain of title concerns stem from transactions that make assumptions about the resolution of unsettled law. If those legal issues are resolved differently, then there would be a failure of the transfer of mortgages into securitization trusts, which would cloud title to nearly every property in the United States and would create contract rescission/putback liabilities in the trillions of dollars, greatly exceeding the capital of the US’s major financial institutions….
Recently, arguments have been raised in foreclosure litigation about whether the notes and mortgages were in fact properly transferred to the securitization trusts. This is a critical issue because the trust has standing to foreclose if, and only if it is the mortgagee. If the notes and mortgages were not transferred to the trust, then the trust lacks standing to foreclose…
If the notes and mortgages were not properly transferred to the trusts, then the mortgage-backed securities that the investors’ purchased were in fact non-mortgage-backed securities. In such a case, investors would have a claim for the rescission of the MBS, meaning that the securitization would be unwound, with investors receiving back their original payments at par (possibly with interest at the judgment rate). Rescission would mean that the securitization sponsor would have the notes and mortgages on its books, meaning that the losses on the loans would be the securitization sponsor’s, not the MBS investors, and that the securitization sponsor would have to have risk-weighted capital for the mortgages. If this problem exists on a wide-scale, there is not the capital in the financial system to pay for the rescission claims; the rescission claims would be in the trillions of dollars, making the major banking institutions in the United States would be insolvent.
This is significant for two reasons: first, it points to pattern and practice, and not a mere isolated lapse. Second, Countrywide, the largest subprime originator, reported in SEC filings that it securitized 96% of the loans it originated. So this activity cannot be defended by arguing that Countrywide retained notes because it was not on-selling them; the overwhelming majority of its mortgage notes clearly were intended to go to RMBS trusts, but it appears industry participants came to see it as too much bother to adhere to the commitments in their contracts.
From StopForeclosureFraud…
EXPLOSIVE |CASE FILE New Jersey Admissions In Testimony NOTES NEVER SENT to Trusts KEMP v. Countrywide
The new allonge was signed by Sharon Mason, Vice President of Countrywide Home Loans, Inc., in the Bankruptcy Risk Litigation Management Department. Linda DeMartini, a supervisor and operational team leader for the Litigation Management Department for BAC Home Loans Servicing L.P. (“BAC Servicing”V testified that the new allonge was prepared in anticipation of this litigation, and that it was signed several weeks before the trial by Sharon Mason.
As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affIXed to the note. She testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.
From Firedoglake…
Deposition: Countrywide Never Sent Mortgage Notes to Trust; Mortgage-Backed Securities in Question
If the notes never transferred to the trust, there’s no way to retroactively do that now; the trusts are governed by very specific pooling at servicing agreements that for the most part give the trust 90 days to transfer all the required assets. You cannot transfer the loan after it’s slipped into default, 3 or 4 years after setting up the trust. It violates the laws and contracts under which the investors purchased the securities.
This is an enormous deal. If Countrywide never gave up possession of the note, then the trust has no standing to foreclose whatsoever. It also means that investors in the MBS don’t actually have securities backed by mortgages. The “allonge” appears to be an effort to clear up this situation, and it was signed years after the fact, well past the deadline of the pooling and servicing agreement, and not even affixed to the note as required by law.
This is a deposition from one supervisor, but it could mean that all mortgage pools that Countrywide sold are suspect. That would amount to perhaps hundreds of billions of dollars in MBS. And the law appears to be air-tight on this, and not governed by the Constitution but New York trust law and the specifics of the pooling and servicing agreement.
Now, tell me again how the banks are planning to get out of this.
From The Market Ticker…
Countrywide NEVER Transferred Notes
I’ve been on this specific point for more than a year. Why? Because I have had multiple people assert to me who were in a position to factually know that this took place.
It also was the only way for certain “problems” (like writing crap paper) to remain undisclosed to auditors and investors.
Now we have it on the record, in a lawsuit.
Linda DeMartini, a supervisor and operational team leader in B of A’s litigation management department, testified that “the original note never left the possession of Countrywide”… DeMartini “testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents”…
Incidentally, if you think this is all a big nothing because Countrywide was the document custodian, you better read the rest of the case record involved here. This was a bankruptcy case and the claim against the debtor was dismissed.
I believe there is no cure for these issues at this point in time. The following problems are insurmountable:
- Most if not all of the MBS trusts are organized under NY Trust Law. NY Trust Law requires that delivery be made “in as perfect a form as possible.” Intentionally not delivering anything is so far removed from this requirement that it is a near-certainty that the Trusts are in fact legally void.
- IRS REMIC rules require that the trusts contain a static pool of loans, and that they all be in the trust as of the certification date. This is typically 90 days post-closing of the trust (the 90 days is to allow a few late deliveries.) If REMIC rules are not followed the entire trust loses its tax passthrough preference and back taxes are due on the operations of the trust back to the point of violation – in this case, back to the founding. The holders of the certificates could become held financially responsible for these taxes – at the corporate rate.
- The Pooling and Servicing Agreements all contain certifications that the formalities of transfer were complied with, including all intervening assignments and delivery to the Trust. These are not certifications of something to be done prospectively, they are certifications of fact that have allegedly occurred. If in fact no transfers took place then the entire MBS chain is arguably void as there are no mortgages in the securities. This would constitute the largest fraud ever perpetrated upon investors in the history of the world.
- And now, to top it off, we have in formal testimony an admission by Bank of America’s litigation management department, that they have concealed this fact from the public markets. Where is the notification required of a “material adverse event” in the firm’s 8Ks, 10K or 10Qs on this matter? This sort of knowledge certainly has the potential to be “material” (in that the liability would exceed the Bank’s capitalization several times over) and yet we first learn of this in a conclusive fashion in a lawsuit?
Mr. President and Sheila Bair: TAKE THESE BANKS, PARTICULARLY BANK OF AMERICA, INTO RECEIVERSHIP NOW.
This outcome cannot be avoided. We must do this in a form and fashion that is controlled, which means you must do it now, before the vultures get their teeth into these issues. There is no way to retroactively fix this – we’re talking about trillions of dollars here, more than you can print and play with, and there are international concerns that own these MBS as well.
The rule of law must be upheld.
Well, there you have it…
Just technical difficulties, right?
See ya in the trenches…
Full complaint below…
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4closureFraud.org
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John T. Kemp v. Countrywide Home Loans
[…] Last fall, we got hints of the expected-yet-still-shocking revelation via a Countrywide/BoA employee, Linda DeMartini (testimony here), exposed the securities fraud practices in a depo taken during a NJ bankruptcy case,Kemp v Countrywide. […]
BofA has repeatedly failed to provide me access to my original Note. BofA says I have no legal right to ask for such. The truth is that BofA as the Servicer has not followed the Judicial process when claiming ability to foreclose. Still no response to my RESPA QWR. Have you guys heard about the Administrative Process in lieu of filing withthe court? Well, there are entities and professionals (some questionable) who claim ability to serve the banks with an Administrative cliam. This is for the purpose to seek leverage that could translate into substantial principal qnd rate reductions. Do you know of any reputable entity out there that can process an Administrative Claim (REAP) and who charges reasonably for the service? After all, I have already secured perhaps up to 50% of the process already.
Well I guess thats why they never produced the notes in the first place because they don’t have them. So thats why they invented that stupid UCC stuff and everything else-just brillant -now what you have is one big mess that no one can straighen out. I think the real estate market is def going to come to grinding halt.
[…] John T. Kemp v. Countrywide Home Loans – Countrywide NEVER Transferred Notes […]
I love what they say about the Deed of trust and the note. The deed of trust can’t control anything about the note. Matt Weidner got screwed on this point in Taylor v. Deutsche Bank. The 5th DCA Florida used the Deed of trust to prove who is the non-holder with rights to enforce.
5th DCA said…
“It appears, consequently, that the mortgage document, reciting the
explicit agreement of Mr. Taylor, grants to MERS the status of a nonholder in
possession as that position is defined by section 673.3011.”
This is 180 degrees from what the above ruling says…
SM
” I guarantee they are circling the wagons and trying to come up with contingencies/excuses for this.”
Lets go back 3 years and recall the “LOST NOTE” BS. This was the excuse! This was the Head Fake given to the drooling, complacent, incompetent Judge’s that set up the Home run!
The notes & MTG’s were never lost! At all times, the Plantiff knew where the Mtg & Notes were. But even as the Original Notes trickle in under cover of the LOST NOTE, what you have to ask yourself is where did they come from? Who sent them? is the endorsement legitimate ( is it a real person ), a real person?
Never argue a UCC claim.
SM…………you said:
“Even if the notes were endorsed, without DELIVERY the negotiation of the instrument is not completed. Delivery of an endorsed copy, either paper or digital, doesn’t really cut it. Neither does a good intention of delivery. ”
How do you endorse something that does not belong to you??????????? Even in the event you can, how do you explain you had authority to transfer something that did not belong to you??
Most of the FAKE Banks know their busted! SO what they do to circumvent your argument is GET YOU into a UCC argument! WHY………..because the Incompetent Judges already bought this argument hook,line, and sinker for the last 48 months.
This means you loose, unless you smack them across the face with a PSA defense! OR unless you get a DEPO from a higher up that admits ” yea..we never transferred a damn thing ” WHY?? “Because we could, or because we screwed up “.
Get a BANK CLOWN under oath, and they sing like a bird!
UCC 3-201:
(1) “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.
(2) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.
Even if the notes were indorsed, without DELIVERY the negotiation of the instrument is not completed. Delivery of an indorsed copy, either paper or digital, doesn’t really cut it. Neither does a good intention of delivery.
As for the “constructive delivery” idea of Kessler I don’t think that holds water. For instance try getting money from a bank by saying “Well, there is this check made out to someone else, but indorsed to me. I’d like to cash it. I don’t actually have the check, mind you, but I do have this electronic copy of the check. They meant to send it to me but never did.”
Still, it remains to be seen how many originators engaged in this failure to deliver. I guarantee they are circling the wagons and trying to come up with contingencies/excuses for this.
IF the notes/MTG/endorsements never happened which educes a fraudulent transfer ( assignment or no assignment ), its all over!
KESSLER………………………………………the Servicing Company DID KNOW THIS!
The practice of never transferring DOCS to the TRUST has been going on for years! PLAINTIFF Atty’s have known about this for years! the TIP OFF is the “lost note” BS fraud which was designed to hoodwink the judge by the ROBO Attny Plaintiff. The idea being the authoritarian figure ( plaintiff ) tricks the Judge who never thought a officer of the court would perjure himself.
2ndly, while the judge get the head fake on the LOST NOTE, Plaintiff sneaks in the endorsement in blank, and UCC defenses, and the the Original note/Mtg suddenly pop up! ITS THE PERFECT CRIME!!
FACT IS, its illegal to transfer STOLEN PROPERTY that should have been transferred years earlier to the designated Owner makes the NOW endorsement fatally defective.
How can a Burglar possible explain to the court ( the originating entity) WHY THEY HAVE BEEN SITTING ON NOTES & MTGS for the last 36 months after the TRUST is CLOSED??
3rdly, eve if the JUDGE does allow the transfer, the argument turns to AUTHORITY! if you look in ANY PSA, there is no provision for NOT TRANSFERRING the DOCS!! ( Unless they are Stolen ).
Here’s what’s screwing with my brain. If the notes are negotiated to the trust the certificates are “purchased”. It’s no different than buying a raffle ticket with Federal Reserve Notes except these are the notes of numerous different makers.
The messed up thing here is the Depositor never “paid” for the certificates if the note wasn’t transferred.
I think people are missing the point is notes are money not chattel property.
If the Depositor never conveyed the note, then the Trustee never received the note and the Servicer should have been aware of this. Both are also liable. In addition, this constitutes flagrant non-compliance with REMIC requirements providing the foundation of a claim for wrongful nonpayment of taxes. Moreover, if the Depositor owned the note, the certificate holders were never legally entitled to receive monthly payments of mortgage proceeds from the trust.
Ah but there, there is the rub for those who want to use this practice to defend against foreclosure. If everyone acted as if the mortgage note belonged to the trust and paid the certificate holders, one may argue that there has been “constructive delivery”. Moreover delivery may have been accomplished electronically with the note being held in a house account at the Depositor for the benefit of the mortgage backed securities trust which owned it.
If the certificate holders have a right to rescind, does that mean that all payments received by a certificate holder are a credit against the amount to be refunded to the certificate holder?