Bank of America targeted in new probe by New York Attorney General
Newscast Media NEW YORK, New York — In an effort to to get to the the bottom of the questionable foreclosure practices in the mortgage industry, New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures, two people familiar with the matter said.
Huffington Post reported that Court testimony and independent studies have raised questions over whether banks and other financial firms passed along the required documents to trusts, the independent entities that oversee securities for investors. In some cases where trusts moved to seize borrowers’ homes, judges have determined the trusts lacked legal standing due to faulty documentation. If the legal steps that guide securitization — like taking mortgage documents from one party to another, a critical step under New York law — were not undertaken, then the investors who bought the bundled loans could force the companies to buy them back, compelling them to eat enormous losses.
New York state investigators could also find that those securities aren’t valid financial instruments at all and take action under state law. Huffington Post did not explain what critical steps needed to be undertaken so I’ll attempt to explain the relevant steps below:
New York State Law:
Nearly all the agreements that govern securtized mortgages (Pooling and Servicing Agreements) are governed by the laws of New York state. The agreement has a section specifically stipulates that the trust agreement “shall be governed by and controlled in accordance with the laws of the State of New York…”
When these securitized loans are passed around and sold to different entities, every transaction has to be recorded in the appropriate County Clerk’s office in the county where the property is located. The note also has to be endorsed without recourse from the seller the buyer.
In the securtization process there is the Originator (bank); Sponsor (a shell company) the Seller (another shell company); Master Servicer; Depositor and then the Trustee. The note should be endorsed from Originator to Sponsor to Seller to Master Servicer then to Depositor sequentially, who finally endorses it to the Trustee. In other words a note that is an asset of the trust should have an “unbroken”chain of endorsements from the Sponsor to the Trustee sequentially.
Article II Section 2.01 of every PSA says: Section 2.01 (c)(i)(A) requires that the Depositor deliver the original Mortgage Note endorsed by manual or facsimile signature in blank in the following form:
“Pay to the order of ____________ without recourse,” with All intervening endorsements showing a Complete chain of endorsement from the Originator to the Person endorsing the Mortgage Note (each such endorsement being sufficient to transfer all right, title and interest of the party so endorsing,
as noteholder or assignee thereof, in and to that Mortgage Note…)
Under New York Trust law:
A. Unless an asset is transferred into a lifetime trust, the asset does not become Trust property. (NY Estates, Powers and Trust Law, Section 7-1.18)
B. The assignment of a mortgage without transfer of the underlying promissory note is a nullity. (Merritt v. Bartholick, 36 N.Y 44 (1867); Kluge v. Fugazy, 145 A.D. 2d 537 (1988)).
C. A Trustee’s act that is contrary to the trust agreement is VOID. (New York Estates, Powers and Trusts Law, Section 7-2.4)
In other words the act of a Trustee receiving an instrument that doesn’t have ALL the intervening endorsements showing an “unbroken” chain of endorsements is void. Also the act of a Trustee receiving an instrument where the actors that purchased and sold it are not recorded in Register of Deeds office is void.
Banks have constantly failed to provide notes that have all endorsements and have thus failed to prove standing. Most people do not understand what standing to foreclose means, but under Article III of the United States Constitution, to meet the standing burden, a bank should prove the following:
(i) Injury in fact, (ii) Causation and (iii) Redressability. To have LEGAL standing a party must assert “its own” legal interests as the real party in interest. If a bank cannot prove that the loan became an asset of the Trust, it can never be able to prove standing.
The same Section 2.01(B) stipulates: “As promptly as practicable subsequent to such transfer and assignment, and in any event, within one-hundred and twenty (120) days after such transfer and assignment, the Trustee shall (B) cause such assignment to bein proper form for recording in the appropriate public office for real property records and (C) cause to be delivered for recording in the appropriate public office for real property records the assignments of the Mortgages to the Trustee…”
Broken Chain of Assignments:
So even if the note has the endorsements but the entities that purchased the Note were never recorded at the time of foreclosure, in County Clerk’s office where the property is located, the bank once again cannot meet the standing burden, because an unrecorded assignment creates a broken chain in title, and if you do not know who owns the title, you do not know whom to pay, hence the instrument becomes void.
A Broken Chain of Assignments renders the “Deed of Trust” Void and Unenforceable under UCC 3-201, 3-204 & 3-302 and as such no triggering of the foreclosure clause in the “Deed of Trust” is possible. With regard to real property, before an entity assigned an interest in that property would be entitled to lay claim on the property, their interest therein must have been recorded in accordance to State property laws.
Now this new investigation into whether the securities these companies created are even valid, represents a new front in Schneiderman’s ongoing probe, and raises fresh questions into the potential liability sellers of these mortgage instruments face. http://www.newscastmedia.com/ny-attorneygeneral.html