Source: http://mariokenny.me/2012/04/01/ace-securities-trust-is-a-new-york-common-law-trust-governed-by-new-york-law-based-on-its-trust-agreement/
Timestamp: 2013-05-24 19:03:45
Document Index: 469873875

Matched Legal Cases: ['§ 186', '§ 186', '§140', '§ 7', '§2', '§ 3440', '§ 9313', '§ 2872', '§ 1', '§ 2936', '§ 3440', '§ 9313', '§ 37']

Ace securities trust Is A New York Common Law Trust Governed By New York Law Based On Its Trust Agreement. | Mario Kenny ™
← DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR THE REGISTERED HOLDERS OF GSAMP TRUST 2005-SEA1 , MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-SEA1,
DEFENDANT MOTION COURT FOR ENFORCEMENT OF ARTICLE III OF THE US CONSTITUTION DEFENDANT MOTION COURT TO AJUDICATE CASE IN ARTICLE III COURT DEFENDANT MOTION COURT TO DENY PLAINTIFF INTENTION TO ASK THE COURT TO REMAND CASE TO CIVIL COURT VIOLATION OF DEFENDANT AMENDMENT XIV RIGHTS →
Ace securities trust Is A New York Common Law Trust Governed By New York Law Based On Its Trust Agreement.
PSA INDEX and suggestion file
THE DEFENDANT TRUST HAS NO STANDING TO FORECLOSE BECAUSE
THERE HAS BEEN NO VALID ENFORCEABLE ASSIGNMENT TO THE TRUSTEE
OF THE TRUST Ace securities trust Is A New York Common Law Trust Governed By New York
Law Based On Its Trust Agreement. HSBC BANK, USA, National Association, as Trustee, under the Pooling and Servicing Agreement dated August 1, 2006, ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates”), HSBC is not the originator of the mortgage, the servicer, or even a bank. This entity is a New York common law trust created by an agreement known as “Pooling and Service Agreement.” Allegedly, the homeowner`s home loan, along with other loans, were pooled into a trust and converted into mortgage-backed securities (“MBS”) that can be bought and sold by investors — a process known as securitization. The underlying promissory notes of each and every mortgage held by the Trust serve as generate a potential income stream for investors. The Trust allegedly holding the Plaintiff’s note was created on or about August 1st, 2006, and is identified as “HSBC BANK, USA, National Association, as Trustee, under the Pooling and Servicing Agreement dated August 1, 2006, ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates”. The Trust, by its terms, set a “closing date” of August 25, 2006 The terms of the Trust are contained in the Pooling and Servicing Agreement (“PSA” or the “Trust agreement”), which is an approximately 400-page document that creates the Trust and defines the rights, duties and obligations of the parties to the Trust Agreement. The PSA is filed under oath with the Securities and Exchange Commission. The PSA also incorporates by reference a separate document called the Mortgage Loan Purchase Agreement (“MLPA”). These various documents, and hence the acquisition of The Trust, being sued through its trustee, is a New York Corporate Trust formed to act as a “REMIC” trust (defined below) pursuant to the U.S. Internal Revenue Code (“IRC”). Pursuant to the terms of the Trust and the applicable Internal Revenue Service (“IRS”) regulations adopted and incorporated into the terms of the Trust, the “closing date” of the Trust (August 25, 2006) is also the “Startup Day” for the Trust under the REMIC provisions of the IRC. The Startup Day is significant because the IRC ties the limitations upon which a REMIC trust may be receive its assets to this date. The relevant portion of the IRC addressing the definition of a REMIC is: the mortgage assets for the Trust, are governed under the law of the State of New York pursuant to section 11.03 of the PSA . It is settled that the duties and powers of a trustee are defined by the terms of the trust agreement and are tempered only by the fiduciary obligation of loyalty to the beneficiaries (see, United States Trust Co. v First Nat’l City Bank, 57 A.D.2d 285, 295-296, aff’d 45 NY2d 869; Restatement [Second] of Trusts § 186, comments a, d). See In re IBJ Schroder Bank & Trust Co., 271 A.D.2d 322 (N.Y. App. Div. 1st Dep’t 2000)
REMIC after the startup day, there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is received equal to 100 percent of the amount of such contribution.”
26 U.S.C. 860G(d)(2) states:
(2) Exceptions. Paragraph (1) shall not apply to any contribution which is made in cash and is described in any of the following subparagraphs: (A) Any contribution to facilitate a clean-up call (as defined in regulations) or a
qualified liquidation.
(D) Any contribution to a qualified reserve fund by any holder of a residual
interest in the REMIC.
(E) Any other contribution permitted in regulations. The PSA (primarily in section 9.12) addresses these sections of the IRC by obliging the
and/or impose any tax upon the Trust for prohibited contributions or prohibited transactions. These PSA provisions are important to the analysis of the facts in this case because of the
interplay between the New York trust law, the IRC’s REMIC provisions, and the PSA’s incorporation of the IRC REMIC provisions. The Trust Instrument/PSA Sets Forth A Specific Time, Method And Manner Of REMIC after the startup day, there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is received equal to 100 percent of the amount of such contribution.” 26 U.S.C. 860G(d)(2) states:
(2) Exceptions. Paragraph (1) shall not apply to any contribution which is made in cash and is described in any of the following subparagraphs:
(E) Any other contribution permitted in regulations. The PSA (primarily in section 9.12) addresses these sections of the IRC by obliging the parties to the Trust to avoid any action which might jeopardize the tax status of any REMIC and/or impose any tax upon the Trust for prohibited contributions or prohibited transactions. These PSA provisions are important to the analysis of the facts because of the interplay between the New York trust law, the IRC’s REMIC provisions, and the PSA’s incorporation of the IRC REMIC provisions. The Trust Instrument/PSA Sets Forth A Specific Time, Method And Manner Of The IRC also provides definitions of prohibited transactions and prohibited contributions which are relevant to this case as well. In the context of this case, the relevant statute is the definition of prohibited contributions which is as follows:
26 U.S.C. 860G(d)(1) states:
Except as provided in section 860G(d)(2), “if any amount is contributed to a Funding The Trust
The Trust seeking to foreclose on the Plaintiff has included in the terms of its Trust agreement (the PSA) a specific time, method and manner of funding the Trust with its assets.
The most critical time is the Trust’s closing date, August 25, 2006. According to the terms of the PSA, all of the assets of the Trust were to be transferred to the Trust on or before the closing date. This requirement is to ensure that the Trust will receive REMIC status and thus be exempt from federal income taxation. Section 2.02(a) of the PSA provides for a window of 90 days after the Trust closing date in which the Trust may complete any missing paperwork or finalize any documents necessary to complete the transfers of assets from the depositor to the Trust.
THE TRUST AGREEMENT PROVIDES THE ONLY MANNER IN WHICH ASSETS
MAY BE PROPERLY TRANSFERRED TO THE TRUST AND ANY ACT IN
CONTRAVENTION OF THE TRUST AGREEMENT IS VOID Thus, for an asset to become an asset of the Trust it must have been transferred to the
Trust within the time set forth in the PSA. The additional 90 days in the timeline requirement is incorporated from the REMIC provisions of the IRC to provide a “clean-up period” for a REMIC to complete the documents associated with the transfers of assets to a REMIC after the startup day (which is also the Trust closing date).
Therefore, according to the plain terms of the Trust agreement in this case, the closing date/startup date was August 1 2006 and the last day for transfer of assets into the Trust was August 25 2006.
Transfer of Assets to the Trust Pursuant to the Trust Instrument/PSA There are several methods by which the underlying assets of the Trust, specifically the individual promissory notes, might be transferred or conveyed. A trust’s ability to transact is restricted to the actions authorized by its trust documents. Here, the Trust documents permit only one specific method of transfer to the Trust. That method is set forth in Section 2.01 of the PSA:
http://www.secinfo.com/d12TC3.v1c4t.d.htm This date is defined in the Trust instrument at page 25 of 397 in exhibit 1. This requirement is found at Section 2.01
Pursuant to the Mortgage Loan Purchase Agreement, each Seller sold, transferred, assigned, set over and otherwise conveyed to the Depositor, without recourse, all the right, title and interest of such Seller in and to the assets sold by it in the Trust Fund…. In connection with such sale, the Depositor has delivered to, and deposited with, the Trustee or the Custodian, as its agent, the following documents or instruments with respect to each Mortgage Loan so assigned: (i) the original Mortgage Note, including any riders thereto, endorsed without recourse (A) in blank or to the order of “HSBC BANK, USA, National Association, as Trustee, under the Pooling and Servicing Agreement dated August 1, 2006, ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates,”or (B) in the case of a loan registered on the MERS system, in blank, and in each case showing an unbroken chain of endorsements from the original payee thereof to the Person endorsing it to the Trustee, The analysis of this transfer language requires that you consider each part. In the second
paragraph of the language in the Trust Agreement, the first statement is one of transfer, stating
“the Depositor has delivered to and deposited with the Trustee or the Custodian the following
documents”. The key document is the original mortgage note, which requires mandatory endorsements found in this language: “the original mortgage note….endorsed without recourse” followed by two alternatives which are phrased in the either/or format. The first labeled “A” states “in blank or to the order of “HSBC BANK, USA, National Association, as Trustee, under the Pooling and Servicing Agreement dated August 1, 2006, ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates.” The second possibility stated in “B” provides as the “or” proposition for transfer the following statement “in the case of a loan registered on the MERS system, in blank…” In each case, the affirmative language of the Trust agreement places a burden on the depositor to make a valid legal transfer in the terms required by the Trust instrument. The key language in the entire paragraph is the final statement trailing the “either/or” language of A & B which reads: “and in each case showing an unbroken chain of endorsements from the original payee thereof to the Person endorsing it to the Trustee”. A requirement of an unbroken chain of endorsements is the requirement of certification of the final contents of the collateral file for the benefit of the Trust. This requirement is found at Exhibit 1 to the MLPA (Mortgage Loan Purchase Agreement), which is an attachment to and incorporated as a part of the PSA in Section 2.01. With respect to each Mortgage Loan, the Mortgage File shall include each of the
following items, which shall be available for inspection by the Purchaser or its
designee, and which shall be delivered to the Purchaser or its designee pursuant to
the terms of this Agreement.(a) The original Mortgage Note, including any riders thereto, endorsed without recourse to the order of “HSBC BANK, USA, National Association, as Trustee, under the Pooling and Servicing Agreement dated August 1, 2006, ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates,”and showing to the extent available to the related Mortgage Loan Seller an unbroken chain of endorsements from the original payee thereof to the Person endorsing it to the Trustee; The foregoing requirement demonstrates clearly that while the parties to the securitization made
there were two requirements that were mandatory. First, all notes sold to the Trust were required to have an unbroken chain of endorsements from the original payee to the person endorsing it to the Trustee. This requirement stems from a particular business concern in securitization, namely to evidence that there was in fact a “true sale” of the securitized assets and that they are in no way still property of the originator, sponsor, or depositor, and thus not subject to the claims of creditors of the originator, sponsor, or depositor. Second, there was a requirement that ultimately, within 90 days of the Trust closing date,
the actual promissory note must be endorsed over to the trustee for the specific trust to
effectively transfer the asset into the trust and therefore make the NAME promissory note Trust property. This requirement finds support in logic and law and is, in fact, the ancient and settled law of New York on this issue. New York Law Governs The Mandatory Requirements To Effectively Transfer an Asset To A Trust It is not contested that securitization trusts, such as HSBC, are subject to the common law of New York. Conveyed to it, that –that the –that they will have the right to establish their ownership as investors in that collateral. Second, there was a requirement that ultimately, within 90 days of the Trust closing date,
effectively transfer the asset into the trust and therefore make the NAME promissory note Trust property. This requirement finds support in logic and law and is, in fact, the ancient and settled law of New York on this issue. New York Law Governs The Mandatory Requirements To Effectively Transfer An Asset To A Trust It is not contested that securitization trusts, such as the defendant, are subject to the common law of New York. New York’s trust law is ancient and settled. There are a few principles of New York Trust law that are particularly important to the analysis of whether any particular asset is an asset of a given trust. Under New York law, the analysis of whether an asset is trust property is determined under the law of gifts. order to have a valid inter vivos gift, there must be a delivery of the gift (either by a In
As early as 1935, in Burgoyne v. James, 282 N.Y.S. 18, 21 (1935), the New York Supreme Court recognized that
business trusts, also known as ““Massachusetts trusts”,”are deemed to be common law trusts. See also In re Estate
of Plotkin, 290 N.Y.S.2d 46, 49 (N.Y. Sur. 1968) (characterizing common stock trust funds as ““common law
trust[s]””). Other jurisdictions are in accord. See, e.g., Mayfield v. First ’Nat’l Bank of Chattanooga, 137 F.2d 1013
(6th Cir. 1943) (applying common law trust principles to a pool of mortgage participation certificate holders).
““In the case of a trust where there is a trustee other than the grantor, transfer will be governed by the existing rules
as to intent and delivery (the elements of a gift)””In re Becker, 2004 N.Y. Slip Op. 51773U, 4 (N.Y. Sur. Ct. 2004). physical delivery of the subject of the gift) or a constructive or symbolic delivery (such
as by an instrument of gift) sufficient to divest the donor of dominion and control over the property and “what is sufficient to constitute delivery ‘must be tailored to suit the circumstances of the case’”. The delivery rule requires that “‘[the] delivery necessary to consummate a gift must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonably permit.’” “Under New York law there are four essential elements of a valid trust of personal property:
(3) a fund or other property sufficiently designated or identified to enable title thereto to pass to the trustee; and (4) the actual delivery of the fund or other property, or of a legal assignment thereof to the trustee, with the intention of passing legal title thereto to him as trustee.” There is no trust under the common law until there is a valid delivery of the asset in question to the Trust.
(see, Matter of Szabo, 10 N.Y.2d 94, 98-99, supra; Speelman v Pascal, 10 N.Y.2d 313, 318-320, supra; Beaver v.
Beaver, 117 N.Y. 421, 428-429, supra; Matter of Cohn, 187 App. Div. 392, 395) as cited in Gruen v. Gruen, 68 If the trust fails to acquire the N.Y.2d 48, 56 (N.Y. 1986).
10(Matter of Szabo, supra, at p. 98). 11 (id.; Vincent v Rix, 248 N.Y. 76, 83; Matter of Van Alstyne, supra, at p 309; see, Beaver v. Beaver, supra, at p 428) as cited in Gruen v. Gruen, 68 N.Y.2d 48, 56-57 (N.Y. 1986) . 12 Brown v. Spohr, 180 N.Y. 201, 209-210 (N.Y. 1904).13 Until the delivery to the trustee is performed by the settlor, or until the securities are definitely ascertained by the declaration of the settlor, when he himself is the trustee, no rights of the beneficiary in a trust created without consideration arise (cf. Riegel v. Central Hanover Bank & Trust Co., 266 App. Div. 586; Matter of Gurlitz [Lynde], 105 Misc 30, aff’d 190 App. Div. 907, supra; Marx v. Marx, 5 Misc 2d 42) as cited in Sussman v. Sussman, 61 A.D.2d 838 (N.Y. App. Div. 2d Dep’t 1978). and Trusts Law (EPTL) section 7-2.1(c) authorizes investment trusts to acquire real or personal property “in the name of the trust as such name is designated in the instrument creating said trust.” Further, the actual contracts of the parties, which include the custodial agreements, the mortgage loan purchase agreements, and the trust instrument known as the “pooling and servicing agreement,” prescribe a very specific method of transfer of the notes and mortgages to the Trust. Because the method of transfer is set forth in the Trust instrument, it is not subject to any variance or exception and Trusts Law (EPTL) section 7-2.1(c) authorizes investment trusts to acquire real or personal property “in the name of the trust as such name is designated in the instrument creating said trust.” The actual contracts of the parties, which include the custodial agreements, the mortgage loan purchase agreements, and the trust instrument known as the “pooling and servicing agreement,” prescribe a very specific method of transfer of the notes and mortgages to the Trust. Because the method of transfer is set forth in the Trust instrument, it is not subject to any variance or exception.
14 In an action against the individual defendant as trustee, based on the theory of breach of fiduciary obligation, the The Trust documents require that the promissory notes and mortgages be transferred to the Trustee, which under New York trust law requires valid delivery. The question then arises — “What constitutes valid delivery to the Trustee?” property,then there is no trust over that property which may be enforced.14 An attempt to convey to a trust will fail if there is no designated beneficiary in the conveyance.In the context of mortgage-backed securitization, it is clear that registration of the notes and mortgages in the name of the trustee for the trust is necessary for effective transfer to the trust. Within the Statutes of New York governing Trusts, Estates Powers complaint was properly dismissed on the ground that he had acquired no title or separate control of the goods and, hence, there was no actual trust over the property to breach. Kermani v. Liberty Mut. Ins. Co., 4 A.D.2d 603 (N.Y. App. Div. 3d Dep’t 1957). Wells Fargo Bank v. Farmer, 2008 N.Y. Misc Lexis 3248. Courts may neither ignore the actual provisions of transaction documents nor create contractual remedies that were omitted from the governing contracts by the contracting parties. See Schmidt v. Magnetic Head Corp., 468 N.Y.S.2d
649, 654 (N.Y. App.Div. 1983) (““It is fundamental that courts enforce contracts and do not rewrite them . . . An obligation undertaken by one of the parties that is intended as a promise . . . should be expressed as such, and not left to mplication.”” (citations omitted)); Morlee Sales Corp. v. Manufacturers Trust Co., 172 N.E.2d 280, 282 (N.Y.1961) (““[T]he courts may not by construction add or excise terms . . . and thereby ‘make a new contract for the parties under the guise of nterpret[ation].’““ (quoting Heller v. Pope, 250 N.E. 881, 882 (N.Y. 1928)) When the requirements of transfer to the trustee are viewed in the context of the corporate or business trust indenture, more information about compliance with these requirements becomes apparent. One must first understand that “[t]he corporate trustee has very little in common with the ordinary trustee . . . .
The trustee under a corporate indenture . . . has his [or her] rights and duties
defined, not by the fiduciary relationship, but exclusively by the terms of the
agreement. His [or her] status is more that of a trustee.” “[a]n indenture trustee is unlike the ordinary trustee. In contrast, some cases have confined the duties of the indenture trustee to those set forth in the indenture.” The obligations are defined by the terms of the indenture agreement. It is settled that the duties and powers of a trustee are defined by the terms of the trust agreement and are beneficiaries”, and must take delivery in strict compliance with the terms of the PSA/Trust document. Further, given that New York Estates Powers and Trusts Law section 7-2.1(c) authorizes a trustee to acquire property “in the name of the trust as such name is designated in the a stakeholder than one of The indenture trustee, “[i]t is tempered only by the fiduciary obligation of loyalty to the clear import of these cases and statutes is that the delivery of an asset to a trustee under the terms of a corporate indenture requires strict compliance with the mandatory transfer terms of the trust indenture. AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 2008 N.Y. Slip Op. 5766, 7 (N.Y. 2008) 18Green v. Title Guarantee & Trust Co., 223 A.D. 12, 227 N.Y.S. 252 (1st Dept.), aff’d, 248 N.Y. 627 (1928); Hazzard v. Chase National Bank, 159 Misc. 57, 287 N.Y.S. 541 (Sup. Ct. 1936), aff’d, 257 A.D. 950, 14 N.Y.S.2d 147 (1st Dept.), aff’d, 282 N.Y. 652, cert. denied, 311 U.S. 708 (1940). See Meckel v. Continental Resources, 758 F.2d 811, 816 (2d Cir. 1985) as cited in Ambac Indem. Corp. v.
Bankers Trust Co., 151 Misc. 2d 334, 336 (N.Y. Sup. Ct. 1991).20see, United States Trust Co. v First Nat’l City Bank, 57 A.D.2d 285, 295-296, aff’d 45 NY2d 869; Restatement [Second] of Trusts § 186, comments a, d) as cited in In re IBJ Schroder Bank & Trust Co., 271 A.D.2d 322 (N.Y. App. Div. 1st Dep’t 2000). The property must be registered in the name of the trustee for the particular trust. Trust property cannot be, held with incomplete endorsements and assignments that do not indicate that the property is held in trust by a trustee for a specific beneficiary trust. It is clear in the law of New York that an attempt to transfer to a trust which fails to specify both a trustee and a beneficiary is ineffective as a conveyance to the Trust. “The failure to name a beneficiary for the Trustee renders the assignment without merit.
“This position is further supported logically in the common law of New York by the following propositions: (2) The delivery necessary to consummate a gift must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonably permit; there must be a change of dominion and ownership; intention or mere words cannot supply the place of an actual surrender of control and authority over the thing intended to be given. “It is the consummation of the donor’s intent to give that completes the transaction. Intention alone, no matter how fully established, is of no avail”.
Wells Fargo Bank, N.A. v. Farmer, 2008 NY Slip Op 51133U, 6 (N.Y. Sup. Ct. 2008)
22(cf. Riegel v. Central Hanover Bank & Trust Co., 266 App. Div. 586; Matter of Gurlitz [Lynde], 105 Misc. 30, aff’d 190 App. Div. 907, supra; Marx v. Marx, 5 Misc 2d 42) as cited in Sussman v. Sussman, 61 A.D.2d 838 (N.Y. App. Div. 2d Dep’t 1978).
23Vincent v. Putnam, 248 N.Y. 76, 82-84 (N.Y. 1928). Without the consummated act of delivery. How could one logically argue that delivering a promissory note endorsed in blank (making it bearer paper) into a trustee’s vault is “delivery beyond the authority and control of the donor” when the vault is managed by the agent of the donor? If the donor were to claim that the promissory note “If the donor delivers the property to the third person simply for the purpose of his delivering it to the donee as the agent of the donor, the gift is not complete until the property has actually been delivered to the donee. Such a delivery is not absolute, for the ordinary principle of agency applies, by which the donor can revoke the authority of the agent, and resume possession of the property, at any time before the authority is executed.”” were its property, not the trustee’s, there would be no evidentiary basis for the trustee to claim ownership. Accordingly, New York law expressly requires that for property to be validly delivered to a trust, the property must pass completely out of the control of the donor (and its agents): Another case addressing this issue holds that “In order that delivery to a third person shall be effective, he must be the agent of the donee. Delivery to an agent of the donor is ineffective, as the agency could be terminated before delivery to the intended donee.”Trustees for securitizations often occupy many roles simultaneously and conflictingly both as document custodians and trustees for myriad thousands of securitizations as well as for various parties who are active in the securitization process including originators, servicers, sponsors and depositors. Accordingly, it is inconceivable that anything other than registration into “the name of the trust as such Phillippsen v. Emigrant Indus.Sav. Bank, 86 N.Y.S.2d 133, 137-138 (N.Y. Sup. Ct. 1948). (Beaver v. Beaver, supra, 117 N.Y. 421, 428, 22 N.E. 940, 941, 6 L.R.A. 403, 15 Am.St.Rep. 531). 25 (See, also, Grant Trust & Savings Co. v. Tucker, 49 Ind. App. 345; Furenes v. Eide, 109 Ia. 511; Dickeschied v. Exchange Bank, 28 W. Va. 340; Love v. Francis, 63 Mich. 181; [**428] Merchant v. Building Co. [***15] , 17 Ohio Circuit Ct. 190.)26 In re Nat’l Commer. Bank & Trust Co., 257 A.D. 868, 869-870 (N.Y. App. Div. 3d Dep’t 1939) citing Vincent v. Rix, supra v. Rix, supra; Bump v. Pratt, 84 Hun, 201.
name is designated in the instrument creating said trust property” could ever qualify as delivery to any particular securitization trust. Absent such registration, there would be nothing that would indicate which of thousands of trusts in the care of a trustee a particular promissory note might belong to or if it were the personal property of the This point was recently slammed home to the public consciousness in a watershed decision out of the State of Massachusetts. On January 7, 2011, the Supreme Judicial Court of Massachusetts—the highest court in that state—rendered a unanimous verdict in a case captioned U.S. Natl. Bank Assn., Trustee, v. Ibanez, For ABFC 20050PT 1 Trust, ABFC Asset Backed Certificates, Series 2005-0PT 1, No. SJC-10694, (Mass. Jan. 7, 2011). While that ruling is of course not binding, it is very much contrary to the mortgage securitization industry’s position in cases involving the foreclosure of mortgage loans which have allegedly been securitized. The facts of the case in Massachusetts and the facts of this instant case are similar. The case was a ruling on two consolidated cases – both cases were filed by banks (as trustees for two separate trusts) to quiet title on properties they had foreclosed and purchased at the foreclosure sale to satisfy the mortgagor’s debt. The Massachusetts Supreme Judicial Court held that neither bank proved that its trust owned the mortgages when they foreclosed on the homes; therefore, neither had title to the foreclosed properties and that their foreclosures were void. Effectively, this put the borrowers back into the place they were before the foreclosure. The Massachusetts Supreme Judicial Court did not tell the homeowners they are allowed to shirk their obligation to pay their mortgages, which are still outstanding, valid obligations. The Massachusetts Supreme Judicial Court did, however, sharply instruct the banks that they must have the proper documentation which demonstrates a valid right to foreclose before a foreclosure can be carried out. It is well worth noting the conclusion of the Massachusetts Ibanez opinion. The Massachusetts Supreme Judicial Court noted that “The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the [banks’] apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.” Just as the principles and requirements of Massachusetts law are well-founded, so too are those of New York law, and they should be upheld even if adherence to the law is inconvenient for banks rushing to sell mortgage-backed securities. THE INTENT TO TRANSFER AN ASSET TO THE TRUST IS NOT A
TRANSFER TO THE TRUST The contents of these statutes, cases and contracts lead to one inescapable conclusion: the intent of the parties and the requirements of the contracts were that the assets be conveyed to the Trusts by the Trust closing dates. For a transfer to any foreclosure industry has chosen to argue that it is clear that it was the parties’ “intent” to transfer these assets and therefore “no court” would ever declare that these assets were not transferred to these trusts. The controlling law is overwhelmingly against the industry in this position. The failure to deliver the notes and mortgages to these trusts as required by the trust instruments is a default under the terms of every agreement that these parties executed, including their agreements for payment guarantees with the monoline bond insurers. The securitization industry chose to create its securitization trusts under New York law precisely because the law was ancient and settled. Now that the actions of the foreclosure industry contradicts that law, parties such as the Plaintiff trust are left to argue hope against precedent. The well-settled New York trust law provides that “A mere intention to make a gift which has not been carried into effect, confers no right upon the intended beneficiary.
There must be also delivery beyond the power of further control and dominion.” foreclosure industry has chosen to argue that it is clear that it was the parties’“intent” to transfer these assets and therefore “no court” would ever declare that these assets were not transferred to these trusts. The controlling law is overwhelmingly against the industry in this position. The failure to deliver the notes and mortgages to these trusts as required by the trust instruments is a default under the terms of every agreement that these parties executed, including their agreements for payment guarantees with the monoline bond insurers. The securitization industry chose to create its securitization trusts under New York law precisely because the law was ancient and settled. Now that the actions of the foreclosure industry contradicts that law. The well-settled New York trust law provides that “A mere intention to make a gift which has not been carried into effect, confers no right upon the intended beneficiary. There must be also delivery beyond the power of further control and dominion.” Equity will not help out an incomplete delivery. If the agent of the donor has failed to make the delivery expected equity will particular trust to be effective, there should have been a registration of the assets into “the name of the trust as such name is designated in the instrument creating said trust property”—this is the only method by which these assets could have been “divested from the possession and title” of the donors. In response to the lucidity of the controlling law on this issue, the mortgage did
Vincent v. Rix, 248 N.Y. 76, 85 v. Rix, 248 N.Y. 76, 85; Matter of Green, 247 App. Div. 540; McCarthy v. Pieret,
281 N.Y. 407, 409.) as cited by In re FIRST TRUST & DEPOSIT CO., 264 A.D. 940, 941 (N.Y. App. Div. 4th
Dep’t 1942) not declare him a trustee for the donee. “Thus, Thornton on Gifts and Advancements (§140) notes: “In determining whether there has been a valid delivery, the situation of the subject of the gift must be considered. If it is actually present, and capable of delivery without serious effort, it is not too much to say that there must be an actual delivery, although the donor need not in person or by agent hand the article to the donee, if the latter assumes the possession.” There was absolutely nothing in the physical nature of the papers delivered, or in the physical condition or the surroundings of the donor, that made a symbolical delivery necessary.”of the thing given has been very largely relaxed, but a symbolical delivery is sufficient delivery as nearly perfect and complete as the circumstances will allow.
It is true that the old rule requiring an actual delivery only when the conditions are so adverse to actual delivery as to make a symbolical.
Further, the failure to convey to a trust per the controlling trust document is not a matter that may be cured by the breaching party. New York law is unflinchingly clear that a trustee has only the authority granted by the instrument under which he holds, either deed or will. This fundamental rule has existed from the beginning and is still law. An indenture trustee is unlike the ordinary trustee.
In contrast , Vincent v. Putnam, 248 N.Y. 76, 82-84 (N.Y. 1928) 30In re Van Alstyne, 207 N.Y. 298, 309-310 (N.Y. 1913).31 In re Van Alstyne, 207 N.Y. 298, 309-310 (N.Y. 1913).
32Allison & Ver Valen Co. v. McNee, 170 Misc. 144, 146 (N.Y. Sup. Ct. 1939).
33Ambac Indem. Corp. v. Bankers Trust Co., 151 Misc. 2d 334, 336 (N.Y. Sup. Ct. 1991).
the trustees for these trusts may only acquire assets in the manner set forth in the trust
instrument and may not acquire assets in violation of the trust instrument. To the extent that any assets were not conveyed to these trusts as required and when required by the trust instrument, they are not assets of the trusts and the trustee cannot correct this deficiency now since the funding period provided in the Trust instruments passed many years ago. The attempt to acquire assets by these trusts which violate the terms of the Trust instrument are void. Therefore, late assignments, improper chains of title, late endorsements, improper chains of title in the endorsements and the attempt to transfer to the trusts by foreclosure deed are just a number of the many examples of actions which are void if taken by a party to the indenture who is attempting to transfer property to the Trustee for the Trust in violation of the trust instrument. THE TRUST NEVER PROPERLY ACQUIRED THE MORTGAGE NOTE AND
THE TRUST CANNOT CURE ITS FATAL STANDING DEFECT Therefore, the trustees for these trusts may only acquire assets in the manner set forth in the trust
instrument and may not acquire assets in violation of the trust instrument. That no assets were conveyed to these trusts as required and when required by the trust instrument, they are not assets of the trusts and the trustee cannot correct this deficiency now since the funding period provided in the Trust instruments passed many years ago. The attempt to acquire assets by these trusts which violate the terms of the Trust instrument are void. Therefore, late assignments, improper chains of title, late endorsements, improper chains of title in the endorsements and the attempt to transfer to the trusts by foreclosure deed are just a number of the many examples of actions which are void if taken by a party to the indenture who is attempting to transfer property to the Trustee for the Trust in violation of the trust instrument. The assignment in herein attached was filed long after the form 15D was filed with the SEC by HSBC; the Trust was actually closed before the date that MERS signed the assignment to HSBC Bank NA. C. THE TRUST NEVER PROPERLY ACQUIRED THE MORTGAGE NOTE AND
THE TRUST CANNOT CURE ITS FATAL STANDING DEFECT York’s law is so well-settled regarding the limitations of a trustee’s power to act that
New York’s Estates Powers and Trust Law Section 7-2.4 states: § 7-2.4 Act of trustee in contravention of trust If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void. Under New York law there is no trust over property that has not been properly transferred to a trust. HSBC stated to the U.S. Securities and Exchange Commission in filings under oath that it has assets in excess of $400 million.
To acquire assets, the Trust must be funded in accordance with the requirements of the PSA/Trust documents. The pertinent terms of the agreement are found at §2.01 (Conveyance of Trust Fund) of the PSA.This section details how the mortgage notes in the instant case were transferred from Fremont Loan and Investment. (as Originator) to Wells Fargo Bank NA. (and Master Servicer) to Ace Securities Corp Home Equity Loan Trust (the Depositor) to HSBC Bank NA (the Trustee). Ace Securities Corp Home Equity Loan Trust as the Depositor was required to deliver HSBC Bank NA the original mortgage note showing an unbroken chain of endorsements from the original payee to the person endorsing it to the Trustee. The only assignment of the mortgage was signed by Denise Bailey for MERS nothing has been submitted by the Trust to the Court indicating that MERS ever assigned the mortgage to any other entity. Based on the documents, Fremont Loan and Investment, not HSBC Bank NA, is the mortgage holder. HSBC does not have the authority to foreclose the mortgage, Deed of trust. “According to the requirements set forth in the Trust Agreement Defendant would expect to see a series of endorsements of the promissory note reflective of each party who had an interest in the promissory note reflective of each party who had an ownership interest in the promissory note culminating with a blank endorsement from the depositor at the very minimum.” The Trust never possessed the mortgage note per the terms of the PSA (Pooling and Service Agreement). Further, in the PSA’s exhibits, Exhibit One sets forth the contents of the collateral file for each mortgage loan that is trust property and further includes a final specific endorsement to the Trustee for the specific trust in this case to effect a final transfer to the Trust and to make the NAME promissory note trust property. Any attempt by HSBC Bank NA, to transfer the promissory note to the Trust at this late date would fail for numerous reasons, not the least of which is that the closing date of August 25, 2006 passed nearly 6 years ago. By the terms of the Trust and the applicable provision of the Internal Revenue Code incorporated into and a part of the Trust agreement, the promissory note cannot be transferred to the Trust. THE TRUST IS NOT ENTITLED TO THE MONEY SECURED BY THE NAME MORTGAGE AND CANNOT FORECLOSE Because the fact the fact that MERS transferred the loan and note after the closing date of the trust and the filing of the form 15D as evidence in the case is that the NAME loan has never been conveyed to the Trust and a conveyance to the Trust at this time would be void as violating the terms of the PSA, one is left with one clear and inescapable proposition: The Trust has never owned the promissory note and the Trust can never own the promissory note. Trust has not provided documentation to show that it was or is entitled to the money secured by
the mortgage of property. “The defendant Trust [HSBC] has offered no proof of
ownership and the collateral file. Evidence presented by HSBC suggests that the Trust clearly demonstrates that this loan was not securitized nor was it transferred to this Trust.” HSBC BANK, USA, National Association, as Trustee, under the Pooling and Servicing Agreement dated August 1, 2006, ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates;, Plaintiff[s] has no parity with the Defendant, is without prudential standing, the Plaintiff lacks Constitutional Standing and Plaintiff[s] has failed to demonstrate it is the real party in interest. Subsequent to discovery of the precise identity of the real party in Interest and when this has been proven, by Plaintiff, only then, can Plaintiff attempt proof that it has actual, full and complete authority to act on behalf of the real party in interest, which it must prove, if it cannot prove this, then the real party in interest must be enjoined, as a party. Must prove that it has this authority, then it must prove that the instrument, the alleged note is negotiable. Presence of a statuary trust, acting on behalf of certificate holders, this fact causes fatal UCC defects on standing issues, as is present in prima facie form here, HSBC has not demonstrated it is holder in due course; HSBC is legally devoid of standing to enforce the note in question. A federal court’s jurisdiction is Dependent upon the standing, of the litigant, which includes both constitutional standing and prudential standing. Valley Forge Christian Coll. v. Am. United for Separation of Church and State, 454 U.S. 464, 472 (1982); 2Kowalski v. Tesmer, 543 U.S. 125, 128- 29 (2004) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). Plaintiff also lacks capacity.
Fremont Investment and Loan corporation (Fremont), now an inactive, defunct corporation, the “original lender” as stated on the Deed of Trust in section [c] “Lender” of the subject Deed of Trust dated April 19, 2006, may have the required standing, but Fremont is not enjoined.
The “original lender” has not lawfully conveyed the Deed of trust and its Note in a proper legal manner, to the Trust being, ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates;, in keeping with the rules of the Pooling and Servicing Agreement.
Constitutional Standing under Article III, minimally, will require that a party, must, have suffered some actual or threatened injury as a result of the Defendants` conduct, that the injury be traced to the challenged action, and that it is likely to be redressed by a favorable decision, the Plaintiff cannot satisfy this basic element with lawful success.
Foreclosure agents and servicers must prove they have authority to act for a party that has standing. In re Scott, 376 B.R. 285 290 (Bankr. D. Idaho 2007); Kang Jin Hwang, 396 B.R. at 767; Jacobson, supra at 12.
The assignments of mortgage are “Robo-Signed”, and are legally deficient, by stated black letter law.
The home loan was transferred into a pool of loans to be sold on Wall Street; this pool of loans is governed by a Pooling and Servicing Agreement, under the statutory trust,” ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates;”.
the proper chain of endorsements, and the arguments contained herein, permanently deny HSBC from foreclosing on the property because they have failed to make the required showing that they are or ever were or ever could be the holder of the mortgage/Deed of Trust and promissory note. STANDING
Standing requests are governed by FED. R. BANKR. P. 4001(a)(1), to which FED. R. Bankr. P. 9014 is applicable. Rule 9014, in turn, incorporates Rule 7017, which makes FED. R. Civ. P. 17 applicable (“[a]n action must be prosecuted in the name of the real party in interest.”;). The standing doctrine “involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise.” Kowalski v. Tesmer, 543 U.S. 125, 128-29, 125 S. Ct. 564, 160 L. Ed. 2d 519 (2004) (quoting Warth v. Seldin, 422 U.S. 490, 498, 95 S. Ct. 2197, 45 L. Ed. 2D 343 (1975)). Constitutional standing under Article III requires, at a minimum, that a party must have suffered some actual or threatened injury as a result of the defendant’s conduct, that the injury be traced to the challenged action, and that it is likely to be redressed by a favorable decision. (Valley Forge Christian Coll. v. Am. United for Separation of Church and State, 454 U.S. 464, 472, 102 S. Ct. 752, 70 L. Ed. 2d 700 (1982)(citations and internal quotations omitted)). Beyond the Article III requirements of injury in fact, causation, and redressibility, the creditor must also have prudential standing, which is a judicially-created set of principles that places limits on the class of persons who may invoke the courts’ powers. (Warth v. Seldin, 422 U.S. 490, 499, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975)). As a prudential matter, a plaintiff must assert “his own legal interests as the real party in interest”. (Dunmore v. United States, 358 F.3d 1107, 1112 (9th Cir. 2004), as found in FED. R. CIV. P. 17, which provides “[a]n action must be prosecuted in the name of the real party in interest.”)
In re Mitchell, Case No. BK-S-07-16226-LBR (Bankr.Nev. 3/31/2009)(At page 10) the Court found that “MERS does not have standing merely because it is the alleged beneficiary under the deed of trust. It is not a beneficiary and, in any event, the mere fact that an entity is a named beneficiary of a deed of trust is insufficient to enforce the obligation.” In In re Maisel, the Bankruptcy Court for the District of Massachusettes found that a lender did not have standing to seek relief from the automatic stay because it did not have an interest in the property at the time it filed its motion for relief. 378 B.R. 19, 22 (2007)
THE PROMISSORY NOTE EVIDENCES THE REAL PARTY IN
INTEREST, AND THAT PARTY IS NOT MERS OR HSBC BANK NA
Transfers of mortgage paper may be made outright (sale) or by pledge (as security for a loan to the transferor.). In either event, to perfect the transfer, the transferor should physically deliver the note to the transferee.
Without a physical transfer, a sale of the note could be invalidated as a fraudulent conveyance (under Civil Code § 3440), and a transfer in pledge could be invalidated as an unperfected (under Com Code §§ 9313-9314). (California Mortgages and Deeds of Trust, and Foreclosure Litigation, by Roger Bernhardt, Fourth Edition, section 1.26) One without a pecuniary interest in the Mortgage Loan is not an oblige under the debt and, thus, has no legal standing to foreclose ab initio. (Watkins v. Bryant (1891) 91C 492, 27 P 77) The Note in this case is not a bearer instrument, but is an instrument payable to a specifically identified person. California Com. Code section 3109 states:
(a)A promise or order is payable to bearer if it is any of the following:
(1)States that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment.
(2)Does not state a payee.
(3)States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person.
(b)A promise or order that is not payable to bearer is payable to order if it is payable (1) to the order of an identified person or (2) to an identified person or order. A promise or order that is payable to order is payable to the identified person.
(c)An instrument payable to bearer may become payable to an identified person if it is specially indorsed pursuant to subdivision (a) of Section 3205. An instrument payable to an identified person may become payable to bearer if it is indorsed in blank pursuant to subdivision (b) of Section 3205. A promissory note that is payable to a specifically identified person is not transferred merely by possession, instead, transfer requires that it be indorsed. California Com. Code 3201 states:
(a)”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.
(b)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.
An endorsement is not made by purchasing a note, or by purchasing a debt, or by an assignment, instead, an endorsement is made by the signature of the specifically identified person to whom the note is owed. California Com. Code section 3204 states:
(a)”Endorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (1) negotiating the instrument, (2) restricting payment of the instrument, or (3) incurring endorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an endorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than endorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.
(b)”Endorser” means a person who makes an endorsement.
(c)For the purpose of determining whether the transferee of an instrument is a holder, an endorsement that transfers a security interest in the instrument is effective as an unqualified endorsement of the instrument.
(d)If an instrument is payable to a holder under a name that is not the name of the holder, endorsement may be made by the holder in the name stated in the instrument or in the holder’s name or both, but signature in both names may be required by a person paying or taking the instrument for value or collection.
If one bought a note and intends to enforce it, but the note does not carry the endorsement of the payee, that person can bring an action in court to specifically enforce the right to an endorsement. Then, once that is done, the creditor can enforce the note against its maker. California Com. Code section states:
(a)An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.
(b)Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.
(c)Unless otherwise agreed, if an instrument is transferred for value and the transferee \	does not become a holder because of lack of indorsement by the transferor, the transferee has a specifically enforceable right to the unqualified indorsement of the transferor, but negotiation of the instrument does not occur until the indorsement is made.
(d)If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this division and has only the rights of a partial assignee.
The promissory note made payable to Fremont Loan and investment Mortgage Corporation. No record document suggests that it has been indorsed to MERS or any other named entity. The Deed of Trust states that MERS is the beneficiary of it. No record document suggests that MERS transferred its beneficial interest in the Deed of Trust; however, record documents do suggest that other entities claim an interest in the Deed of Trust, one of which being the Certificateholders of ACE Securities Corp., Home Equity Loan Trust, Series 2006-FM1, Asset Backed Pass-Through Certificates;. MERS HELD NO ENFORCEABLE BENEFICIAL INTEREST AND
COULD NOT PASS ANY SUCH INTEREST TO HSBC BANK NA
HSBC’s interests – if any – flow from MERS interests. HSBC ignores the plain language of the mortgage that names MERS as a nominee:
(E) “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this Security Instrument. (Attachment 1, Deed of Trust)
Therefore, if HSBC is going to demonstrate an equitable assignment of the note, it must first show that MERS had rights to the unindorsed Note which it could assign to HSBC. However, the terms and provisions of the MERS mortgage expressly refute the notion that MERS owned or held the note at inception. The mortgage was not countersigned by the original note holder/lender (Fremont) such as to give MERS any rights or interests in the note. As well the Note itself admits of no rights or interests in MERS. Only the Homeowner signed the mortgage and it is indisputable that she cannot award, grant or otherwise deign to transfer the rights of the obligee, the note holder, to another. The mortgage granted no power or authority to MERS (a mere nominee holding only the lien, not the note) to sell or transfer the note or mortgage or to assign its duties as nominee. The Note was not indorsed to HSBC, HSBC didn’t take the Note pursuant to negotiation under the UCC.
HSBC with taking whatever rights MERS had by the Assignment of Mortgage from MERS to HSBC. MERS could not assign any greater rights to HSBC than MERS had.
In Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 274, 21 L.Ed. 313 (1872), the U.S. Supreme Court stated “The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” An obligation can exist with or without security. With no security, the obligation is unsecured but still valid. A security interest, however, cannot exist without an underlying existing obligation. (Hensley v. Hotaling (1871) 41 C 22; Turner v. Gosden (1932) 121 CA 20, 8 P. 2d 505; Lee v. Joseph (1968) 267 CA2d 30, 72 CR 471) It is impossible to define security apart from its relationship to the promise or obligation it secures. (Civil Code §§ 2872, 2909, 2920; California Mortgages and Deeds of Trust, and Foreclosure Litigation, by Roger Bernhardt, Fourth Edition, § 1.11) The obligation and the security are commonly drafted as separate documents – typically a promissory note and a deed of trust. If the creditor transfers the note but not the deed of trust, the transferee receives a secured note; the security follows the note, legally if not physically. (Civil Code § 2936; Seidell v. Tuxedo Land Co. (1932) 216 c 165, 13 P.2d 686. Lewis v. Booth (1935) 3 C.2d 345, 44 P.2d 560) (endorsement of note transferred deed of trust). If the transferee is given the deed of trust without the note accompanying it, the transferee has no meaningful rights except the possibility of legal action to compel the transferor to transfer the note as well, if such was the agreement. (Kelley v. Upshaw (1952) 39 C.2d 179, 246 P.2d 23; Polhemus v. Trainer (1866) 30 C 685) When one transferee receives the note and another receives the deed of trust, the one holding the note prevails, regardless of who first received a transfer. Adler v. Sargent (1895) 109 C. 42, 41 P. 799. (California Mortgages and Deeds of Trust, and Foreclosure Litigation, by Roger Bernhardt, Fourth Edition, section 1.25) Transfers of mortgage paper may be made outright (sale) or by pledge (as security for a loan to the transferor.) In either event, to perfect the transfer, the transferor should physically deliver the note to the transferee. Without a physical transfer, a sale of the note could be invalidated as a fraudulent conveyance (under Civil Code § 3440), and a transfer in pledge could be invalidated as unperfected (under Com Code §§ 9313-9314). (California Mortgages and Deeds of Trust, and Foreclosure Litigation, by Roger Bernhardt, Fourth Edition, section 1.26) One without a pecuniary interest in the Mortgage Loan is not an obligee under the debt and, thus, has no legal standing to foreclose ab initio. (Watkins v. Bryant (1891) 91C 492, 27 P 77)
“Where the mortgagee has ‘transferred’ only the mortgage, the transaction is a nullity and his ‘assignee,’ having received no interest in the underlying debt or obligation, has a worthless piece of paper.” (4 RICHARD R. POWELL, POWELL ON REAL PROPERTY, § 37.27[2] (2000); In re Mitchell, Case No. BK-S-07-16226-LBR (Bankr.Nev. 3/31/2009)(At page 12) MERS website admits at pages 10, 20, 22, 26, 34, 38, 40, 42, 44, 46, 62, 68, 72, 76, 78, 88, 89, 99:
MERS stands in the same shoes as the servicer to the extent that it is not the beneficial owner of the promissory note. An investor, typically a secondary market investor, will be the ultimate owner of the note. (fn)
In the consolidated cases of In re Foreclosure Cases, 521 F. Supp. 2D 650, 653 (S.D. Oh. 2007), a standing challenge was made and the Court found that there was no evidence of record that New Century ever assigned to MERS the promissory note or otherwise gave MERS the authority to assign the note. Beginning with this case, courts around the country started to recognize that MERS had no ownership in the notes and could not transfer an interest in a mortgage upon which foreclosure could be based. In LaSalle Bank NA v. Lamy, 824 N.Y.S.2d 769 (N.Y. Supp. 2006), the Court denied a foreclosure action by an assignee of MERS on the grounds that MERS itself had no ownership interest in the underlying note and mortgage. In the case of In re Mitchell, Case No. BK-S-07-16226-LBR (Bankr.Nev., 2009), the Court stated “In order to foreclose, MERS must establish there has been a sufficient transfer of both the note and deed of trust, or that it has authority under state law to act for the note’s holder.” (At page 9) The Court found that MERS has no ownership interest in the promissory note. The Court found that though MERS attempts to make it appear as though it is a beneficiary of the mortgage, it in fact is not a beneficiary. The Court stated “But it is obvious from the MERS’ “Terms and Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans. (At page 3 of the Deed of Trust) MERS Terms and Conditions say this:
The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender’s successors and assigns) and the successors and assigns of MERS. This Security Instrument secures to Lender; (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ti) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale, the following described property located in CA
In the case of In re Vargas, 396 B.R. 511, 520 (Bankr.C.D.Cal., 2008) , the Court stated: MERS is not in the business of holding promissory notes. (fn 10: MERS,
Inc., is an entity whose sole purpose is to act as mortgagee of record for mortgage loans that are registered on the MERS System. This system is a national electronic registry of mortgage loans, itself owned and operated by MERS, Inc.’s parent company, MERSCORP, Inc.) In the case of In re Sheridan, Case No. 08-20381-TLM (Bankr.Idaho, 2009) MERS moved for relief from the stay. The Court stated that MERS “Counsel conceded that MERS is not an economic “beneficiary” under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid.” The Court stated “Further, the Deed of Trust’s designation of MERS as “beneficiary” is coupled with an explanation that “MERS is . . . acting solely as nominee for Lender and Lender’s successors and assigns.” The Court stated “Even if the proposition is accepted that the Deed of Trust provisions give MERS the ability to act as an agent (“nominee”) for another, it acts not on its own account. Its capacity is representative.”
In Landmark National Bank v. Kesler, 216 P.3D 158 (Kansas, 2009), the Kansas Supreme Court extensively analyzed the position of MERS in relation to the facts in that case and other non-binding court cases and concluded that MERS is only a digital mortgage tracking service. (At page 168) The Court recited that MERS never held the promissory note, did not own the mortgage instrument (though the documents identified it as “mortgagee”), that it did not lend money, did not extend credit, is not owed any money by the mortgage debtors, did not receive any payments from the borrower, suffered no direct, ascertainable monetary loss as a consequence of the litigation and consequently, has no constitutionally protected interest in the mortgage loan.
Christopher L. Peterson, Associate Professor of Law, University of Florida, testified at a hearing before the U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investment and stated:
MERS is merely a document custodian. . . . The system itself electronically tracks ownership and servicing rights of mortgages. . . . The parties obtain two principal
benefits from attempting to use MERS as a “mortgagee of record in nominee capacity.” First, under state secured credit laws, when a mortgage is assigned, the assignee must record the assignment with the county recording office, or risk losing priority vis-à-vis other creditors, buyers, or lienors. Most counties charge a fee to record the assignment, and use these fees to cover the cost of maintaining the real property records.
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