(OP-ED) — The author of this post is a consultant and paralegal to attorneys practicing in foreclosure defense matters and their related fields and thus, the information offered in this post should be considered research for educational purposes only and not the rendering of legal advice.
“My people are destroyed for lack of knowledge.” (Biblical quote in part)
Most homeowners that retain counsel to look into matters involving foreclosure only scrape the tip of the iceberg when it comes to dealing with REMIC trusts. A REMIC (Real Estate Mortgage Investment Conduit) is a common law trust set up by a hedge fund that is primarily funded by “certificate holders”. The “certificate holders” are investors or investment groups that buy securities from the hedge fund. The securities are created from lists of mortgage loans, all pooled together in a package, that are sold to investors, who receive shares (certificates) which represent their stake in the matter. The amount of “shares” given to the certificate holders depends on the amount of funding they’ve contributed to the REMIC trust and to which tranche they purchased certificates in (some tranches are riskier than others, by design). It’s much like getting stock certificates when you buy stock in a company on Wall Street, especially when it comes to the risk of loss.
Each REMIC trust has a Master Servicer by design. REMIC trusts can also incorporate mortgage loan servicers and sub-servicers if it so deems, for the purposes of collecting the monthly mortgage payments from borrowers.
Each REMIC trust has a Cut-Off Date, where all paperwork that is represented as “filed” with the United States Securities and Exchange Commission via the Trustee of the Trust, has to be forwarded to the Trustee prior to the closing of the Trust.
Each REMIC trust has a Closing Date, in which the documents have all been tendered to the Trustee of the Trust. The Trustee then issues the certificates to the certificate holders, who then receive principal and interest payments from the servicer every month. The IRS refers to the Closing Date as the “Start-Up Date” of the trust, when the trust officially is closed for business and exists according to law for one (1) year.
Each REMIC trust has a Distribution Date … and this is important … because whether or not the borrower makes a payment or not … the servicer is required to advance proceeds from the sums collected from all of the borrowers, to the certificate holders in the form of principal and interest payments. The Distribution Date is generally somewhere between the 20th and 25th of every month, according to the majority of REMIC trust filings this author has reviewed.
The Certificate Holders are buying securities, which are batches of securitized loans that have all been pooled together into a CDO (Collateralized Debt Obligation).
Each REMIC has an ADVANCES section, which explains in detail how the mortgage loan servicers pay the certificate holders on the Distribution Date, whether the Borrowers make their mortgage payments or not.
When the Borrowers go to their respective “corresponding lenders” (part of the table-funding process), that lender checked to see whether the Borrowers’ credit scores were worthy of their best, low-interest loans. If the borrower’s credit scores were “shitty”, they generally ended up in subprime loan pools, which the government now frowns on lender’s from making. These were the riskiest loans made, thus, more attractive to investors because of the high-interest returns they would get on their certificates (from playing in the secondary markets).
Fast Forward to the Foreclosure Process
Now that it’s been simply explained how the system came into play, one must also understand that the servicers continue to collect for the certificate holders once the trusts have hit their one-year mark and expire. When the borrowers have begun to make payments on their mortgage loans, they are told to make at least 3 payments. Why?
Because it takes at least 3 payments to get the entire securities package set into motion. But wait! The Closing Date stated that (in the Pooling and Servicing Agreement for each REMIC trust) that all paperwork had to be “in” to the Trustee by that time, as the Trustee was issuing certificates to the certificate holders! The idea of being able to pay for at least 3 months was designed to send a false representation to investors that the loans were “good”, when the originators knew the “sewer would back up” at a point in time in the future.
The lenders also know that because of most of the predatory loans they issued, they knew already that the default rate was going to be higher because these loans weren’t really “qualified” loans under the law. The loan originators went to various insurance companies and purchased default insurance to guarantee that if the borrower defaulted, the certificate holders would be paid the value of their shares via the default insurance payment.
If a foreclosure indeed occurred … and knowing that the default insurance (and other means of reimbursement vehicles were initiated, such as credit default swaps, PMI, LPMI, MIP, title insurance, etc.) would pay out after Day 91 of the Borrowers’ default on their loans … the certificate holders were paid, assumedly by the servicer, right?
How then, did the certificate holders (for which the trustee represents to the court or in the notices of default at the time of the foreclosure) suffer financial harm? How did they suffer an actual injury-in-fact if they were being paid by the mortgage loan servicers every month?
When a borrower files suit against the servicer and the REMIC trust, they completely miss the boat on Injury-in-fact (see the article on Lessons Learned from Spokeo on this blog site) issues. By that time, a plethora of questionable documents have been recorded in the land records in the county where the subject property is located. These documents, suspiciously referred to as Assignment of Mortgage or Assignment of Deed of Trust, were more than likely generated by the mortgage loan servicers themselves or through third-party document mills, as a means of “batting clean-up” in the land records. These assignments all attempt to link the chain of title to the current alleged lien holder, albeit, questionably.
Who is the damaged party here?
Various attorneys that this author has consulted have all maintained that 99.9% of the foreclosures involving REMIC trusts are illegal. In California, notices are given to prospective bidders that they are only bidding on the lien and not the property itself. After the foreclosure occurs, the Trustee or the law firm allegedly representing it, issue a Trustee’s Deed Upon Sale. The problem here is … the Trustee is deeding the land over to the new buyer, who, if they would have read the damned sale notice, were only buying the lien and not the property itself! Judges gloss over all this because they don’t give a shit about the borrower. Judges can’t even be bothered to apply the law as it’s written, which is why America has appellate courts. The problem is, most borrowers can’t afford to even litigate the foreclosure let alone the appellate phase of the matter. The judges know this, which is why they don’t give a shit how they rule. Seldom do you ever find an honest judge that actually reads, understands the facts at hand and rules accordingly. The honest judges even have a hard time sifting through the facts if the borrower’s attorney doesn’t understand who he’s litigating against and why.
If the borrower’s attorney were to simply ask the court: “Your Honor, if my client’s house is sold on the courthouse steps today, who gets the money?”, the judge would then inquire of the foreclosing lender’s attorney WHO is being represented here. The Plaintiff’s attorney will always acknowledge that he represents the Plaintiff, when the Plaintiff’s attorney knows damned well he’s being paid by the mortgage loan servicer, who is coming to court under stealth, in the name of the lender (REMIC trust) to steal the house to reimburse itself for the payments.
When the Borrower’s attorney goes to court, the attorney and his client are faced with the submission of a payment history from the servicer showing the borrower’s history of mortgage loan payments and when they stopped making them. The Plaintiff bank then asserts that since that date, the certificate holders haven’t received payments, which is false. The servicer has been paying them all along and the servicer, the real party behind the foreclosure action, has failed to tender the payment history, post-borrower-payments made. The servicer should be required to disclose ALL payments made to the certificate holders of the REMIC trust, because the Trustee is claiming that the payments the borrower was making were the only payments made to the certificate holders, which is also false.
The servicer is the real party in interest here … and they’re in court trying to recover all of their payments … and then some. When they sell the home, they are going to recoup tens of thousands of dollars, in addition to the booty collected through the default insurance and all of the other payoff methods. In fact, mortgage loan servicing is big business and it’s a dirty one too. Not one mortgage loan servicer that has been “taken to task” to the fullest extent of the law (in court) has come away with clean hands; that is, if the attorneys who are litigating for the borrowers actually know what they’re doing.
The borrower does not have a contract with the mortgage loan servicer!
If this is the case, then what is the servicer doing in court, claiming to represent a closed REMIC trust, after the trust and the servicer have been paid multiple times over by all of the claimed default mechanisms?
This is where it’s estimated that a $500,000 mortgage loan nets the securitized trust $7,000,000 dollars. You read that right! Given all of the payouts the servicer got after Day 91, the certificate holders were all made whole. How then were the certificate holders damaged? They have no standing to come into court. They got away with the foreclosure because of borrower ignorance.
When the first run of foreclosures occurred in 2009-2014, 97.5% of the borrowers served with notices packed up their belongings and ran. Two (2%) percent of them attempted to deal with the mess in court themselves and got their asses handed to them. The other point 5 percent (0.5%) retained attorneys or were successful pro se because they bothered to do their research … but sadly, because of the way the system is “rigged” in favor of the banks, the banks’ servicers have loads of money to spend (and they will spend it) to legally outmaneuver the borrower, making it virtually impossible to win their case. It is estimated that 1 out of 100 foreclosures heard by the courts will actually go anywhere, especially to appeal. Those are very bad odds, especially to those who lack the knowledge necessary to make the banks prove the default and the actual harm occurred.
One Footnote: The Credit Risk Manager
As a footnote to this research, one should also understand that some of these REMICs have what is known as a Credit Risk Manager. These are third-party firms that are fee retained (for a small percentage of the collected funds of all payments submitted to the REMIC, generally 0.0135% per annum of the Scheduled Principal Balance of each Mortgage Loan) to monitor the activities of the mortgage loan servicers collecting for the REMICs. Had the borrower’s attorney known this entity existed, it would have been so easy to depose them and all their records, to see just who was paying whom and when. But again, no one is paying attention.
Here’s an example of one SEC filing from a 424(b)(5) Prospectus:
This is one of many “hired guns” that are put in place to monitor the activities of the mortgage loan servicers and master servicers. Can you imagine the shit show if you discovered that these people were being paid to monitor specific payments on your mortgage loan and the advice they gave the servicers was non-existent? That could constitute a breach of their contract! And that’s just one issue you might discover if you can get this entity into a deposition!
Read the foregoing paragraphs carefully! Notice where it says the Credit Risk Manager will provide a “loan-level loss and mitigation analysis and a prepayment premium analysis” to the REMIC’s Master Servicer and Servicer? This basically describes how the party making the payments to the Certificate Holders (who are allegedly in court claiming they were harmed) different analyses of ways to “make them whole” (mitigate their losses), meaning the Master Servicer and the Servicer, who have to pay principal and interest on the Distribution Date, every month, whether the Borrower pays their mortgage payment or not!
THE LAST STRAW
In the Osceola County Forensic Examination, the author of this post, who prepared the report, included as EXHIBIT 29 the following letter that you should read if you want to understand HOW the servicer is allowed to reimburse itself for ADVANCES paid out. For all intents and purposes, it’s an admission by the now-defunct Ocwen Loan Servicing LLC as to HOW it does its business:
If you want some real “background” on how the servicing game is played, you should download this PDF Exhibit 29 and read it thoroughly and research its contents BEFORE engaging the servicer or BEFORE you start drafting pleadings. The party you are going after in court is NOT the REMIC trust! This document should make things plain and simple for you regarding the explanation of how the servicer treats ADVANCES.
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