2d Circuit: If Trusts Are Not REMICs then Qui Tam Would Have Survived

Here again the Truth seems to be the third rail of litigation if it is in any way related to the bogus “REMIC” “Trusts” or their “certificates” or their status in foreclosure litigation. None of it is real. Here again we have a case that bends down to pick up pennies while 100 dollar bills are flying overhead. This court says that if the allegation had been that the trusts didn’t qualify as REMICs, the ruling would have beneficial to the relator in this whistle-blower action.

see https://www.ropesgray.com/newsroom/alerts/2017/01/Second-Circuit-Affirms-Dismissal-of-Mortgage-Backed-Securities-New-York-State-False-Claims-Act-Case.aspx?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original

Nobody wants to touch that third rail. Nobody wants to say that they don’t believe the trusts were in actuality Real Estate Mortgage Investment Conduits (REMICs). But it is simple: Either the trust operated and acquired loans or it didn’t. If it did, then it is a potential REMIC. If it didn’t, it cannot be a REMIC.

All evidence, admissions from the banks and servicers, and direct allegations and testimony of the banks and servicers point to inescapable conclusions:

1. In many cases the trust documents were incomplete, thus giving rise to no trust at all. Nonetheless the banks managed to file them on SEC.gov and then had the temerity to have a state court in a foreclosure proceeding take “judical notice” of the incomplete document on a government website. [Hint: Since it was not a government document — i.e. a document created by a government agency — judicial notice probably doesn’t apply.]
2. In virtually all cases the trusts were not funded — i.e., they never received the proceeds of sale of certificates that the underwriter created.
3. Therefore in virtually all cases the trusts were either nonexistent or not operating. They had no balance sheet and no income statement. They had no bank account. They had nothing. They have not registered anywhere as an entity organized and existing under the laws of any state nor were the alleged trusts registered to do business in any state. Property not transferred to a trust is not ever subject to administration by any trust. Hence the property is not held “in trust.” Hence there is no legal trust, REMIC or otherwise.
4. Hence the REMIC requirements under the Internal Revenue Code 26 U.S.C. 860 have not been met. In fact, the entity was never used. Hence the “investors” (a) never invested in a REMIC and (b) are NOT entitled to preferential tax treatment as though the investors were the beneficiaries of a special purpose vehicle for whom REMIC status is claimed by “interested” third parties, who were making 100% profit on the sale of bogus Mortgage Backed Securities” (MBS), much the same as any boiler room pushing penny stocks.
5. That means the qui tam action referred to above should have been successful but they assumed something that was not true — that at least the trusts were real and complete and were funded with money and stocked with actual loans. None of that happened. So they mistakenly alleged that the loans were not properly underwritten while while true does nothing to advance the cause under a claim for damages to the state under the False Claims Act.
6. But it also means that the “certificates” were not exempt from securities regulation, which in turn means that the sale and trading of the securities violated virtually every known law and rule concerning the sale or trading of securities. The 1999 exclusion does not apply because the certificates were bogus and not backed by real estate mortgages.

The continuing failure of courts and lawyers to at least make inquiry into these facts reveals a pattern in which fear of the third rail prevents justice. It is tantamount to taking the blindfold off lady justice.

Note: The banks and servicers seem to be heavily relying upon the existence of “assignments” into the name of a carefully worded trustee for a vaguely worded trust. There is never any hint that the trust paid for the loans that are now identified by reference in either an assignment or a mortgage loan schedule (MLS) that is fabricated for each foreclosure.

Thus the alleged “trust” cannot possibly be the “owner” of any loan, debt, note or mortgage. At best, if the trust actually exists on paper in complete form, such an assignment or such an MLS could only be evidence that the alleged trust is only a holder with no disclosed rights to enforce coming from the actual owner.

Also note that at no time do you see an allegation that identifies the trust as a legal person or entity. In any normal lawsuit there would be an allegation that “Plaintiff, XYZ Trust, is a common law trust organized and existing under the laws of New York State, pursuant to a trust instrument dated the __ day of ____, 2007.” You don’t see that because if that allegation was made then at trial the allegor would need to prove it. It gets sticky when it comes down to the details. Who exactly was the Trustor” (the party creating the trust)? But confronting the bogus assumptions upon which the banks and servicers rely has turned out to be a third rail.

Instead the banks and servicers succeed by misdirection and everyone seems to identify the Plaintiff as , for example, U.S. Bank, when the wording clearly indicates that U.S. Bank is not a party to the lawsuit and only appears as Trustee for a presumed trust that is not well-identified. When it comes down to the sticky details it turns out that the attorneys for the “Plaintiff” (judicial states) has been hired by a “servicer” (whose power is derived from the bogus trust). The law firm has no contact with the alleged “Trustee” in whose name nothing has been placed in trust. Thus the entire foreclosure business turns out to be based upon false self servicing statements and presumptions.

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