Lex, Lies and Losers

Maher Soliman suggested that we consider throwing the SPV Trusts into receivership. Here was my response:

MSOLIMan: Forcing the trust into receivership might be a good idea — or even forcing into involuntary bankruptcy. But be careful here. While the Trustee maintains that a trust exists and that the trustee has powers over the subject matter (res) of the trust, my analysis indicates that by the very nature of a REMIC, whose last word is “Conduit” there are questions about the existence of this “Trust.”

First since the SPV is REMIC and a REMIC is a conduit and must be a conduit to maintain its non-tax status (thus preventing double taxation of the investors) Thus the SPV, often referred to as a Trust does not exist as a trust. By definition there can nothing in it. It serves as a distribution tool and the indenture of each and every bond purchased by investor contains language of conveyance in which it is the investor and not the SPV/Trust that will supposedly own the underlying mortgages and notes.

Adding to the conclusion is the fact that most indentures admit that the attached list of underlying mortgages and notes are not real but will replaced with real ones whenever the CDO manager gets around to it.

Adding to that confusion is the fact that the conveyance is from a party who does not own the loan in the first place and you end up with an empty “Trust.”

That leaves the possibility that a second trust was created equitably or legally by granting the Trustee powers to act on behalf of the owners of mortgage-backed securities. Careful reading of the indenture leads one first to conclude that some powers to represent the investors exist but then later, deep into the indenture, are restrictions on that power that transform the agency to a contingent agency. Thus no trust seems to exist and even the power of agency is contingent, based upon specific express written consent from the investors and their agreement to pay costs and fees and their agreement to hold the Trustee harmless.

The US Bank as trustee for the owners of mortgage backed securities series 2007-1234 is neither an agent nor a trustee. And there is no trust. The ONLY party, as I have repeatedly said, who can seek to enforce the obligation (probably without the help of the non-negotiable note executed by borrower and probably without the help of the mortgage or deed of trust) is the hedge fund or pension fund that bought the security. But none of them are doing so and there are some pretty good reasons for them doing so.

Tags: borrower, disclosure, foreclosure defense, foreclosure offense, fraud, Lender Liability, mortgage meltdown, predatory lending, securitization, trustee
Posted in bubble, Eviction |