TABLE FUNDED LOAN
When Congress repealed the Glass-Steagall Act they passed the Gramm–Leach–Bliley Act also known as the Financial Services Modernization Act of 1999.
During debate in the House of Representatives, Rep. John Dingell (Democrat of Michigan) argued that the Gramm–Leach–Bliley Act would result in banks becoming “too big to fail.” Dingell further argued that this would necessarily result in a bailout by the Federal Government and the American tax payers. Unfortunately, he would be proven right!
Now the banks could exploit new mortgage transactions called Table Funded Securitized Loans, wherein a mortgage loan contract could be digitized into a Mortgage Backed Security (MBS) to be sold and traded on Wall Street.
A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that securitizes, or packages, the loans together into a security that investors can buy.
However, to do this, the banks would have to induce borrowers into signing mortgage loan documents using fraud and deception. You see if you purchased a property in last 10 to 15 years then you probably thought that you were signing a normal common law mortgage loan contract, where your “lender” was loaning you money to buy your home. However, if your mortgage loan contract was one of the approximately 70,000,000 mortgages digitized into an electronic file in the Mortgage Electronic Registration System (MERS) then you probably have a securitized loan!
The next few pages will describe some of the technical problems with securitized mortgage loan contracts. If you have a hard time understanding this material, don’t worry, many attorneys are not 100% familiar with this subject matter. Just keep in mind that if your mortgage loan was part of a securitized table funded transaction there is probably legal violations, breaches of contract, and fraud that could give you legal standing to sue for financial compensation and possible quiet title (clear and free) title to your home.
Securitization occurs when the Mortgage Loan Originator offers as consideration the mortgage loan instrument to an Account Debtor (Sponsor/Seller) who swaps the intangible payment stream for certificates that are sold to investors who are paid the income from the certificates.
When the Tangible Obligation (Promissory Note) and the Security Instrument (Mortgage, Deed of Trust or Security Deed) is sold in the secondary market to an Intangible Account Obligee (REMIC Trust) an Intangible Obligation is created under UCC Article 8. The existence of the Intangible Obligation under UCC Article 8 depends on the Tangible Instrument secured by a properly and continuously perfected security interest requiring the tangible Security Instrument be filed with the County Recorder’s Office.
Digitizing the tangible Promissory Note and the tangible Security Instrument into electronic data creates an electronic file called a Mortgage Loan Package. This electronic file is presented to various parties for evaluation and rating and appears legal. The Electronic Mortgage Loan Package is commonly, but incorrectly identified as the “Mortgage Loan Package” and is nothing more than an interest in the payment stream from the Intangible Payment Obligation originating from the Tangible Promissory Note obligation.
The electronic digitized version of the Security Instrument is often filed with the County Recorder’s Office and gives the illusion of legitimacy by allegedly providing a security interest for an alternate method of collecting value for the UCC Article 8 Intangible Obligation. In reality, the maker of the Intangible Obligation pledged the digitized version of a UCC Article 3 Security Instrument which is not perfected as it is recorded without the purchaser’s identity.
The Account Debtor claims to execute a True Sale of the Tangible Obligation and the Security Interest to the purchaser of the Intangible Obligation. This is impossible as the purchaser never obtained legal rights to an alternate method of collection using the Security Instrument to secure the obligation.
The First Electronic Sale happened when the Loan Originator offers the Electronic Mortgage Loan Package to a prospective Buyer (Intangible Obligor/Seller/Securitizer) to offset a pre-arranged line-of-credit for the benefit of the Loan Originator.
The Buyer of the Electronic Mortgage Loan Package conditionally agreed to accept as a tender of funds the conveyance of the Electronic Mortgage Loan Package and takes control of the Electronic Mortgage Loan Package as a transferable record that is not supported by law.
Pursuant to UCC Article 3-3203(d), when the First Transfer of Personal Property (UCC 8 Note-Payment Intangible) and the First Sale of the Intangible Obligation (payment stream, rights to future payments or beneficial interest) are bifurcated from the Tangible Obligation, rights to enforce the Tangible Obligation cease as the Tangible Obligation was not properly negotiated from the Loan Originator to the Intangible Obligor. The only rights conveyed are the rights to hold and possess the Tangible Obligation. An Intangible Obligor (Seller/Securitizer) cannot be a holder in due course of a properly secured UCC 3 instrument when the laws governing the Security Instrument are not followed.
UCC Article 9 does not govern the signatures on the Intangible Security Interest, Tangible Note or the Tangible Security Interest. UCC Article 9 governs the collection rights but the negotiation and transfer of an Intangible Obligation (payment stream) is governed by UCC Article 8. Therefore, negotiation of the UCC Article 8 instrument cannot be negotiated with an electronic signature attempting to transfer under UCC Article 9 and would therefore be invalid.
As future legal actions were not anticipated, the paper documents were either placed in storage (Custodial and Non-Custodial Custody) or destroyed.
This could be a major problem for parties attempting to foreclose because you must be in possession of the UCC Article 3 Paper Tangible Instruments (the wet ink signature note and mortgage) in order to foreclose on a piece of real property!
You not only have to have the Paper Tangible Instruments in your possession, you also must be the true “Holder in Due Course with Rights to Enforce”. Meaning you must have the legal rights to enforce the security provisions of the mortgage or deed of trust. However, if there you have a broken chain of title or clouded title due to the improper negotiating, transfer, and delivery of the mortgage loan contract then there may have been a lost of legal rights to enforce the mortgage lien.
Moreover, the electronic version of the paper documents is stored electronically as an eNote and tracked on a national database. The electronic database tracks who the UCC Article 8 Intangible Obligee is with personal property rights to the UCC Article 9. The electronic database does not track who has a vested legal interest in the Security Instrument as this is governed by State statutory law and typically remains vested in the name of the Mortgage Loan Originator.
If Mortgage Electronic Registration Systems (MERS) is involved, MERS is named as beneficiary or nominee agent to the Mortgage Loan Originator. Registration on the MERS system is required and when registered, an 18-digit Mortgage Identification Number “MIN” is created. The first seven digits identify the registering lender and the last digit is a checksum number. If the Electronic Mortgage Loan Package is registered in the MERS registry, there is no physical transfer of the Electronic Mortgage Loan Package.
The MERS Registry updates information as to who has control and ownership rights of the electronic digitized file. If a Notice of Assignment reflecting the electronic negotiation is not filed with the County Recorder’s Office rights to the Security Instrument does not occur. There is no law requiring notice to be filed with the County Recorder’s Office upon the selling or buying of an eNote when dealing with personal property. However, when dealing with real property, compliance with UCC Article 9, the ESIGN Act and the UETA is required.
The Second Electronic Sale happens when the Seller/Securitizer of the Investment Vehicle sells or assigns the Electronic Mortgage Loan Package to the Buyer (depositor of the Investment Vehicle). The recipient of the Electronic Mortgage Loan Package accepts the transfer and takes control of the Electronic Mortgage Loan Package under the terms of the Trust.
The Third Electronic Sale occurs when the Buyer sells or assigns the Electronic Loan Package to the Trustee of the Investment Vehicle and takes control of the Electronic Mortgage Loan Package. The Depositor of the Investment Vehicle takes control of the Investment Trust’s Electronic Certificates under the rules of the Trust in exchange for selling or assigning the Electronic Mortgage Package.
Under UCC Article 8, the Intangible Obligee (REMIC Trust) must comply with State statutory requirements in order to have a perfected Security Interest and a continuous alternate method to collect future payments pledged by the Account Debtor. The Intangible Obligee must be assigned the rights to the Security Instrument according to State statutory law.
If the UCC Article 8 Intangible Obligee attempts to apply UCC Article 9 laws of perfection to support a legal claim to the Security Instrument, the claim is untenable as it is unlawful. This system of securitization is flawed as it provides the Account Debtor (Intangible Obligor) and the Original Account Debtor (Tangible Obligor) rights to the same instrument which is a legal and logical impossibility.
Upon default on the Intangible Obligation a Notice of Assignment is filed with the County Recorder’s Office. This Notice of Assignment allegedly transfers lien rights from the Original Mortgage Loan Originator (Tangible Obligee) to a third Intangible Assignee (Subsequent Intangible Obligor) who is usually the Trustee of the Mortgage Servicer. These filings are a fraud upon public records.
The perfection of lien rights (Perfected Chain of Title) does not match the Chain of Negotiation of the Tangible Note shown by endorsements or lack thereof and shows the Tangible Note is no longer secured by the Security Instrument as the Security Instrument becomes a nullity as an operation of law. The Trust is conveyed a transferrable record, leaving the Tangible Note, less the rights securing it which include the power of sale as would exist if the Security Instrument securing the UCC Article 3 Tangible Note was assigned in accordance to State statute. The ESIGN Act – 15 USC §7003 excludes instruments governed by the UCC Article 3, 8 and 9 or the State equivalent. Therefore, the intangible claim cannot be negotiated electronically. The Tangible Note and the continuous perfection of the Security Interest can only be pledged as an intangible interest in the payment stream of the UCC 8 instrument. The Intangible Payment Obligation can only be negotiated in paper form.
The fact is the requirements set forth in the pooling and servicing agreements were not followed, and they were not followed in the following way. The pooling and servicing agreements says that when the notes are transferred to the trust there needs to be an endorsement in blank to the trust, as well as a complete chain of endorsements for all proceeding transfers.
That means that the originator of the loan must have a specific endorsement transferring it from the securitization sponsor, the sponsor to the depositor, and then the depositor in blank to the trust.
What I am told is that in most of the cases that chain of endorsements is not there. There is simply a single endorsement in blank. That creates a problem because it does not comply with the trust documents.
That is a severe problem because most pooling and servicing agreements are trust that are governed by New York law, and New York law says that if you are not punctilious in following the trust documents for a transfer, the transfer is void. It doesn’t matter if you intended it or not, it’s void. That transfer is void, even if that transfer would have otherwise complied with law. And if the transfer is void that would mean that the trust does not own the mortgages, and therefore lacks standing to foreclose. It’s axiomatic that in order to bring a foreclose action the plaintiff must have legal standing. Only the mortgagee has such standing.
Thus, various problems like false or faulty affidavits, as well as back dated mortgage assignments, and altered or wholly counterfeited notes, mortgages, and assignments all relate to the evidentiary need to prove standing. Because without standing you have no authority to bring a foreclosure action in the first place!