The Pooling and Servicing Agreement is NOT a Trust Agreement

Neil Garfield
Jul 12

Unknown to lay people in court, the admission of an allegation or implied allegation (or even an argument) is the same thing as establishing that “fact” as true even if it isn’t even remotely true.
One of my first observations back when those investment banks started admitting that they were using trust names and trustees (after having denied it for years), was that the Pooling and Servicing Agreements (PSAs) they offered were not a trust agreement even if they said it was.

The lawyers always refer to it as though it is a trust agreement. It isn’t. Specifically, the PSA is a forward-looking document that is usually (a) incomplete and (b) not signed. It contains no warranties of title nor any recital of a current or prior conveyance. It is about things that might happen in the future unless circumstances change or the PSA is amended, which is frequently the case. The trust agreement is a statement of present intent creating a legally organized trust under the laws of some specified jurisdiction. The PSA will state that is governed usually under the law of the state of New York. That is only because they want to pass it off as the trust agreement.

State laws vary on the essential elements for creating a legally recognized trust as a business entity. But all states agree that there is nothing to talk about if the subject has not been conveyed to the trustee to hold in trust and Administer pursuant to the terms of the trust agreement. While wonkish in appearance, this only means that the trust is irrelevant if it does not own the asset that forms the foundation of a claim on behalf of the trust. Some states allow the “creation” of the trust entity without the conveyance. Those states treat the “trust” as sleeping or inchoate. Other states expressly require the conveyance of an asset to be held in trust by the trustee for the benefit of beneficiaries and to be administered in accordance with the terms set forth in the trust agreement. In the latter states, no trust is created without a “res” (thing) conveyed to the trustee to hold in trust.

In all states, if that conveyance has not been completed, there is no claim that can be made by the trustee or the trust. That brings us to the next question in the weeds.

What needs to be conveyed? The answer, according to the dark side, is just the note or maybe an assignment of mortgage. But both case law and statutory law say otherwise. The conveyance must be of the “loan” which means that it must include, without exception in any jurisdiction, conveyance of the underlying obligation that is alleged to exist. You won’t find a single REMIC trust that has ever received ownership of any underlying obligation or which has ever received a penny from its claimed “ownership”. That is because they don’t own the underlying obligation and the reason they don’t own the underlying obligation is that there is no underlying obligation.

That is why a third-party company is “designated” as a servicer. It is a veil behind which the fact that the named claimant. e.g. US Bank as trustee of SASCO trust 2006-1, hides the fact that there are no disbursements to any creditor, much less the REMIC trustee or the REMIC Trust.

In securitization, the underlying and intended obligation is avoided or eliminated and replaced by a virtual obligation to which the homeowner never agreed to pay. This is what enables securities brokerage companies to generate revenue geometrically larger than any initially reported transaction with the homeowner. The report is sufficient to convince the homeowner that money has been paid on his/her behalf even though it refi “closings” it often happens that no money exchanges hands.

In turn, the homeowner assumes that that money is owed and the money “paid” represents what the homeowner owes. It never occurs to the homeowner that he/she never received a loan and that that they’re missing a lender, an unpaid loan account receivable on the books of some creditor, and that they have performed an extremely valuable service on behalf of a securities brokerage firm that they never knew was involved.

This is also why the company was designated to act as though it was servicing the nonexistent loan account receivable — to cover up the fact that there is no trust relevant to any loan transaction and that there is no claim. But homeowners often turn the table on themselves by “admitting” that the company is a servicer and that the PSA is a trust agreement. Once they do that, they are trapped by their own behavior and the judge has no choice but to take them at their word. When they later try to get out of it, it is often too late.