There are a number of new court cases where securitization issues are pointed out and Plaintiff’s standing is under heavy scrutiny. I will not explain the securitization theory in this blog, instead, offer a simplified view of the issue through the title search example. Let’s say the loan originated by Washington Mutual in 12/2006 (non-MERS loan) and the foreclosing party is “Bank of America in the capacity of Trustee for XYZ Mortgage Backed Securities Trust 2007-1”. Per county records, there is an assignment of mortgage from Washington Mutual to “Bank of America in the capacity of Trustee for XYZ Mortgage Backed Securities Trust 2007-1” recorded in 2012. On the surface, you would not see any issues with this assignment document; however looking deeper at the securitization of the loan we may find a number of inconsistencies or violations of securities law that are not a part of any checks by recorder or title examiner or notary.

Documents to be tied to the Title work. Let me touch only on the few items....Typically there are 2 main SEC (Securities and Exchange Commission) filed documents that would describe the roles and responsibility of each party involved in securitization of this loan for a given trust: Prospectus and Pooling and Servicing Agreement (PSA). PSA would define a time lines on when the assignments have to be executed after the trust cut-off (closing) date (when all loans / notes are transferred under the trust entity and the interest is being paid out to certificate holders). Typically, the document states that Trustee has 90 days from the cut-off date of the trust to record all necessary assignments of mortgage (in PSA referred as cure timeline). Clearly, you can see that this is a first violation of our example. PSA requires all assignments to be filed within 90 days (say Q1 of 2007), while the recorded assignment is filed 2 years later in 2009, most likely at the time of foreclosure kick-off or loan liquidation from the trust. How to you avoid this violation in the future?

My recommendation is to enforce Trustees to present to County Recorder a signed affidavit before assignment recording that the assignment of mortgage complies with securities law and in particular complies with Trust’s PSA and Prospectus documents. Going one step further, one may provide references to Prospectus and PSA documents were the loan is securitize in the affidavit. …(taking about transparency for loans, something Congress and Senate were debating for some time…). We can argue if this affidavit should be a recorded as an exhibit to an assignment.

Trustee Roles and Responsibility Title vs. PSA: I will only point out the most important issue in the Pooling and Servicing Agreement relating to Trustee. (If you have some free time, you can read the 700+ page PSA document yourself)

• Per Pooling and Servicing Agreement: Trustee has no right, title or interest in assets of the Trust (notes)
• Per Pooling and Servicing Agreement: Trustee cannot act outside the scope of the PSA
• Per Pooling and Servicing Agreement: Trustee not liable for Certificates or mortgage loans and is accountable for the use of, or application of funds by servicer.
• Per Prospectus: Trustee exchanges certificates of no pre-existing value for notes of intrinsic value

After the Foreclosure is final and there is no bidders for the property at the sheriff’s sale, Trustee assumes the title ownership per Sheriff’s Deed, however PSA does not allow for the Trustee to take Title or interest to the property. How do you reconcile the PSA securities law and Title documents in this case?

In my opinion, the additional process has to be put in place to transfer the note from Trustee to foreclosing institution, investor or otherwise the legal entity that does not follow securities law under PSA. Additional assignment has to be executed as well. Of course, the problem is much deeper then that, but for the sake of discussion and additional assignment would address the PSA violation. (I will purposely leave Servicer discussion for later time. )

Hopefully, this article will trigger reaction on how to fix some of securitization and title inconsistencies, rather then playing the blame game. There are TONS of issues in the title work today; I want to get to the point of purity, transparency and clarity to avoid any future claims and problems.