The PSA Shows a Road Map of the Contemplated Path

These rulings where the banks and the courts try to say that the homeowner lacks standing under the PSA governing the securitization of their promissory note miss the point.  As Adam Levitin says, better than I have, the homeowner is not trying to CLAIM BENEFITS under the PSA.  Rather, the homeowner is pointing out that this contract, drafted by the lenders and servicers, and from which they gained massive profits, provides facts (factual allegations to support a Complaint so that the allegations are not conclusory) to support how the transfers were envisioned to have occurred.  Usually, this governing indenture is well thought out and contemplates a complete transfer of an indorsed note and written assignments of the deed of trust through the originator to sponsor/seller to depositor to trust.  But then the banks come out and claim “nah, it just went from this defunct originator to Whoever We Say, Inc. just before the trustee’s sale.  Never mind that the REMIC rules required a transfer by a strict cutoff date three years ago.  Missing the point, judge, missing the point.  As Levitin wrote:

I think that view is plain wrong.  It fails to understand what PSA-based foreclosure defenses are about and to recognize a pair of real and cognizable Article III interests of homeowners:  the right to be protected against duplicative claims and the right to litigate against the real party in interest because of settlement incentives and abilities.

The homeowner is obviously not party to the securitization contracts like the PSA (query, though whether securitization gives rises to a tortious interference with the mortgage contract claim because of PSA modification limitations…). This means that the homeowner can’t enforce the terms of the PSA.  The homeowner can’t prosecute putbacks and the like.  But there’s a major difference between claiming that sort of right under a PSA and pointing to noncompliance with the PSA as evidence that the foreclosing party doesn’t have standing (and after Ibanez, it’s just incomprehensible to me how this sort of decision could be coming out of the 1st Circuit BAP with a MA mortgage).

Let me put it another way.  Homeowners are not complaining about breaches of the PSA for the purposes of enforcing the PSA contract.  They are pointing to breaches of the PSA as evidence that the loan was not transferred to the securitization trust.  The PSA is being invoked because it is the document that purports to transfer the mortgage to the trust.  Adherence to the PSA determines whether there was a transfer effected or not because under NY trust law (which governs most PSAs), a transfer not in compliance with a trust’s documents is void.  And if there isn’t a valid transfer, there’s no standing.  This is simply a factual question–does the trust own the loan or not?   (Or in UCC terms, is the trust a “party entitled to enforce the note”–query whether enforcement rights in the note also mean enforcement rights in the mortgage…)  If not, then it lacks standing to foreclosure.

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