Your humble blogger is in no position to speculate how this curious set of circumstances came about, but we have a good news, bad news situation, and hope readers can help remedy the bad news part.
The good news part is the California Court of Appeal endorsed what we’ve called the New York trust theory in mortgage securitizations in a recent decision called Glaski v. Bank of America (ruling below). One of the big issues in mortgage securitizations has turned out to be whether the party seeking to foreclose on a delinquent borrower has the legal authority (“standing”) to do so. Advocates of the New York trust theory (the overwhelming majority of subprime mortgage securitizations elected New York law to govern the trust) argue that New York trust law is particularly unforgiving, that both statute and case law require that a trustee act only as specifically stipulated in the trust documents. Any other action is void, meaning it has no legal effect.
The wee problem is the documents that created these trusts, the pooling and servicing agreement, stipulated specific dates as to when all the mortgages had to be conveyed to the trusts (and conveyed means not just paid for, but endorsed through a chain of title and in the possession of the trustee or its custodian). The big reason for the fixation on getting everything done by a certain date was that the 1986 Tax Reform Act created REMICs (real estate mortgage investment conduits) and these trusts were intended to qualify as REMICs. The various cutoff dates were set up in order to conform with the REMIC requirements. But whoops, it appears that those carefully crafted procedures stop being followed in the 2000s by a lot of the industry participants.
The Examiner (hat tip April Charney) provided a good layperson’s summary of the case:
When Thomas A. Glaski of Fresno County fell behind his mortgage payments, as with hundreds of distressed homeowners he was confronted with a rigid lender that offered no meaningful attempt to modify his troubled loan.
Glaski’s lender, now defunct WaMu, promptly commenced a foreclosure action after declaring his loan in default, and in the foreclosure bank friendly state of California where foreclosures occur essentially on the strength of a simple bank declaration, the sale of Glaski’s home was finalized.
Through his attorney, Glaski had filed suit to stop the bank sale but was initially unsuccessful. However Glaski appealed to the state’s higher court arguing that the bank lacked the rights or “legal standing” to foreclose and sell his home and the high court resoundingly agreed. The higher court reversed the bank’s foreclosure sale.
The appeals court found fatal flaws in bank transactional practices during the securitization or loan pooling process which occurs systemically after the loan closes…
A non judicial state means that a bank foreclosure requires no judicial intervention and can occur solely within a closed arrangement between the bank and its assigned Trustee. Glaski has changed those stakes.
So a well-respected court provided a carefully-reasoned pro-borrower ruling. And you would think it’s even better news because courts in California have generally not been terribly receptive to the securitization fail argument.
So what’s the bad news? The opinion is unpublished. That means other litigants typically cannot cite it in briefs, and it is not good law in California.
However, interested parties have until August 20, 2013 to submit a request for publication to the court. I’m court usually makes publication decisions within two weeks of the ruling (which was July 31), so in reality, there is another week to get letters in.
I’m going to see if I can get a letter in and I am also pinging Occupy the SEC, which is very good at turning around letters quickly. Please write if you are unhappy about bank abuses in foreclosures. There is a very strict procedure for how to to this (for instance, you need to mail copies of your letter to the defendant and plaintiff attorneys), but helpfully, this post tells you everything you need to do (even names and addresses of everyone who needs to get a letter, a form for the proofs of service) and even provides a sample letter.