Complaint | PHOENIX LIGHT, et al v JPMORGAN CHASE & CO, et al | NYSC - Fabricate or fraudulently alter mortgage assignment documentation, Title & Vast majority of loans underlying the offering were not properly or timely transferred to the trust...REMIC, PSA, SECURITIZATION FAILURE!
Get ready for this 502 Pg. Complaint..BETTER GRAB IT BEFORE THEY SEAL THIS BABY UP!
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK
PHOENIX LIGHT SF LIMITED, BLUE HERON FUNDING II LTD., BLUE HERON FUNDING V LTD., BLUE HERON FUNDING VI LTD., BLUE HERON FUNDING VII LTD., BLUE HERON FUNDING IX LTD., SILVER ELMS CDO II LIMITED and KLEROS PREFERRED FUNDING V PLC, Plaintiffs, vs. JPMORGAN CHASE & CO., J.P. MORGAN SECURITIES LLC, J.P. MORGAN MORTGAGE ACQUISITION CORP., CHASE HOME FINANCE LLC, J.P. MORGAN ACCEPTANCE CORPORATION I, CHASE MORTGAGE FINANCE CORPORATION, THE BEAR STEARNS COMPANIES LLC, EMC MORTGAGE LLC, BEAR STEARNS ASSET BACKED SECURITIES I LLC and STRUCTURED ASSET MORTGAGE INVESTMENTS II INC., Defendants. EXCERPT: 989. The rules for these transfers are governed by the law of the state where the property is located, by the terms of the pooling and servicing agreement (“PSA”) for each securitization, and by the law governing the issuing trust (with respect to matters of trust law). Generally, state laws and the PSAs require that the trustee have physical possession of the original, manually signed note in order for the loan to be enforceable by the trustee against the borrower in case of default. 990. In addition, in order to preserve the bankruptcy-remote status of the issuing trusts in RMBS transactions, the notes and security instruments are generally not transferred directly from the mortgage loan originators to the trusts. Rather, the notes and security instruments are generally initially transferred from the originators to the sponsors of the RMBS offerings. After this initial transfer to the sponsor, the sponsor in turn transfers the notes and security instruments to the depositor. The depositor then transfers the notes and security instruments to the issuing trust for the particular securitization. This is done to protect investors from claims that might be asserted against a bankrupt originator. Each of these transfers must be valid under applicable state law in order for the trust to have good title to the mortgage loans. 991. Moreover, the PSAs generally require the transfer of the mortgage loans to the trusts to be completed within a strict time limit – three months – after formation of the trusts in order to ensure that the trusts qualify as tax-free real estate mortgage investment conduits (“REMICs”). In order for the trust to maintain its tax free status, the loans must have been transferred to the trust no later than three months after the “startup day,” i.e., the day interests in the trust are issued. See Internal Revenue Code §860D(a)(4). That is, the loans must generally have been transferred to the trusts within at least three months of the “closing” dates of the offerings. In this action, all of closing dates occurred in 2005, 2006 or 2007, as the offerings were sold to the public. If loans are transferred into the trust after the three-month period has elapsed, investors are injured, as the trusts lose their tax-free REMIC status and investors like plaintiffs may face several adverse draconian tax consequences, including: (1) the trust’s income becoming subject to corporate “double taxation”; (2) the income from the late-transferred mortgages being subject to a 100% tax; and (3) if latetransferred mortgages are received through contribution, the value of the mortgages being subject to a 100% tax. See Internal Revenue Code §§860D, 860F(a), 860G(d). 992. In addition, applicable state trust law generally requires strict compliance with the trust documents, including the PSAs, so that failure to strictly comply with the timeliness, endorsement, physical delivery, and other requirements of the PSAs with respect to the transfers of the notes and security instruments means the transfers would be void and the trust would not have good title to the mortgage loans. [...] 1002. The need to fabricate or fraudulently alter mortgage assignment documentation provides compelling evidence that, in many cases, title to the mortgages backing the certificates plaintiffs purchased was never properly or timely transferred. This fact is confirmed by an investigation conducted by plaintiffs concerning one of the specific offerings at issue herein, which revealed that the vast majority of loans underlying the offering were not properly or timely transferred to the trust. 1003. Specifically, plaintiffs performed an investigation concerning the mortgage loans purportedly transferred to the trust for the JPMorgan Defendants’ JPMAC 2006-WMC4 offering. The closing date for this offering was on or about December 20, 2006. Plaintiffs reviewed the transfer history for 274 loans that were supposed to be timely transferred to this trust. Sixty-six (66) of the loans were not and have never been transferred to the trust. In addition, several other loans that were supposed to be transferred to the trust were transferred to entities other than the trust, but not to the trust. The remainder of the loans (approximately 140) were eventually transferred to the trust, but all such transfers occurred between 2008 and the present, well beyond the three-month time period required by the trust documents and far after the three-month period for the trust to maintain its tax-free REMIC status. In other words, none of the reviewed mortgage loans were timely transferred to the trust, a 100% failure rate. 1004. The foregoing example, coupled with the public news, lawsuits and settlements discussed above, plainly establishes that defendants failed to properly and timely transfer title to the mortgage loans to the trusts. Moreover, it shows that defendants’ failure to do so was widespread and pervasive. In fact, the specific example discussed above shows that defendants utterly and completely failed to properly and timely transfer title. Defendants’ failure has caused plaintiffs (and other RMBS investors) massive damages. As noted by law professor Adam Levitin of Georgetown University Law Center on November 18, 2010, in testimony he provided to the a U.S. House Subcommittee investigating the mortgage crisis, “[i]f the notes and mortgages were not properly transferred to the trusts, then the mortgage-backed securities that the investors[] purchased were in fact non-mortgaged-backed securities” (emphasis in original), and defendants’ failure “ha[d] profound implications for [R]MBS investors” like plaintiffs. Indeed, Professor Levitin noted in his testimony that widespread failures to properly transfer title would appear to provide investors with claims for rescission that could amount to trillions of dollars in claims. [...]