Complaint | ROYAL PARK INVESTMENTS SA/NV vs DEUTSCHE BANK AG et. el | 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!
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK
ROYAL PARK INVESTMENTS SA/NV, Plaintiff, vs. DEUTSCHE BANK AG, DEUTSCHE BANK SECURITIES, INC., DB STRUCTURED PRODUCTS, INC., DEUTSCHE ALT-A SECURITIES, INC. and ACE SECURITIES CORP., Defendants. EXCERPT: 428. 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 the 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 plaintiff face several adverse draconian tax consequences: (1) the trust’s income is subject to corporate “double taxation”; (2) the income from the late-transferred mortgages is subject to a 100% tax; and (3) if late-transferred mortgages are received through contribution, the value of the mortgages is subject to a 100% tax. See Internal Revenue Code §§860D, 860F(a), 860G(d). 429. 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. [...] 439. Further confirming the endemic problems of defective transfers in the defendants’ RMBS, servicers that act on behalf of trustees have also been unable to properly foreclose on mortgaged properties serving as collateral for plaintiff’s investments. For example, sworn deposition testimony from a longtime Countrywide employee (Countrywide is one of the key originators at issue in this case) regarding Countrywide-originated loans demonstrates that Countrywide systematically failed to properly transfer or assign the mortgage documents. In Kemp v. Countrywide Home Loans, et al., No. 08-02448-JHW (Bankr. D.N.J.), Linda DeMartini, a tenyear employee of Countrywide’s servicing division, testified that not delivering the original note to the trustee was standard Countrywide practice, stating that the “normal course of business . . . would include retaining the documents,” and that Countrywide “transferred the rights . . . not the physical documents.” Based on this testimony, Chief Bankruptcy Judge Judith Wizmur held that the fact that the issuing trustee “never had possession of the note[] is fatal to its enforcement” and, thus, that the trustee could not enforce the mortgage loan. Kemp v. Countrywide Home Loans, Inc., No. 08- 02448-JHW, slip op. at *10-*11 (Bankr. D.N.J. Nov. 16, 2010). Countrywide originated loans in many of the offerings at issue herein. 440. The need to fabricate or fraudulently alter mortgage assignment documentation provides compelling evidence that, in many cases, title to the mortgages backing the certificates plaintiff purchased was never properly or timely transferred. In fact, plaintiff has conducted investigations on the loans underlying several of the offerings at issue herein to determine whether the loans were properly transferred to the trusts. In each case investigated, the vast majority of loans underlying the offerings were not properly or timely transferred to the trusts. 441. For example, plaintiff performed an investigation concerning the mortgage loans purportedly transferred to the trust for the Deutsche Bank Defendants’ DBALT 2006-AR6 offering. The closing date for this offering was on or about December 15, 2006. Plaintiff reviewed the transfer history for 310 loans that were supposed to be timely transferred to this trust. Only two (2) loans were timely transferred to the trust. Thirty-five (35) other loans were not and have never been transferred to the trust. Thirty-seven (37) additional loans were never assigned to the trust, and were paid in full in the name of the originator (or a third party). In addition, thirty-nine (39) other loans that were supposed to be transferred to the trust were transferred to entities other than the trust, but not to the trust. Five (5) deeds of trust were foreclosed in the name of a party other than the trust, without an assignment of record of the note and mortgage (deed of trust) to that party or the trust. The remainder of the loans (192) were eventually transferred to the trust, but all such transfers occurred between mid-2007 and the present, well beyond the three-month time period required by the trust documents. In other words, only 2 of the 310 reviewed loans were timely transferred to the trust, a failure rate of 99.4%. 442. The foregoing example, coupled with the public news, lawsuits and settlements discussed above, establish that defendants failed to properly and timely transfer title to the mortgage loans to the trusts. Moreover, they show that defendants’ failure to do so was widespread and pervasive. In fact, the specific examples discussed above show that defendants utterly and completely failed to properly and timely transfer title. Defendants’ failure has caused plaintiff (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 plaintiff. 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. [...]