THE EMBARRASSING DOUBLE DIPPING DOCKET: BANK FORECLOSURE COMPLAINTS CONCEAL THAT THE PSA TRUSTS PAY DEFAULTED MORTGAGES

  By Susan Chana Lask, Esq. Foreclosure complaints routinely allege that because homeowners fail to pay their mortgage then the bank must take the home to recover its losses.  However, the bank may not be at a loss according to the Pooling and Servicing Agreement (“PSA”) trusts terms. Notably, banks never inform the courts of the PSA terms in their foreclosure complaints. To establish a prima facie case in an action to foreclose a mortgage, the plaintiff bank must establish “the existence of the mortgage and mortgage note, ownership of the mortgage and note, and the Defendant’s default in payment.”  Campaign v. Barba, 23 AD3d 327 (2^nd Dept. 2005). The PSA is the insurance existing specifically to protect the banks from  homeowner’s default, which by its terms always pays any defaulting mortgage and other fees, including real estate taxes. Logically, if the bank is paid then there is no default or damage to the bank.  How can a loan be in default if the servicer advanced every payment to cover any alleged default? For example, the PSA for a trust called OAR2 names not one but two servicers as Wells Fargo Bank, N.A. (the master servicer and securities administrator) and Wilshire Credit Corporation. Those servicers are responsible to advance payments to protect all mortgaged property in the trust in the event a homeowner defaults in payment (at PSA pages 53 and 116) as follows:

“Servicing Advances: All customary, reasonable and necessary "out of pocket" costs and expenses incurred in the performance by a Servicer of its servicing obligations hereunder, including, but not limited to, the cost of (1) the preservation, inspection, restoration and protection of a Mortgaged Property, including without limitation advances in respect of prior liens, real estate taxes and assessments, (2) any collection, enforcement or judicial proceedings, including without limitation foreclosures, collections and liquidations, (3) the conservation, management, sale and liquidation of any REO Property, (4) executing and recording instruments of satisfaction, deeds of reconveyance, substitutions of trustees on deeds of trust or Assignments of Mortgage to the extent not otherwise recovered from the related Mortgagors or payable under this Agreement, (5) correcting errors of prior servicers; costs and expenses charged to such Servicer by the Trustee; tax tracking; title research; flood certifications; and lender paid mortgage insurance, (6) obtaining or correcting any legal documentation required to be included in the Mortgage Files and reasonably necessary for the Servicer to perform its obligations under this Agreement and (7) compliance with the obligations under Sections 13.01 and 13.10.”  and

“Section 6.04 Advances. If the Monthly Payment on a Mortgage Loan that was due on a related Due Date and is Delinquent other than as a result of application of the Relief Act and for which the applicable Servicer was required to make an advance pursuant to this Agreement exceeds the amount deposited in the Master Servicer Collection Account that will be used for a Advance with respect to such Mortgage Loan, the Master Servicer will deposit in the Master Servicer Collection Account not later than the Distribution Account Deposit Date immediately preceding the related Distribution Date an amount equal to such deficiency, net of the Servicing Fee for such Mortgage Loan, except to the extent the Master Servicer determines any such Advance to be nonrecoverable from Liquidation Proceeds, Insurance Proceeds or future payments on the Mortgage Loan for which such Advance was made. If the Master Servicer has not deposited the amount described above as of the related Distribution Account Deposit Date, the Trustee will, subject to applicable law and its determination of recoverability, deposit in the Master Servicer Collection Account not later than the related Distribution Date, an amount equal to the remaining deficiency as of the Distribution Account Deposit Date. Subject to the foregoing, the Master Servicer shall continue to make such Advances through the date that the applicable Servicer is required to do so under the Applicable Servicing Agreement. If applicable, on the Distribution Account Deposit Date, the Master Servicer shall present an Officer's Certificate to the Securities Administrator (i) stating that the Master Servicer elects not to make a Advance in a stated amount and (ii) detailing the reason it deems the advance to be nonrecoverable.”

Pursuant to the above PSA terms, if a homeowner misses a payment under the loan then the servicer makes the payment.  Moreover, the PSA terms mandate that the servicer is obligated to commence foreclosure proceedings, not the trustee that is usually the bank named as the plaintiff in every foreclosure complaint. In fact, review the foreclosure complaint carefully because in a recent HSBC foreclosure complaint I reviewed they plaintiff bank states it “or its agent has paid” the charges for the premises.  “Or its agent” is the servicer pursuant to the PSA terms and conclusively then the servicer who paid the fees is the real party suffering damages.  Conspicuously, that complaint like all complaints fails to state the fact that the servicer advances all defaulted monthly payments whenever a homeowner defaults. Foreclosure complaints then are actually requests for permission from the courts by banks who are not the real party in interest to double-dip and profit hand over fist first from the servicer who paid them and then from the homeowner. Lets not forget the fact that they also profited from slicing and dicing the mortgage into various Mortgage Backed Securities (“MBS”) sold to investors through the PSAs. I am not proposing that homeowners should not pay their loans; however, consistent with the facts of most foreclosure cases between the “too big to fail” banks and the homeowners is the fact that the banks created this system of selling mortgages knowing homeowners would default then banks refuse to workout loans and communicate with homeowners before and during their foreclosure filings. My position is that if the banks want to profit from the plight they caused homeowners when they created MERS[1] and all their layers of protection with PSAs and MBS’ filed with the SEC then the banks better stop the BS and prove their case with more than shoddy and fictional mass produced foreclosure documents.   To expose the double dipping docket of baseless foreclosure complaints, ask the court to review an accounting from the plaintiff banks of who got paid what and from whom and how many times the bank got paid on the same mortgage from the PSA, servicers, investors of the MBS’ and everywhere else they received payment from that loan. The court may find that a bank is not the plaintiff, there is no case and some servicer and/or investors out there need to come forth. “Will the real slim shady please stand up?”[2]

Susan Chana Lask is an author, lecturer and accomplished attorney litigating in State and Federal Courts, including the United States Supreme Court for the past 25 years. She is named by the media as "New York's High Profile Attorney" who consistently makes headlines worldwide and changes history with her controversial dogged lawsuits. Her 2010 lawsuit shut down the country's most notorious Foreclosure Mill in New York State for the benefit of the public suffering from fraudulent foreclosure filings. In 2011 she appeared before the Supreme Court of the United States with the support of five Attorneys General where she obtained a historical decision that strip searching non-criminal offenders is unacceptable unless they are in the general population. Her 2006 lawsuit against the makers of Ambien resulted in the FDA complying with her demands to change prescription drug warnings to protect some 26 Million consumers. Her cases are monumental and have changed history. Follow Ms. Lask on twitter @SusanChanaLask

This article is for informational purposes only. It is not legal advice. You should seek counsel from a licensed attorney if you have legal questions.