Complaint | PHOENIX LIGHT, et al v JPMORGAN CHASE & CO, et al | NYSC - Need to 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!

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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!

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.

[…]

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