SUPREME COURT OF THE STATE OF NEW YORK
1. This action originally requested the Court to order an immediate accounting of
two trusts known as CWALT 2005-6CB and CWALT 2006-6CB. These trusts hold
residential mortgage loans for the benefit of investors such as Plaintiff. The original
Complaint was not directed at the Defendant Trustee, but information obtained after the
filing of the Complaint demonstrates that the Defendant Trustee has violated its
contractual and other obligations to Plaintiff. Accordingly, Plaintiff seeks to hold the
Defendant Trustee liable for Plaintiff’s damages in all of the following trusts ….
BACKGROUND – DEFENDANT’S FAILURE TO ACQUIRE THE TRUST CORPUS
36. Based on the following allegations, it is apparent that the Defendant knowingly
failed in its obligation to receive, process, maintain, and hold all or part of the Mortgage
Files as required under the PSA. As a consequence, Plaintiff did not acquire residential
mortgage-backed securities, but instead acquired securities backed by nothing at all.
37. In a case styled Kemp v. Countrywide Home Loans, Inc., 440 B.R. 624 (D.N.J.
Bankr. 2010), the Master Servicer, identifying itself as the servicer for Defendant, filed a
secured claim in the bankruptcy of homeowner and debtor Kemp. Kemp filed an
adversary complaint against the Master Servicer asserting that “the Bank of New York
cannot enforce the underlying obligation.” Id. at 626.
38. At trial, a supervisor and operational team leader for the Litigation Management
Department for the Master Servicer testified that “to her knowledge, the original note
never left the possession of Countrywide, and that the original note appears to have been
transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking
numbers. She also confirmed that the new allonge had not been attached or otherwise
affixed to the note. She testified further that it was customary for Countrywide to
maintain possession of the original note and related loan documents.” Id. at 628.
39. Summarizing the record, the New Jersey Bankruptcy Court found that:
[W]e have established on this record that at the time of the filing of the proof of
claim, the debtor’s mortgage had been assigned to the Bank of New York, but that
Countrywide did not transfer possession of the associated note to the Bank.
Shortly before trial in this matter, the defendant executed an allonge to transfer
the note to the Bank of New York; however, the allonge was not initially affixed
to the original note, and possession of the note never actually changed. The
Pooling and Servicing Agreement required an indorsement and transfer of the
note to the Trustee, but this was not accomplished prior to the filing of the proof
of claim. The defendant has now produced the original note and has apparently
affixed the new allonge to it, but the original note and allonge still have not been
transferred to the possession of the Bank of New York. Countrywide, the
originator of the loan, filed the proof of claim on behalf of the Bank of New York
as Trustee, claiming that it was the servicer for the loan. Pursuant to the PSA,
Countrywide Servicing, and not Countrywide, Inc., was the master servicer for
the transferred loans. At all relevant times, the original note appears to have been
either in the possession of Countrywide or Countrywide Servicing.
Id. at 629.
40. “With this factual backdrop”, the New Jersey Bankruptcy Court turned “to the
issue of whether the challenge to the proof of claim filed on behalf of the Bank of New
York, by its servicer Countrywide, can be sustained”, and found that:
Countrywide’s claim here must be disallowed, because it is unenforceable under
New Jersey law on two grounds. First, under New Jersey’s Uniform Commercial
Code (“UCC”) provisions, the fact that the owner of the note, the Bank of New
York, never had possession of the note, is fatal to its enforcement. Second, upon
the sale of the note and mortgage to the Bank of New York, the fact that the note
was not properly indorsed to the new owner also defeats the enforceability of the
Id. at 629-630.