REMIC Tax Violations By OCWEN & Deutsche Bank Could Cost Worldwide Pension Funds Billions
Steve Dibert, MFI-Miami
“Growth for the sake of growth is the ideology of the cancer cell.” -Edward Abbey
When little old ladies get beat up and robbed by thugs on their way to the market for the few dollars they have left in their pocket from their pension checks or when a handful of rich old ladies from the Hamptons or Palm Beach lose millions of dollars to people like Bernie Madoff, everyone joins the fight to help prosecute the scumbags responsible faster than Chris Hansen busts pedophiles on NBC’s “To Catch A Predator”.
Unfortunately, hundreds of thousands of sweet little old ladies from around the world, most of whom are grandmothers living on social security and their pensions, are at risk of losing more money out of their pensions. It’s not because of some thug armed with brass knuckles, a switch blade or even a gun, its from people wearing business suits who work in office buildings in Frankfurt, Germany and West Palm Beach, Florida, who for the sake of greed mismanaged hundreds of thousands of sub-prime mortgage loans that were sold into mortgage backed security trusts on Wall Street.
Yes, I’m talking about Deutsche Bank, the largest bank in the world who acts as a trustee for nearly 40% of the sub-prime mortgage backed security trusts in the United States. I am also talking OCWEN, the fifth largest mortgage servicer in the U.S. and the only one who is not subsidiary of a major bank and who has been gobbling up it’s competitors faster than Homer Simpson consumes doughnuts at a doughnut shop. While OCWEN has focused on gaining market share, the quality of it’s management has declined to the point that it rivals only the Detroit Fire Department.
MFI-Miami has audited or investigated nearly 400 mortgages serviced by OCWEN. In nearly half those mortgages, we have had to have MFI-Miami’s lawyers or our clients’ lawyer threaten OCWEN with legal action if requested documents were not given to us or to our clients.
MFI-Miami is currently working on two foreclosures in Michigan being serviced by OCWEN that have Deutsche Bank named as a Trustee that show an example of what we have found on hundreds of mortgages handled by Deutsche Bank, OCWEN and the foreclosure mills they hire to record mortgage assignments and handle foreclosures. The actions of these three groups put billions of dollars from pension funds at risk for serious tax liability which comes out of the pockets of retirees.
The first mortgage belongs to Troy and Lea Etts in Monroe County which borders the Ohio state line. Their loan is allegedly held by Securitized Asset Backed Receivables LLC Trust 2004-NC1 that was incorporated on April 1, 2004. The second belongs to Grace Beland, who lives in rural Kalkaska County about 250 miles north of the Ettses. Her loan is allegedly held by Morgan Stanley Structured Trust I 2007-1.
These two loans also have something in common and it’s something that MFI-Miami has found in other loans serviced by OCWEN that can’t simply explained away as isolated incidents. MFI-Miami has discovered blatant violations of the Pooling and Servicing Agreement or PSA in the vast majority of loans serviced by OCWEN. The PSA is the agreement that binds together the responsibilities of the involved parties for that specific mortgage backed security trust. The PSA also lays out a time line of when loans can be put in the trust and the type of loans that can be placed in it. Most Mortgage backed security trusts are incorporated in New York or Delaware due to the fact that these two states allow the terms of the PSA to supercede state law. However, courts in these two states have ruled in favor of strict adherence to the terms spelled out in the PSA and any violation could jeopardize the trust’s ability to foreclose or to recover any losses.
These trusts are classified under the Internal Revenue Code as a Real Estate Investment Conduits or REMICs. Investors in REMIC receive tax exempt status under 26 USC 860A. However, if a transaction takes place that violates the provisions of the PSA and is not removed and immediately replaced, 26 USC 860F says such transactions are liable for a 100% tax per year on all prohibited transactions.
26 USC 860G(a)(3)(A)(i)of the code also spells out what is considered a “Qualified Mortgage” for the trust and 26 USC 860D requires all loans in the trust be “Qualified Mortgages”. One of the requirements is that the mortgage be assigned into the trust prior to the startup date. The startup date is the day after the closing date when interest begins accruing that is to be paid to the bond holders of the trust. The code also states that foreclosure, loans in default, or imminent default do not classify as a qualified mortgage and therefore are not tax exempt.
In the case of the Ettses, their mortgage loan was not assigned into trust following the procedures dictated in the PSA for Securitized Asset Backed Receivables LLC Trust 2004-NC1. The PSA states the loan is to be recorded on the public record before the closing date. Evidence from the Securities and Exchange Commission (SEC) and the Monroe Register of Deeds indicates it was not assigned into the trust until after the Ettses were given notice their mortgage was going into foreclosure.
The Etts’ mortgage assignment also contains fraudulent signatures of Leticia Arias that appears to match the signature of Naomi Smith. Both of these women work for OCWEN at their headquarters in West Palm Beach, Florida. This mortgage assignment like the mortgage assignments I wrote about in October, and subsequent foreclosure action are being handled by the Law Office of Randall S. Miller and Associates, a multi-state foreclosure mill located in suburban Detroit.
The Etts’ attorney, Kelli Meeks of the Level One Legal Services finds this whole situation pretty disgusting,
“The continued and blatant disregard for the most fundamental rule of law is really no surprise considering the total lack of respect these organizations have to any legal authority.”
These issues alone would classify the Etts’ mortgage as a prohibitive loan for the trust. The terms of the PSA were clearly violated thus violating Delaware law, it contained elements of fraud and it was not removed and replaced within 90 days of the start date. This could cause pension funds and other institutional investors that own bond certificates for Securitized Asset Backed Receivables LLC Trust 2004-NC1 to face serious tax ramifications going all the way back to 2004.
The law firm representing OCWEN, Trott & Trott, essentially did the same thing to Grace Beland, by recording a mortgage assignment to Morgan Stanley Structured Trust I 2007-1 two days prior to advertising her foreclosure in her local newspaper, Trott & Trott filed a mortgage assignment. The PSA for Morgan Stanley Structured Trust I 2007-1 clearly states that the mortgage assignment must be recorded in the public record on or before the July 6, 2007 cutoff date. The mortgage assignment for Grace Beland’s mortgage also show signs of notary fraud committed by OCWEN employees in their West Palm Beach headquarters. The violations of the PSA and the fact the loan was in foreclosure at the time of the assignment as well as, evidence of notary fraud has set Morgan Stanley investors up for serious tax liabilities under the Internal Revenue Code.
Attorney Anthony DeMatteis who is fighting a David versus Goliath battle against Deutsche Bank to keep Grace Beland and her family in their home argues,
“If we begin enforcing laws against one group of people instead of everyone, what does that say about the future of this country?”