This decision is important because of the reasoning, the logic and most importantly the application of New York law. Virtually all the REMIC trusts were common law trusts formed under New York law for a lot of reasons. So this decision is extremely important as persuasive authority in its finding that if the REMIC is closed, there is nothing to make the assignment TO after the close-out date, which as the Judge points out is the start of business for the trust.
He reasons that if the assignment after the close out date could be ratified then it is voidable and not void. If it is voidable then the homeowner has no standing to challenge the validity of the assignment. But, the Judge says if the assignment was void ab initio then there is nothing to ratify because the event never happened. If the event never happened then the homeowner does have standing to challenge the validity if the assignment. Essentially the homeowners saying that he denies there was any assignment. If there was no assignment then any action by the assignee is without any right, justification or excuse.
It is potentially standing which is jurisdictional to be sure but it is in personam jurisdiction now instead of subject matter jurisdiction — or perhaps both.
As pointed out above, the capacity to sue involves the basic elements of any lawsuits for money or equitable relief based upon a money debt: (1) duty, (2) breach of duty, (3) injury and (4) causation — the injury was caused by the borrower. As pointed out by these cases, NONE of the required elements are present and therefore, there is no capacity to sue. Capacity to sue is close to the issue of standing but it isn’t the same thing. While standing involves jurisdictional issues over the parties, capacity to sue involves jurisdictional issues over the subject matter. There is no subject matter jurisdiction unless the foreclosing party can make a case for stating the four elements of any lawsuit.
The keys here are the Judge’s citation to two things. First that the law of New York says it is void and the court must use the laws of the state of New York — a position mercilessly pounded into the courts by the banks. Now that position is blowing up in their faces. Second, he points out that under the Internal Revenue Code contains huge penalties and negative economic consequences if the REMIC was still accepting assignments after the cut- off date. Thus the Judge used reason, logic, New York law, and the negative effect imposed by the IRC if the REMIC provisions were violated. We might also add that the PSA contained the same restrictions. He concludes that the assignment 3 years after the cutoff was void, not void able and that it was void ab initio which means that there was no effective assignment despite the fabrication of a piece of paper.
This puts Deutsch and others who have stated they are the trustee for the REMIC in a no-win position. To the extent they have corroborated the assignment they have delivered an economic blow to the investors in the REMIC — and are now subjected to potential liability in the trillions of dollars. If they have not tried to back up the assertions of those bringing foreclosure then they clearly won’t do it now. And it explains why no actual signature for an actual Deutsch officer or employee is on any document used in bringing the foreclosure.
The further interesting point is that this is the fire in the brush that flushes the investors out. They must corroborate what we have been saying — that their agents violated the restrictions of the pooling and servicing agreement and that they, the investors, cannot be held to be bound to the ultra vires actions of their agents. And it raises the question of what else did these intermediaries do that violated the terms of the investment in mortgage bonds? It raises, most importantly, the question of WHY they violated the terms of the PSA and prospectus.
The only rational answer is MONEY — like the insurance and CDS proceeds. But beyond that and tantalizingly raised in this decision is — if the investors gave up money and it wasn’t through the REMIC — then you have two choices, to wit: either they invested in nothing or, they became involuntary common law partners in a common law general partnership.
This raises issues that Wall Street wants to stay very far from. All their authority comes from a PSA that is now revealed to have been violated resulting in the inescapable conclusion, using the logic from this Texas bankruptcy judge, that Wall Street has no power over these transactions — including servicing loans. This means we can insist on the identity of the investors and that the ONLY people to go to for HAMP are the investors or some new authorized agent.