Sloppy Securitization Sinks Foreclosure In AL Case; Judge "Surprised To The Point Of Astonishment" At Bank's Failure To Comply w/ Terms Of Its Own PSA

AOL's DailyFinance reports:

• On March 30, an Alabama judge issued a short, conclusory order that stopped foreclosure on the home of a beleaguered family, and also prevents the same bank in the case from trying to foreclose against that couple, ever again.
• This may not seem like big news -- but upon review of the underlying documents, the extraordinarily important nature of the decision and the case becomes obvious.

  No Securitization, No Foreclosure

• The couple involved, the Horaces, took out a predatory mortgage with Encore Credit Corp in November, 2005. Apparently Encore sold their loan to EMC Mortgage Corp, who then tried to securitize it in a Bear Stearns deal. If the securitization had been done properly, in February 2006 the trust created to hold the loans would have acquired the Horace loan.
• Once the Horaces defaulted, as they did in 2007, the trustee would have been able to foreclose on the Horaces. And that's why this case is so big: the judge found the securitization of the Horace loan wasn't done properly, so the trustee -- LaSalle National Bank Association, now part of Bank of America -- couldn't foreclose.
• In making that decision, the judge is the first to really address the issue, head-on: If a screwed-up securitization process meant a loan never got securitized, can a bank foreclose under the state versions of the Uniform Commercial Code anyway?

• This judge says no, finding that since the securitization was busted, the trust didn't have the right to foreclose, period. Since the judge's order(1) doesn't explain, how should people understand his decision? Luckily, the underlying documents make the judge's decision obvious.

For more, see Court: Busted Securitization Prevents Foreclosure.

See also:

• Naked Capitalism: Alabama Judge Accepts New York Trust Theory, Dismisses Foreclosure Action for Failure to Comply With Pooling and Servicing Agreement,
• Housing Wire: Alabama judge denies securitization trustee standing to foreclose.

For the homeowner's summary judgment filings, see:

• Horace v. LaSalle Motion for Summary Judgment on Chain of Title and New York Trust Issues
• Horace v. LaSalle Memorandum of Law in Support of Motion for Summary Judgment

(1) In his order, Russell County Circuit Judge Albert L. Johnson zings the bank with this gem:

• "[T]he Court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with the terms of its own Pooling and Servicing Agreement and further did not comply with New York Law in attempting to obtain assignment of plaintiff's Horace's note and mortgage."

For 20 reasons you need to request through formal discovery in any mortgage-related lawsuit the Pooling and Servicing Agreement and why it is relevant, see Max Gardner’s Top Reasons for Wanting a Pooling & Servicing Agreement.

For more on the problems that foreclosing lenders have reason to fear in connection with PSA screw-ups, see The Alphabet Problem and the Pooling and Servicing Agreement.

See Finding Investor Restrictions on Loan Modifications for some guidance on locating pooling and servicing agreements.