View Full Version : Court: Busted Securitization Prevents Foreclosure

3rd April 2011, 07:25 AM
"Court: Busted Securitization Prevents Foreclosure"

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 (BAC) -- 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.

So what equals a bad securitization?

The key contract creating the securitization is called a "Pooling and Servicing Agreement" (pooling as in creating a pool of mortgages, and servicing as in servicing those mortgages.) The PSA for the deal involving the Horace mortgage is here and has very specific requirements about how the trust can acquire loans. One of the easiest requirements to check is the way the loan's promissory note is supposed to be endorsed -- just look at the note.

And the industry norm is called "blank" endorsements, meaning there is no endorsement of any kind on the notes. Oops!

"Alabama judge denies securitization trustee standing to foreclose"