Bankruptcy

Ibanez: About that Loan Schedule....

By Adam Levitin

Did Ibanez a particularly screwed up set of securitization documentation?  Or was this just snafu?  Looking around at other PSAs, I'm starting to think the latter.  In Ibanez, the Massachusetts Supreme Judicial Court noted that PSA was insufficient to serve as an assignment of the loan because what was presented as the affiliated loan schedule:

"did not include property addresses, names of mortgagors, or any number that corresponds to the loan number or servicing number on the LaRace mortgage. Wells Fargo contends that a loan with the LaRace property's zip code and city is the LaRace mortgage loan because the payment history and loan amount matches the LaRace loan."

So how do other PSAs fare under the Ibanez metric?  I've been looking at them, and it seems that there are lots of RMBS deals where the schedules in the PSAs are possibly insufficient to meet the Ibanez standard.  And that means that there are lots of RMBS trusts that might not be able to successfully foreclose in Massachusetts or maybe in any other title theory state.  (Read on...I name names!)

Let's start by taking a look at another ABFC PSA (not the ABFC 2005-OPT1 series involved in Ibanez), this time from ABFC Asset Backed Securities Series 2005-WMC1 (a Weyerhauser Mortgage Corporation deal--Weyerhauser was GE's subprime origination arm).  This PSA is (1) executed and (2) has a detailed loan schedule included.  So that means that the execution issue in Ibanez goes away.  But is the loan schedule up to snuff?   I'm not so sure. 

The ABFC 2005-WMC1 PSA has a schedule that includes two different loan IDs, the original balance and interest rate, the original term and first payment date, the LTV, maturity date, loan product type (and other info on the loan terms), and the city, state, ZIP.  It does not have a property address beyond a city and a ZIP, and it does not have the names of the mortgagors. 

The only thing that might distinguish it, then, from the schedule in Ibanez is if the loan ID numbers on the schedules match with that on the mortgage.  I've seen plenty of cases where the loan IDs don't match up; it certainly isn't a rare event.  Even if they do match up, I'm not sure that's enough. Maybe the loan number links to the note, which links to the mortgage, which should contain a description of the property.  If so, then the loan ID might suffice. Ibanez isn't clear on what is actually required, but the court was clear in stating that in a title theory state, a mortgage of a property is technically a sale of the property.  I'd be surprised if any state holds that there's an enforceable sale of real property when there's no street or lot address given.  (If there are any dirt lawyers reading this, please feel free to suprise me in the comments; I'm happy to learn.) 

So what's the take-away here?  I think there are lots of securitization deals where the mortgages might not be enforceable in title theory states like Massachusetts, even if the trustee can produce an executed PSA with all the schedules.  You don't have to even look at the schedules themselves to know whether there could be a problem.  PSA definitions of "Mortgage Loan Schedule" will typically (but not always) contain a list of all the items to be scheduled.  Some, like this ACE Securities Home Equity Loan Trust 2005-HE4 or this GSAMP Trust 2005-WMC1 or this Carrington Mortgage Loan Series Trust 2006-FRE1 require the mortgagor's name and a street address on the schedule (whether that info is correct is another story).  But there are plenty that do not require such information (see here (BoA deal), here (Argent deal with schedules), here (Countrywide deal), here (Chase deal), and here (Bear Stearns deal with schedules) for some examples), and if it's not required, well, it's not there.  And that could well be fatal to enforcement of these trusts' mortgages in Massachusetts at the very least, at possibly in every title theory state. 

So bottom line:  Ibanez might be a much broader reaching opinion than anyone's yet recognized. 

Full post as published by Credit Slips on January 14, 2011 (boomark / email).