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Category: Business Law
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Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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hi i need to ask some questions pertaining to promissory notes,

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hi i need to ask some questions pertaining to promissory notes, negotiable instruments, securitization, publicly and privately traded securities, indorsments and mortgage backed securities. i need someone really well versed in this area. is this the correct category to ask them?
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Pro replied 1 year ago.
Yes, this would be the correct category.

What is your question?
Customer: replied 1 year ago.

ok first of all can you give me a brief rundown of what the promissory note and mortgage must go thru to become securitized?


 


then i believe that a promissory note is a negotiable instrument but once securitized it becomes a security or specifically a mortgage backed security, and different UCC rules apply to it, is that true and is it still a negotiable instrument?

Expert:  Law Pro replied 1 year ago.
Are your questions relating to a mortgage foreclosure?
Customer: replied 1 year ago.

yes but the real estate lawyers don't seem to know much about the securitization process

Expert:  Law Pro replied 1 year ago.

A mortgage note (also known as a real estate lien note) is a promissory note associated with a specified mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and obligates the borrower, who signs the note, personally responsible for repayment. [Wikipedia}

So, when the mortgage is filed/recorded - that securitizes the property as to the loan - that the property is a security for the loan.

Are you then alluding to instances when a bunch of mortgages are sold to some third party?

Customer: replied 1 year ago.

yes i believe it was placed into a pool then into a trust and then sold to investors that is the process i was interested in

Expert:  Law Pro replied 1 year ago.
Well that's done all the time - a lender packages a "bulk" or "pool" of mortgage loans and sells them to some third party.


The original mortgage is still represents a security interest in the property for the repayment of the loan.


The secondary mortgage market allows banks to sell mortgages, giving them new funds to offer more mortgages to new borrowers. If banks had to keep these mortgages the full 15 or 30 years, they would soon use up all their funds, and potential homebuyers would have a more difficult time to find mortgage lenders. Many of the mortgages on the secondary market are bought by Fannie Mae. Other are packaged into mortgage-backed securities, and sold to investors.

A pool of mortgages are owned by a bank or lender. They are grouped into categories by credit risk including subprime, alt-a (between subprime and prime), and prime.

The pool of mortgages are packaged into a mortgage backed security.

The mortgage backed security is then sliced and diced into different classes with varying maturities (called tranches). Each tranche offers varying degrees of risk to the investor. The first loan to default will be placed into the Junk tranche while the strongest loans receive the highest credit rating of 'AAA' and are placed at the top of the tranche division. As with any asset associated with risk, the highest risk tranche receives the highest rate of return or yield while the lowest risk (AAA rated) will receive the lowest yield.

The tranches are then resold to investors who are willing to take on the varying degrees of risk and maturities.
Customer: replied 1 year ago.

ok that is kind of what i was looking for but...once it is packaged into a mortgage backed security is the individual note still a negotiable instrument? or is it classified as a security now?

and is a security classified as a negotiable instrument as to say the individual note can still be sold freely to anyone at any time or does it have to stay in the mortgage backed security?

 

also the process i was really looking for is creating the pool/securities example originator sells note to bank B, bank B forms a SPV, SPV forms a trust and assigns a trustee, pooling and servicing agreement is created etc... something like that anyway and who is required to indorse what at what stage along the line.

 

oh also i believe the SEC governs and regulates publicly traded securities but who or what governs and regulates the privately traded ones on wallstreet?

Expert:  Law Pro replied 1 year ago.
Yes, the individual note is still a negotiable instrument. The original loan is a mortgage backed security.

What I previously described is a bulk or pool sale. But a particular mortgage can be taken out of that - for example if the borrower refinances OR if the buyer of the loan wants to futher limit their risk and sell off part of the bulk individually or in a bulk/pool.

You also asked:

also the process i was really looking for is creating the pool/securities example originator sells note to bank B, bank B forms a SPV, SPV forms a trust and assigns a trustee, pooling and servicing agreement is created etc... something like that anyway and who is required to indorse what at what stage along the line



I'm not sure I understand the question.

However, what is suppose to happen is that your original lender groups loans into packages and sells them off.

Companies or hedge funds or financial institutions buy these mortgage backed securities from lenders. They are suppose get the underlying documentation for each individual loan but usually don't and have to go back to the original lender if the borrower defaults.
Customer: replied 1 year ago.

ok get the underlying documentation for each loan as to say the original note and mortgage? if they do not get the originals and they are not indorsed to them at the time of the transfer they are not truly the owner of the note are they? also if it helps any this securitization involves MERS which I am sure you are aware is a huge can of worms and clouded chain of title issues.

Expert:  Law Pro replied 1 year ago.
That is correct. That's what all the fuss is about - "show me the note"!!!

Copies are OK if of properly executed documents - they don't necessarily need the originals per se.

However, they do have to validate that they were assigned correctly the mortgage - regardless if it was "pooled" or not.

The problem banks or others are having with the “show me the note” defense is proving that they have a right to enforce the Note, even if they can produce a copy. The UCC, at 3:309(2), says that the bank must ‘prove’ its right to enforce the Note. You ask the bank, “Where did you get that Note? Show me the endorsements”. The bank must show the ‘chain of title’ from the original Lender bank to itself, and that it cannot do.
Customer: replied 1 year ago.

ok now we are on the right track I have infact asked to see my original "Wet Ink" signature, they have shown copies with attached Allonges saying bank A sold note to trust B and trust B sold note to Trust C then when I pointed out flaws in their petition and questioned their standing and indorsments they filed an amended petition with 3 completely different Allonges, form my research an Allonge is supposed to be firmly attached as to become a part of the original note and only used if there is not further room on the original note for indorments. is that in fact true? if so then changing the Allonges is in effect changing the chain of title which cannot be done correct?

Expert:  Law Pro replied 1 year ago.
Here is a link describing allonges and other things that would be on interest to you in your case:

http://livinglies.wordpress.com/2012/06/04/allonges-assignments-and-endorsements-the-real-deal/

But you're correct.

A Common Definition is “An allonge is generally an attachment to a legal document that can be used to insert language or signatures when the original document does not have sufficient space for the inserted material. It may be, for example, a piece of paper attached to a negotiable instrument or promissory note, on which endorsements can be written because there isn’t enough room on the instrument itself. The allonge must be firmly attached so as to become a part of the instrument.”

So the first thing to remember is that an allonge is not an assignment nor is it an indorsement (UCC spelling) or endorsement (common spelling). This distinction was relatively unimportant until claims of “securitization” were made asserting that loans were being transferred by way of an allonge. By definition that is impossible. An allonge is neither an amendment, nor an assignment nor an endorsement of a loan, note, mortgage or obligation.


So, given your situation - I would argue that they haven't proven their case.

What's most likely happening is - that the judge just doesn't understand which is frequently the case.

So you have to make argument to the judge about such.
Customer: replied 1 year ago.

ok so then if there are signatures (indorsments) on that attached Allonge such as "pay to the order of Trust B" and signed by the "Vice President of Bank A" it is in fact not sufficient to constitute a legal transfer of the note because it is not a true indorsment correct? and if that is the case is there some statute, case law or precedent that I can quote to the Judge to make him understand? All my research told me an Allonge is not admissible but I don"t know how to prove it.

Expert:  Law Pro replied 1 year ago.
Research is beyond the scope of this venue - it's just to expensive and time consuming to read all the prospective cases and understand the facts and see IF applicable to a question.

Yes, we can get a statute - but that's not case law nor researching an issue.

However, there must be an "assignment" of the note - an executed assignment.

An assignment is a document that recites the terms of a transaction in which the loan, note, obligation, mortgage or deed of trust is transferred and accepted by the assignee in exchange for consideration.

If there is no assignment - then only the original party to the contract or someone else that there is an assignment has standing to enforce the original contract.
Customer: replied 1 year ago.

ok so let see if i understand this correctly, a "pay to the order of" indorsment on an Allonge is not an assignment, even though there was an assignment of Mortgage filed the assignment of Mortgage in itself does not convey the rights and ownership to the note, especially when MERS does it, ok here is where I get lost, if a Mortgage is assigned to anyone other than the holder of the note it becomes a nullity and unenforceable, according to my research, but the catch 22 is that the mortgage travels with the note and in Oklahoma the note and mortgage cannot be separated, but does that "cannot be separated" mean that it is not at all possible or if you do it then the note is no longer secured? please correct anything i have wrong in my understanding hehe

Expert:  Law Pro replied 1 year ago.
A mortgage follows the note - that a recorded evidence of the security interest in the property.

If they are separated - then the property is no longer a security for the note - the note becomes unsecured (i.e. like credit card debt).

This sometimes happens if there are multiple assignments and they don't record new mortgages - but the old one continues on the record.
Customer: replied 1 year ago.

ok that did not quite clarify everything i asked like,


 


 


1. in Oklahoma the note and mortgage cannot be separated, but does that "cannot be separated" mean that it is not at all possible or that you can do it but if you do it then the note is no longer secured?


 


2. a "pay to the order of" indorsment on an Allonge is not an assignment, even though there was an assignment of Mortgage filed the assignment of Mortgage in itself does not convey the rights and ownership to the note,


 


3. if they filed and assignment of mortgage but they did not do an "assignment" of the note they just shot themselves in the foot as long as i dont dispute the validity of the mortgage assignment? motion to dismiss in order perhaps?

Expert:  Law Pro replied 1 year ago.

1. in Oklahoma the note and mortgage cannot be separated, but does that "cannot be separated" mean that it is not at all possible or that you can do it but if you do it then the note is no longer secured?


Correct - then the note is no longer secured by the property.

 


2. a "pay to the order of" indorsment on an Allonge is not an assignment, even though there was an assignment of Mortgage filed the assignment of Mortgage in itself does not convey the rights and ownership to the note,


Correct - an assignment is a document that recites the terms of a transaction in which the loan, note, obligation, mortgage or deed of trust is transferred and accepted by the assignee in exchange for consideration.


3. if they filed and assignment of mortgage but they did not do an "assignment" of the note they just shot themselves in the foot as long as i dont dispute the validity of the mortgage assignment? motion to dismiss in order perhaps?

 

Correct - if they didn't assign the note - then they don't have "standing" to foreclose.

 

Yes, a motion to dismiss would be in order.

Customer: replied 1 year ago.

great now... if i file a motion to dismiss stating that they separated the note and mortgage via assigning the mortgage but not the note, and that the Allonges are in fact NOT assignments or conveyance of the note and that the mortgage is no longer enforceable, and lets say it is dismissed


 


would anything stop them, since every time I point out a flaw to the court they just "fabricate" the documents they think they need,


 


could they just "fabricate" the assignments of the note and refile? or once it is deemed separated it is done it can never be reattached per say?

Expert:  Law Pro replied 1 year ago.
They have to be notarized on their part. So, they just can't fabricate documents.

Moreover, that's fraud upon the court and potentially criminal.
Law Pro, Attorney
Category: Business Law
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Experience: 20 years experience in business law - sole proprietor, partnership, and corporations
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Customer: replied 1 year ago.

ah ha so the assignments of the note all have to be notarized in a chronological order dating way back several years ago


 


and by the way they have in fact been using "fabricated" documents like these Allonges being changed and coming out of thin air, is there any way I can press charges or get the courts to sanction them or something as I am sure you have heard they are doing this all across the nation and the Oklahoma Attorney General not long ago just got over 18 million dollars from 5 of the large bank for stuff like this


 

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