Thursday, September 5, 2013

So The Trusts Were “Naked” (Phoenix Lighting v. JPMorgan Chase.) Now Let’s Dig A Little Deeper, Shall We?

So let’s say your home was foreclosed by Bank of New York Mellon as Trustee for the BALTA 2005-7 Trust, and according to Phoenix Lighting v. JPMorgan Chase (attached below), the BALTA 2005-7 Trust never received the assets and never had title to your loan. This is pretty serious, right? Well, I’ve been suspecting (and showing the supporting evidence) for quite some time that this is not an isolated incident.

Clients ask me all the time if I can prove which insurance carrier, or credit default swap provider, paid off their specific loan. This is difficult to prove outside of good discovery. But those of us who investigate securitization can often find clues that the subject loans were indeed layered with default insurance or pledged and sold to additional CDO trusts, and that there were unknown and undisclosed “obligors” that benefited from these insurance policies.

In this BALTA 2005-7 example, a company called “Coldwater CDO, Ltd.” Set up a CDO to insure losses on the collateral that was to support  certificates in the BALTA 2005-7 Trust. Coldwater apparently got crushed in the deal, and obviously paid out massive funds to the “protected parties.” As you will see below, The Bank of New York Mellon as Trustee of numerous trusts, held a liquidation auction in June of 2013 on a long list of certificates (some of which belonged to the BALTA 2005-7 Trust) that were held by Coldwater CDO, Ltd which was being foreclosed upon.

So let’s look at a snippet from the Phoenix Lighting v. Chase complaint, followed by the representation made by BofNY Mellon prior to the auction.

From the complaint:

e. Transfer of Title
199. The BALTA 2005-7 Offering Documents also represented that the loans underlying the BALTA 2005-7 Certificates would be timely transferred to the issuing trust, so that the trust would obtain good title to the mortgage loans comprising the pool for the offering. Specifically, the BALTA 2005-7 Offering Documents stated “[a]t the time of issuance of the Certificates, the Depositor will cause the mortgage loans, together with all principal and interest due on or with respect to such mortgage loans after the Cut-off Date, to be sold to the trust.” See BALTA 2005-7 Pros. Supp. at S-106. This statement was false and misleading. Defendants failed to legally and properly transfer the promissory notes and security instruments to the trusts. See §VI.E, infra.

Representation prior to the sale:
 r.    The Collateral will be offered and sold by the Trustee without recourse, representations, warranties or covenants, express or implied, being made by the Trustee with respect to the Collateral (except as to title to the Collateral) or with respect to any other information then in the Trustee’s possession, including without limitation any Offering Document or other financial information.
So not only was this toxic sludge completely worthless and unsupported by any homeowners’ loans, the so-called obligations for the homeowners’ loans were paid off, extinguished, or greatly reduced by firms such as Coldwater CDO, Ltd. But of course, this is NEVER disclosed. This is the sham, folks. The Sponsors and Depositors of these “naked trusts” sold horses to the investors and then never delivered the horses as promised. Now the investors have gone out to the barn to inspect their stallions after all these years only to discover that the barn is empty. You see, the Sponsors and Depositors kept the ponies as their own assets to create an insurable interest, and  then proceeded to take out massive amounts of insurance on them, or hedge them into CDO’s created by the likes of Coldwater CDO, Ltd. So now the barns are discovered to be empty (“the emperor has no clothes” so to speak.) I think it’s time to bring in an army of forensic accountants, don’t you think?

So The Trusts Were “Naked” (Phoenix Lighting v. JPMorgan Chase.) Now Let’s Dig A Little Deeper, Shall We?

 On to the next step to "selling" or "concealing" fraudulent MBS assets? – wash, launder, rinse, repeat…

then read --->

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