Are You Pooling and Servicing Agreement Literate?
PSA…ARE YOU PSA LITERATE? APRIL CHARNEY
Posted on August 16, 2010 by Foreclosureblues
Today, August 16, 2010, 3 hours ago | admin
We are pleased to present this guest post by April Charney.
If you are an attorney trying to help people save their homes, you had better be Pooling and Servicing Agreement literate or you won’t even begin to scratch the surface of all you can do to save their homes. This is an open letter to all attorneys who aren’t Pooling and Servicing Agreement literate but show up in court to protect their client’s homes.
First off, what is a Pooling and Servicing Agreement?
After the original loans are pooled and sold, a trust hires a servicer to service the loans and make distributions to investors. The agreement between depositor and the trust and the trustee and the servicer is called the Pooling and Servicing Agreement (Pooling and Servicing Agreement).
According to UCC § 3-301 a “person entitled to enforce” the promissory note, if negotiable, is limited to:
(1) The holder of the instrument;
(2) A nonholder in possession of the instrument who has the rights of a holder; or
(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 3-309 or section 3-418(d).
A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.
Although “holder” is not defined in UCC § 3-301, it is defined in § 1-201 for our purposes to mean a person in possession of a negotiable note payable to bearer or to the person in possession of the note.
So we now know who can enforce the obligation to pay a debt evidenced by a negotiable note. We can debate whether a note is negotiable or not, but I won’t make that debate here.
Under § 1-302 persons can agree “otherwise” that where an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, that the transferee is granted a special right to enforce an “unqualified” indorsement by the transferor, but the code does not “create” negotiation until the indorsement is actually made.
So, that section allows a transferee to enforce a note without a qualifying endorsement only when the note is transferred for value. Then, under § 1-302 (a) the effect of provisions of the UCC may be varied by agreement. This provision includes the right and ability of persons to vary everything described above by agreement.
This is where you MUST get into the Pooling and Servicing Agreement. You cannot avoid it. You can get the judges to this point. I did it in an email. Show your judge this post.
If you can’t find the Pooling and Servicing Agreement for your case, use the Pooling and Servicing Agreement next door that you can find on at www.secinfo.com. The provisions of the Pooling and Servicing Agreement that concern transfer of loans (and servicing, good faith and almost everything else) are fairly boilerplate and so Pooling and Servicing Agreements are fairly interchangeable for many purposes. You have to get the Pooling and Servicing Agreement and the mortgage loan purchase agreement and the hearsay bogus electronic list of loans before the court. You have to educate your judge about the lack of credibility or effect of the lifeless list of loans as the Uniform Electronic Transactions Act specifically exempts Residential Mortgage-Backed Securities from its application. Also, you have to get your judge to understand that the plaintiff has given up the power to accept the transfer of a note in default and under the conditions presented to the court (out of time, no delivery receipts, etc). Without the Pooling and Servicing Agreement you cannot do this.
Additionally the Pooling and Servicing Agreement becomes rich when you look at § 1-302 (b) which says that the obligations of good faith, diligence, reasonableness and care prescribed by the code may not be disclaimed by agreement, but may be enhanced or modified by an agreement which determine the standards by which the performance of the obligations of good faith, diligence reasonableness and care are to be measured. These agreed to standards of good faith, etc. are enforceable under the UCC if the standards are “not manifestly unreasonable.”
The Pooling and Servicing Agreement also has impact on when or what acts have to occur under the UCC because § 1-302 (c) allows parties to vary the “effect of other provisions” of the UCC by agreement.
Through the Pooling and Servicing Agreement, it is clear that the plaintiff cannot take an interest of any kind in the loan by way of an “A to D” assignment of a mortgage and certainly cannot take an interest in the note in this fashion.
Without the Pooling and Servicing Agreement and the limitations set up in it “by agreement of the parties”, there is no avoiding the mortgage following the note and where the UCC gives over the power to enforce the note, so goes the power to foreclose on the mortgage.
So, arguing that the Trustee could only sue on the note and not foreclose is not correct analysis without the Pooling and Servicing Agreement. Likewise, you will not defeat the equitable interest “effective as of” assignment arguments without the Pooling and Servicing Agreement and the layering of the laws that control these securities (true sales required) and REMIC (no defaulted or nonconforming loans and must be timely bankruptcy remote transfers) and NY trust law and UCC law (as to no ultra vires acts allowed by trustee and no unaffixed allonges, etc.).
The Pooling and Servicing Agreement is part of the admissible evidence that the court MUST have under the exacting provisions of the summary judgment rule if the court is to accept any plaintiff affidavit or assignment.
If you have been successful in your cases thus far without the Pooling and Servicing Agreement, then you have far to go with your litigation model. It is not just you that has “the more considerable task of proving that New York law applies to this trust and that the Pooling and Servicing Agreement does not allow the plaintiff to be a “nonholder in possession with the rights of a holder.”
And I am not impressed by the argument “This is clearly something that most foreclosure defense lawyers are not prepared to do.” Get over that quick or get out of this work! Ask yourself, are you Pooling and Servicing Agreement adverse? If your answer is yes, please get out of this line of work. Please.
I am not worried about the minds of the Circuit Court Judges unless and until we provide them with the education they deserve and which is necessary to result in good decisions in these cases.
It is correct that the Pooling and Servicing Agreement does not allow the Trustee to foreclose on the Note. But you only get there after looking at the Pooling and Servicing Agreement in the context of who has the power to foreclose under applicable law.
It is not correct that the Trustee has the power or right to sue on the note and Pooling and Servicing Agreement literacy makes this abundantly clear.
Are you Pooling and Servicing Agreement literate? If not, don’t expect your judge to be. But if you want to become literate, a good place to start is by attending Max Gardner’s Mortgage Servicing and Securitization Seminar