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Hirace v LaSalle Bank Trust Lacked Standing[1]

Hirace v LaSalle Bank Trust Lacked Standing[1]

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Case that wins because the endorsement for securitization have not been met
Case that wins because the endorsement for securitization have not been met

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Published by: Ann Annamarie Galloway on May 17, 2012
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07/10/2013

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PHYLLISHORACEVS.LASALLEBANKNATIONALASSOCIATION,ETAL57-CV-2008-000362.00considerationofhermotion,herevidentiarysubmissionsandherbriefthattheCourtwillenteraSummaryJudgmentinherfavorfindingthattheDefendanttrusthasnointerestinherpromissorynoteandnoabilitytoforecloseandfurtherfindingthattheTrust
sinstitutionofforeclosureagainstherwaswrongfulandfurtherenjoiningtheTrustfromprosecutingaforeclosureagainstherinthiscase.ThePlaintifffeelsitimportanttonotethatherclaimsandhermotiondonotseektoobviatetheunderlyingpromissorynotehoweverthenatureofaclaimagainstastrangertohermortgageloanwhothreatenstoforecloseuponherpropertyunderdeciet,nondisclosurenfalseandfraudulentpretenses.PlaintiffhaseveryreasontobelievebasedonDefendantsadmissionthattheallegdedMortgageandnotehasbeensecuritized.MakingthiscaseclearthattheTrustisastrangertohermortgageloanandthatsuccessuponherclaimagainsttheTrustwillnotdefeattherightofaholderinduecoursetoenforcethepromissorynoteexecutedinconjunctionwithherhomemortgageloan.IneffectthePlaintiffassertsthatthereisaproperpayeeofhermortgagepromissorynotehoweveritisnottheDefendantChaseandwithnoTrustnamedassignedorendorsedoritcannotbeanyagentswhoareinvolvedinthethreatofforeclosureuponwhichshesuedinthepresentcase.STATEMENTOFFACTS1.OnMay24,2007AnnM.GallowayexecutedthealledgedamortgagetofacilitatetherefinaceforrennovationandconstructioncostsforherhomeinSantaFeCounty,NewMexico2.Atthetimethefundswereborrowed,thenationwasinthemidstoftheexpandinghousingbubble.3.PlaintiffthoughtshewasrecievingaloanfromMortgageStrategiesLLCamortgagelender,offeredMrs.Horacealoanthatiscommonlyreferredtoasa2/28ARM.ThisloaninvolvedaninitialtwoyearteaserrateperiodduringwhichMrs.Horacewasrequiredtomakeonlyinterest
 
paymentsatalowteaserrate.Attheexpirationoftheteaserperiod,theloanrecasttoasubstantiallyhighermonthlypaymentbasedonthetermsofthenoteandmortgage.4.Mrs.Horaceandherhusband(whoisnotasignatoryandthusnotboundtothemortgage)(togetherthe
Horace
s
)enjoyedincomefromregularemployment,whichwasusedtomaketheirmonthlymortgagepayments.5.Aftertheloanrecastattheendoftheteaserperiod,theHorace
sincomewasnotsufficienttocoverthefullyindexedpayment,afactwhichwasknowntotheDefendantsatthetimeoforiginatingthisloan.6.DespitethepredatoryandunfairoriginationoftheHoraceloan,theloan
soriginationisnotthesubjectofthesummaryjudgmentmotion.TheHorace
shavereservedthoseissuesfortrial.TheHorace
sprovidethisinformationtotheCourtasbackgroundtoexplaintheoriginalclaimeddefaultwhichledtothislitigation.7.ThismotionandthecruxofthiscaseisaboutthevalidityofthetransfersofmortgagepromissorynotesintheWallStreetfinancingprocessknownas
securitization
andtheresultingissuesregardingtheabilityofthesecuritizationtrustinthiscasetoforeclose.Ultimately,muchoftheoutcomeofthiscasehingesupontheCourt
srulingregardingthevalidityornotoftheTrust
sassertionsthatitistheowneroftheHoracePromissorynote.8.Securitizationisthepracticeofpoolingandsellingcontractualdebtobligations(
receivables
)suchasresidentialmortgages,commercialmortgages,autoloansorcreditcarddebt,toaspecially-createdentity,typicallyatrust.Thetrustpaysforthereceivablesbyissuingdebtsecurities(variouslyreferredtoasbonds,pass-throughsecurities,orCollateralizedmortgageobligation(CMOs))toinvestors.Thetrustcollects
 
paymentsofprincipalandinterestonthereceivables,whichitthenusestomakeregularpaymentstoinvestorsontheirdebtsecurities.1Securitizationthuslinksconsumerandcommercialborrowerswithfinancingfromsecuritiesmarkets.9.Therearenumerousreasonswhyfinancialinstitutionsengageinsecuritization,includingthemanagementofcreditandinterestraterisk,relieffromregulatorycapitalrequirements,andliquidityenhancement.Securitizationbegantobeusedasafinancingtechniquewithmortgagesin1971.
Fordecadesbeforethat,bankswereessentiallyportfoliolenders;theyheldloansuntiltheymaturedorwerepaidoff.Theseloanswerefundedprincipallybydeposits,andsometimesbydebt,whichwasadirectobligationofthebank(ratherthanaclaimonspecificassets).ButafterWorldWarII,depositoryinstitutionssimplycouldnotkeeppacewiththerisingdemandforhousingcredit.Banks,aswellasotherfinancialintermediariessensingamarketopportunity,soughtwaysofincreasingthesourcesofmortgagefunding.Toattractinvestors,investmentbankerseventuallydevelopedaninvestmentvehiclethatisolateddefinedmortgagepools,segmentedthecreditrisk,andstructuredthecashflowsfromtheunderlyingloans.
210.Banksuseavarietyofstructuresforsecuritizationtrustsdependingonthetypeofassetbeingsecuritized,butallsecuritizationstructuresarebasedontwooverridingconcerns.First,isensuringfavorabletaxtreatmentofthebank,thesecuritizationtrust,andtheinvestors,ideallythroughthesecuritizationtrusthaving
pass-thru
taxstatus,meaningthatthesecuritizationtrustisnottaxedonitsownincome1SYLVAINRAYNES&ANNRUTLEDGE,THEANALYSISOFSTRUCTUREDSECURITIES103(OxfordUniv.Press,2003).2AssetSecuritization:Comptroller'sHandbook,OfficeoftheComptrolleroftheCurrency,November1997,http://www.occ.treas.gov/handbook/assetsec.pdf.Lastviewed01/12/2011.

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