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"I have reviewed the foregoing contents and affirm the

results contained herein to be true and correct according to


my knowledge."

LAKISHA MORRIS, J.D., ESQ.. WSBA# 41365


Lead Investigator
FEDERAL TRUSTEE SERVICES
PO BOX 11098
TACOMA, WA 98411
1-800-552-9313

_________________________________________________________________________________

REAL ESTATE
SECURITIZATION AUDIT
Prepared for:

Rachel L. Hemric
4844 Collins Road
Hamptonville NC 27020-8121

__________________________________________________________
Disclosure: You have engaged Federal Trustee Services to examine your real estate
documents. This information is not to be construed as legal advice or the practice of
law. It is the intent of Federal Trustee Services, its members, auditors, and independent
contractors not to engage in activities that could be considered to be the practice of
law by conduct exhibiting any of the following practices: “. . .the doing and/or
performing of services in a court of justice on any matter depending therein
throughout the various stages and in conformity with the adopted rules of procedure.
This includes legal advice and counsel and the preparation of legal instruments and
contracts by which the legal rights are secured although such matters may or may not
be depending on the court.”

_____________________________________________________________________________

Copyright 2011
Table of Contents

SECTION 1: TRANSACTION DETAILS AND PARTIES PG 3

• Transaction parties
• Loan transaction Summary

SECTION 2: THE SECURITIZATION PROCESS PG 5

• The Securitization Process


• How Lenders changed the Securitization Process
• The Securitization Parties of this loan
• What Happened to The Deed and Note
• Servicing Criteria
SECTION 3: FORECLOSURE PROCESS PG 21

• The Foreclosure Summary

SECTION 4: TITLE DEFECTS AND SECURITIZATION DEFECTS PG 23

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SECTION: 1 TRANSACTION DETAILS AND
PARTIES

BORROWER & CO-BORROWER:

BORROWER CO-BORROWER

Rachel L. Hemric NA

PRESENT ADDRESS SUBJECT ADDRESS


4836 Collins Road
4844 Collins Road
Hamptonville NC 27020-8121
Hamptonville NC 27020-8121

Transaction Parties
MORTGAGE NOMINEE/
MORTGAGE BROKER: MORTGAGE SERVICER: BENEFICIARY

Regions Bank DBA Regions Regions Bank DBA Regions Regions Bank DBA Regions
Mortgage LLC Mortgage LLC Mortgage LLC

ORIGINAL MORTGAGE
LENDER/TABLE MORTGAGE TRUSTEE: TITLE COMPANY:
FUNDER:

Regions Bank DBA Regions


David A. Simpson, PC Unknown
Mortgage LLC

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Loan Transaction Summary
FIRST MORTGAGE DETAILS

Type of Note Adjustable Rate Note

Loan Closing Date December 29, 2005

8096439917
Loan Number

Loan Amount $113,600

Initial Interest Rate


7.625% p.a.

Loan Term 15 years

Loan Maturity Date January 1, 2021

Current Loan Servicer Regions Bank DBA Regions Mortgage LLC

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SECTION 2: THE SECURITIZATION PROCESS
The Securitization Process

1. What is a Securitization?

A securitization is the term used to describe the process of issuing securities


backed by the cash flows from a pool of underlying assets. Securitization has also
been defined as "the sale of equity or debt instruments, representing ownership
interests in, or secured by, segregated, income-producing asset or pool of assets,
in a transaction structured to reduce or reallocate certain risks inherent in owning
or lending against the underlying assets and to ensure that such interests are more
readily marketable and, thus, more liquid than ownership interests in and loans
against the underlying assets." 1

2. What are some features in a Securitization?

A securitization transaction typically has the following characteristics. An


originator of homogenous income-producing assets sells the assets to a newly-
formed special purpose entity, also known as a securitization trust, which can be
any legal entity that is designed to make the chances of it filing for bankruptcy
remote. The trust will then issue, directly or through a trustee, securities in the
form of certificates to investors. The securities represent an undivided interest in
the assets of the trust. An underwriter will typically find the investors to purchase
the securities. Such investors will pay cash for the securities and the proceeds are
used by the trust to purchase the assets from the originator. The term of a
securitization transaction can range between 5 years to 30 years, depending on the
nature and term of the assets backing the securities. The cash flows generated by
the assets are used to repay the amounts due under the securities issued by the
trust.2

3. Parties in a Securitization Transaction

The parties to a securitization transaction who are considered relevant to this Property
Securitization Audit are the following:

1Milton A. Vescovacci. “A Primer on Securitization.” HG Org Worldwide Legal Directories. Oct 1 2006. Jan 7
2011. http://www.hg.org/articles/article_1723.html
2 Ibid.

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Debtor

The Debtor is the person who borrows money from the Lender.

Lender

The Lender is the Originator of the loan for the Debtor. In some instances the Lender and
the Originator are the same entities, in others, the role of the Originator is to buy and
accumulate loans from different lenders. In the latter, the Originator is also called a
Wholesale Lender.

Issuing Entity

The Issuing Entity is a statutory trust and the intermediary owner of the loan documents.
The issuing entity also issues securities that represent undivided interests in the cash
flows from a particular pool of loans.

Sponsor

The Sponsor is the entity who buys the loans from different Originators, combines them
into a pool, and sells them to the Depositor.

Depositor

The Depositor is the entity who buys the loans from the Sponsor and deposits them with
the Issuing Entity.

Trustee

The Trustee acts on behalf of the Trust and the investors. It is essentially an
administrative function, to represent the Trust, to monitor the effectiveness of the
servicing, to manage and oversee the payments to the certificate holders, and to
administer any reserve accounts. 3

3“Parties in a Securitization Transaction.” Atlanta’s John Marshall Law School. Jan 7 2011. http://
www.johnmarshall.edu/images/documents/fa08/SKMBT_60008072910141.pdf

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Servicer

The Servicer is the entity who collects monthly payments from borrowers and passes the
cash flows to the Trustee. The Servicer must advance to the Trust payments due from
delinquent borrowers before collection.4

Underwriter

The Underwriter is the Wall Street investment firm who provides initial capital to
purchase the securities. As the initial purchaser, the Underwriter plays a key role in
structuring the entire transaction, including a role in determining the characteristics of the
underlying loans.

Custodian

The Custodian is often the same entity as the Trustee, and is typically engaged to hold
onto the funds in cash reserves serving as internal credit enhancements of the
securitization and collateral security documents related to the transferred assets.5

4 Ibid.
5Milton A. Vescovacci. “A Primer on Securitization.” HG Org Worldwide Legal Directories. Oct 1 2006. Jan 7
2011. http://www.hg.org/articles/article_1723.html

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4. What a Securitization Should Be

The following diagram illustrates, in simple theoretical terms, a securitization contains all
of the following transaction elements involving a loan or mortgage:

Lender Collection on Mortgage Loan

Originator Custodian Servicer

Collection on Mortgage
Loan
Sponsor Trustee Report to Master
Servicer

Master
Depositor Issuing Entity
Servicer

Underwriter

Payment to Certificate-holder
Certificate-holder Report to Certificate-holder

Legend

Mortgage Loan Certificate Fiduciary Duties

Mortgage Loan Custodial Receipt

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5. Note Converted to a Bond

Securitization is a complex series of financial transactions designed to maximize


cash flow and reduce risk for debt originators. This is achieved when assets or
receivables are acquired, classified into pools, and offered as collateral for third-
party investment. Then financial instruments are sold which are backed by the
cash flow of the underlying assets.6

Promissory Note
Borrower Issuer/Maker/Seller Loan: $500,000
Interest Rate: 10% p.a.

Asset in Sub-Prime
High-Risk

This diagram traces the process in which a


long-term receivable (a note; an asset) is
immediately converted into cash by selling
a security instrument (a payable or a Trust (Special
Purpose Vehicle)
bond; a liability) through a special-
purpose vehicle (a securitization trust).

Bond Out
Investment Grade
High-Yield
Junk Bonds

Certificate
Face Value: $1,000,000
Investor Bondholder/Creditor/ Interest Rate: 5% p.a.
Buyer Annual Interest Income:
$50,000

6Tara E. Gaschler. “Understanding the Securitization Process and the Impact on Consumer Bankruptcy Cases.” (The
American Bankruptcy Institute) www.scribd.com. http://www.scribd.com/doc/24632086/Understanding-the-
Securitization-Process-and-the-Impact-on-Consumer-Bankruptcy-Cases#

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6. The Reality

In reality the securitization process was much different than what it should have been.
The money that was used to fund the loans generally came from Wall Street firms who
were orchestrating the conduct of the transactions. The firms provided money in the form
of Warehouse Lines of Credit for the lenders to use.

A Warehouse Line of Credit is a revolving facility granted to a borrower to acquire and


warehouse a mortgage portfolio for future securitization. Such portfolio is pledged to the
lender as collateral and is placed into a special purpose vehicle in the meantime for the
purpose of securitization. The proceeds from the future securitization will be funneled
back to the lender, thus replenishing the ultimate Warehouse Line of Credit for
subsequent use.7

The funds for the Warehouse Lines of Credit came mostly from these two sources:

· A Wall Street establishment large enough to provide the money from its own
accounts, or

· A Wall Street establishment who pre-sold the trust, selling the idea to other
establishments who put up the money and who ended up being involved in
different phases of the securitization transaction, such as selling the certificates to
private investors.

7. Prelude to a Scam

Pre-selling the trust resulted in a huge availability of funds and lenders were now
tasked with finding borrowers. This, in turn, resulted in the lowering of credit
standards (correspondingly increasing the lending risks). In effect, almost anyone
who was 18 years old or above could qualify for some type of loan.

7Definition of a Warehouse Line of Credit. ifc.org. Jan 8 2011. http://www.ifc.org/ifcext/gfm.nsf/attachmentsbytitle/


hf-whl/$file/hf-whl.pdf

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In the years leading up to the crisis, significant amounts of foreign money flowed
into the U.S. from fast-growing economies in Asia and oil-producing countries.
This inflow of funds combined with low U.S. interest rates from 2002-2004
contributed to easy credit conditions, which fueled both housing the housing
bubbles. Loans of various types were easy to obtain and consumers assumed an
unprecedented debt load. As part of the housing boom, the amount of financial
agreements called mortgage-backed securities, which derive their value from
mortgage payments and housing prices, greatly increased. Such financial
innovation enabled institutions and investors around the world to invest in the U.S.
housing market.8
The foregoing scenario unfolded during the time when the prices of residential
properties were rising fast as a result of housing boom. Early reports estimate that
23% of U.S. homes were worth less than the mortgage loan their owners
borrowed in order to acquire them. In 2010 reports say some loans need to be
restructured to as low as 33% of their book value in order for their owners to
resume paying for them.

There is no question that residential properties during the period 2000 to 2007
were grossly over-appraised, the economy was awash with cash, lenders
overextended credit and relaxed credit policies, and borrowers, already saddled
with personal debt, caved in to the idea that the end of the American Dream was
owning a home.

8 “Subprime mortgage crisis.” Wikipedia. Jan 6 2011. Jan 8 2011. http://en.wikipedia.org/wiki/Mortgage_crisis

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How Lenders Changed the Securitization Process

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8. The Issues

No Assignment

When a mortgage loan was sold from one party to another there was no
corresponding assignment of the Deed of Trust. A true sale could not
occur with such an omission, and most Pooling and Servicing
Agreements require a true sale in order to perfect a chain of title,
although some such agreements make allowances in the case of
Mortgage Electronic Registrations, Inc., who becomes a party in the
transaction as nominee of the lender.

Lack of Endorsement

The same omission also applies to the promissory note wherein a proper
endorsement is required in the Pooling and Servicing Agreement in a
true sale, also for the purpose of perfecting the title.

State real estate laws generally require specific steps in the conveyance
of mortgage notes from one party to another at the time of closing, to
make the transaction legal. Rather than comply with those steps, the
mortgage players chose to create their own system of electronic
recording of conveyances. This systematic flaunting of the chain of title
requirements was ignored as the securitization scam expanded.9

The Role of Mortgage Electronic Registration Systems, Inc.

The inclusion of Mortgage Electronic Registration Systems, Inc.


(MERS) into the transaction, as “Nominee of the Beneficiary,” is for the
purpose of getting around the legal requirement of assigning the Deed of
Trust. Many courts of law are ruling that MERS has no ability to
foreclose or make assignments. More recently, there is a May 1, 2010
ruling that MERS cannot be named plaintiff in any foreclosure on a
mortgage loan owned or securitized by Fannie Mae.

9 Ibid.

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The foreclosure crisis has set its sights on MERS, the Mortgage
Electronic Registration Systems, which files almost all of the foreclosure
actions in behalf of lenders. The problem never anticipated by lenders is
that the company has no legal standing to do such things. In addition they
broke the law by not requiring a notarized document of transfer of title
signed by the seller and buyer. That is because they did not own the
loans.10

Bogus Assignments

In spite of, or because of, the foregoing three premises, there are now
reported instances of “fabricated assignments” of mortgages on a
massive scale. It is not the purpose of this report to make such a
conclusion for this particular loan, but it strongly recommends that the
related documents should be examined for the possible introduction of
such fraudulent acts upon them.

To get around this legal dilemma, many of the derivatives-holders and


their agents have resorted to outright fraud, by creating and filing phony
documents. This is fraud upon the courts, a serious crime.

As the Attorney General of Florida noted in a recent release, “numerous


documents. . . to even the untrained eye, appear to be forged or
fabricated.” Corporations “seem to be creating and manufacturing ‘bogus
assignments’ of mortgages. . . These documents appear to be forged,
incorrectly and illegally executed, false and misleading. . . 11

10
Bob Chapman. “The Mortgage Securitization Scam.” The Market Oracle. Oct 23 2010. Jan 8 2011. http://
www.marketoracle.co.uk/Article23715.html
11 Helga Zepp-Larouche. “Systemic Fraud Dominates Mortgage-Securitization and Foreclosure Scam.”

Larouchepac: Economic Collapse. Oct 6 2010. Jan 8 2011. http://www.larouchepac.com/node/16009

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The Securitization Parties of this Loan
Summary:

The Examiners reviewed the process of Securitization. They note:

· Wilkshire Credit Corp. is the current servicer in this securitization trust, while
Merrill Lynch Mortgage Lending, Inc. is the sponsor and Merrill Lynch Mortgage
Investors, Inc., an affiliate, is the depositor. The mortgage loans in this trust were
pooled by several originators, one of which is Fieldstone Mortgage Co., based, in
Columbia, Maryland.

· The examiners deduce, based on their professional experience and examination of


the documents provided, that Merrill Lynch Mortgage Lending, Inc. securitized
this loan after acquiring it from the originating lender through the securitization
trust’s several originators.

· A search of SEC filings by Merrill Lynch indicates that the most likely pool that
the subject loan would have been sold into would be the Merrill Lynch Mortgage
Investors Trust, Series 2006-HE6.

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What Happened with the Deed and the Note

Deed Date Note Date

Loan Granting December 29, Loan Granting December 29,


Regions Bank, Lender 2005 Regions Bank, Lender 2005
Emmett James House or Bill R.
McLaughlin, Trustees

Substitution of Trustee February 9, 2010 Sale, Securitization December 28,


David A. Simpson, PC, Merrill Lynch Mortgage 2006
Substitute Trustee Lending, Inc., Securitization
Sponsor

Simultaneous Sale, December 28,


Securitization 2006
Merrill Lynch Mortgage
Investors, Inc., Securitization
Depositor

Endorsement, Securitization December 28,


La Salle Bank, NA as Trustee for 2006
Merrill Lynch Mortgage
Investors Trust, Series 2006-HE6

The Deed and the Note have been separated traveling apart.

· The Deed of Trust dated December 29, 2005 names Regions Bank as the lender
and Emmett James House or Bill. R. McLaughlin as trustees.

· A Substitution of Trustee dated February 9, 2010 names David A. Simpson as


substitute trustee.

· Based on the available documents and research it appears that the Note was
securitized into Merrill Lynch Mortgage Investors Trust, Series 2006-HE6.

· Whether or not this has occurred is ascertainable upon inspection of the original
Note for a complete Chain of Endorsements.

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The complete list of SEC filings by Merrill Lynch Mortgage Investors Trust, Series 2006-HE6 is
provided herewith.

Merrill Lynch Mortgage Investors Trust, Series 2006-HE6 Prospectus Form 424B5, filed on
December 27, 2006, refers to Wilshire Credit Corp. as servicer, Merrill Lynch Mortgage
Lending, Inc. as sponsor, Merrill Lynch Mortgage Investors, Inc., as depositor, and Fieldstone
Mortgage Co., as one of the originators. Therefore, these references to Wilshire Credit Corp. and
Merrill Lynch Mortgage Lending, Inc. indicate that the subject loan could have been securitized
into Merrill Lynch Mortgage Investors Trust, Series 2006-HE6 and that Wilshire Credit Corp.
was the servicer. The link to the prospectus is provided herein.

http://www.secinfo.com/dsvr4.vF77.htm#i11

Merrill Lynch Mortgage Investors Trust, Series 2006-HE6 Annual Form 10-K for the year ended
December 31, 2006 was filed on March 30, 2007 with the SEC. This document listed Wilshire
Credit Corp. as servicer compliant with the servicing criteria for the asset-backed securities held
by the trust. The link to Form 10-K is provided herein.

http://www.secinfo.com/d12mb8.uyp.htm

On January 24, 2007, Wilshire Credit Corp., as servicer, filed Form 15-15D or Notice of
Suspension of Duty to File Reports terminating registration of the noted investment. The
approximate number of holders on record as of the certification or notice date was ten. The link
to Form 15-15D is provided herein.

http://www.secinfo.com/d12mb8.u7p.htm

PSA(Pooling Servicing Agreement):

http://www.secinfo.com/dsvr4.ub6.d.htm#59t

Summary of events from the 424B5

Cut-Off Date - December 1, 2006

Closing Date – On or About December 28, 2006

Amount - $906,616,100 Approximate

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Servicing Criteria
Servicing refers to the collection of the Monthly Payments for each mortgage. Once a loan
has been funded, servicing of the loan is the key element from that point.

Every pooling and Servicing Agreement names a Master Servicer and other Servicers. They
are the entities tasked with the collection of payments. Duties include the following:

· Collect the monthly payments on each loan.

· Keep accurate payments history records.

· Track payments and segregate the different Trusts for which the servicer collects.

· Make monthly payments to the Trusts.

· To reimburse itself for advances

· To pay to itself the servicing fee (to the extent not applied to pay compensating
interest)

· To pay to itself investment earnings earned on funds held in the investment


account and the certificate account (to the extent not applied to pay compensating
interest)

· Authorize Short Sales or Deed in Lieu of Foreclosure.

· The Servicer has no beneficial interest in the Note, so there is no urgent demand
for anything but foreclosure.

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Below is an example of a Servicing Flow Chart: The following diagram illustrates
a generic example of the flow of payments that applies to most securitizations. The

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Servicer has specific duties related to loan management. It appears that there should be
significant reason to engage in loan modifications or principal reductions to ensure loan
repayment and avoid foreclosures. It seems basically that the Servicer has no incentive to
engage in such actions.

Obviously, they are capable of offering loan modifications. Here are some important reasons why
the Servicers are not engaging in the loan, (These reasons also apply to Fannie Mae and Freddie
Mac loans.):

1. Since the Servicer has no beneficial interest in the Note and there is no urgent demand
for anything but, they somehow opt to create a scenario leading foreclosure.

2. The Servicer must “advance” the payments from the Trust with its own funds that is
parallel to six or twelve months of “advances”. Often times, their only way of recouping
these “advances” is through foreclosure. Many PSAs do not allow for recoupment in any
other manner. (The Servicer Stops making these advances only when it is determined that
the money is not recoverable”.)

3. Services are paid on the total dollar amount of the “Servicing Portfolio” for the Trust.
Authorizing a principal reduction would reduce the total dollar amount of the Portfolio
would mean less monthly income for the Servicer. Further, a percentage payment on the
unpaid principal balance of the pool is the single largest source of income for Servicers.

4. To get around loss, Servicers collect additional fees from late payments, foreclosure
actions, and numerous “junk fees” that they add to the homeowner’s account.

5. Stalling foreclosures means that the “Servicing Portfolio” increases monthly, resulting in
increased Servicing Fees.

6. Some PSAs do not allow for modification unless the Servicer “buys back” the loan from
the Investor at the balance due. Buy backs would result to a loss on the part of the Servicer
so do not, as much as possible do buy backs. Technically, the loan is in default and the
home is already worth less than the loan.

7. Primary Mortgage Insurance on a loan means no losses occur in the event of foreclosure

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SECTION 3: FORECLOSURE PROCESS
Chain of Title and Chain of Note
Recorded Events on the Loan Including Foreclosure Issues and Securitization

Recorded Chain of the Deed Chain of Note from Trust


Date Trustee/Beneficiary Date Note Holder

December 29, Loan Granting December 29, Loan Granting


2005 Regions Bank, Lender 2005 Regions Bank, Lender
Emmett James House or Bill R.
McLaughlin, Trustees

December 28, Sale, Securitization December 28, Sale, Securitization


2006 Merrill Lynch Mortgage 2006 Merrill Lynch Mortgage
Lending, Inc., Securitization Lending, Inc., Securitization
Sponsor Sponsor

December 28, Simultaneous Sale, December 28, Simultaneous Sale,


2006 Securitization 2006 Securitization
Merrill Lynch Mortgage Merrill Lynch Mortgage
Investors, Inc., Securitization Investors, Inc., Securitization
Depositor Depositor

December 28, Assignment, Securitization December 28, Endorsement, Securitization


2006 La Salle Bank, NA as Trustee for 2006 La Salle Bank, NA as Trustee for
Merrill Lynch Mortgage Investors Merrill Lynch Mortgage
Trust, Series 2006-HE6 Investors Trust, Series 2006-
HE6

October 10, 2008 Notice of Default


Kellam and Pettit, PA, Trustee

February 9, 2010 Substitution of Trustee


David A. Simpson, PC,
Substitute Trustee

February 18, Notice of Default


2010 Regions Bank, Lender
David A. Simpson, PC,
Substitute Trustee

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The Foreclosure Summary

The following uncovers problems in the foreclosure process.

Deed of Trust

• The original Deed of Trust was executed on December 29, 2005. The lender is Regions
Bank and the trustees are Emmett James House or Bill R. McLaughlin.

Substitution of Trustee

• The Substitution of Trustee dated February 9, 2010 was executed by Regions Bank as
holder of the note secured by the Deed of Trust. The substitute trustee is David A.
Simpson, PC.

Notice of Default

• A Notice of Default dated October 10, 2008 shows Kellam and Pettit, Pa as trustee.

• Another Notice of Default dated February 18, 2010 shows Regions Bank as lender and
David A. Simpson, PC, as trustee.

Note and Deed traveled apart

• As noted previously this loan appears to have been securitized by Merrill Lynch Mortgage
Investors Trust, Series 2006-HE6. As a result, the Note and the Deed have been separated.
Therefore, there is no ability to foreclose on the property until the Note and Deed of Trust
are re-united.

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SECTION 4: TITLE DEFECTS AND
SECURITIZATION DEFECTS

Loan Process

• For a variety of reasons some of which include the fact that the lender is described as
Regions Bank which was nothing more than a mortgage broker masquerading as the lender
in a table funded loan, we conclude as stated elsewhere herein that there was an intention to
securitize this loan. It does mean that the actual money that was used to fund the mortgage
transaction was funneled through a long series of intermediaries acting in their roles as
“securitization parties.”

Securitization Process

• This loan appears to have been securitized, with the Note being transferred to the Trust
most likely on December 28, 2006, pursuant to the PSA.
• There is no complete Chain of Title for the Deed.
• There was no Note for review showing a complete Chain of Endorsements from Regions
Bank, to Merrill Lynch Mortgage Lending, Inc., to Merrill Lynch Mortgage Investors, Inc.,
to the trust. It is likely that the actual note does not have the full Chain of Endorsements as
required by the PSA.

Foreclosure Process

• The Deed and the Note are separated from each other as the result of the
Securitization of the loan.
• It should be noted that Examiners, in researching hundreds of securitized mortgages
in foreclosure proceedings, have yet to find one Note that has been produced that
complies with the requirement of the Pooling and Servicing Agreement (PSA) that
all intervening endorsements must be reflected on the Note. A Note endorsed in
blank does not comply with those requirements.

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