Wall Street Bank Attorneys Are Sour Grapes Over Glaski

Oh Boo Hoo Morgan Lewis! 

garfield_butt_by_garfieldcat2012-d6ijytvYesterday, Bernard J. Garbutt III (really), a partner with NY firm Morgan Lewis, sent a letter to Chief Justice Tani G. Cantil.Sakauye and the Associate Justices of the Supreme Court of California representing Deutsche Bank National Trust Co., following an October 4, 2013 letter from AlvaradoSmith (representing JPMorgan Chase) requesting depublication of Glaski v. Bank of America, N.A.

Apparently, Glaski makes the banksters uncomfortable enough that they want the decision to be removed from publication based on the fact that the “PSA states explicitly that the Trust is a Delaware Statutory Trust, organized under the Delaware Statutory Trusts Statute, 12 Del. Code Ann. §§ 3801 et seq., and governed by Delaware law. See, e.g., PSA § 10.05 (governing law).” So, the Wall Street banks hired high priced firms to pen letters to the appellate court begging to hide the Glaski decision.

Needless to say Morgan Lewis and Garbutt practice law in securities litigation. Mr. Garbutt’s national practice focuses regulatory investigations in the securities and investments area. He has represented public companies, investment banks, broker-dealers, private equity firms, investment advisors, and other financial institutions in securities fraud and derivatives suits, regulatory investigations, and a variety of other matters. He should know it when he sees it, yeah?

SourGrapesAwardThe major sticking point is the fact that the Court of Appeal, Fifth District, California erred in naming NY Trust law to be governing the securitized trust that allegedly held Glaski’s loan when this particular trust was governed by Delaware law; however, the issues are virtually the same. In the same context with the fabricated assignment of mortgages that WaMu (and others) considered “ministerial” – foreclosure defense could call this judicial error a “typo”. At least the courts weren’t attempting to commit fraud when they penned the Glaski opinion.

The mistake does not change the general concept the Court established. Like New York trust law, Delaware also prohibits assets from entering the trusts after it is closed from a tax standpoint – and Delaware may even be a little stronger. This was still a REMIC (tax shelter) trust.  “[H]ow is a Delaware statutory trust, described in Del. Code Ann. title 12, §§ 3801 – 3824, classified for federal tax purposes?” (Source: Wikipedia)

These holdings of the federal government offered a clearer notion that Delaware statutory trusts are legal entities, separate from their trustee(s), offering them limited liability. In addition, Delaware statutory trusts were shown to be considered a trust for federal tax purposes, making them a pass through entity that mitigates taxation for their trustee(s). The second holding offers the opinion that real property, being held under a Delaware statutory trust, is eligible to use a 1031 exchange, without the recognition of gain or loss, as long as the following seven restrictions are met:

  1. no-way-2Once the offering is closed, there can be no future contributions to the DST by either current or new beneficiaries.
  2. The trustee cannot renegotiate the terms of the existing loans and cannot borrow any new funds from any party, unless a loan default exists as a result of a tenant bankruptcy or insolvency.
  3. The trustee cannot reinvest the proceeds from the sale of its real estate. 
  4. The trustee is limited to making capital expenditures with respect to the property for normal repair and maintenance, minor nonstructural capital improvements, and those required by law.
  5. Any reserves or cash held between distribution dates can only be invested in short-term debt obligations… […]

Technically, a 1031 exchange might actually fit as an explanation of why many of WaMu and WMALT  loans in 2006-2007 appeared in more than one trust – at the same time.

CHAPTER 38. TREATMENT OF DELAWARE STATUTORY TRUSTS as referenced by the the banks’ attorneys falls under Chapter 12 Decedents’ Estates and Fiduciary Relations – Fiduciary Relations as does CHAPTER 35. TRUSTS – Subchapter III. General Provisions. Chapter 35.  which incorporates Statutory Trusts states in § 3536:

“Every direct or indirect assignment, or act having the effect of an assignment, whether voluntary or involuntary, by a beneficiary of a trust of the beneficiary’s interest in the trust or the trust property or the income or other distribution therefrom that is unassignable by the terms of the instrument that creates or defines the trust is void.” [emphasis added]

“Instrument” as used here refers to “governing instrument” as used in § 3801.  

wrongAnd the statement on page 6 by AlvardoSmith’s Mikel Glavinovich: “There is no provision of the Delaware statute, however, that would render an allegedly belated assignment to a trust void” appears to be wrong – just plain wrong. See § 3536 above.

Ms. Glavinovich offers no case law to support that “no provision” statement but in the same paragraph (as if she thinks the court won’t see through her rambling superficial facade) she continues with an unrelated statement:

“[I]ndeed, more generally, Delaware courts reject the proposition that borrowers may challenge the allegedly improper assignment of their mortgage”

She then cites case law as to whether a ‘debtor is a party to an assignment’. This was not relevant to the previous Delaware trust law statement – yet was in the same paragraph… (not to mention the paragraphs are way to long for the court’s review preferences). Don’t you just find those maneuvers disgusting?  Judges usually do.

ADAM LEVITINWhether or not a homeowner has standing to challenge a fabricated, fraudulent, forged assignment is best discussed on CreditSlips by Adam Levitin, Law Professor at Georgetown University in response to a negative theory:

“I think that view is plain wrong.  It fails to understand what PSA-based foreclosure defenses are about and to recognize a pair of real and cognizable Article III interests of homeowners:  the right to be protected against duplicative claims and the right to litigate against the real party in interest because of settlement incentives and abilities.

The homeowner is obviously not party to the securitization contracts like the PSA (query, though whether securitization gives rises to a tortious interference with the mortgage contract claim because of PSA modification limitations…). This means that the homeowner can’t enforce the terms of the PSA.  The homeowner can’t prosecute putbacks and the like.  But there’s a major difference between claiming that sort of right under a PSA and pointing to noncompliance with the PSA as evidence that the foreclosing party doesn’t have standing (and after Ibanez, it’s just incomprehensible to me how this sort of decision could be coming out of the 1st Circuit BAP with a MA mortgage).

Let me put it another way.  Homeowners are not complaining about breaches of the PSA for the purposes of enforcing the PSA contract.  They are pointing to breaches of the PSA as evidence that the loan was not transferred to the securitization trust.  The PSA is being invoked because it is the document that purports to transfer the mortgage to the trust.  Adherence to the PSA determines whether there was a transfer effected or not because under NY trust law (which governs most PSAs), a transfer not in compliance with a trust’s documents is void.  And if there isn’t a valid transfer, there’s no standing.  This is simply a factual question–does the trust own the loan or not?   (Or in UCC terms, is the trust a “party entitled to enforce the note”–query whether enforcement rights in the note also mean enforcement rights in the mortgage…)  If not, then it lacks standing to foreclosure. Read more – click HERE

Both bank attorneys run issues together throughout their letters. It’s as if the banks’ attorneys scrambled to put something before the Court re-evaluating what the Court actually wrote. It Color-Wall-st-nauseaappears Glaski has caused these fancy lawyers serious heartburn. Their lungs are tearing out!

The crafters of those PSA documents went to some lengths to keep the NY Trust law out of there.  Not to mention keeping it out of the 1951 New York version of the UCC, so they could sneak stuff in and out without the pesky problems of an established body of well-crafted Trust Law.  

Although it is not discussed, one might assume or suspect that the Glaski Court saw (correctly) that the trusts were all being run in NY and the Delaware incorporation or election was a mere artifice or contrivance, done to cast a veil of opacity over the real substantive nature of the trusts and their transactions.

As for the banks, as a mentor of mine has said – “hoisted on their own petard, they were!”
Thanks to Shelley, Deontos and Gary for the heads-up, details and great research!
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14 thoughts on “Wall Street Bank Attorneys Are Sour Grapes Over Glaski

    • The Glaski trust was governed under Delaware law. Most trusts (the majority) are governed under NY trust law, even if they are considered Delaware entities. In the trusts there will be a clause that states what law applies.

      • That assumes a choice of law, right? I don’t know if they have a choice of not; I’m just pointing out that if there’s a clause which says which state’s law applies, that implies there’s a choice. But is there?

  1. Sec. 1031 is strictly related to real property. Notes and mortgages are personal property. The pools are static; therefore the showing of a note and mortgage in more than one pool is nothing but fraud!

  2. These Lenders/banks flip flop around,if a borrower wants to modify or renegotiate the terms of a fraudulent loan circa 2004-2008 they will tell the borrower we must go by the “Investor Guidelines”.So thats a No,your stuck in this garbage until you are broke,so when that phony loany adjust in 6 months and is now 6k per month or more your screwed.They just keep passing the buck,passing the buck.Its interesting how the bulk of the so called “Trusts”and original trustees on the psa’s have gone belly up,or been acquired and no longer have a voice,and how the heck is US Bank Trustee on 89% of all of these trusts?How has B of A been named on most as “Successor by merger”with this one and that one?They merged with la salle well after but still are on most.Corrrrrrrrrrrupt.

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  4. Pingback: Why the Glaski Foreclosure Reversal Means NOTHING and Charles Cox Got It Wrong | Bob Hurt's Blog

  5. I am not to clear on the assignments of Mortgage after the cut-off date.
    My mortgage was assigned to a trust eight (8) years after the cut-off date.
    It was not only assigned years later but the mortgage was in default.
    How do I know under which law my trust falls under? Under New York Trust law or Delaware?
    If it falls under New York trust law from what I understand, the NOTE is now VOID because it was transferred late. If it is under Delaware, is it only voidable?

    Thanks for your help everyone…

  6. “The second holding offers the opinion that real property, being held under a Delaware statutory trust, is eligible to use a 1031 exchange, without the recognition of gain or loss, as long as the following seven restrictions are met:…”

    What second holding? You lost me.) This article, from what appears a reliable source, says there may be personal property exchanges. It also says there may be multi – asset exchanges, but they must yet be for like property.


    Since the trust (if it owns anything) only owns personal property, why are you discussing
    the exchange of real property? What am I missing? The trust can’t exchange personal property for real property, which is in keeping with why I posit trusts may not own real property, and a trust WOULD if it were the successful bidder at a foreclosure sale because it would be the proper party to receive the trustee’s deed: trusts can’t bid at f/c sales nor may they own real property to dispose of it or for any reason. (hence MERS, the novated party to the dot)

  7. The author of this post should read the very words of the DE law that the author is quoting: it is only the transfers (assignments) FROM the trust that are prohibited. (“Every … assignment … by a beneficiary … of the beneficiary’s interest in the trust … or other distribution therefrom that is unassignable by the terms of the instrument that creates or defines the trust is void.”) The statute quoted here says NOTHING about assigning things TO the trust. That is why the bank lawyers made the points they made.

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