argument for thenote

7/28/2019 Argument for Thenote

http://slidepdf.com/reader/full/argument-for-thenote 1/19

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

BROOKLYN DIVISION

ELIZABETH THOMAS “AMENDED COMPLAINT”

Plaintiff JURY TRIAL DEMANDED

v.CASE# _______________

MERSCORP INC, BARRETT,DAFFIN,FRAPPIER,TURNER,&ENGEL LLPcollectively

C O M P L A I N T

AND NOW comes Plaintiff, by and through his attorney, Lucas & Nowak, LLP, and complainsof the Defendants and alleges as follows:

1. Plaintiff Jayson Scott is an adult who resides at 231 Mardi Gras Drive, Pittsburgh, PA15239.

2. Defendant America’s Wholesale Lender (hereinafter referred to as “Lender”) is theLender of the subject Note with a principal place of business at 4500 Park Granada,Calabasas, Ca, 91302, doing business in Allegheny County.

3. Defendant BAC Home Loans Servicing, LP, is an Agent and subsidiary of the Defendant Bank of America and is a debt collector as defined by 15 U.S.C. § 1692 et seq. and is a mortgage loanservicer with its principal place of business at 4500 Park Granada, in Calabasas, California 91302,doing business in Allegheny County.

4. Defendant Bank of America (“BOA”) is a banking corporation and Parent of BAC HomeLoans Servicing, LP, with a principal office at 100 North Tryon Street, Charlotte, NorthCarolina.

5. Defendant Bank of New York-Mellon is a banking corporation, and purports to be theholder-in-due-course and Trustee for Certificate holders CWABS, Inc, Asset-BackedSecurities #2004-7 and is a “debt collector” as defined by 15 U.S.C. § 1692 et seq., with a

principal place of business at 101 Barclay St., New York, New York 10286.

6. Defendant Mortgage Electronic Registration Systems, Inc., MERSCORP (hereinafter referred to as “MERS”) is a Delaware corporation with a principal place of business at1818 Library Street, Reston, VA 20190, and does business in the Commonwealth of Pennsylvania.

7. Defendant Goldbeck, McCafferty and McKeever (“GMM”) is a “debt collector” as



defined by 15 U.S.C. § 1692 et seq whose principal address is 701 Market St, Ste 5000,Philadelphia, PA 19106.

8. Any allegations about acts of any corporate or other business Defendants means that thecorporation or other business did the alleged acts through its officers, directors,employees, agents and/or representatives while they were acting within the actual or ostensible scope of their authority.

9. At all relevant times, each Defendant committed acts, caused or directed others tocommit the acts, or permitted others to commit the acts alleged in this Complaint;additionally, some of the Defendants acted as the agent for other Defendants, and all of the Defendants acted within the scope of their agency as if acting as the agent of another.

10. Knowing or realizing that other Defendants were engaging in or planning to engage inunlawful conduct, each Defendant nevertheless facilitated the commission of thoseunlawful acts.

11. Each Defendant intended to and did encourage, facilitate or assist in the commission of

the unlawful acts, and thereby aided and abetted the other Defendants in the unlawfulconduct.

12. All Defendants engaged in continuous and multiple unfair and deceptive trade practices,fraud and misrepresentations that affected interstate commerce and proximately causedthe herein injuries to the Plaintiff.

JURISDICTION AND VENUE

13. Jurisdiction of this Court is under 28 U.S.C. § 1331, 12 U.S.C. 2601 et seq. (Real EstateSettlement Procedures Act); and 15 U.S.C. § 1692 et seq. (Fair Debt Collection Practices

Act), and over the statutory and common-law violations of Pennsylvania and commonlaw.

14. Venue is proper in this district because all defendants conducted business in Pennsylvaniaand the subject Note and Mortgage was executed in Pennsylvania.

FACTUAL ALLEGATIONS

15. On or about July 21, 2004, Plaintiff executed an Adjustable Rate Note and a Mortgagewith the Lender America’s Wholesale Lender. A copy of the Mortgage is attachedhereto, incorporated herein, and marked Exhibits "A" and “A-2.”

16. The note was for $97,500. A copy of the Note is attached hereto and incorporated hereinand marked Exhibit "B".17. The Defendant determined that the adjustable terms of the Note were to be based upon an8.1% interest rate adjustable on a periodic basis to the “Index” of a “Twelve-MonthAverage” of the annual yields of United States Treasury Securities adjusted to a constantmaturity of one year as published by the Federal Reserve Board in the Federal ReserveStatistical Release entitled “Selected Interest Rates” and classified as the “Monthly



Yields.”

18. The Twelve Month Average is determined by adding together the Monthly Yields for themost recently available twelve months and dividing by twelve. The most recent Indexfigure available 15 days before each Interest Rate Change Date is called the “CurrentIndex.”

19. The margin of the Lender calculates new interest rates by adding not greater than 9.6%and not less than 8.1% Margin” to the Current Index.

20. Paragraph 4(D) of the Note states “My interest rate will never be greater than 15.1%.”

21. As security for the aforementioned Note, on April 26, 2005, Plaintiff executed a Mortgage(hereinafter referred to as the “Mortgage”) identifying , as lender, MERS as “nominee for Lender and Lender’s successor’s and assigns .... [and as a] beneficiary under [the instrument]. . .”

22. Plaintiff’s loan was immediately sold and securitized after closing by America WholesaleLender and placed into a Pooling and Servicing Agreement and converted into a stock of a Pass

Through Vehicle. The mortgage title was never officially transferred to the trust and as a result,the note was put out of eligibility for the trust under New York law.

23. There is no evidence that America’s Wholesale Lender endorsed the Note to anyone or thatthe Mortgage was properly assigned to the now purported holder-in-due-course the Bank of NewYork-Mellon.

24. If such assignment did occur, Plaintiff was never notified of it pursuant to federal RESPAlaw.

25. The alleged loan was nevertheless registered on the SEC as a Real Estate MortgageInvestment Conduit (REMIC) Trust and became a Special Purpose Vehicle (SPV) for the purposeof tax exemption.

26. REMICs are investment vehicles that hold commercial and residential mortgages in trustand issues securities representing an undivided interest in these mortgages.

27. A master servicer of the REMIC was appointed as was a Trustee, Defendant Bank of NewYork-Mellon.

28. Normally, the Trustee of a Trust has the power and responsibility to administer the assets of the Trust but in the case of a REMIC no such power exists. 29. Once the REMIC containing Plaintiff’s loan was formed, the loan was converted into a

security owned by thousands of shareholders throughout the world and was traded on Wall Street.

30. At that point, the state of Plaintiff’s loan changed and was converted forevermore into astock.



31. Once Plaintiff’s loan is securitized and converted, it forever lost its security.

32. Since the loan was sold and securitized into stock, the lender can no longer claim that it isa real party in interest, or even that the loan stills exists as a loan, since double dipping is a formof securities fraud.

33. A negotiable instrument can only be in one of two states after undergoing securitization, not both at the same time. It can either be a loan or a stock.

34. Once the instrument is traded as a stock, it is forever a stock and therefore regulated, as thisloan was, by the SEC as a stock.

35. The subject Mortgage states that the Mortgage secures the Promissory Note.

36. The Promissory Note, by conversion into a stock, was extinguished as a collateralized assetand therefore the Trust secures absolutely nothing and the Bank of New York-Mellon, not beingthe real party in interest, has no standing to foreclose on Plaintiff.

37. Since the Lender sold the loan to a REMIC, it forever lost the ability to enforce, control or otherwise foreclose on Plaintiff’s property, including the right to assign the Mortgage or endorsethe Note. It was no longer the real party of interest.

38. If the Bank of New York-Mellon owned the Note, it would have to be taxed on the interestearned from the Note. If the REMIC owned the Note it would have a tax liability.

39. To avoid double taxation, under Internal Revenue Code 860, the loan was put into a SPV sothat only the shareholders are taxed and therefore are the real parties in interest.

40. Because of IRS code 860, the Bank of New York-Mellon/Trustee is not the real and beneficial party in interest because the REMIC does not own the Note, the shareholders do.

41. By distributing the tax liabilities to the shareholders, the REMIC has also distributed the parties in interest.

42. Since a Promissory Note is only enforceable in its whole entirety and thousands of certificateholders own the subject Note, no one of them can foreclose on anyone or Plaintiff’s home.

43. The asset of the REMIC was registered and traded as a part of a security and as such cannot be traded out and is permanently attached and converted into stock preventing the Note from being assigned and securitized again and again which would create securities fraud.

44. Since Plaintiff’s loan went into default, it was written off by the REMIC and received taxcredits from the IRS, was therefore discharged, and settled destroying the Note forever.

45. After securitization, the Note cannot be re-attached to the Mortgage through adhesion.

46. Under the UCC, the Promissory Note is a one-of-a-kind instrument and any assignment



must be as a permanent fixture onto the original Note much like a check.

47. There is no endorsement on the original Note.

48. The original Promissory Note has the only legally binding chain of title, otherwise theinstrument is faulty.

49. The original Note had to be destroyed upon securitization because the Note and the stock cannot exist at the same time.

50. All Defendants lack standing to enforce the Note.

51. Under the terms of the Pooling and Servicing Agreement of BAC Home Loans Servicing,LP, the servicer can buy back the Note as a non-performing non-secured debt like collectionagencies that buy non-performing credit card debts.

52. This purchase is of a discharged asset and cannot be re-adhered to the original Mortgage,since the original Note was a one-of-a-kind instrument, not part of the discharged asset.

53. Therefore the purchaser of the discharged asset can never be the holder-in-due-course of the original Note.

54. Under the UCC, the original Promissory Note is the only valid and legally binding chainof title for the Note.

55. The numerous attempts by Defendants MERS, Bank of New York-Mellon and BAC to claimownership of the original Note by the purchaser of the discharged asset is fraudulent and ischaracterized as “reverse engineering.”

56. There is no perfection of title.

57. Plaintiff’s Note was unduly confusing and written in such a manner as to confuse Plaintiff and for the purpose of drawing Plaintiff into a default.

58. Upon information and belief, MERS was established in or around 1993 by members of themortgage banking industry so as to create a centralized document custodial system through whichmortgages can be easily transferred between members without having torecord or pay county filing fees for such assignments.

59. Plaintiff never executed a note naming MERS as a party, nor was Plaintiff ever notified or informed of a transfer of the note to MERS.

60. No evidence exists to support the claim that MERS is or was ever was the holder in duecourse of the Note at issue in this action.



61. MERS, listed on the Mortgage as the “nominee” or agent, and as the one-time purportedholder of the Note, by and through its membership rules, was not empowered to act as an agent or nominee for its members, and was without specific written approval from both principals andlacked the mandate to effectuate mortgage-related assignments, transfers or appointments of anykind.

62. There is no evidence to suggest that during the relevant time periods contemplated in this

Action, MERS was empowered by both principals to effectuate any mortgage-related assignment,transfer or appointment.

63. On or about May 14, 2008, MERS wrongfully sued Plaintiff in the Court of Common Pleas,Allegheny County, for foreclosure. A copy of the cover sheet of the Complaint is attached hereto,incorporated herein and marked Exhibit “C.”

64. Plaintiff were never informed or notified of any transfer of the Note to Defendant Bank of New York-Mellon.

65. The Mortgage states that only the Lender can make an assignment.

66. No evidence exists to support the claim that the Bank of New York-Mellon is the holder in due course of the Note at issue in this action.

67. Plaintiff’s mortgage was flawed from the date of origination of the loan because MERSwas named as the beneficiary and nominee of the lender on the Mortgage, which was done for purposes of deception, fraud, confusing – and therefore harming – the Plaintiff, and theft of revenue from the local county government through the illegal avoidance of mortgage recordingfees.

68. MERS is unregistered and unlicensed to conduct mortgage lending or any other type of

business in the Commonwealth of Pennsylvania and has been and continues to knowingly,intentionally, illegally and fraudulently record mortgages and conduct business in Pennsylvaniaon a large scale and systematic fashion.

69. Neither MERS nor Bank of New York-Mellon is the original lender for the Plaintiff’ssubject Mortgage or Note herein.

70. Neither MERS nor Bank of New York-Mellon are legally documented assignees of either thePlaintiff’s Mortgage or Note and do not hold the original Mortgage nor have they ever held thePlaintiff’s Note.

71. No Note or other evidence exists which could ever make the Plaintiff indebted to MERS or Bank of New York-Mellon in any way.

72. Neither MERS nor Bank of New York-Mellon ever had nor will they ever have theauthority to assign the Mortgage to any entity.73. Neither MERS nor Bank of New York-Mellon ever had any right to collect on the Note or enforce the Mortgage, nor have they ever had a right to hold, enforce or collect upon Plaintiff's Note.



74. At the time Plaintiff signed the Note and Mortgage, he was unknowingly converting his property into an asset of a MBS and was deliberately induced into signing a NegotiableInstrument, which was never intended as such, but was intended as collateral for a MBS.

75. The alleged Note in question started its life as a negotiable instrument, similar to a check.The negotiation and enforceability of the Note is governed by Article Three (3) of the Uniform

Commercial Code.

76. The note that had been executed with the Mortgage became part of a pool of mortgageslosing its individual identity as a note between a lender and a borrower; it merged with other unknown notes as a total obligation due to the investors/certificate holders; it is no longer anegotiable instrument, rather, collateral for a federally regulated Security under theconfines of the SEC.

78. In actuality, MERS was not the “nominee” for the lenders; the true lenders were investorswho had provided the funds for the loans through mortgage backed security pools which wereheld as trusts.

79. This fact was known to MERS and the Servicers and the subsequent assignees of any andall rights purported to have been assigned by MERS at the time the note and Mortgage was signed by Plaintiff and at the time of each and every later purported assignment by MERS, or others, of any interest in the note and Mortgage.

80. The proper parties to this action would be the investors of the mortgage-backed securitiesto which Plaintiff’s loan was securitized; but these parties have no recorded interest in theMortgage, which were never delivered to the Trustee for the mortgage backed security pool;therefore the note itself is, at best, unsecured rights to payment.

81. All Defendants knew that Plaintiff’s loan was securitized or intended to be securitized prior to the preparation of the note and mortgage reflecting the loan.

82. All of the purported Assignments and transfers were done by the Defendants without therequired corporate resolution giving authority for that person to conduct such assignments andtransfers.

83. A "debt collector" under the statute is "any person who uses any instrumentality of interstatecommerce or the mails in any business the principal purpose of which is the collection of anydebts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. § 1692a(6).

A patent is an official document that confers rights to the inventor of a new and useful invention. A

patent is also a contract between an inventor and the United States government, which provides an



inventor with a limited monopoly for a period of years in consideration for the inventor disclosing a new

invention to the public through a published patent. The limited monopoly granted by a patent is the right to

exclude others from making, using, selling, and offering for sale the invention covered by the patent and

importing the patented invention into the United States inventions that are neither new nor useful are not

patentable. Inventions that are offensive to public morality are also not patentable. However, a patent

actually only grants to the patentee the right to exclude (i.e., to prevent others from practicing the patented

invention); it does not actually grant to the patentee the right to use the patented invention.12

An invention is only patentable if it is none of the foregoing, new, nonobvious, adequately described

or otherwise enabled in a patent application, and claimed by the inventor in a patent application in clear

and definite terms. Section 35 USC § 102(b) states, in part, “[a] person shall be entitled to a patent unless

the invention was…described in a printed publication…or in public use or on sale…more than one year

prior to the date of filing an application for patent…”

The United States government grants patents for inventions that are “new “and “novel.” The

determination of whether an invention is new and novel takes place during the prosecution or examination

of the patent application that discloses the invention. To examine the patent, the Examiner reviews the

patent application and searches the subject matter of the application to locate prior art including relevant

patents and printed publications. After reviewing the prior art and the patent application, the Examiner

determines whether the invention is a significant advance over the prior art. After the inventive product is

on the market, customer feedback is received.



'Fair Credit Billing Act

Fair debt collection Act

Fair

If a plaintiff successfully prosecutes a civil claim for common law fraud, the plaintiff will be

awarded its actual damages – period. If the plaintiff takes the same facts that gave rise to the

claim of common law fraud, casts them as violations of the mail and wire fraud statutes (18

U.S.C. §§ 1341, 1343), and brings a RICO claim predicated on the mail and wire fraud violations,

then the same plaintiff will not only recover its actual damages, but treble its actual damages, plus

costs and attorneys’ fees.

A civil RICO claim is often the only means by which a plaintiff can reach the people or

entities whose policies caused or enabled the wrongdoing to occur.

The RICO Act simply states: “’person’ includes any individual or entity capable of holding a

legal or beneficial interest in property.” 18 U.S.C. § 1961(3). Thus, any natural person or

corporate entity can be named as a RICO defendant. Hospital District ("District"), and Antelope

Valley Medical Group ("Group"). Lancaster alleged that the defendants sought to use Antelope's

monopoly in perinatal services to increase the hospital's market share in non-perinatal services.

Antelope, it is said, would not allow certain health maintenance organizations ("HMOs") to

contract for perinatal services unless the HMOs agreed to use Antelope for non-perinatal services

as well.



A specific intent to deceive is a element of the predicate act, mail fraud, on which

Lancaster's RICO claim is based. 18 U.S.C. § 1341, Sun Sav. and Loan Assoc. v. Dierdorff, 825

F.2d 187 (9th Cir.1987).

RICO requires that the defendants direct, cause, manipulate, operate or manage another

individual, a legal entity, or a group of individuals to commit a series of crimes. In short, RICO

section 1962(c) seeks to penalize a defendant’s use of others to carry out criminal activities.

In plain language, an association-in-fact enterprise is any group of individuals or legal

entities that are linked by some fact or circumstance. Legal entities may be associated by the fact

that they belong to the same industrial or trade association A group consisting of corporations

may also constitute an association-in-fact enterprise, e.g., a manufacturer, a law firm, and a public

relations company may from an association-in-fact enterprise if they all work together to create

and publicize a fraudulent advertising campaign. The fundamental point is that a defendant cannot

avoid liability under RICO by simply asserting that the group he manages is not a legal entity.

The enterprise requirement is intended to be a flexible concept encompassing any type of group or

organization that a defendant operates or manages through a pattern of racketeering activity.

Thus, where employees of a corporation associate together to commit a pattern of predicate acts in

the course of their employment and on behalf of the corporation, the employees in association

with the corporation do not form an enterprise distinct from the corporation. See Old Time Enters.

v.International Coffee Corp., 862 F.2d 1213, 1217 (5th Cir.1989).

44!



In short, because a corporation is a legal entity and can engage in activity only through its

officers, directors, and employees, a corporate defendant person is not distinct from an

association-in-fact enterprise consisting only of officers, directors, or employees of the

corporation. A corporation can take no action independent of its officers, directors, and

employees.

Conversely, officers, directors, and employees are natural persons who exercise independent

judgment and who exist apart from their capacity as employees. Thus, the courts generally agree

that officers, directors, and employees are distinct from any corporation that they may operate or

manage. To satisfy the person / enterprise distinction in the corporation context, one can usually

name the corporate officers, directors and employees as the defendant persons operating and

managing the corporation as an enterprise. This is a technical distinction, but a distinction of

critical importance when a plaintiff is deciding who to name as defendants in a RICO claim and

when deciding what will serve as the enterprise.

“(1) There [was] an ongoing organization with some sort of framework, formal or informal, for

carrying out its objectives; and (2) the various members and associates of the association

function[ed] as a continuing unit to achieve a common purpose. “find an enterprise where an

association of individuals, without structural hierarchy, form[ed] solely for the purpose of

carrying out a pattern of racketeering acts

64!

RICO makes it “unlawful for any person employed by or

associated with any enterprise engaged in, or the activities of which affect,

interstate or foreign commerce, to conduct or participate, directly or

indirectly, in the conduct of such enterprise's affairs through a

pattern of racketeering activity or collection of unlawful debt.” 18



U.S.C. § 1962(c) (emphasis added).

The statute does not specifically define the outer boundaries of

the “enterprise” concept but states that the term “includes any

individual, partnership, corporation, association, or other legal

entity, and any union or group of individuals associated in fact

although not a legal entity.” § 1961(4). [Footnote omitted.] This

65!

enumeration of included enterprises is obviously broad,

encompassing “ any ... group of individuals associated in fact.” Ibid.

(emphasis added). The term “any” ensures that the definition has a

wide reach, see, e.g., Ali v. Federal Bureau of Prisons, 552 U.S. 214, ----,

128 S.Ct. 831, 833, 169 L.Ed.2d 680 (2008) and the very concept of

an association in fact is expansive. In addition, the RICO statute

provides that its terms are to be “liberally construed to effectuate its

remedial purposes.” [Citations omitted.]

In light of these statutory features, we explained in Turkette that

“an enterprise includes any union or group of individuals associated

in fact” and that RICO reaches “a group of persons associated

together for a common purpose of engaging in a course of conduct.”

452 U.S., at 580, 583, 101 S.Ct. 2524, Such an enterprise, we said,

“is proved by evidence of an ongoing organization, formal or

informal, and by evidence that the various associates function as a

continuing unit.” Id., at 583, 101 S.Ct. 2524.

Notwithstanding these precedents, the dissent asserts that the



definition of a RICO enterprise is limited to “business-like entities.”

See post, at 2247 - 2250 (opinion of STEVENS, J.). We see no basis

to impose such an extratextual requirement. [Footnote omitted.]

B

As noted, the specific question on which we granted certiorari is

whether an association-in-fact enterprise must have “an

ascertainable structure beyond that inherent in the pattern of

racketeering activity in which it engages.” Pet. for Cert. i. We will

break this question into three parts. First, must an association-in-fact

enterprise have a “structure”? Second, must the structure be

“ascertainable”? Third, must the “structure” go “beyond that

inherent in the pattern of racketeering activity” in which its members

engage?

Structure.” We agree with petitioner that an association-in-fact

enterprise must have a structure. In the sense relevant here, the term

“structure” means “[t]he way in which parts are arranged or put

together to form a whole” and “[t]he interrelation or arrangement of

parts in a complex entity.” American Heritage Dictionary 1718 (4th

That an “enterprise” must have a purpose is apparent from

meaning of the term in ordinary usage, i.e., a “venture,”

“undertaking,” or “project.” Webster's Third New International

Dictionary 757 (1976). The concept of “associat[ion]” requires both

interpersonal relationships and a common interest. See id., at 132

(defining “association” as “an organization of persons having a



common interest”); Black's Law Dictionary 156 (rev. 4th ed.1968)

(defining “association” as a “collection of persons who have joined

together for a certain object”). Section 1962(c) reinforces this

conclusion and also shows that an “enterprise” must have some

longevity, since the offense proscribed by that provision demands

proof that the enterprise had “affairs” of sufficient duration to permit

an associate to “participate” in those affairs through “a pattern of

racketeering activity.”

To establish common law fraud, a plaintiff must prove (1) the defendant made a material

representation, (2) which was false, (3) which was either known to be false when made or which

was recklessly made as a positive assertion without knowledge of its truth, (4) which the speaker made

with intent that it be acted upon, and (5) the other party took action in reliance upon the misrepresentation,

and (6) thereby suffered injury. In re First Merit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001); Formosa

Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998).

As to the intent element, evidence must be presented that a representation was made with the

intent to deceive and with no intention of performing as represented at the time the representation was

made. Formosa, 960 S.W.2d at 48; Spoljaric v. Percival Tours, Inc., 708 S. W.2d 432, 434 (Tex. 1986).

The speaker’s intent at the time of the representation may be inferred from the speaker’s subsequent acts

after the representation was made. Spoljaric, 708 S.W.2d at 434.

Fannie Mae and Freddie Mac provide a guarantee that investors in their MBS will

receive timely payments of principal and interest. If the borrower for one of the underlying mortgages fails

to make his payments, the GSE that issued the MBS will pay to the trust the scheduled principal and

interest payments. In return for providing this guarantee, Fannie Mae and Freddie Mac deduct an ongoing



guarantee fee, which is charged by setting the pass-through annual interest rate (i.e., the interest rate

received by holders of the MBS) about 20-25 basis points (i.e., 0.20 - 0.25 percentage points) below the

weighted average interest rate of the mortgages in the pool. Because the GSEs were perceived to be

implicitly backed by the federal government, their guarantee was perceived by investors to have essentially

removed the credit risk from their MBS.

31. Other financial institutions also create MBS, referred to as non-agency MBS,

which have a structure similar to agency MBS but typically have no guarantee against default risk. In a

non-agency securitization the sponsor of the securitization, which could be an investment bank,

commercial bank, thrift, or mortgage bank, first acquired a set of mortgages, either by originating them or

by buying them from an originator. The sponsor then would create a new entity, a "special purpose

vehicle" ("SPV"), and transfer the mortgages to the SPV.

32. The principal and interest payments on the pool of mortgages would provide the

underlying set of cash flows for the SPV. The SPV could then enter into contracts in order to manage the

risk it faced. For example, to reduce interest rate-related risks, the SPV could enter into interest rate swap

agreements that provided floating interest rate-based payments to the SPV in exchange for a fixed set of

payments from the SPV. The SPV then would issue various Classes of mortgage-backed securities that

gave investors who were holders of the securities rights to the cash flows available to the SPV. Each class

of securities was referred to as a tranche .

33. These SPV's often took the form of Real Estate Mortgage investment Conduits, or "REMICs."

REMICs are investment vehicles that hold commercial and residential mortgages in trust and issue

securities representing an undivided interest in these mortgages. A REMIC assembles qualified mortgages

into pools and issues pass-through certificates, multielass bonds similar to a collateralized mortgage

obligation (CMO), or other securities to investors in the secondary mortgage market. Mortgage-backed

securities issued through a REMIC can be debt financings of the issuer or a sale of assets.

Qualified mortgages encompass several types of obligations and interests. Qualified mortgages are

defined as "(1) any obligation (including any participation or certificate of beneficial ownership therein)

which is principally secured by an interest in real property, and is either transferred to the REMIC on the



startup day in exchange for regular or residual interests, or purchased within three months after the startup

day pursuant to a fixed-price contract in effect on the startup day, (2) any regular interest in another

REMIC which is transferred to the -REMIC on the startup day in exchange for regular or residual interests

in the REMIC, (3) any qualified replacement mortgage, or (4) certain FASIT regular interests."

Several class actions have been filed against various sponsors of REMICs alleging that the REMIC

structure was used unlawfully because a REMIC can never be the owner of a mortgage loan and that, in

any event, many mortgages purportedly owned by various REMICs were not timely transferred to the

REMIC thereby eliminating the REMIC's favorable tax treatment.

Important to this complaint is a REMIC (which is a pass-through entity) cannot pursue a

borrower/guarantor for damages, as it is a PASS-THROUGH entity without capacity to experience Gains

or Losses. The only party that can bring forth any claim for damages are the Certificate holders who have

already foregone that option by accepting investment risks with regards to the underlying mortgages by

accepting MLPA warranties.

The problem important to the issues presented with this particular action, is the fact that in order to

keep its tax status and to fund the “Trust” and legally collect money from investors/certificate holder, who

bought into the REMIC, the “Trustee” or the more properly named, Custodian of the REMIC, had to have

possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the

Notes, showing a complete paper chain of title. Whether public (MBS) or private (GSEs).

The mortgages had to have been recorded in the name of the beneficiaries the year the MBS closed.

The problem is, who ARE the beneficiaries who advanced the funds? In the securitization market, they

come and go. Properties get sold and resold daily. They can be sliced up and sold to multiple investors at

the same time. MBS are divided into “tranches” according to level of risk. But the “pool” is the trust; and

to qualify as a REMIC trust, it can own nothing.

Most importantly for this action, the “Trustee”/Custodian MUST have the mortgages recorded in

the investor/certificate holders name as the beneficiaries of a MBS in the year the MBS “closed.”

Every mortgage in the MBS should have been publicly recorded in the State County where the

property was located with a mortgage in the name similar to “2006 ABC REMIC Trust on behalf of the



beneficiaries of the 2006 ABC REMIC Trust.” The mortgages in the referenced example would all have

had to been publicly recorded in the year 2006.

As previously pointed out, the loan documents were never delivered to the “Trusts” the Promissory

Notes and deeds of trust or mortgages were never obtained and the mortgages never obtained or recorded

in the name of the trust.

The “Sellers” engaged in a plethora of “prohibited activities” and sold the investors certificates

and Bonds with phantom mortgage backed assets. There are now nationwide, numerous Class actions filed

by the beneficiaries (the investors/certificate holders) of the “Trusts” against the entities who sold the

investments as REMICS based on a bogus prospectus that held

In the above scenario, even if the attorney for the servicer who is foreclosing on behalf of the

Trustee (who is in turn acting for the securitized trust) produces a copy of a note, or even an alleged

original, the mortgage loan was not conveyed into the trust under the requirements of the prospectus for

the trust or the REMIC requirements of the IRS.

54. As a result the required MBS asset, or any part thereof (mortgage note or security

interest), since the loan documents securing the funding was never transferred to the Document Custodian

of the Trust to allow the trust to ever be considered a "holder" of a mortgage

55. The Trust will never have standing or be a real party in interest. They will never be the

proper party to invoke the power of sale or appear before a Court.

56. The transfer of mortgage loans into the trust after the “cut off date” (in

the example 2006), destroys the trust's REMIC tax exempt status, and these “Trusts” (and potentially the

financial entities who created them) would owe millions of dollars to the IRS and the States as the income

would be taxed at of one hundred percent (100%).

57. Subsequent to the "cut off date" listed in the prospectus, whereby the mortgage notes and

security for these notes had to be identified, and Note and Mortgages transferred and thereafter, the pool is

permanently closed to future transfers of mortgage assets.

58. The MBS have signed themselves up under oath with the Securities and Exchange

Commission (“SEC,”) and the Internal Revenue Service (“IRS,”) as mortgage asset “pass through” entities



wherein they can “never own the mortgage loan assets in the MBS. This allows them to qualify as a Real

Estate Mortgage Investment Conduit (“REMIC”) rather than an ordinary Real Estate Investment Trust

(“REIT”). As long as the MBS is a qualified REMIC, no income tax will be charged to the MBS. For

purposes of this action, “Trust” and MBS are interchangeable.

59. Plaintiff will show in all cases, the lack of acquisition of the mortgage

loans violates the prospectus presented to the investors and the IRS REMIC requirements. If an MBS Trust

was audited by the IRS and was found to have violated

any of the REMIC requirements, it would lose its REMIC status and all back taxes would be due and owing

to the IRS as well as the state as income. As previously stated, one hundred percent (100%) of the income will

be taxed.

60. While attempting to circumvent states recording Statutes, the MBS Trust created for itself

a situation wherein it has no legally recognizable interest for the benefit of the investors. The investors were

invested in nothing. The MBS possessed nothing on the date the REMIC closed and perpetrated a fraud on the

investors and the American taxpayer through its fraudulent qualification as a REMIC with the SEC.

60.1 Now that we know the scenario complained of above that (1) the necessary loan

documents that (1) the necessary loan documents were never delivered to create a “trust” nor pledged as any

collateral; and (2) wherein the servicer is now assigning interest and deeds of trust and mortgages to parties

that never held any interest, would never suffer a loss or paid any consideration for the transfer.

20. Paragraph 4(D) of the Note states “My interest rate will never be greater than 15.1%.”

21. As security for the aforementioned Note, on April 26, 2005, Plaintiff executed a

Mortgage (hereinafter referred to as the “Mortgage”) identifying , as lender, MERS as

“nominee for Lender and Lender’s successor’s and assigns .... [and as a] beneficiary

under [the instrument]. . .”

22. Plaintiff’s loan was immediately sold and securitized after closing by America Wholesale

Lender and placed into a Pooling and Servicing Agreement and converted into a stock of

a Pass Through Vehicle. The mortgage title was never officially transferred to the trust

and as a result, the note was put out of eligibility for the trust under New York law.

argument for thenote

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