Editor: David Reiss
Brooklyn Law School

August 1, 2013

A REMIC Unraveling?

By David Reiss

An unpublished opinion, Glaski v. Bank of America, No. F064556 (7/31/13, Cal. 5th App. Dist.), presents one possible future for REMICs that failed to comply with the strict rules set for them by Congress and the IRS. Glaski, a homeowner, argues that the trial court erred by dismissing his case challenging the nonjudicial foreclosure of the deed of trust secured by his home. For my purposes, I am interested in the Court’s consideration of “whether a post-closing date transfer into a [REMIC] securitized trust is the type of defect that would render the transfer void.” (20) I am going to quote the opinion at length because the reasoning is somewhat complex:

The allegation that the WaMu Securitized Trust was formed under New York law supports the conclusion that New York law governs the operation of the trust.  New York Estates, Powers & Trusts Law section 7-2.4, provides:  “If the trust is expressed in an instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.”

Because the WaMu Securitized Trust was created by the pooling and servicing  agreement and that agreement establishes a closing date after which the trust may no longer accept loans, this statutory provision provides a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.

We are aware that some courts have considered the role of New York law and rejected the post-closing date theory on the grounds that the New York statute is not interpreted literally, but treats acts in contravention of the trust instrument as merely voidable.

Despite the foregoing cases, we will join those courts that have read the New York statute literally.  We recognize that a literal reading and application of the statute may not always be appropriate because, in some contexts, a literal reading might defeat the statutory purpose by harming, rather than protecting, the beneficiaries of the trust.  In this case, however, we believe applying the statute to void the attempted transfer is justified because it protects the beneficiaries of the WaMu Securitized Trust from the potential adverse tax consequence of the trust losing its status as a REMIC trust under the Internal Revenue Code.  Because the literal interpretation furthers the statutory purpose, we join the position stated by a New York court approximately two months ago:  “Under New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void.  EPTL § 7-2.4.  Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.” [quoting Erobobo] Relying on Erobobo, a bankruptcy court recently concluded “that under New York law, assignment of the Saldivars’ Note after the start up day is void ab initio.  As such, none of the Saldivars’ claims will be dismissed for lack of standing.”(quoting Saldivar)

We conclude that Glaski’s factual allegations regarding post-closing date attempts to transfer his deed of trust into the WaMu Securitized Trust are sufficient to state a basis for concluding the attempted transfers were void.  As a result, Glaski has a stated cognizable claim for wrongful foreclosure under the theory that the entity invoking the power of sale (i.e., Bank of America in its capacity as trustee for the WaMu Securitized Trust) was not the holder of the Glaski deed of trust. (20-22, citations and footnotes omitted)

We are now seeing a trend that started with Erobobo and continued with Saldivar:  courts are finally addressing the REMIC attributes of the mortgage-backed securities at issue in downstream cases. I am not sure that the reasoning of those three cases will hold up on appeal, but it is interesting to see judges add another level of understanding to foreclosures in the age of of the mortgage-backed security.

[Hat tip April Charney]

UPDATE:  I just heard (August 8, 2013) from Richard L. Antognini, Glaski’s appellate lawyer, that the court has decided to publish this opinion. As he notes, “It now can be cited to other California and federal courts, and it is binding authority, until another court of appeal disagrees or the California Supreme Court decides to review it.”

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