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Why Void Assignments are Void Not Voidable

Posted by Neil Garfield | April 9, 2018

RATIFICATION OF VOID ASSIGNMENTS IS IMPOSSIBLE AND ABSURD

In the wake of the California Supreme Court’s decision in Yvanova and its progeny, the legal community has accepted the unacceptable (and the ridiculous). The bottom line of the decision is that a void assignment can be the basis for a lawsuit for wrongful foreclosure but it cannot be the basis of a defense to the foreclosure itself. Thus you can sue for the illegal and fraudulent use of a fabricated instrument reciting a transfer of ownership of a note and/or mortgage, but you can’t stop the illegal foreclosure which is based on the same fraudulent instruments.

In order to reach this conclusion the court was required to twist legal reasoning beyond common sense logic. The court held that a void assignment could be ratified; and since it could be ratified, the assignment was not void but voidable. Somehow the court also reached the conclusion that in a wrongful foreclosure lawsuit the same assignment could be treated as void and not voidable.

In my opinion, this was a political decision, not a legal decision. Despite the constitutional requirement of separation of powers, many courts start by making two public policy assumptions: (1) the banks needed protection and the courts needed to provide that protection and (2) the homeowners were in default and they should not be the beneficiary of the windfall that would occur in decisions that favored the banks.

The entire premise of the California Supreme Court was wrong. The specific example in that decision was a purported assignment after the cutoff date specified in the pooling and servicing agreement that supposedly served as the basis for the creation and maintenance of a trust. The court said that somehow the assignment outside of the cut off period could be ratified. This decision has been expanded by other courts to mean that any void assignment could be potentially ratified and therefore was voidable.

Internal Revenue Code §§860D, 860F(a), 860G(d) A REMIC or special purpose vehicle (SPV) is an entity that is created for the specific purpose of being a tax-free pass-through for interest income generated by pooled mortgages.

Here are the reasons why a purported assignment after the cutoff date cannot be ratified:

  1. The Internal Revenue Code does not permit it. Having elected to be treated as a REMIC, the purported trust is bound by law, which requires an “open window” for transactions to be limited to a 90 day period. Ratification of an action that violates the Internal Revenue Code would be an illegal act.

  2. Ratification of an action that violates the Internal Revenue Code would also be a stupid act — one which would convert all revenue by all participating parties to ordinary income for tax purposes, even if that revenue included return of capital. Therefore there is no reasonable business purpose for ratification.

  3. The trustee of a REMIC trust does not have the power to ratify or even control or observe the business operations of the REMIC trust. Hence ratification by the trustee is impossible.

  4. The named trustee for the remake trust is prohibited from actively administering the affairs of the REMIC trust. Hence ratification by the trustee would be illegal and void especially if the trust instrument recited that the instrument is governed by the laws of the state of New York.

  5. The certificate holders and the named trustee of the REMIC trust are prohibited from receiving reports and are further prohibited from even making inquiries regarding the status of any alleged trust assets. Without knowledge, ratification is impossible.

  6. The certificate holders are not beneficiaries of the REMIC trust. In most cases the indenture to the certificates purchased by investors specifically exclude any interest or title to any debt, note or mortgage. Hence, ratification by the certificate holders is impossible. Any contrary conclusion could only be based on a finding that the REMIC trusts never existed. That in turn would lead to an array of other problems.

  7. Even if the certificate holders were construed to be beneficiaries of a REMIC trust, the terms of the putative trust instrument prohibit beneficiaries from actively or passively being involved in the operations of the REMIC trust. Hence ratification by the certificate holders is not only impossible, but contrary to the express provisions of the putative pooling and servicing agreement that purportedly serves as the trust instrument.

  8. Ratification of an instrument that has no legal existence adds nothing to the instrument nor the rights purportedly transferred by virtue of the instrument (assignment).

 

 

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