Obstacles to Negotiability of Residential Mortgage Notes, Part IV

The summary of Max’s lengthy analysis of the negotiability of residential mortgage notes, drawing on the analysis in In re Veal and extending beyond the circumstances of the case.  If you missed the beginning of the series, you may want to read Negotiability, Why Residential Mortgage Notes are Not Negotiable Instruments and Article 9.

WHAT DOES ALL OF THIS MEAN?

In order to establish standing and comply with the real party in interest rules, including the legal right to enforce a residential mortgage note, the party seeking such status must prove-up the following:

1. That the Seller acquired rights in the mortgage note for valid consideration pursuant to a mortgage loan purchase agreement that referenced the specific mortgage note subject to enforcement. This obligation in many cases could encompass proof of many such contracts that would establish a complete and unbroken chain of true sales and assignments from the Originator to all intervening parties and finally to the Seller.

2. That the Sponsor acquired rights in the mortgage note for valid consideration pursuant to a mortgage loan purchase agreement that referenced the specific mortgage note subject to enforcement. This obligation in many cases could encompass proof of many such contracts that would establish a complete and unbroken chain of true sales and assignments from the Originator to all intervening parties and finally to the Sponsor.

3. That the Depositor acquired rights in the mortgage note for valid consideration pursuant to a mortgage loan purchase agreement that referenced the specific mortgage note subject to enforcement.

4. That the Trustee for the Residential Mortgage-Backed Securitized Trust acquired rights in the mortgage note for valid consideration pursuant to the Pooling and Servicing Agreement and that the PSA referenced the specific mortgage note subject to enforcement.

5. That the Trustee has actual possession of the original mortgage note.

6. That the original mortgage note includes a complete and unbroken chain of indorsements from the entity that originated the note with the final indorsement to the Trust either in blank or to the specifically named Trustee (e.g., an order endorsement to Deutsche Bank as Trustee without naming the vintage year and name for the Trust would not be legally sufficient).

7. All of these documents are not “business records” that can be authenticated by a “business record affidavit” but rather would have to be proved-up by an individual with actual personal knowledge as to the facts necessary to establish the “authenticity” of each document in the required unbroken chain of assignment contracts and indorsements.