ROYAL PARK INVESTMENTS SA/NV vs DEUTSCHE BANK AG

Complaint | ROYAL PARK INVESTMENTS SA/NV vs DEUTSCHE BANK AG et. el | NYSC –
 Fabricate or fraudulently alter mortgage assignment documentation, Title & Vast majority of loans
underlying the offering were not properly or timely transferred to the trust…
REMIC, PSA, SECURITIZATION FAILURE!

Posted on03 September 2013.
Complaint | ROYAL PARK INVESTMENTS SA/NV vs DEUTSCHE BANK AG et. el | NYSC – Fabricate or fraudulently alter
mortgage assignment documentation, Title & Vast majority of loans underlying the offering were not
properly or timely transferred to the trust…REMIC, PSA, SECURITIZATION FAILURE!   

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK

ROYAL PARK INVESTMENTS SA/NV,
Plaintiff,

vs.

DEUTSCHE BANK AG, DEUTSCHE BANK
SECURITIES, INC., DB STRUCTURED
PRODUCTS, INC., DEUTSCHE ALT-A
SECURITIES, INC. and ACE SECURITIES
CORP.,
Defendants.

EXCERPT:

428. Moreover, the PSAs generally require the transfer of the mortgage loans to the trusts
to be completed within a strict time limit – three months – after formation of the trusts in order to
ensure that the trusts qualify as tax-free real estate mortgage investment conduits (“REMICs”). In
order for the trust to maintain its tax free status, the loans must have been transferred to the trust no
later than three months after the “startup day,” i.e., the day interests in the trust are issued. See
Internal Revenue Code §860D(a)(4). That is, the loans must generally have been transferred to the
trusts within at least three months of the “closing” dates of the offerings. In this action, all of the
closing dates occurred in 2005, 2006 or 2007, as the offerings were sold to the public. If loans are
transferred into the trust after the three-month period has elapsed, investors are injured, as the trusts
lose their tax-free REMIC status and investors like plaintiff face several adverse draconian tax
consequences: (1) the trust’s income is subject to corporate “double taxation”; (2) the income from
the late-transferred mortgages is subject to a 100% tax; and (3) if late-transferred mortgages are
received through contribution, the value of the mortgages is subject to a 100% tax. See Internal
Revenue Code §§860D, 860F(a), 860G(d).

429. In addition, applicable state trust law generally requires strict compliance with the
trust documents, including the PSAs, so that failure to strictly comply with the timeliness,
endorsement, physical delivery, and other requirements of the PSAs with respect to the transfers of
the notes and security instruments means the transfers would be void and the trust would not have
good title to the mortgage loans.

[...]

439. Further confirming the endemic problems of defective transfers in the defendants’
RMBS, servicers that act on behalf of trustees have also been unable to properly foreclose on
mortgaged properties serving as collateral for plaintiff’s investments. For example, sworn
deposition testimony from a longtime Countrywide employee (Countrywide is one of the key
originators at issue in this case) regarding Countrywide-originated loans demonstrates that
Countrywide systematically failed to properly transfer or assign the mortgage documents. In Kemp
v. Countrywide Home Loans, et al., No. 08-02448-JHW (Bankr. D.N.J.), Linda DeMartini, a tenyear
employee of Countrywide’s servicing division, testified that not delivering the original note to
the trustee was standard Countrywide practice, stating that the “normal course of business . . . would
include retaining the documents,” and that Countrywide “transferred the rights . . . not the physical
documents.” Based on this testimony, Chief Bankruptcy Judge Judith Wizmur held that the fact that
the issuing trustee “never had possession of the note[] is fatal to its enforcement” and, thus, that the
trustee could not enforce the mortgage loan. Kemp v. Countrywide Home Loans, Inc., No. 08-
02448-JHW, slip op. at *10-*11 (Bankr. D.N.J. Nov. 16, 2010). Countrywide originated loans in
many of the offerings at issue herein.

440. The need to fabricate or fraudulently alter mortgage assignment documentation
provides compelling evidence that, in many cases, title to the mortgages backing the certificates
plaintiff purchased was never properly or timely transferred. In fact, plaintiff has conducted
investigations on the loans underlying several of the offerings at issue herein to determine whether
the loans were properly transferred to the trusts. In each case investigated, the vast majority of loans
underlying the offerings were not properly or timely transferred to the trusts.

441. For example, plaintiff performed an investigation concerning the mortgage loans
purportedly transferred to the trust for the Deutsche Bank Defendants’ DBALT 2006-AR6 offering.
The closing date for this offering was on or about December 15, 2006. Plaintiff reviewed the
transfer history for 310 loans that were supposed to be timely transferred to this trust. Only two (2)
loans were timely transferred to the trust. Thirty-five (35) other loans were not and have never been
transferred to the trust. Thirty-seven (37) additional loans were never assigned to the trust, and were
paid in full in the name of the originator (or a third party). In addition, thirty-nine (39) other loans
that were supposed to be transferred to the trust were transferred to entities other than the trust, but
not to the trust. Five (5) deeds of trust were foreclosed in the name of a party other than the trust,
without an assignment of record of the note and mortgage (deed of trust) to that party or the trust.
The remainder of the loans (192) were eventually transferred to the trust, but all such transfers
occurred between mid-2007 and the present, well beyond the three-month time period required by
the trust documents. In other words, only 2 of the 310 reviewed loans were timely transferred to
the trust, a failure rate of 99.4%.

442. The foregoing example, coupled with the public news, lawsuits and settlements
discussed above, establish that defendants failed to properly and timely transfer title to the mortgage
loans to the trusts. Moreover, they show that defendants’ failure to do so was widespread and
pervasive. In fact, the specific examples discussed above show that defendants utterly and
completely failed to properly and timely transfer title. Defendants’ failure has caused plaintiff (and
other RMBS investors) massive damages. As noted by law professor Adam Levitin of Georgetown
University Law Center on November 18, 2010, in testimony he provided to the a U.S. House
Subcommittee investigating the mortgage crisis, “[i]f the notes and mortgages were not properly
transferred to the trusts, then the mortgage-backed securities that the investors[] purchased were in
fact non-mortgaged-backed securities” (emphasis in original), and defendants’ failure “ha[d]
profound implications for [R]MBS investors” like plaintiff. Indeed, Professor Levitin noted in his
testimony that widespread failures to properly transfer title would appear to provide investors with
claims for rescission that could amount to trillions of dollars in claims.

[...]