Below is an abbreviated version of an article written by Roy Oppenheim and Jacquelyn Trask, which was first published this week by Thomson Reuters. The longer version of “Deconstructing The Black Magic of Securitized Trusts” was published earlier this year by the Stetson Law Review.
From 2003 to 2007, Florida saw the largest real estate boom in its history. Real estate sold at astonishing prices as people were sold a bill of goods known as the “American Dream.” But for many, that American Dream turned out to be the American Nightmare. From sub-prime mortgage lending and predatory practices by mortgage brokers, lenders and improper securitization of mortgages, this era of economic boom led to the largest crash in the history of the real estate market1, a crash from which Florida has yet to recover, and to which we have not yet seen the end. The full extent of the damage inflicted by these practices has not yet been felt, but millions of homeowners nationwide have suffered from financial crisis, foreclosure and bankruptcy. And what is worse yet is that the systemic fraud and illegal conduct of the banks has continued to pervasively infect court systems throughout the nation; further, the Florida court system has suffered from extreme abuse at the hands of the banks that have high jacked it and effectively turned it into a private collection agency for the banking industry.2
Mortgage securitization is perhaps one of the least understood areas of the real estate industry, and for good reason. With phrases such as mortgage bundling, securitized trusts, and tax-exempt structures known as Real Estate Mortgage Investment Conduits (“REMICS”), there are many terms employed to describe massive collections of bundled mortgages which were broken up and sold off in pieces. While this method of bundling mortgages was once looked at as perhaps the best thing to ever happen to the mortgage industry, allowing large scale investors such as pensions and retirement funds to own interests in mortgages in a way that was deemed “safe,”3 the securitization process has become a nightmare for the American homeowner fighting foreclosure. In fact, the securitization process has made it impossible in many, if not all cases where a mortgage is held in a securitized trust, to determine who actually owns a mortgage and note, a fact which until recently has done little to slow down the foreclosure rocket-docket.4