Securitization Fail-Litigation Update
The wheels of litigation move slowly, but there are a couple of recent securitization fail litigation decisions that are worthy of note. First, in the Congress case, a wrongful foreclosure action in Alabama (see my previous blogging on it here), the Alabama appellate court reversed and remanded, a victory for the homeowner. The reversal and remand was on a rather narrow ground, namely that the trial court applied too demanding a standard when evaluating the homeowner's argument that the allonge in the case had been fabricated. Yet this means that this securitization fail case is still alive. It's also interesting to see how suspicious some courts have become about mysteriously appearing allonges and the like.
Second, the Illinois Court of Appeals for the 2d District just issued a ruling in a commercial mortgage foreclosure case, Bank of Am. Nat'l Ass'n v. Bassman FBT, 2012 Ill. App. LEXIS 487 (Ill. App. Ct. 2d Dist. 2012), with some wide reaching implications for securitization fail arguments. It's mainly a choice of law opinion, but there are two interesting things about the case. First, the Illinois court very clearly understood the securitization fail standing argument made by the defendants and was taking it seriously. Second, the Illinois court applied New York law to the interpretation of the PSA. This is critical because once the argument shifts to New York trust law, its 90% of the way there. The Illinois court got hung up on a question of whether a conveyance to a trust in contravention of the trust documents is void or voidable. This is a twist I haven't seen before. The Illinois court was uncertain about the answer (it doesn't help that it was dealing with century old cases that weren't necessarily careful about their phrasing), and decided against the defendants because they had the burden of proof in the appeal. All in all, however, this case goes a long way to legitimating the securitization fail argument.