An EV Has Blog Post by Brittany Earl, Esq.

Edited by Prashant R. Vallury

The effects of foreclosure are felt nationwide.  Property owners take to the internet, hoping to find an attorney, unaware that many legal practitioners lack the in-depth understanding of the crisis.  As a result, these borrowers retain attorneys who do not provide a return on the monetary investment, or they attempt to fight the bank without counsel.  More often than not, either of these options leads to the waiver of valuable, potent and available legal defenses when the Judge instructs the borrower to file an Answer to the Plaintiff’s Complaint.

A trust often is named as Plaintiff in these foreclosure actions.  This is one of the many effects of securitization.  These trusts hold a fixed pool of mortgages and issues multiple classes of tiered interests, referred to as tranches, to investors.  These trusts are created when your loan gets pooled into the trust as a mortgage-backed security.  These trusts also get tax-preferred “REMIC” status from the IRS, making this vehicle a very attractive option to the banks.

In order to obtain this preferred tax classification, there are several procedural steps that must be satisfied.  All assets of the trust are to be transferred on or before the closing date to ensure that the trust receives its tax status. The closing date is outlined in a document called a pooling and serving agreement (“PSA”), and every trust is governed by a different pooling and servicing agreement.

Unfortunately, mortgagors do not realize that if the Plaintiff who is foreclosing in their case is a trust, this triggers defenses that your attorney may raise. For this reason, it is important for mortgagors in foreclosure to seek an attorney who will raise trust issues in their Answer.  Every court takes the approach that if you snooze you lose. This means that mortgagors who fail to raise trust issues in their answer are deemed by the court to have waived the right to assert these defenses later on in their case.

One of the most cited to foreclosure cases in Illinois is the 2012 case titled Bank of America National Association v. Bassman FBT, L.L.C.  Bassman is the first Illinois case to address trust issues and its complexity is best suited for attorneys who can distinguish the case law that is cited to throughout the case. In Bassman, the court states that a borrower typically lacks standing to challenge an assignment because the borrower is not privy to the contract.

Generally, the Trustee and Beneficiary are considered to be the only parties privy to the contract.

However, the court in Bassman goes on to acknowledge that there are exceptions to when borrowers can assert defenses against a trust.

Prior to Bassman, mortgagors did not raise defenses against plaintiff’s trusts. Today, Bassman has opened the door for defendants to now raise defenses against trusts. Even though Bassman is a good step in the right direction for mortgagors, the court’s reasoning failed to create a bright line rule and has left trust issues to the interpretation of Plaintiff and Defense Attorneys. Plaintiff attorneys interpret Bassman to say that trust violations are voidable while Defense attorneys argue that trust violations are void. Despite the difference in interpretations between Plaintiff and Defense attorneys, both sides can agree that Illinois foreclosure law has not seen the last of Bassman and there will likely be another case that comes along and creates a more definitive rule on how to address trust violations.

EV Has has studied the complexity of Bassman, and has taken on several trust cases. The firm is continuously fighting trust issues and finding new creative ways to argue why trust violations are void and should be dismissed. We are proactive in making sure that the trust is properly registered with the Securities and Exchange Commission. Moreover, we emphasize in court the importance of the plaintiff trust being held accountable if it does not follow its own written guidelines.