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Nationstar Conducts “Bulk Note Sales” Without The “Notes?”
In 2013, investors in six “RALI Series” Trusts filed a complaint in New York against their Master Servicer (Nationstar Mortgage, LLC) for conducting “Bulk Note Sales” of non-performing loans owned by the trusts for its own benefit; specifically to recoup upwards of a billion-dollars worth of servicing advance receivables. The Plaintiff / Investors accused Nationstar of conducting these “Bulk Note Sales” without having any ownership or requisite authority to do so. (See: KIRP LLC V Nationstar Mortgage LLC).
Per the complaint:
“INTRODUCTION
1. KIRP is a significant investor in certificates issued by six residential mortgage backed security trusts sponsored by Residential Accredit Loans, Inc. (the “RALI Trusts”). KIRP brings this action against Nationstar, the Master Servicer for the RALI Trusts, for its liquidating loans owned by the trusts through on-line auctions at fire sale prices without authorization and in blatant abdication of its servicing duties under the governing contracts.
1. KIRP is a significant investor in certificates issued by six residential mortgage backed security trusts sponsored by Residential Accredit Loans, Inc. (the “RALI Trusts”). KIRP brings this action against Nationstar, the Master Servicer for the RALI Trusts, for its liquidating loans owned by the trusts through on-line auctions at fire sale prices without authorization and in blatant abdication of its servicing duties under the governing contracts.
2. As the Master Servicer, the RALI Trusts pay Nationstar to “service” the mortgage loans owned by the trusts in the best interests of the trusts and their certificateholders. This includes working to maximize the recoveries on each of the mortgage loans through enumerated actions detailed in Pooling and Servicing Agreements (the “Servicing Agreements”), which set forth the Master Servicer’s duties. However, rather than fulfilling its responsibilities to maximize recoveries, Nationstar has recently embarked on a campaign to benefit its own interests at the expense of the RALI Trusts and their certificateholders, through auctioning off the trusts’ mortgage loans in bulk (“Bulk Note Sales”) for amounts that are a fraction of the loans’ unpaid balances or the value of the properties securing the loans. While these Bulk Note Sales injure KIRP and the RALI Trusts’ other certificateholders by dissipating the assets of the RALI Trusts, they provide multiple benefits to Nationstar, including through allowing them to more quickly recoup certain advances they made on the mortgage loans as part of their servicing duties. KIRP seeks to enjoin Nationstar from engaging in any further Bulk Note Sales in breach of its duties and to recover damages for the Bulk Note Sales that have already occurred.”
When I read this complaint, a couple questions immediately jumped out at me regarding the so-called “notes” being auctioned off by a party that doesn’t own said notes. What did Nationstar disclose to the “purchasers” at auction as to their rights to sell the notes? And, were the “original notes” actually delivered to the bulk-sale purchasers by Nationstar as a non-owner of the notes?
I went to the SEC and located the 424(B)(5) Prospectus filing for one of the named trusts in the lawsuit (RALI 2006-QO1). (See: http://www.secinfo.com/dsvRa.vC1.htm#7fll).
Here’s what the Trust disclosed as to the custody of the loan files on P.S-108:
Custodial Arrangements The trustee will appoint Wells Fargo Bank, N.A., to serve as custodian of the mortgage loans. The custodian is not an affiliate of the depositor, the master servicer or the sponsor. No servicer will have custodial responsibility for the mortgage loans. The custodian will maintain mortgage loan files that contain originals of the notes, mortgages, assignments and allonges in vaults located at the sponsor's premises in Minnesota. Only the custodian has access to these vaults. A shelving and filing system segregates the files relating to the mortgage loans from other assets serviced by the master servicer.
If Nationstar had no authority per the trust instruments to sell, liquidate, and convert the notes for its own personal gain, it’s hard to believe that Wells Fargo would release the “original” notes in bulk to Nationstar for these purposes. The likely scenario is that the bulk purchasers were delivered copies of the notes from Nationstar’s servicing system that were pawned off as “originals.”
This goes to the heart of what I have suspected for years now in regards to these “bulk non-performing loan purchases” by debt buyers. The “Sellers” often have no rights to sell these loans, and the “Buyers” are purchasing bogus collateral files with no “original notes” and no verifiable chains of title.
Bill Paatalo
Private Investigator – OR PSID #49411
BP Investigative Agency, LLC
bill.bpia@gmail.com
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