Dirt Lawyers, Dirty REMICs

Probate & Property May/June 2013, Forthcoming

11 Pages Posted: 1 Feb 2013

Date Written: January 31, 2013

Abstract

It is appropriate that the day-to-day practice of real estate law did not touch on the intricacies of the securitization of mortgages, let alone the tax laws that apply to mortgage-backed securities. Securitization professionals did not, however, account for the day-to-day practices of real estate lawyers as they relate to the transfer and assignment of mortgage notes and mortgages when structuring mortgage-backed securities. The consequences of this may turn out to be severe for investors, underwriters, and securitization professionals.

One of the consequences of the sale of a negotiable note not done in accordance with the requirements of the holder in due course doctrine is that the purchaser of the note may not be free of the personal defenses that the note maker (borrower) would have had against the original lender. Another consequence of the sale of a note that is not done properly is that the beneficial owner (as opposed to the legal owner) may not be able to collect on the debt if the borrower is in default. And a third – and until recently hidden -- consequence of an improper sale of a note to a secondary market participant is that the purchaser may fail to comply with requirements necessary to obtain favorable tax treatment as a Real Estate Mortgage Investment Conduit, a REMIC.

Keywords: mortgage-backed securities, MBS, Real Estate Mortgage Investment Conduit, REMIC, dirt lawyers

Suggested Citation

Borden, Bradley T. and Reiss, David J., Dirt Lawyers, Dirty REMICs (January 31, 2013). Probate & Property May/June 2013, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2209863

Bradley T. Borden

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

HOME PAGE: http://www.brooklaw.edu

David J. Reiss (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

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