October 10, 2011

As most of you know, Deutsche Bank National Trust Company sued JPMorgan Chase and the FDIC back in 2009 over claimed breaches of contract as to WaMu initiated mortgage loans which were made part of securitized mortgage loan trusts where DB is the “trustee”. The case is pending in the United States District Court for the District of Columbia under Case No. 1:09-CV-1656 RMC. One of the issues in the case is whether the sellers of the mortgage loans (e.g. WaMu) must exercise repurchase obligations as to mortgage loans which did not comply with the “Representations and Warranties” provisions of the Trust documents as the loans were in default, in danger of being in default, etc. at the time that they were allegedly “transferred” to the hundreds of securitized mortgage loan trusts of which DB is the “trustee”.

On May 12 of this year after a battle over whether the lawsuit even stated a cause of action, the Court has ordered discovery of the documents in JPM’s possession, which include the mortgage loan files. JPM had taken the position that DB did not state a cause of action for breach of contract but simultaneously denied DB access to the very mortgage loan files which would reveal whether the loans were problematic. Although DB made the requisite demans for document inspection, JPM refused to permit access to the mortgage loan files. Recall that JPM has taken the position in this case that it is “not the successor in ingterest to WaMu”, and that it only assumed certain assets and liabilities of the failed WaMu as of September 25, 2008, yet has filed hundreds of foreclosures where it claims, in certain instances under oath, to be able to foreclose on the WaMu loan as it is “the successor in interest to WaMu.”

The Court has also ordered discovery, to be completed by May 11, 2012, “as to the meaning of the Purchase and Assumption Agreement”, which is the operative agreement by which JPM has taken the position that it has the right to institute foreclosure of WaMu originated mortgage loans, which assumption is referred to generally in the last paragraph of the “FDIC Affidavit” that JPM and Chase Home Finance routinely file in foreclosure actions. The document production is to be done pursuant to a lengthy “Confidentiality Order”.

The Court’s rulings present significant issues for individual foreclosure actions filed by DB, JPM, and Chase Home Finance (CHF).

If JPM has taken the position that it will not even allow the trustee of securitized mortgage loan trusts access to the very mortgage loan documents as to mortgages which were allegedly transferred to the securitized mortgage loan trusts of which DB is the trustee, then how does JPM legally take the position that it has owner and holder rights to the loan for purposes of foreclosure?

If the parties in the case do not even know what the Purchase and Assumption Agreement means and which liabilities remained with the FDIC, how can JPM go around the country claiming to be able to institute foreclosures pursuant to that very Agreement?

If it is unknown whether a mortgage loan was a liability at the time a foreclosure action is filed (because the loan was in default, in danger of being in default, subject to defenses, etc.) and it is thus unknown whether (a) it remained with the FDIC after WaMu’s failure or (b) it is subject to repurchase obligations by the seller, then how does JPM claim, in a foreclosure action, that is owns the loan?

If DB is claiming that the mortgage loans were not what they were represented to be at the time of the PSA, then how did the loan remain a part of a securitized mortgage loan trust so that DB could claim it owned the loan for purposes of having standing to foreclose?

If DB suspects that the loans did not comply with the representations and warranties (and, as we all know, DB had actual knowledge that hundreds of loans were bad when they attempted to transfer them into a trust through MERS or another entity), how did they let MERS or someone else transfer a known toxic loan into a trust and how can they now cry foul?

The bottom line is that this infighting between DB, JPM, and the FDIC is raising literally dozens of legal and factual issues which should be brought to the fore in individual foreclosure cases both in discovery and in motion practice, especially in opposing motions for summary judgment filed by DB, JPM, or CHF.

Jeff Barnes, Esq.,