Sec Information For Audits

NOTES FROM FORECLOSURE LITIGATION PROJECT A mortgage without a note is a nullity and is not enforceable Bank of Miami Beach v. Fid. & Cas. Co of N.Y. , 239 So. 2d 97 (Fla. 1970) The terms of the mortgage define and give context to default and authorize the mortgagee to foreclose. Gulf Life Ins. Co. v. Pringe, 216 So. 2d 468 (Fla. 2d DCA 1968). Defaults are usually the result of a failure to pay but a non-monetary breach of the mortgage such as a failure to maintain insurance of the commission of waste can be the basis of a default. Foreclosure is not appropriate where the breach is merely technical. Haven Fed. Sav. & Loan Ass'n. v. Carl, 456 So. 2d 1290 (Fla. 2d DCA 1984); Clark v Lachenmeier, 237 So.2d 583 (Fla. 2d DCA 1970) If the lender accepts part or all of the arrearage, acceleration is waived. Amerifirst Fed. SAv. & Loan Ass'n of Miami v. Century 21 Commodore Plaza, Inc. 416 So. 2d 45 (Fla. 3d DCA 1982); See Barnes v. Resolution Trust Corporation, 664 So.2d 1171 (Fla. 4th DCA 1995) See National Consumer Law Center, Repossessions and Foreclosures Section 4 1 3 (5th ed 2002) --required reading Statute of Limitation - In Florida Usually within five (5) years of maturation (acceleration) of the mortgage. FSA Section 95.281 (1), (3). Travis Co v. mayes, 36 So.2d 264 (Fla. 1948); Monte v. Tipton, 612 So.2d 714 (Fla. 2d DCA 1993); Locke v. State Farm & Casualty Co., 509 So.2d 1375 (Fla. 1st DCA 1987) Service of Process A lack of personal jurisdiction over the mortgagor renders a foreclosure judgement voidable and subject to being vacated at any time. Wagner v Roberts, 320 So.2d 408 (Fla.2d DCA 1975) Absent a court order or enforceable waiver, a sale or foreclosure on the property is invalid if made during or within 90 days of military service. The court may order that the servicemember's equity be paid to the servicemember as a condition of permitting foreclosure. 50 USC

App Section 533 The SCRA places a cap of 6% per annum on all pre-service loans incurred by servicemember. All interest in excess of ^% is forgiven unless creditor can demonstrate material affect. 50 USC Section 527 The holder of the mortgage and the owner of the note at the time suit is filed are the proper parties to pursue a foreclosure. Any assignment of the note or mortgage must be supported by the record and must predate the filing of the complaint. Jeff-Ray Corp. v Jacobson, 566 So.2d 885 (Fla 4th DCA 1990). Assignment need not be attached to the complaint as long as the complaint alleges the plaintiff owns and holds the note and mortgage. A foreclosure action must name all the title holders. Joining junior lienholders is optional. They are not indispensable parties. If not joined, the interest of the junior lienholder cannot be foreclosed. Cooper v Wolkowitz, 375 So2d 1099 (Fla. 3d DCA 1979). Cotenants/mortgagees must be named, Lambert v Dracos, 403 So.2d 481 (Fla. 1st DCA 1981). Persons with a lease or an option to purchase may be joined. A separate eviction action is not required if the tenant is named and served in the foreclosure (FLRIDA) Redding v Stockton, Whatley, Davin & Co, 488 So2d 548 (Fla. 5th DCA 1986) Unless priority is an issue, superior lienholders are not necessary parties. Cone Brothers Constr. Co. v Moore, 193 So. 288 (Fla. 1940); Poinciana Hotel of Miami Beach, Inc. v. Kasden, 370 So. 2d 399 (Fla. 3d DCA 1979), cert denied 381 So.2d 768 (1980) Rescission voids the mortgage and is a complete defense to foreclosure. Yslas v. D.K. Guennther Builders, Inc., 342 So.2d 859 (Fla. 2d DCA 1977); See Beach v. Great Western Bank, 670 So.2d 986 (Fla. 4th DCA 1996) A mortgagee who commits usury has unclean hands and cannot foreclose. Indianapolis Morris plan Corp. v. Portela, 364 So. 2d 840 (Fla. 3d DC 1978) Unconscionability - Williams v Wlker-Thomas Furniture Company 350 F. 2d 445 (D.C. cir 1965)

Unfair Trade Practices Act - applies to holders in due course Plaintiff is barred by the doctrine of Unclean Hands - The Plaintiff failed to provide Defendant with a pre-foreclosure counseling notice within 45 days of having missed a payment, as required by 12 U.S.C. Section 1701 (x) (c) (5) must be sent prior to instituting a foreclosure proceeding - Federal Consumer protection statute Pg - 86, 87, 88, 89 Plaintiff cannot obtain equitable relief because it is incompatible with the remedy provided to Defendants by federal law, which must prevail. Plaintiff is estopped to foreclose the mortgage by consistently accepting late and partial payments from defendant. loan insured by Single Family Loan Insurance Program 12 USC Section 1709. Refused to accept partial payments which it was required to accept under 24 CFR Section 203.556 See page numbers 147, 148, 149

US --GAAP financial statement reporting required to follow & need to be compliant with US GAAP all domestic companies US companies IFRS--some 20 F companies can use international Financial Accounting may have to reconcile to US GAAP

40 F for Canadian companies QSPE--required to disclose sell accounting--if it was sold and met sell accounting once an asset is not a companies asset no need Add to balance sheet is due it is a liability. and recognition on statement of profit and loss. Does the new transferor have to disclose to anyone who has a security interest - someone managing that asset--is there a fiduciary responsibility to the person having an interest transferred to QSPE--and sell interests in those assets, issue interest in an asset in order for it to qualify as a sale, the holders/investors change hands, the interests in the SPE changes interests--new rules FAS 166 Financial Accounting Standards--under old you could sell partial interests--new only under strict guidelines Regulatory agency of GAAP---SEC is the regulatory agency --Financial Accounting standards board--they have their own due process--but SEC oversees but generally doesn't interfere In order for something to be securitized it has to be a financial asset such as a receivable. Can a debt be securitized? Yes, buy bonds into a SPE and can sell interest in those.

Receivable-- money that's due to a specific company. Debt ---is to borrow money. Receivable is always an asset, even if the receivable is worthless but for accounting still an asset. Interest rate swaps, will securitize other people people's debt. Is a QSPE considered an agent? Typically not, because a bank is the servicer.

QSPEs are Brain dead entities--a holding company to hold the asset to protect assets from legal bankruptcy--assets would be protected from bankruptcy. Is a QSPE considered a holder in due course? Essentially has a legal right to the cash flows. Not sure--need to ask an attorney--Very specific requirement to be an agent. In UCC codes UCC codes Rules change Dec 31 2009--are going to change are going to be required to follow new guidelines. New rules servicing might not be considered to be continuing involvement it depends on how the fee is based. Answered on a case by case basis, QSPE will not exist in the future after Dec 15 2009. Might get recognition even if you still have a security interest. Can keep a continuing interest in something that I sell and keep sell accounting--meaning keep as a asset. Unallowable assets--not in a QSPE--not financial assets, real estate and certain kinds of derivatives, What makes an asset an asset? An asset is defined as US FAS 140 definition. Probable future economic benefits. Financial and non financial--nature of the asset is the difference. Security--as a Treasury, paper in form, real property is still an asset turned the part of the transaction which is negotiated with that particular instrument becomes a financial asset. A guideline to become a financial asset. Gives an entity a right to collect--could be a financial instrument to be traded for another financial instrument. Usually if there is recourse, it would fail sale accounting. But fact pattern is different--needs to be seen.

In order to sell an asset it would have to be yours. If it fails sell accounting, there is a difference between Accounting guidance is very technical. Must see all of the facts. Difference between legal transfer and accounting. What kinds of information needed? FASC has recodified US GAAP--it's not referred to that now--it's going to be a section number like a law -- new rule after December 15, 2009-implemented now Guidance on how to submit a write up -- go to website -- Division of office click on 'more' click on office of the chief accountant then click on consultation information on how to consult with our office. John Dursh SEC--202-551-3719 office of the chief accountant www.sec.gov --- tip or complaint ---- investor information MORE QUESTIONS: 1) Are there disclosure rules that entities have to comply with with regard to requests for information? What code/law is invoked to request such information? What are the parameters of the information to be requested? What do they have to give you? Are there timelines/deadlines in which they have to give you the information?

2) What is the section number that FAS 140 and FAS 166 would be called now? 3) If a government agency transfers (transferor) a promissory note to a non-governmental entity but that entity has a government guarantee so that the government collects money that is not able to be received by the transferee, does that mean that there can be no sale accounting?

4) How does one request the name/number of the pooling and servicing agreement -- what law/section/code would have to be evoked?

5) If something fails sale accounting, can the transferee still sell or securitize the 'asset?'

6) What procedure gives an entity agency status? What can an agent do--what is the scope of their authority? Does the SEC oversee agents?

7) Are all promissory notes considered the same? Are there differences?

8) Is MERS a QSPE?

9) Why can't a QSPE be a holder? What would make them a holder?

10) Does the SEC oversee/regulate UCC codes?

11) Does a government guarantee invalidate sale accounting? Are there exceptions? What are they?

12)What laws would be evoked for a violation of FAS140 and FAS 160?