In a curious move, two of Floridaâ€™s legal aid organizations joined mortgage industry lawyers in filing with the Florida Supreme Court an emergency petition to require mediation in all residential foreclosure cases.
The two legal aid offices involved are Legal Services of Greater Miami and Florida Legal Services of Tallahassee. Conspicuously absent from the emergency petition is Jacksonville Area Legal Aid, a nationally recognized leader in the fight against foreclosures. JALAâ€™s refusal to get on board immediately raises red flags and invites a close examination of this effort to force mediation in foreclosure cases.
So, before I get into exactly what this group wants to do, I need to explain who they are. As Deep Throat told reporter Bob Woodward, â€œJust follow the money.â€
As explained in Part 2 of this series, the Pooling and Servicing Agreement is the â€œglueâ€ that binds all of the securitization players together. The PSA is typically filed with the Securities and Exchange Commission, although you might have to dig a bit to find the one that governs the securitized trust that owns your loan.
The PSA is designed to comply with the Internal Revenue Serviceâ€™s REMIC rules to ensure that the trust enjoys pass-through tax liability. In other words, the investors of the trust (a.k.a. certificateholders) get paid the average rate of return on the thousands of home loans without the U.S. Government getting a cut first.
Of course, the earnings are taxable at the individual taxpayer level, but each individual investor has its own tax strategy, and the pass-through status improves the return on investment. Failure to comply with the PSA will destroy the tax-free status of the trust, causing significant losses to the investors.