Single business enterprise
Encyclopedia
Single Business Enterprise (SBE) is a legal remedy sought by creditor
s in order to receive pecuniary rewards from a borrower's affiliated entities. In recent years, this legal
doctrine
has been used by CMBS servicers and trustees to counter traditionally legal asset protection arrangements between closely related business entities. What was originally sold as a "great feature" of SPE loans, i.e., "Non_recourse" for high-equity borrowers for the sole purpose of equity stripping of borrowers and investors with a built-in tax evasion Bankruptcy Protection of Creditors.
This practice is in violation of PSA and Mortgage Servicing Standards because,
1) All Securitizations require SPE (Single Purpose Entity) borrower and SBE litigation acknowledges the non-REMIC compliance of the loans which they claim to be a servicer of and are bound to protect as REMIC
investors,
2) this legal remedy is only available to the holder of note and mortgage (the injured party) and not the Fee Servicers whose only intention is equity stripping disguised as mortgage fee collection,
3) Servicers are not supposed to have loan origination documents (only source of SBE information). However, REMIC trustees routinely pass the loan origination documents to loan Servicers in violation of Banking Privacy laws and regulations.
4) most states do not recognize SBE as a "Cause of Action". So these other parties could not have been sued by lenders in state courts. However, the Servicers and REMIC Trustees hire and pay Bankruptcy Trustees (buying Sword & Shield of Trustees in Bankruptcy courts) using a Joint Funding Agreement or DIP financing to strip targeted borrowers' affiliates equity with the court injunctions and freezing of the assets options available to these bankruptcy trustees, using the trust funds. These legal fees were routinely charged to senior Certificateholders plus interest so the Special Servciers and B-Piece investors always had plenty of incentives to take these equity stripping routes in bankruptcy courts.
Should the actual lender want to sue on the note, he should include the SBE parties as original defendants in mortgage default and foreclosure proceedings (state courts) and not as judgment debtors after garnering a judgment against the borrowers and their affiliates in Federal Bankruptcy Courts (See Pre-empting Workouts). That is why all Mortgage Backed Securities (MBS including RMBS and CMBS) mortgage loan purchase agreements have a "repurchase" provision to send the loans back to its originators.
Today, it appears that all the bad loan originators are getting away with their fraudulent acts of placing bad loans for the sole purpose of securitization (i.e. selling them to public), Because U.S. Government has agreed to buy all the bad securities (Toxic Assets) at taxpayers expense and the originators and securitization firms (Lehman Brothers
, Bear Stearns
, Merrill Lynch
, Wachovia
(First Union), Washington Mutual
, etc.) have gone out of business. This has eliminated the "Repurchase" option for most "Sub-Prime" loans as only a few have survived the consolidation and have reorganized themselves and act as other players in MBS markets.
It is common that the REMIC Servicers and REMIC Trustees walk away with borrowers and investors assets in the bankruptcy courts as "Judgment Creditors" while they are neither Creditors nor should they have received any judgments against Borrowers, since they were never a "Holder of the Note and Mortgage", the Certificateholders of the Toxic bonds were the actual holders of the Note (loan). The investors, called the bondholders or certificafeholders who are the real injured party never have nor ever will received any compensation!
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s in order to receive pecuniary rewards from a borrower's affiliated entities. In recent years, this legal
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
doctrine
Legal doctrine
A legal doctrine is a framework, set of rules, procedural steps, or test, often established through precedent in the common law, through which judgments can be determined in a given legal case. A doctrine comes about when a judge makes a ruling where a process is outlined and applied, and allows...
has been used by CMBS servicers and trustees to counter traditionally legal asset protection arrangements between closely related business entities. What was originally sold as a "great feature" of SPE loans, i.e., "Non_recourse" for high-equity borrowers for the sole purpose of equity stripping of borrowers and investors with a built-in tax evasion Bankruptcy Protection of Creditors.
This practice is in violation of PSA and Mortgage Servicing Standards because,
1) All Securitizations require SPE (Single Purpose Entity) borrower and SBE litigation acknowledges the non-REMIC compliance of the loans which they claim to be a servicer of and are bound to protect as REMIC
Remic
Remic is a Japanese animation studio. They are notable for doing the animation in the anime series Renkin 3-kyū Magical ? Pokān and Dōjin Work.-Produced series:Renkin 3-kyū Magical ? Pokān*Series run: April 4, 2006 — June 20, 2006...
investors,
2) this legal remedy is only available to the holder of note and mortgage (the injured party) and not the Fee Servicers whose only intention is equity stripping disguised as mortgage fee collection,
3) Servicers are not supposed to have loan origination documents (only source of SBE information). However, REMIC trustees routinely pass the loan origination documents to loan Servicers in violation of Banking Privacy laws and regulations.
4) most states do not recognize SBE as a "Cause of Action". So these other parties could not have been sued by lenders in state courts. However, the Servicers and REMIC Trustees hire and pay Bankruptcy Trustees (buying Sword & Shield of Trustees in Bankruptcy courts) using a Joint Funding Agreement or DIP financing to strip targeted borrowers' affiliates equity with the court injunctions and freezing of the assets options available to these bankruptcy trustees, using the trust funds. These legal fees were routinely charged to senior Certificateholders plus interest so the Special Servciers and B-Piece investors always had plenty of incentives to take these equity stripping routes in bankruptcy courts.
Should the actual lender want to sue on the note, he should include the SBE parties as original defendants in mortgage default and foreclosure proceedings (state courts) and not as judgment debtors after garnering a judgment against the borrowers and their affiliates in Federal Bankruptcy Courts (See Pre-empting Workouts). That is why all Mortgage Backed Securities (MBS including RMBS and CMBS) mortgage loan purchase agreements have a "repurchase" provision to send the loans back to its originators.
Today, it appears that all the bad loan originators are getting away with their fraudulent acts of placing bad loans for the sole purpose of securitization (i.e. selling them to public), Because U.S. Government has agreed to buy all the bad securities (Toxic Assets) at taxpayers expense and the originators and securitization firms (Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
, Bear Stearns
Bear Stearns
The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
, Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, Wachovia
Wachovia
Wachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
(First Union), Washington Mutual
Washington Mutual
Washington Mutual, Inc. , abbreviated to WaMu, was a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States' largest savings and loan association until its collapse in 2008....
, etc.) have gone out of business. This has eliminated the "Repurchase" option for most "Sub-Prime" loans as only a few have survived the consolidation and have reorganized themselves and act as other players in MBS markets.
It is common that the REMIC Servicers and REMIC Trustees walk away with borrowers and investors assets in the bankruptcy courts as "Judgment Creditors" while they are neither Creditors nor should they have received any judgments against Borrowers, since they were never a "Holder of the Note and Mortgage", the Certificateholders of the Toxic bonds were the actual holders of the Note (loan). The investors, called the bondholders or certificafeholders who are the real injured party never have nor ever will received any compensation!