Empty. (photo: SuziJane, flickr)

It has finally happened. Investors in a Residential Mortgage Backed Security {RMBS) have finally sued that the mortgages were never properly transferred into the trust.

The lawsuit was filed in the New York Supreme Court, New York County (that’s Manhattan to you off-islanders) on Monday. The Plaintiff is German Bank HSH Nordbank and it accuses Barclays of selling securities based on trusts that were supposed to have mortgages in them, but were actually empty.

You know, empty because the mortgages were never properly transferred, which led to all that forgery and perjury that the 50, erm 49, state AGs so cluelessly tried to immunize as “sloppy paperwork”?

The Financial Times is reporting

According to the lawsuit, none of the 2,000 mortgage loans sampled by bank-hired investigators was assigned into the trusts before it was sold to investors. The investors say they would not have bought the securities because the lack of paperwork would make it hard to take action against homeowners who failed to pay their mortgages and could call into question the securities’ tax-exempt status

The Wall Street Journal has a somewhat snarky, but chillingly accurate quote from the Plaintiff, which I’ve bolded below:

In its complaint Monday, HSH Nordbank also alleged that all of the mortgages weren’t assigned to trusts backing the securities as promised. By not doing so, it hinders the ability of the trusts to foreclose on the mortgaged properties, according to the lawsuit.

“Indeed, without such assignment of the mortgages into the trusts, these so-called ‘mortgage-backed securities’ were not actually backed by mortgages,” HSH Nordbank said. “Plaintiffs would not have purchased these certificates had they known they were not backed by collateral or the notes.”

Yes! Finally the lawsuit that rips the scab off the festering wound of our foreclosure crisis. This is the lawsuit or even criminal prosecution that DOJ should have brought long before this. This is the easy to prove or disprove low hanging fruit lawsuit.

The investors in RMBS have bought a big empty bag of nothing that was misrepresented to them as being a chock full of mortgages. This is fraud in its most basic form, a classic bait and switch.