Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1999-11-12
2002-10-01
Cosimano, Edward R. (Department: 2161)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
C705S001100
Reexamination Certificate
active
06460021
ABSTRACT:
BACKGROUND OF THE INVENTION
Cooperative apartment buildings or cooperatively owned clusters of homes have operated with the building or cluster being owned by a single entity and with the occupants owning proportional stock interests in the single entity. Occupants of such cooperative apartments or homes have borrowed monies using their resalable interests in stock in the single entity as collateral. Such single entities have borrowed monies against such building or cluster ownership through mortgage loans that were subsequently packaged as guaranty for “derivative” mortgage backed securities.
Single family homes are traditionally sold one at a time at fair market value, whether as resales by owners or new sales by developers or builders. Mortgage loan lending sources, such as banks and other mortgage loan providers, lend against the fair market, retail appraised value of the home. The fact that lenders lend against the retail value of homes is indirect proof that no wholesale market exists in single family homes.
Credit insurance has traditionally been available to home owners as a policy specifically written to cover individual mortgage loans and not treated as casualty insurance. Such insurance has increased the willingness of lenders to make loans in certain circumstances.
Where home owners have sufficient equity in excess of any mortgage loan balance, home owners have been able to obtain home equity loans the proceeds of which may be used for purposes unrelated to the home, such as starting a business.
In some jurisdictions such as the United States, homeowners have an absolute right to prepay home loans without penalty. This may result in unexpected liquefying of bonds.
SUMMARY OF THE INVENTION
The present invention comprises a method of creating and selling marketable collateral backed debt instruments comprising creating a debt-instrument-issuing-entity which lends mortgage or other lien-backed monies to a group of property owners each owning his or her property in a fee simple or other mortgageable or transferable interest in property against which a lien may be placed. Each property owner retains his title or other interest pending a default of the entity. This invention contemplates the entity obtaining cross-collateralized mortgage or lien agreements from each of such property owners promising to pay his or her secured loan interest and debt and; in addition, such debt of each and every other property owner limited to the value of his or her equity, if any, remaining in his or her subject property.
The entity issuing or facilitating the issuing of the debt instrument may promise to honor the instrument obligations or may consolidate or pool the promises of others, such as a group of property owners, to honor the instrument obligations or the entity may do both. Whether the entity promises to honor the obligations of the debt instrument or not, the entity obtains from the group of property owners each and every owner's guaranty that he or she
a) will pay the instrument's principal and interest or sums at least equal thereto; or
b) agree to be jointly and severally liable with all other owners in the group to pay such principal and interest.
The guarantees from each and every owner in the group are collateralized by the lien, mortgage, or other hypothecation of each property. Each debt instrument is thus collaterally and jointly and severally guaranteed by such owners. Such collaterally guaranteed instruments provide substantial security to the debt instrument holder even where reasonable limits are placed on the total obligations of each owner such as limiting the owner's liability for the debt of others to the equity in his own home.
Further, the invention contemplates that to strengthen the debt instrument's credit the entity may obtain property lien and loan cross collateralizing agreements from such property owners in which the owner promises to pay his or her group (or common) charges and those of each and every other owner in the group, as defined and declared by the debt-instrument-entity. The property owners are jointly and severally liable for each others obligations to such entity. The entity then issues debt instruments, such as notes and bonds, which are backed by mortgages or liens and cross-collateralizing agreements. Personal liability of each property owner for the share of group (or common) charges above the amount associated with his or her own property may be limited to his or her equity in said property.
The present invention facilitates each and every member of a group of property owners in obtaining credit through the placing of mortgages or other liens upon group members properties to back bonds issued by a financing entity. Each bond is backed by all or a plurality of properties in the group.
It is a feature of the invention that, since each and every participating property owner places his or her property at risk to be sold to guarantee the performance of each and every member of the group with respect to debt instruments (i.e. notes or bonds) being issued by the entity, such debt instruments have higher or enhanced credit ratings and will be marketable at reasonable yield rates. Each individual loan is collateralized by the mortgage or other lien on the property of the individual signing the loan and further each loan is cross-collateralized in that additional mortgages or other liens from group members further secure repayment of such loan.
It is also a feature of the invention that when prepayment of a loan is made by one or more of the group of property owners, in cases where such prepayment is allowed as in real property mortgages, the interest income flow to debt instrument holders is protected by the other property owners through their commitment to adjust their periodic payments to the entity to cover any short-fall due to any inability of the entity to reinvest the prepaid principal at a yield rate equal to or higher than that promised such holders. Liability under this feature is limited to the equity in each homeowner's subject property.
It is also a feature of the invention that the group of property owners have a commonality created by their participation in the group and which may include physical proximity, ownership of shares in the entity and participation in common facilities and social programs which may or may not be owned and or administered by the debt-instrument-Entity.
An additional feature of the invention is that the organizing entity may enter into cross-collateralization agreements with other such entities so as to create a reinsurance pool, an Entity of entities. In such case no individual property owner liability shall extend beyond the equity in his or her property.
Another feature of the invention is that the number of participants in each entity be small enough so as to facilitate a community of members who can be well acquainted with one another while at the same time large enough to assure adequate spreading of risk from an actuarial standpoint. It has been determined that this number is at present approximately three hundred property owners. Whatever this number is, the membership total in an entity shall attempt to approximate it. Acquaintanceship of neighbors has been shown to foster a sense of well being in a community and a desire of property owners to properly service home debt obligations; it has also been shown that risk pools large enough to absorb individual negative experiences without major disruption will qualify for lower insurance rates or higher credit ratings.
An additional feature of this invention is the potential for credit insurance as an aspect of an overall casualty insurance agreement obtained by the entity in behalf of the property owners. The cross-collateralization within the entity renders a credit default a group casualty rather than an individual incident. For this reason, casualty insurers may be induced to include credit insurance as indistinguishable from fire or other casualty insurance that may be offered the entity or its property owners. General
Cosimano Edward R.
Pennie & Edmonds LLP
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