Attorney Richard Gaudreau sent me this timely guest post on the horrible National Collegiate Student Loan Trust mess. This has to be one of the classic debt situations that has no winners on any side.

Student loan debtors are being sued and losing because they don’t fight back against creditors going after them for loans that are questionably enforceable. And on the other side you have a number of large financial players who bought into or guaranteed these loans that are a $12 billion document mess. Then you have the Consumer Financial Protection Bureau that steps in to help protect debtors and the entity who was in charge of the National Collegiate Student Loan Trust decides to bail and nobody is in charge. So who has the authority to enter a settlement to assist consumers?

Here is the guest post from Richard Gaudreau that does a good job of explaining the latest soap opera on these loans.

What would have been a major win for consumers against National Collegiate Student Loan Trust (“NCT”) looks like it’s on hold. The Consumer Financial Protection Bureau (“CPFB”) had sued NCT in federal court on September 18th after a long investigation found NCT had filed lawsuits where the paperwork was missing, falsified affidavits and collected millions of dollars to which it was not entitled. NCT had orally consented to an order agreeing to withdraw and vacate baseless lawsuits, stop falsifying affidavits, and pay millions of dollars back to consumers harmed by its actions.

On September 20th, AMBAC, one of the players in the NCT securitization of NCT student loans, and Transworld Services (“TSI”), the servicer who oversees the filing of lawsuits against consumers on NCT’s behalf, both sought to intervene in the CFPB lawsuit, stating NCT was not authorized to agree to the consent order.

What appeared to be a straight forward resolution of a dispute between a government agency and a student loan business instead looks like it is just the latest move in a chess match involving the same parties in another case. In another Delaware federal court case, NCT and US Bank (another player in the NCT saga) are pointing fingers at each other over who is to blame for the shoddy paperwork underlying NCT’s $12 billion in private student loans, $5 billion of which are now in default. This is like watching a slow motion car crash.

An important finding of the CFPB’s investigation is confirming NCT’s agents routinely signed fraudulent affidavits. To understand why this could be important to anyone sued by NCT, some background is necessary so bear with me.

The securitization of NCT student loans involved the multiple assignment of thousands of student loans into various NCT trusts, pieces of which were sold to Wall Street investors much like shares of stock. When a mortgage is assigned, it is common for a Notice of Assignment to document the transfer from one business to another. This usually takes all the drama out of who owns the debt. An audit of NCT records found there were no Notices of Assignment generated for any of the 800,000 NCT student loans. Instead of Notices of Assignment, NCT thought it would be easier to transfer student loans in bulk, thousands at a time, by creating a Schedule of all loans being transferred. This Schedule was supposed to have been attached to the assignment documents (called a “Pool Supplement to show the thousands of student loans being transferred. You can now probably guess what happened. In all of the dozens of NCT loans I have reviewed this Schedule is without exception either blank or missing. NCT knows about this problem and it is one of the reasons affidavits are so important when it sues a consumer.

In an NCT affidavit, the affiant swears it has personal knowledge of your loan and NCT possesses all the necessary paperwork to prove that is true. Not coincidentally, Transworld Systems, one of the intervenors in the CFPB lawsuit is the business whose job it is to sign the affidavits. The problem with this is that Transworld Systems only began working for NCT in 2014, years after all NCT loans were signed. The CFPB investigation found TSI employees were signing affidavits stating they had personal knowledge the loan NCT possessed all the loan paperwork when all that employee was doing was reviewing a computer screen of loan information. TSI employees complained they were pressured to sign affidavits and admitted affidavits were often signed without a notary being present and later notarized.

So with what TSI and other players have at stake, it likely to take a while before this process plays out. If and when this consent order takes effect, it will be wonderful news for some of you, but it does not mean NCT will just over on all of its $12 billion loans. Most of you will continue to face NCT’s claim that the documents it possesses are sufficient to prove it owns your loan. It’s hard to say from this vantage point whether NCT’s lawyers messed up or NCT just didn’t want to pay to have individual notices of assignment drafted for each student loan. As this situation slowly spirals out of control, it is apparent someone made a potentially multi-billion dollar mistake.

These are real issues that deserve to be litigated before you are stuck with a judgment that in most states survives for twenty years.

The above is not intended as legal advice for your particular situation. Questions should be addressed to student loan attorneys admitted to practice within your state. Richard Gaudreau is a lawyer admitted to practice in New Hampshire (NH) and Massachusetts (MA)