Of all the defects we find in securitized loans, PSA cutoff date violations are among the most significant. They are also among the most commonly overlooked, because they require knowing the specific terms of the governing trust agreement, not just reviewing the loan documents themselves.
What Is a PSA Cutoff Date?
Every securitization trust is governed by a Pooling and Servicing Agreement. The PSA sets out the rules for how loans are transferred into the trust, and one of the most important rules is the cutoff date. The cutoff date is the deadline by which all loans must be transferred into the trust. After that date, the trust is closed. No new loans can be added.
This is not a technicality. It is a fundamental structural requirement of the trust. REMIC tax rules, which govern most mortgage securitization trusts, require that the trust be fully funded within a specific window. Adding loans after the cutoff date can jeopardize the trust’s REMIC status and create tax liability for investors.
Why Do Cutoff Date Violations Happen?
During the height of the securitization boom, loan originators and servicers were processing enormous volumes of transfers. Assignments were often executed in bulk, sometimes months or years after the actual transfer was supposed to have occurred. In many cases, the assignment documents were backdated to appear compliant, or they were simply recorded late with no attempt to conceal the timing.
We have reviewed assignments recorded two, three, even five years after the trust cutoff date. In some cases, the assignment was recorded after the foreclosure or repossession had already been initiated, which raises serious questions about who actually authorized the action.
What Does a Cutoff Date Violation Mean Legally?
A transfer that occurs after the PSA cutoff date is void under the terms of the PSA. The trust cannot accept it. This means the trust never received a valid ownership interest in the loan, which means the trust has no standing to enforce it.
Courts and arbitrators have treated this issue differently across jurisdictions, but the underlying principle is consistent: if the transfer did not comply with the governing agreement, the transferee did not receive what it claims to own.
How We Identify Cutoff Date Violations
Our audit process pulls the PSA from SEC EDGAR and identifies the exact cutoff date for the trust. We then cross-reference every recorded assignment against that date. If any assignment was executed or recorded after the cutoff, we document it with the specific PSA provision it violates, the date of the assignment, and the date of the cutoff.
That documentation goes directly into the audit report as a numbered finding with supporting exhibits. It is ready to use.
If you have a securitized loan and want to know whether the transfer was done on time, our forensic audit packages include full PSA compliance analysis as a core component.