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The Root Of The Problem:
Without getting into a lot of complicated explanations, this is the root of the problem. Now, you need to understand the process of the mortgage market because this is EXTREMELY important in the entire crisis. Almost 100% of all residential and commercial loans made since the late ’90’s were made by a “bank” or “lender.” Almost immediately after closing (and often before closing), these lenders sold these loans in “pools” to an “aggregator” of loans. Ok, a little glossary break down here. A pool of loans is two or more loans combined into a package. Smaller lenders might sell a package or pool of 50-100 loans to larger lender. The larger lender might buy 30 pools of 100 loans from 30 different smaller lenders. Now they have 3000 loans that they pool together into one big pool. You with me so far???
Ok, next here’s what happens… a larger bank (Chase, Countrywide, Wachovia, GMAC, Homecomings Financial, Fremont, Option One, etc) then sells these 3000 loans to another entity. This “other” entity is often a subsidiary but sometimes not and this other entity is a “Sponsor” and usually a “Master Servicer” entity. This means that this company is going to be the servicer of these loans. A servicer is the company that is going to collect the monthly payments, manage the escrow accounts, etc. Now, most people think that this is who they owe the money to for the loan they have because they received that notice about 60 days after closing notifying them that the “Servicing” of their loans was being transferred to XYZ Company. Because they make the payments to this servicer they automatically assume that this is now their “lender.” Remember when I just said that these large pools are usually sold to subsidiaries of the large banks? Well, it’s no wonder that these Master Servicing companies have highly similar names. What’s the difference between “America’s Wholesale Lender” and “Countrywide Home Loans, Inc.?” Well, a lot and very little. Both do business as “Countrywide.” One is a lender and one is a Master Servicer. Confusing? Yes. Purposefully? Yes. If there is confusion in Wall Street, it’s on purpose because these guys aren’t “stupid.” Stay with me here…
Now, this is important… the Mortgage doesn’t give just anyone the right to foreclose, It gives the actual OWNER of the Note the right to foreclose. The owner of the actual and original Note. Not a copy of the Note but the ORIGINAL note. This is a very important point that must be understood and grasped, by everyone, including the US Government. I think that it’s highly possible that this bailout package might be relieving financial institutions of defaulted debt even thought that same institution may not even have the actual Notes to evidence the defaulted debt. And, is it really defaulted? How do we know that these entities weren’t already paid for these Notes? It depends on exactly WHO they are bailing out but if it’s any entity other than the Trust, those entities have already been paid for the Notes!
Back to this pool of 3000 loans… so the Master Servicer has sold the 3000 loans to a Depositor for about 102.5% of the face value of these Notes. When a sale of these 3000 loans is made, the Depositor literally pays the seller of the loans a lump sum of money and the Master Servicer in turn hands over the Notes for that payment of money. And then this same Depositor sells the 3000 loans to a Trust and “deposits” (hence the name “Depositor”) these Notes into the Trust. The Trust pays the Depositor a lump sum of money and in return receives the Notes. The Master Servicer or “Servicer” gives the Notes, receives a lump sum payment and then promises to “pay” the trust a monthly payment on the money that the Trust paid it. This large monthly payment to the Trust is usually guaranteed by the Servicer and is an aggregate or sum of all of the individual 3000 borrowers who paid their monthly payment to that Servicer. The servicer collects all of those monthly payments, takes off their fees, disburses some of it to escrow accounts, etc. and then makes the payments to the Trust. The Servicers also have multiple layers of insurance that insure them against borrower defaults because the Servicers do in fact make representations and warranties on the monthly payments to the Trust that really owns these Notes.
So here’s what happens to this pool of 3000 loans. The Master Servicer then sells these same 3000 loans to a “Depositor.” What really and actually happens is a bona fide sale of all of these loans. Now, here’s an EXTREMELY important point, pay attention right here. When a “loan” is sold, what is really sold is the “Note.” The Note is sometimes called the “Promissory Note.” The Note is the only and real evidence of the debt. The ORIGINAL Note that is. That’s why you’ll sometimes here this called “selling the paper.” The paper debt, the NOTE, is the debt and has an actual value because you, the homeowner and borrower, have signed that note with your signature and pledged (promised) to pay that debt back. The MORTGAGE is what you give to the original lender (and any subsequent purchase of the Note) as “security” in case you don’t pay the debt back. The mortgage gives the owner of that Note the security (the home or property) and thus the right to foreclose if you don’t pay it back.
This whole process is called “Securitization.” This is a simplified explanation of what happens. Through this Securitization process, these Notes are packaged into what’s called “Asset Backed Securities” or “Mortgage Backed Securities” in what’s called a CDO (Collaterlized Debt Obligation) and are sometimes called ABS or MBS Pools. The Depositor creates something called a “Special Purpose Vehicle” (SPV) to deposit these Notes into the SPV and then these Notes are sold and deposited into the Trust. The Trust is owned by all sorts of investors, individual and companies, pension funds, foreign investors. etc. They collectively own these Trusts. A “Trustee” acts as an Agent for the Trust and on behalf of the Trust in a fiduciary relationship.
So, now that you’re a securitization guru, let’s get the rubber to meet the road in all of this.
Here’s the real rub. I told you that, legally speaking, the only evidence of this debt (the loan) is the actual and original Note; and this makes sense! If not, anyone could create a Note, get a copy of your signature (which they can get in public records on the mortgage you signed and was subsequently recorded in public records), paste it on that created Note and allege that you owe them this money. Also, because this Note is changing hands some 3-6 times in the securitization process, everyone touching it can create a copy and allege you owe them the money even though they’ve already sold the original Note and have been paid for it by the new buyer! Just like a personal check, the Note has to be “Endorsed” to the new buyer of the Note by the Seller of that Note. They literally need to stamp on the last page of the Note, “Pay to the Order of Without Recourse” and then stamp or write in the name of the new buyer. On a bona fide Note, this is EXACTLY what you will see and find. Everytime this Note changes hands, it needs an actual endorsement.
So here’s what literally happening with ALL of these foreclosures… the Trusts are the actual owners of the majority of all of these Notes. Yes, the Trusts. A trust has a funky name such as Harborview Mortgage Loan Trust 2006-5 or Meritage Loan Trust 2007-2. There’s no such Trust named Countrywide Home Loans or Chevy Chase Bank or Citimortgage or GMAC Mortgage Co. or Residential Funding Corporation or Amtrust Bank or Fremont Investment and Loan or Option One Mortgage Co. - you get the point. All of these entities are either lenders or servicers. Period. They are NOT the Trusts that your loan and everyone’s loans were sold to. Don’t let anyone fool you. Over 98% of all loans made since 2000 were securitized in just the fashion I described above.
Now, I can only speak to the 100 or so foreclosure cases I have personally read the complaints on in Florida and a few in Ohio. In 100% of these foreclosure cases, the suit is being brought NOT by the Trust but by the servicer or the trustee. Both of these entities are agents for the Trust but they are NOT the owners of these Notes unless they show that they re-purchased that Note from the Trust. In about 70% of the foreclosure cases we have seen, the Plaintiff (usually the servicer) is also alleging that they have LOST THE NOTE or that is has been destroyed. No, that was NOT a typo or mistake. Well, if the Note is actually lost, they don’t have any actual evidence of the debt anymore.
So here’s the question to start asking your Congressman or Congresswoman, your State Senators, your Governor and every other politician that has any influence and may want to be re-elected… if the Federal Government is going to buy all of these non-performing or defaulted loans (ie. Notes), who are they actually going to buy them from? The Trusts or the Servicers?
And, if they can actually tell us this in plain language, are they actually going to buy the original Notes? Not a copy and not some affidavit from some $15/hour employee who is swearing that they saw the original note before it was actually lost or destroyed but the originalNote?
I’m not kidding here. I’m seeing 70% of the cases allege a Lost Note! When they produce the Note, what this Servicer alleges is the original note is, in fact, only a COPY of the note and is NOT the original. Want to know how I know it’s NOT the original?
This is easy folks. The entire securitization process that any and all Notes are involved is and must be disclosed in filings with the SEC. Yes, every Note is involved a securitization. And this MUST be filed with the SEC. And in these filings with the SEC, these companies MUST disclose all of the parties involved in that process and what that “chain” of securitization actually follows. That chain MUST be evidenced on every single Note on the last page of that Note in the form of an endorsement. “Pay to the order of…” Every Note should have at a minimum of 2 endorsements and more likely, 4-5 endorsements. If a Servicer or an attorney for that Lender or Servicer produces a copy of a Note that they allege is the original Note, all one needs to do is look for those endorsements. If the endorsements don’t follow EXACTLY what they have already filed with the SEC, they got real problems folks. Either they are lying to the court (called fraud) or that Note is faulty in that the proper endorsements aren’t there and most likely, both are real legal issues.
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Today people are faced with the reality the "American Dream" of owning a home and raising a family is currently converting to the "American Nightmare." Many wonder why foreclosures are far above record highs, and what the causes are.
Check out these TOP 10 FACTS Regarding Mortgages and Foreclosures
Virtually 50% of mortgages in the U. S. today are unenforceable..
1. Your mortgage currently does not reflect the terms you originally signed and agreed to.
Dueto securitization, the terms of your loan, as being enforced currently, have been modified without your permission. In many cases, homeowners have been charged fees not authorized by original terms of mortgage.
2. The party you pay your payments to MORE THAN LIKELY does NOT Own your Note.When a loan is securitized, the Note is destroyed and the deed of trust is given to another party. The payments are assigned to a third party(servicer). This is who you make your payments to.
3. Your Original Documents have more than likely been destroyed intentionally or otherwise.In the Digital Age that we live in, storage fees for 1000's of physical mortgage documents that can be 1000's of pages each can expensive, when compared to digital storage. Due to this fact, most mortgage documents are scanned and destroyed by the original lender. Other times, they are lost, or destroyed intentionally where parties have collected on claims of insurance policies in effect to cover against such losses. Most mortgage documents are just not available.
4. Original Documents are REQUIRED in Foreclosure as sole method to verify Validity and Authenticity.Courts in Federal and State Jurisdictions have upheld that Original Documents must be provided in order to validate and authenticate the claims, when disputed by any of the parties involved.
5. Every time a Mortgage is transferred, documents are required, same as a car, house, or any other asset.In some cases, Original documents are available to confirm the existence of the debt, however if the debt was sold, transferred, or collateralized with other pools of loans, there must be determined if there are any other claims or parties that may have claims, prior to any Foreclosure being complete. There must be a proper chain of ownership in order to confirm the claims of the parties involved.
6. There exists RAMPANT FRAUD in the bubbles of Real Estate, Mortgage, and Wall Street Securities.From Real Estate valuation, to the sales terms, mortgage terms, and documentation, to underwriting, there are countless examples of negligence, fraud, deceptive practices, predatory lending and many other crimes that have equally countless victims. Many of these victims are seemingly unaware of these crimes, and are losing their homes en masse. Wall Street has only been the conduit for the Real Estate industry bubble created from 2001-2007.
7. The courts have upheld that a Deed of Trust and a Mortgage Note CANNOT be traded or sold separately.Federal and State Courts have upheld that the power of sale, cannot be conferred separately from the ownership of the debt itself. Most Foreclosures are conducted by a "trustee," who has been instructed by to do so by parties that do not own the Note/Debt itself.
8. Most Mortgage Notes, have been sold or traded separately from their Deed of Trust(power of sale).This is true for a far majority of Mortgage Loans in the United States. If your Mortgage happens to be one of those that has been held as a "Portfolio loan", and has not been securitized or sold, there are many other claims that you may have to defend against Foreclosure including but not limited to items listed in #6 above.
9. Originating Lenders and Brokers of Mortgages are out of business, leaving no trail of documents to verify.It is true, as many know, that upon the bursting of this "bubble" in the summer of 2007, more than 300 lenders shut their doors quickly over a 3 month period, destroying their records, documents, and papertrails. In many cases this leaves a cloud of doubt over the title and the true ownership of the debt that should be disputed for clarification.
10. Most banks and parties conducting Foreclosures are NOT Authorized by law to do so,
and can be beat at their own game by disputing the validity of the debt!
Who is MERS and Why Are They Suing You?
The Mystery Company that Forecloses on HomeseaBy Terry Smiljanich:
A homeowner takes out a mortgage with Wells Fargo. Two yrs later, she gets behind in payments due to unforeseen circumstances. That’s when a foreclosure suit lands on her doorstep, but instead of Wells Fargo, someone named “MERS” is trying to take her home. Just who in the heck is this “MERS,” and who asked it to get involved?
More and more homeowners are asking this question and, in the process, successfully challenging these foreclosure suits.
What is MERS?
MERS stands for “Mortgage Electronic Registration Systems.” Created a decade ago, it is owned by several of the largest mortgage companies in America, including Fannie Mae, Freddie Mac, Wells Fargo, Citimortgage, Chase, HSBC andCountrywide.
In other words, MERS made it cheaper and faster for these mortgage companies to buy and sell loans without all the extra paperwork and fees they would have incurred had they done it the old fashioned way. The idea was that while your mortgage was being chopped up, sold and resold, the ownership interests would supposedly be electronically tracked by MERS, hopefully avoiding those pesky recording fees in the county records.
MERS claims that its success has saved the mortgage industry more than one billion dollars, which unfortunately for us didn’t prevent the industry from still asking for and receiving billions in taxpayer bailout money.
Creating a Mortgage Monster
By 2007, more than60 million mortgages were registered with MERS. Since at least 2003, every HUD, Fannie and Freddie backed mortgage has language nominating MERS as the mortgagee of record.
With record numbers of mortgages going into foreclosure today, business for MERS is good. No matter how many times your mortgage might have been traded, MERS simplifies things for the mortgage industry by suing in the MERS name as a “nominee” of the actual mortgage company, whoever that may be. But here’s the catch - MERS still has to prove it actually owns your loan.
Who Owns My Debt?
The ability of MERS to foreclose in the name of the actual mortgage lender has often been challenged in in courts throughout the nation. Oftentimes, sloppy work by its attorneys causes MERS to get kicked out of court. In California, for example, a court recently threw out foreclosure suits brought by MERS for failure to follow the rules. A court in Nevada did likewise. Rhode Island Attorney George Babcockhas been very successful challenging the chain of title created by MERS. Maybe you can do the same. This could provide hope for homeowners facing foreclosure, much like homeowners who are challenging foreclosures by using the“produce the note” strategy. With “produce the note,” borrowers demand the party foreclosing produce the original promissory note, and if they can’t find it or prove why it was lost or destroyed, a judge can prevent the foreclosure. In much the same way, homeowners can fight for their legal rights when it comes to MERS. Since MERS is merely an electronic database, it often has trouble proving it is the holder of the original promissory note. Just because MERS is suing you as the “nominee” for the lender doesn’t excuse it from having to “produce the note” when demanded. If the original promissory note was not endorsed to MERS or endorsed in blank (somewhat like a blank check), MERS cannot foreclose. Some suits have failed because “lost note” affidavits (i.e., “gee, we can’t seem to find the darned thing”) have been rejected as insufficient.
Challenging a MERS Foreclosure
If your home is being foreclosed, and MERS appears as one of the parties involved in the lawsuit, you or your attorney should ask the following questions:
A “no” answer to either of these questions might mean that someone is improperly trying to take your property.
In Florida, MERS has already stopped the practice of trying to foreclose on homeowners in its own name. Why? Seems there’s just too much opposition to MERS in Florida, and it doesn’t like the legal climatehere.
Grassroots efforts such as the Consumer Warning Network’s “produce the note” campaign might not be to MERS’ liking, but we at CWN think the Florida climate is just fine. Maybe challenges in your state can force the original lenders to show their faces in court instead of their cryptic “nominee.”
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In the past, judges have let these foreclosures proceed; but in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess.
That started the ball rolling, and by February 2008, judges in at least five states had followed suit. In Los Angeles in January, U.S. Bankruptcy Judge Samuel L. Bufford issued a notice warning plaintiffs in foreclosure cases to bring the mortgage notes to court and not submit copies. In Ohio, where foreclosures were up by a reported 88 percent in 2007, Attorney General Marc Dann was reported to be challenging ownership of mortgage notes in forty foreclosure cases.5
Few defendants, however, are lucky enough to have advocates like Charney and Dann in their corner, and most defaulting debtors just let their homes go. A simple challenge can be filed to the complaint even without an attorney, and some subprime borrowers have successfully defended their own foreclosure actions; but retaining an attorney is strongly recommended. People representing themselves are often not taken seriously, and they are likely to miss local rule requirements. With that warning, here is some general information on challenging standing to foreclose:
Some states are judicial foreclosure states and some are non-judicial foreclosure states. In a judicial foreclosure state (meaning the matter is heard before a judge), if a promissory note or recorded assignment naming the plaintiff is not attached to the complaint, the defendant can file a response stating the plaintiff has failed to state a claim.
This can be followed with a motion called a demurrer to the complaint. Different forms of demurrers can be found in legal form books in most law libraries. In essence the demurrer states that even if everything in the complaint were true, the complaint would lack substance because it fails to set out a copy of the note, and it should therefore be dismissed. Ordinarily there is no need to cite much in the way of statutes or case law other than the authority reciting the necessity of showing the note proving the plaintiff is entitled to relief.
In a non-judicial foreclosure state such as California, foreclosure is done by a trustee without a court hearing, so the procedure is a bit trickier; but standing to foreclose can still be challenged. If the homeowner has filed for bankruptcy, the proceedings are automatically stayed, requiring the lender to bring a motion for relief from stay before going forward. The debtor can then challenge the lender’s right to the security (the house) by demanding proof of a legal or equitable interest in it.6 A homeowner facing foreclosure can also get the matter before a court without filing for bankruptcy by filing a complaint and preliminary injunction staying the proceedings pending proof of standing to foreclose. A judge would then have to rule on the merits. A complaint for declaratory relief might also be brought against the trustee, seeking to have its rights declared invalid.
A recurring pattern in mortgage foreclosure cases involving securitized mortgage transactions is a statement in the lawsuit filed by the party seeking to foreclose that either the Note or the Mortgage (also called, depending your state, a Deed of Trust, Security Deed, or something else) was “lost”, but that copies are attached to the lawsuit. In such a case, it is more likely than not that nothing was “lost” at all, and that the party seeking to foreclose is simply trying to take advantage of state laws which permit the filing of a foreclosure action with a “lost” Note or Mortgage when in fact such a statute may not apply as the Note and/or Mortgage were never “lost”, but were sold, assigned, or transferred more than once to different persons or entities.
A securitized mortgage transaction, as has been previously discussed in other articles, involves a situation where, as part of the creation of a special investment vehicle or security, the original “lender” has sold off the Note and/or Mortgage either as a whole or in pieces to others such as a mortgage aggregator, who then sells these bundles of mortgages to an investment banker who uses these as collateral for a mortgage-backed security. In this sale and assignment process, there are often many links in the chain between the original lender and the ultimate alleged owner of the Note or Mortgage. During the course of sale and assignment, the original Notes and Mortgages have either been destroyed or cannot be located, as the downline sale of what wound up being bundles of hundreds or perhaps thousands of mortgages was accomplished through loan summaries, not a physical transfer of the actual mortgage and loan documents. In several cases we have seen, the original lender has admitted, in writing, that the original loan documents were sold off to an “investor”, but the original lender does not know who this “investor” is or where the original documents are.
Now here comes some bank as Indenture Trustee for the Registered Security Holders of Collateralized Mortgage Obligation Loan Trust Series XYZ-2006 (or some other equally complicated name) seeking to foreclose on your mortgage by filing a lawsuit where they claim that the original Note and/or Mortgage is or was “lost”. This is most likely an absolute falsehood in cases of this type, and for the attorney to represent to the court, in a written lawsuit, that the originals of the Note and/or Mortgage were “lost” is not only fraudulent itself but also constitutes a fraudulent attempt to manufacture a foreclosure case which could not be legally brought in the first instance.
At least one Judge in the State of New York has addressed this problem and cited case law as to the burden of the party seeking to foreclose to demonstrate that they have the legal right to do so, and absent such proof, a foreclosure action may not be brought. The legal premises of the New York cases are common in other states.
The Judge in the matter of Wells Fargo Bank, N.A. as Trustee, etc. v. Farmer cancelled and voided a series of real estate transactions as to property located in Brooklyn, New York including several Assignments of Mortgage, resulting in the termination of the foreclosure. In the decision, the Judge set forth the well-established law that one seeking to foreclose on a mortgage must demonstrate and prove title to and a legal or equitable interest in the mortgage, and must also establish the existence of the mortgage and mortgage note, ownership of the mortgage, and the borrower’s default in payment. The decision rested on case law which provides that foreclosure of a mortgage may not be brought by one who has no title to the mortgage, and absent transfer of the debt that the assignment of the mortgage is a nullity. The decision also set forth the law that a party seeking to foreclose on a mortgage in which he has no legal or equitable interest is a lawsuit without foundation in law or fact.
The cases cited include: Kluge v. Fugazy, 145 AD2d 537, 538 [2d Dept 1988]; Katz v. East-Ville Realty Co., 249 AD2d 243 [1st Dept 1998]; Campaign v. Barba, 23 AD2d 327 [2d Dept 2005]; Household Finance Realty Corp. of New York v. Wynn, 19 AD3d 545 [2d Dept. 2005]; Sears Mortgage Corp. v. Yahhobi, 19 AD3d 402 [2d Dept 2005]; and Ocwen Federal Bank FSB v. Miller, 18 AD3d 527 [2d Dept 2005].
Many states have laws which punish both parties and their lawyers for making statements to the court which they know or should know not to be true when they are made. These laws provide for sanctions such as attorneys’ fees, and some states have legal authority which provides for the dismissal of a lawsuit when it has no basis in law or fact.
As such, when you are faced with a foreclosure lawsuit where the securitized mortgage plaintiff seeking to foreclose makes a statement that either the Note or Mortgage were “lost”, you need to bring to the court’s attention that this statement may not be true based on the securitized nature of the mortgage transaction, and that it may be in fact that nothing was ever “lost”, but was instead sold, assigned, or transferred. Stay tuned to this blog for examples of what is called “formal discovery” to be submitted to the foreclosing party to explore these issues.
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