by Brian Mahany
Over the last several months we have identified many of the legal mistakes made by big banks and loan servicing companies – mistakes that may allow the homeowner to avoid foreclosure or at least force lenders to negotiate a fair and equitable resolution. Today’s post examines loan bundles and improper mortgage assignment paperwork. Yes, this post seem more dry than most.
This topic is a bit technical but when your home is on the line, every possible opportunity for relief must be explored. If nothing else, this post serves as a reminder of how deep the mortgage crisis really is. Literally millions of mortgages contain potential pooling and assignmnet mistakes.
First, al little bit of history. In recent years, residential loans have often been packaged and securitized. That means the loans were aggregated and placed into a pool. These pools are often called “trusts.” By packaging mortgages together into larger bundles, lenders can sell interests in the pool or bundles to investors.
If you are facing foreclosure, carefully examine the foreclosure paperwork. Most pools have the word “trust” in their name. If so, for tax purposes, there must be a written trust document. Banks won’t provide you this document unless you ask. Sometimes persistence is required.
The trust document, often called a “pooling agreement,” has a cut off date by which all mortgages in the pool must be identified. Investors purchasing mortgage backed securities need to know what is contained in the pool. Think of this as an inventory. Buyers won’t invest unless they are certain of what they are purchasing.
In each trust there is almost always a custodian who certifies that all the mortgage documents have been properly transferred to the trust. Most of these pools and trust were set up before the housing bubble burst. Record keeping procedures were often quite lax. In most instances, the assignments of the mortgages to the trust were done in blank. The thought was that if there ever was a problem with the mortgage, the assignment could be completed.
Although that sounds like the most efficient way to process documents into these large pools, it isn’t always legal! The laws regarding assignments of mortgages vary widely from state to state. In many of these pools – some contain 1000’s of mortgages – there are mortgages from many different states.
Some states do not allow blank assignments, sometimes assignments were notarized in blank (also not legal in many places) and some states say that assignments can’t be backdated. Instead of confronting the issues head on, many lenders compounded the problem by simply creating new assignments.
Banks aren’t in the habit of providing all the assignments. Often the “new” assignments are drafted in a way to conceal the actual date of assignment. Sometimes there are three assignments – the original assignment in blank, an assignment to MERS (Mortgage Electronic Registration Systems) and when that didn’t work, a third assignment!
These new assignments are often backdated (and thus often illegal under state law). Sometimes they are dated after the foreclosure was filed thus begging the question why anyone would purchase a mortgage that was in default. An assignment made after default may also be a violation of the trust document as the trustee (remember these are pooled mortgages in a trust) has a fiduciary duty to the trust.
Although these assignment problems in pooled mortgages are widespread, none of them offers a silver bullet. Some courts say that a lender can’t proceed with foreclosure with an improperly assigned mortgage. Other courts have repeatedly said that absent actual prejudice, a technicality should not stop a foreclosure. Finding the problems in the lenders assignment documents gives homeowners significant leverage but it does not automatically mean a free house.
Banks don’t like to air their dirty laundry. The existence of paperwork problems is usually enough to cause the bank to come to the table and negotiate with borrowers. By proceeding with a foreclosure, the stakes become very high for both sides. Compromise, however, insures that the borrower has a mortgage he or she can afford while insuring that the trust that owns the mortgage gets something too.
The laws on assignments vary widely. This post is intended for general information only. We receive daily telephone calls from homeowners facing the loss of their home. As a general rule, we are not a foreclosure defense firm. Instead, we represent homeowners in lawsuits against banks – homeowners that have been unfairly treated. If you think you have been unfairly treated, improperly denied a mortgage modification (HAMP program) or were wrongfully lost your home, give us a call.
Mahany & Ertl – Giving Homeowners A Voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many jurisdictions.