50 State Attorney Generals to Investigate Foreclosure Paperwork Crisis.
All 50 state attorney generals and the District of Columbia begin investigating the foreclosure paperwork of the mortgage industry. by Gene DeNardo
(libertarian)
Saturday, October 16, 2010
Last week, all fifty attorney generals representing each state and the attorney general of the District of Columbia have begun formal investigations into what is now being referred to as the "Foreclosure Crisis". They will be analyzing the paperwork of numerous cases of foreclosures that have been challenged within their jurisdictions.
The federal government has restrained from calling for a "moratorium" on foreclosures for two reasons. Most of the mortgage giants themselves, including GMAC, Chase, B of A and Fannie Mae have already announced a temporary halt themselves and as of this time, the process of foreclosure is under state, not federal, control. Foreclosures that have proper paper work would also be unjustly held back. [link edited for length]
What is in question here is not only the "shoddy" paperwork of the mortgage industry but the sequence and chain of title itself. Foreclosure proceedings require two fundamental conditions: default of payment by the homebuyer and proof of mortgage note ownership by the plaintiff. With our current state of financial conditions, the first condition is obvious. Proof of title is another story.
All of the cases that will be reviewed are mortgages that were bundled into mortgage backed securities. What will become evident with these investigations is not that money is owed to someone, but who that someone may be.
When multiple mortgages are bundled and resold, they are almost always sold under a contract known as the "mortgage pooling and servicing agreement" {MPS}. This outlines the relationship between the investor, the trustee and the "servicing" firm. While this may become a future issue in the courts, depending on how the present investigation goes, what is of importance now is the role of the trustee.
The trustee of a mortgage backed security is really no different that the trustee of any other legal entity. The trustee represents the "beneficiaries", who in this case would be the investors in the security. This can include performing legal roles, such as representing the investor in case of foreclosure. This is all defined; at least it should be, in the MPS.
What will be of concern is when MERS [link edited for length] is shown on title records instead of the security trustee. Since MERS is only a recordkeeping corporation and doesn't have any vested interest in the security or the note, any foreclosure that has been attempted or completed with MERS as the titleholder could be questioned.
If the foreclosure case in question has a trustee listed as note holder instead, then what is necessary is that the trustee is the proper party and the mortgage contract can be shown to be within the proper security. With all the slicing and dicing that was done during the heyday of MBS trading, this may not be a sure thing.
The secondary legal scenario is whether investors will question the pooling and servicing agreements. The more jumbled and contested the foreclosures become, the more likely this will come into play. After all, if the courts find that the trustees have not acted in a manner that is suitable to prove title to the defaulted mortgages, then it may be up to the investors to sue for both violation of the contract and for the right to proceed with the foreclosures based on judiciary trail. There is every indication that some MPSs have not only been jeopardized but may have been insufficient to protect investor's interests in the first place. Since each security had multiply investors, we may also see some class action suits.
Many pro mortgage industry interests have come forth with the attitude that the houses are in default, so let's get on with it. This, of course, is a very deficient view. The defaulted condition of the mortgage only fulfills one half of the needed ingredient. The proper party must state their case that they deserve by their ownership rights to receive back the collateral {the house} and the proper party must have the right to resell the property and collect the proceeds. To bypass that half of the foreclosure requirements is to put a "class" or sector of society above the rule of law. What is right and legal for you and I must also be right and legal for Fannie Mae, GMAC and any other player in the mortgage industry.
The other argument in "skimming" over the paperwork is that it will be "better for everybody" if we just get through this thing as fast as possible. That it will be in the "common interest" to speed through these foreclosures and that would help the housing industry and economy recover faster.
What will be best for everyone is to do things "right" for once. To dismiss special interests and insure that we respect the laws that are in place to maintain order and justice. If not, then what good are laws?
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The views expressed
in this article are those of Gene DeNardo only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Gene DeNardo is solely responsible for the contents
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