If the Lender Can’t Find the Mortgage
Basically, the borrower in this situation, bought the house in 2001 with Wells Fargo holding the mortgage. She later refinanced with Mortgage World Bankers. When she fell into arrears a Chapter 13 bankruptcy was filed. A claim to the debt was filed by PHH. PHH was asked to modify the loan but didn’t respond to the request which is when the homeowner’s lawyer asked for proof of PHH’s standing in the case.
PHH responded to the request for proof of standing saying that U.S. Bank held the loan but U.S. Bank was not a party to the action. PHH was unable to provide proof that U.S. Bank held the note, instead filing an affidavit from a vice president of PHH Mortgage which included a copy of the assignment of the mortgage. The assignment of the mortgage showed that the note was assigned after the bankruptcy had been filed.
PHH admitted to levying an improper $450 foreclosure fee and overcharging interest.
It sounds like there were a number of irregularities involved in the whole situation and of course PHH is appealing the ruling. There have been incidences of homeowners being foreclosed on asking for proof of the note from the foreclosing bank, thus stalling foreclosure. This is the first I’ve read of a judge wiping out a mortgage in court.
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.
The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.
To be sure, many legal hurdles mean that the initial outcome of the White Plains case may not be repeated elsewhere. Nevertheless, the ruling — by a federal judge, no less — is bound to bring a smile to anyone who has been subjected to rough treatment by a lender. Methinks a few of those people still exist.
More important, the case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. They may even be viewed as a fraud on the court.
What do YOU think?
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October 25th, 2009 at 4:05 pm
There is that MERS again. Last month in Kansas, it was ruled that MERS could not foreclose on propery’s it serviced.They could not show they owned the note. In other words, the very business formed, in part, to provide a corporate shield against liabilities of the investors bundling all these iffy mortgages turned around an bit them.. They (the investors) did not want to be accused of and potentially sued for predatory practices. MERS is the straw man.They are also supposed to be tracking where the note is.
I doubt many will have their mortgages completely forgiven. The note holders all seem to be found when people refinance and satisfation of mortgage documents are provided and hopefully recorded with the Register of Deeds.
At some point, there should be an investigation and audit of MERS. Both of their tracking methods and at the other end if they really could accept payments, payoff’s and satisfactions.
Sage Reply:
October 25th, 2009 at 4:31 pm
MERS stands for Mortgage Electronic Registration Systems, correct?
I don’t quite understand what the MERS are for. Is it like a representative for mortgage companies?
Wizcon Reply:
October 25th, 2009 at 7:37 pm
@Sage, That was the intent. It turns out that MERS cannot act as the agent for the company because they cannot produce proof that they can legally do so
When you take out a mortgage, you sign a note. The note is the financial contract that lays out the following:
1. The parties to the contract. That would be you and the lender.
2. The amount of the loan
3. The term of the loan (ie 30 yrs to be paid back in monthyly installments
4. The interest rate the lender is charging for the loan.
5. Misc other things like whether there is a prepayment penalty, late charges etc.
At the same time you sign a mortgage. That is also called a Deed of Trust in some states. It has the same effect. The mortgage is recorded with the Register of Deeds. It is now a matter of public and legal record that the lender holds first lein on your house.. You cannot sell it to anyone without that lein being paid off. Any further loans on the property must either first payoff this lein or take a secondary position after the first lein.
A mortgage is notarized, a note is not.
The house itself is the security for the note. This is why they also put a lein on any insurance proceeds if something happenes to the house.
The mortgage also lays out what the owner (you) can and cannot do with the property while there is a balance due on the note. Things like no explosives or toxic materials to be stored there. In other words nothing that would devalue the property in the event the bank has to sell it in foreclosure or would void insurance coverage. In essense, until you pay off that note, the bank owns the house.
So the mortgage is the public document announcing the lein.It says who holds the note.
Before MERS, everytime a note was sold or transferred, notice was filed with the Register of Deeds correcting who held the note.
MERS was intended to simplify the sale/resale/package/bundling of loans. Mortgages “managed” by MERS are recorded with MERS as the party to the note with the right to foreclose. The problem is that MERS does not hold the note to back it up.It never did. Yet an estimated 60 million mortgages are recorded with them as the note holder. With all the bundling and resale, the original note holder has been paid off a long time ago. MERS is merely the man in the middle or straw man, collecting the money for others.
So as I said above, the real note holders have been so buried that no one seems to know who has the note.
MERS has no standing in its attempt to collect or foreclose.
http://www.webofdebt.com/articles/mers.php
Sage Reply:
October 25th, 2009 at 7:47 pm
Thanks for the explanation…..that makes more sense.
October 25th, 2009 at 5:55 pm
PHH services our mortgage, but our credit union, with whom we originally took the loan out, knows exactly how much we still owe. So, I’m not sure, but it sounds like PHH services loans, but does not hold them. Is that right?
I’m unclear, whether, in the case this article refers to, the federal judge wiped out just PHH’s mortgage interest, or also U.S. Banks. If U.S. Bank holds the note, and they were not party to the action, how can their legal right to be repaid be wiped out?
Frankly, I have no problem with a company being penalized for foreclosing on a loan, without being able to cough up the proper paper work. And I have no problem with the borrowers getting their attorney fees in such a case. But I have a major problem with a federal judge just wiping out their debt. While we might originally think it’s great, don’t forget, it’s you and I that will end up paying for that mortgage, one way or another.
Sage Reply:
October 25th, 2009 at 6:43 pm
Wizcon knows this stuff so I’m hoping she will come back and answer some questions. I don’t understand what it’s all about.
Wizcon Reply:
October 25th, 2009 at 8:03 pm
@kert, If US bank can show they still have the note then they have a case. This was PHH trying to foreclose along with MERS. Neither produced the note or proof they bought or were assigned the note.
MERS has a much more optimistic view of what they can and cannont do in the event of a foreclosure. It seems they are not delivering on their promise to track the note and maintaing any agency rights they may think they have in regard to acting as agent to the note holder,
http://www.mersinc.org/Foreclosures/index.aspx
Wizcon Reply:
October 25th, 2009 at 8:08 pm
@Wizcon, And yes, some companies just clooect and forward the money sent in by home owners. They don’t have to own the note to do that.
Some of the smaller servicing companies have folded. I had one older woman who was trying to refinance. Her servicing company just disappeared taking with it her escrow acount maintained for taxes and insurance. She had to come up with that money again to clear up “late” taxes. That money had been collected by the company but never paid toward the taxes. She was 83 yrs old.
Sage Reply:
October 25th, 2009 at 10:24 pm
Man, that sucks. Is nobody overseeing these companies?
Wizcon Reply:
October 25th, 2009 at 10:46 pm
@Sage, I think it’s all part of the super derivitives fiasco. They did anything to expediate the bundling and sales of all those loans to investors. The problem lies in the fact they rebundled and resold multiple times. There is regulation but it seems to me the MERS and others sidesteeped it. If they had done what they said they would do, track and actually hold the note, there would be no problem. But MERS has not done so in all its holdings. They have cost one client a half a million already. Now it’s time to figure out who that client is. Or not.
Seems to me its a bit of poetic justice. And the courts are pointing that out.
Sage Reply:
October 25th, 2009 at 11:43 pm
I agree with you that having a mortgage wiped out isn’t something that is going to be the norm and I’m sure this instance will be appealed. But, there is no excuse for such sloppiness on the part of the banks and MERS.
timesr Reply:
October 26th, 2009 at 10:57 am
@Wizcon,
Thank you for sharing your expertise.
I still have trouble wrapping my brain around the whole thing, for instance, what part did insurance play, however your explanation helps.
Wizcon Reply:
October 26th, 2009 at 12:51 pm
@timesr, I think you are referring to the lein on your insurance policy I mentioned. That is so the lender gets paid back the mortgage if the house burns down or is damaged. They have an interest in the condition of the house or even if it is still there. Its an asset against the loan. They want to be assured they get their money back if it burns down for example. If your house burned and collected all the money, you would still owe the mortgage amount.
Also they have an interest in whether or not it is maintaining value. Realtors often get contacted by the asset management dept of lenders to do a “BPO” or Brokers Price Opinion. The realtor does a current market analysis on the value of the house and usually takes pictures of the house and sometimes the neighbors house. The Lender wants to know if the house still has at least the value of the money loaned against it and also if it is maintained well enough to resell for that value. They take pictures of the neighbors for the same reasons. It could be alarming if all the neighbors houses are run down, vacant or for sale and it would affect the value
So you may see someone taking a picture of your house or your neighbors. It may be because of that. Some folks get upset with that idea but the lender has every right to do so. At times it is a preliminary look at a house that may be going into foreclosure as well.
I take these pictures for realtors at times. I have also been challenged , usually by big hairy men. Once I explain it to them, they are ok with it. Only once was I told not to be seen taking the pictures and that was the case of a large lumber mill and the order stated that the US Marshal warned about being seen. Seems the owner ended up in jail for misappropiating funds and the place went into foreclosure. I just drove down the road clicking away then came back and did the same for the other side. At one point I stopped and pretended to be talking on my cell. That was for the pictures of the private hanger with the airplane in it.
October 25th, 2009 at 5:57 pm
I’m sorry, I sometimes mistakenly take that “website” block as a title block, and thus part of my posts are missing.
The first part of the first sentence should read, “PHH services our mortgage . . .”
Sage Reply:
October 25th, 2009 at 6:46 pm
Sorry, I don’t understand what you mean but I edited and fixed your post.
I thought users could edit their posts now.
October 26th, 2009 at 2:51 pm
I read an article about this same or similar thing last year and I loved it ! I want to say it was in Ohio,(dont quote me though) a class action suit brought by 10 or so homeowners who were being foreclosed on by a LENDER who did NOT have deed to their homes. The judge told the LENDER, this is your fault for buying a bundle of loans and not following through with the transfer of the paperwork. The homeowners got to keep their homes. I do not know and wish I did, what the status of their loans were at THAT point…
I was interested in it because my LENDER, Wells Fargo, does not have a DEED/TITLE to my h ome. I’ve tried several times to homesteaed it and cannot because of that. SO I ask WF why should I pay you? What do I get proving I’ve paid it off when I’m done? etc . WF bought my loan from NORWEST mortgage just a few years after we moved in. So I’m guessing it’s the similar thing. If I was a gambler, I’d quit paying and see what happens….. But given my luck with the lotto,,,, I bet I’d be homeless
Sage Reply:
October 26th, 2009 at 3:21 pm
Is there a deed of trust filed with the register of Deeds?
Wizcon Reply:
October 26th, 2009 at 3:27 pm
@AliSilver, Go down to the register of deeds and see what there is for a mortgage. Wells fargo loans have kept me really busy the last month or so. Folks are refinancing existing mortgages with them like crazy. In my mind, hearing their stories they are essentially modifying their loans to better terms through the more detailed refinance process. Most say they are doing it for relief from the higher interest payments. Today I had one that was a widow who could not afford the existing payments after her hubby died.
Was the home your primary residence when you took out the loan? Did you marry since then? I don’t know what state you are in. Most states with homestead laws have an automatic homestead status if you are married and it is your primary residence. If a spouse should die, the title reverts to the survivor. If the deceased is the only one on the loan however, that person would have to refinance in their name. It is considered a debt towards the deceased’s estate.
Often only one spouse signs the note and takes responsibilty for the debt. In a homestead state, the spouse has to sign the mortgage, the right to cancel and Truth in Lending doc’s essentially giving the ok for the borrowing spouse permission to borrow against the house. The non borrowing spouse can cancel the loan within a 3 day recission period. So A loan can’t be had without all owners aproving it.
There should be an original deed recorded at the register of deeds. The mortgage deed is only exercised in the event of foreclosure
October 26th, 2009 at 5:53 pm
Hmmm, No one told me to look there. I just asked WF and they said they don’t have it. They said to call the TITLE co. who processed it.. I’m going to be paying it off in the next 4 months or so. At this point I’ll just wait until I do and if they can’t produce one then…… I have no plan b
October 26th, 2009 at 10:56 pm
It should be recorded at the register of deeds. The original should have been sent back to you. Sometimes the lender requires they have it at the time of purchase. You can get a certified copy of it I think but you really don’t need to since it is recorded. When you pay off your mortgage, you should get a satisfaction of mortgage sent to you by either the register of deeds or the lender. It should show that it to has been recorded. Make sure it IS recorded.
October 27th, 2009 at 7:21 am
Ok ty WIZ !
November 1st, 2009 at 11:58 pm
why is it, that when someone refinances or “pays off” their mortgage loan, that MERS is the while that files release of the mortgage? Even after MERS “assigned” the mortgage (as in the case of foreclosure), it is MERS that records a release of mortgage.
Funny how the Note is never released…what gives there? Isn’t the Note the negotiable instrument?
If the Note is lost, and MERS files a release of mortgage but not a release of Note, wouldn’t that mean that someone could come with the Note one day and say “you owe me money”? It would be unsecured debt without the mortgage, but debt all the same.
It is well know now that MERS does not have any interest in the Note or any right to payment on the Note, never owned the Note and never held the Note – so how could MERS supposedly “assign” the Note to anybody?
Also – MERS supposedly tracks mortgage transfers so the mortgage (or deed of trust, a different but similar instrument) does not have to be rerecorded every time it is transferred. Mortgage transfers and Note transfers are two different things – so who tracks the Note transfers? The mortgage follows the Note (in a non-MERS transaction), but the original mortgage is not the one recorded – it is scanned and returned to the lender in most cases -so the lender can transfer it. The Note is never recorded, because it is a bearer instrument, legal tender, like a check. The Note is sold and bought.
Doesn’t separating the mortgage and Note render the mortgage void?
And again, what about that – MERS not recording release of the Note – the Note is supposed to be returned to the borrower once it’s paid off, but never is – so who holds the “uncashed check”? And what will happen when the uncashed check is found and presented for payment?
The loan modifications ar B.S., they are made to reconfirm the Note (actually modifying a Note that is supposedly “lost”) it’s the second bite at the apple for the Banks – the original Note could still be out there!
Don’t believe it? Just ask to see your right to rescind notice before you modify – when you modify, you lose a few consumer rights, setting you up for a future foreclosure. MERS needs this, it’s the only way to keep the ball rolling. Wall Street needed more homes to securitize, but there weren’t any, so the foreclosures fuel a fresh batch for them. If you have MERS, you will never own the home, the land is worth too much as a derivative.
Even if you are not in default, they will purposely fail to send you a statement, or erroneously force-place insurance, or something to throw you off so you can’t catch up – they are covering up their deeds by modifying and negating consumer rights through modification!
Watch out! and if you are lucky enough to be able to pay off your home, make sure you ask for a “release of Note” – just watch what they do!
Sage Reply:
November 2nd, 2009 at 12:08 am
Hi simon….welcome to Mountain Sage. Hopefully Wizcon can enlighten us on the answers to some of your questions. She’s the expert on mortgages and notes.
November 16th, 2009 at 1:55 pm
I have been arguing this to people for ages. They must prove that you owe them money, in any situation, for any reason.
NEver give money to anybody unless they can prove that you owe it to them or you know it (like your local bank, who you took a loan from). Then, always get a receipt in writing.