Foreclosure Fraud For Dummies, 1: The Chains and the Stakes

Posted on October 8, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: This is Part One. Here is Part Two, Part Three, Part Four, and Part Five.) The current wave of foreclosure fraud and the consequences for the economy are difficult to follow. As such, Im going to write a few posts to simplify what is going on so you can follow stories as they unfold. This is very 101 level, and will include a reading list of blog posts and articles at each stage to help provide depth. (Special thanks to Yves Smith and Tom Adams for walking me through much of this.) Lets make three charts of the chains involved in the process. The first is what is currently going on with foreclosure fraud (click through for larger).

As you can see, in judicial review states like Florida the courts require that servicers, or those who administer the bonds that are full of mortgages (securitization, residential mortgage backed securities, RMBS, are all phrases for them), say that they have everything necessary in order to have standing to bring a foreclosure. They need to have the note for a mortgage, which is supposed to be in the trust part of the mortgage backed securities that they administer. What is breaking down here? In Florida, a judicial review state, it was found that one person was notarizing documents far faster than anyone could reasonably have. Forged documents necessary for the foreclosure process like the note were found. A separate court system was set up to resolve these foreclosures faster at the expense of allowing serious challenges to the documents. Heres Smith on how kangaroo these courts look up close. Heres WaPo on one individual and the nightmare of trying to challenge an invalid foreclosure. Keep him in mind when you hear about deadbeats and whatnot: the current system is designed to make it difficult for anyone to challenge their case. Meet the robo-signer who kicked it off here at this WaPo story. I almost feel bad for this patsy; the real battle here is between junior and senior tranche holders, and this doofus could end up in jail in order to keep John Paulson rich. After reading about this guy Im asking our elites to take care of their patsies better. (Can we get a Financial Patsy Fordism social contract movement going? If you are going to be a patsy for GMAC, you should be paid enough able to be able to buy GMACs services or something.) Why would servicers do this? One story would be that the more foreclosures they process, the more fees they get, so there is an incentive to cut as many corners to speed through the process as possible. Hence the term foreclosure mills. You can read more about this from Andy Krolls excellent work for Mother Jones (start here). Theres another problem though what if servicers are behaving this way because the actual notes arent in the trust? Lets go back to the creation of these instruments.

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I take a mortgage out at Joes Lending, a mortgage originator. A mortgage consists of two parts. The first is the note, or the IOU, which is the borrowers promise to pay. The second is the mortgage, which is the security, or the lien, or the actual interest. Joes lending takes the mortgage note to a sponsor to turn these mortgages into a bond. The sponsor was often an investment bank like Bear Sterns. Now that investment bank puts an intermediary in between itself and the trust. This intermediary is usually called a depositor, and sometimes there are several of them in the chain. Whats the worry here? Well many of these mortgage originators were fly-by-night shops, shady enterprises that collapsed the moment they hit trouble. And many of them cut corners and one of the corners they may have cut would have been to send the note to the trust. Specifically, there is worry that many mortgage originators never sent the notes to the depositors. Originators wanted volume to get fees and may not have done all the paperwork correctly. There are a lot of things that have to end up in the trust when I take out a mortgage, things like the note, title insurance, supporting documents. But the note is the most important. 2 Of 15

Why is this important? Well the trustees usually sign several certificates saying that they have verified all the documentation in these trusts. Many of these trusts are under New York trust law which is particularly clear and strict when it comes to these matters. With this in mind, tackle these three posts by Yves Smith (one two three). So connect the two together, and you can see why we might have a systemic crisis on our hands:

There are roughly $2.6 trillion dollars in mortgage backed securities. The Wall Street Journal starts to explain how this will be a battle between holders of junior and senior tranches of debt. It also exposes the servicers, which include the four largest banks, to extensive legal liabilities by those who bought these securitizations that were signed off as being properly administered and created. One result is that this has lead homeowners to reasonably demand to see the proper documentation before they and their families are put out on the street. Read Ryan Grim and Shahien Nasiripour from June, Who Owns Your Mortgage? Produce The Note Movement Helps Stall Foreclosures. Katie Porter is an expert who has done extensive research into this area and often blogs about it at credit slips. See the blog posts: How to Find the Owner of Your Mortgage and Produce the (Bogus?) Paper. Porter found that this was extensive in her research, see Misbehavior and Mistake in Bankruptcy Mortgage Claims (A majority of mortgage claims are missing one or more of the required pieces of documentation for a bankruptcy claims. Fees and charges on claims often are poorly identified and do not appear to be reasonable. The bankruptcy data reinforce concerns about the overall reliability of the mortgage service industry to charge homeowners only the correct and legal amount of the debt and to comply with applicable consumer protection laws). By rushing the process, unreasonable and excessive foreclosure fees can get applied to homeowners when there may not even be the proper documentation to have the standing to bring foreclosure at all. So keep these frameworks in mind when you see the debate unfold in the next weeks. It is a problem of systemic risk, and it is a problem for the currently cratered securitization market. It will need to be addressed, the sooner the better. But how? 3 Of 15

UPDATE: I forgot to thank Tom Adams, a contributor to naked capitalism, for the help he gave me in understanding the topic in the original article. Its updated above.

Foreclosure Fraud For Dummies, 2: What is a Note, and Why is it So Important?

Posted on October 11, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One. This is Part Two, Part Three, Part Four, and Part Five.) The SEIU has a campaign: Wheres the Note? Demand to see your mortgage note. Its worth checking out. But first, what is this note? And why would its existence be important to struggling homeowners, homeowners in foreclosure, and investors in mortgage backed securities? Theres going to be a campaign to convince you that having the note correctly filed and produced isnt that important (see, to start, this WSJ editorial from the weekend). This is like some sort of useless cover sheet for a TPS form that someone forgot to fill out. That is profoundly incorrect. Independent of the fraud that was committed on our courts, the current crisis is important because the note is a crucial document for every party to a mortgage[i]. But first, lets define what a mortgage is. A mortgage consists of two documents, a note and a lien: [ii]

The note is the IOU, its the borrowers promise to pay. The mortgage, or the lien, is just the enforcement right to take the property if the note goes unpaid. The note is crucial. Why does this matter? Three reasons, reasons that even the Wall Street Journal op-ed page needs to take into account. The first is that the note is the evidence of the debt. If it isnt properly in the trust then there isnt clear evidence of the debt existing. 4 Of 15

And it cant be a matter of lets go find it now! REMIC law, which governs the securitization, is really specific here. The securitization cant get new assets after 90 days without a tax penalty, and it cant get defaulted assets at all without a major tax penalty. Most of these notes are way past 90 days and will be in a defaulted state. This is because these parts of the mortgage-backed security were supposed to be passive entities. They are supposed to take in money through mortgage payments on one end and pay it out to bondholders on the other end, hence their exemption from lots of taxes; the tradeoff is that they cant be de facto managers of assets, and thats what going to find the notes would require. For Distressed Homeowners The second is that it also matters a great deal for homeowners who are distressed. The note lays out the terms of late fees and other penalties. As we will discuss in the next section about mortgage servicers, the process of trying to get people behind on their payments current instead of driving them into bankruptcy has broken down. But for now its clear that mortgage servicers dont have great incentives to get distressed homeowners records correct. Theres well-documented evidence that extra fees are tacked on to mortgages that have fallen behind, fees that arent following the terms of the note. This is usually only found out in bankruptcy where there is a lawyer (and multiple parties), not in foreclosure cases. But if homeowners wants to challenge whether what the servicers claim is the correct final due amount, the terms of the note are necessary for the court. This will matter a great deal for many homeowners. Small, marginal differences in the total owed could allow for a short sale. It could determine if the homeowner has any equity in their home. And this can only be determined by producing the note. For Investors, Who Took This Seriously at the Beginning Last reason: you can tell its important because all the smartest finance guys in the room thought it was important.[iii] Lets look at a Pooling and Service Agreement form from 2006 between GS MORTGAGE SECURITIES CORP., Depositor, and DEUTSCHE BANK NATIONAL TRUST COMPANY, Trustee. (h/t Adam Levitin for this example.) Lets reproduce the chart from part 1 to see the chain between depositors and trustees who oversee the trust:

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So what agreement did they come to when it comes to the proper handling of notes in securitization? Did they think this was no big deal, or that it is something serious? From the PSA (my bold): (b) In connection with the transfer and assignment of each Mortgage Loan, the Depositor has delivered or caused to be delivered to the Trustee for the benefit of the Certificateholders the following documents or instruments with respect to each Mortgage Loan so assigned: (i) the original Mortgage Note (except for up to 0.01% of the Mortgage Notes for which there is a lost note affidavit and the copy of the Mortgage Note) bearing all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee, endorsed Pay to the order of _____________, without recourse and signed in the name of the last endorsee The Depositor shall use reasonable efforts to cause the Sponsor and the Responsible Party to deliver to the Trustee the applicable recorded document promptly upon receipt from the respective recording office but in no event later than 180 days from the Closing Date. In the event, with respect to any Mortgage Loan, that such original or copy of any document submitted for recordation to the appropriate public recording office is not so delivered to the Trustee within 180 days of the applicable Original Purchase Date as specified in the Purchase Agreement, the Trustee shall notify the Depositor and the Depositor shall take or cause to be taken such remedial actions under the Purchase Agreement as may be permitted to be taken thereunder, including without limitation, if applicable, the repurchase by the Responsible Party of such Mortgage Loan. 6 Of 15

Read that again through to the end and use the chart to follow the chain. If more than 0.01% (!) of mortgage notes werent properly transferred, the trust can force the sponsor (in this case, Goldman Sachs) to repurchase the bad mortgages. And this is just one contract for one part of the ~$2.6 trillion dollar mortgage backed securities market. Hows that for systemic risk? Especially if this is found to be widespread. Looking at the documents you see that the smart guys who created these mortgage-backed securities put large poison pills into them to try and prevent the kind of note fraud we are currently experiencing as a country. They took the policing and legal recourse (and legal ability to cover their ass) very seriously on this issue. So seriously they can force repurchases of this bad debt. So dont believe the hype of anyone who says these are just technicalities; the people who wrote the contract didnt believe they were. (Special thanks to Katie Porter and Adam Levitin, who you can read at credit slips, as well as Tom Adams and Yves Smith, who you can read at naked capitalism, for in-depth discussions on this material.)

Foreclosure Fraud For Dummies, 3: Why Are Servicers So Bad At Their Job?
Posted on October 11, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One, Part Two,, and this is Part Three.) Whenever I hear about how there wouldnt be a problem with foreclosures if people just paid their mortgages on time, Im reminded of Alan Graysons paraphrase of the Republican Health Care Plan: Dont Get Sick. If You Get Sick, Die Quickly. Yes, the world would be an easier place if people never got sick, or credit risk didnt exist, and people made payments perfectly all the time. But they dont, and we need a system of rules and a process for collecting and presenting evidence in order to kick a family out of their home. And we need a system where this process sets the ground rules that in turn allow for lenders and borrowers coming together and negotiating a situation that is best for both of them. Because the first rule of mortgage lending is that you dont foreclose. And the second rule of mortgage lending is that you dont foreclose. Ill let Lewis Ranieri, who created the mortgage-backed security in the 1980s, tell you: The cardinal principle in the mortgage crisis is a very old one. You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure. In the past that was never at issue because the loan was always in the hands of someone acting as a fudiciary. The bank, or someone like a bank owned them, and they always exercised their best judgement and their interest. The problem now with the size of securitization and so many loans are not in the hands of a portfolio lender but in a security where structurally nobody is acting as the fiduciary. In the past you had Jimmy Stewart banks. The mortgages were kept on the books of the bank. You had someone who you could go to and renegotiate your mortgage. With mortgage-backed securities, the handling of payments and working-out of troubles moved to servicers. If you are learning about this crisis for the first time, understanding what is broken here is very important. This is Not a New Problem With Servicing Lets get some quotes from bankruptcy judges in here: Fairbanks, in a shocking display of corporate irresponsibility, repeatedly fabricated the amount of the Debtors obligation to it out of thin air. 53 Maxwell v. Fairbanks Capital Corp. (In re Maxwell), 281 B.R. 101, 114 (Bankr. D. Mass. 2002). 7 Of 15

[t]he poor quality of papers filed by Fleet to support its claim is a sad commentary on the record keeping of a large financial institution. Unfortunately, it is typical of record-keeping products generated by lenders and loan servicers in court proceedings. In re Wines, 239 B.R. 703, 709 (Bankr. D.N.J. 1999). Is it too much to ask a consumer mortgage lender to provide the debtor with a clear and unambiguous statement of the debtors default prior to foreclosing on the debtors house? In re Thompson, 350 B.R. 842, 84445 (Bankr. E.D. Wis. 2006). (Source.) Notice that consumer rights groups were flagging this as a major problem back in 1999 and 2002 because judges were noticing it was a major problem in their bankruptcy courts. If the late 1990s to 2006 period is a Renaissance period of servicer fraud then we can contrast it with the period we live in now, the Baroque period of servicer fraud. Whatever unity there used to be between the forms and functions of the sloppy documentation and outright fraud in the art of servicing have become detached. The forms of fraud have gone high art: serving documents on people who could never have been served, signing 10,000 affidavits a month, etc. They are all well covered, and well list more later perhaps. Here are some of my favorites from last year, the reading list in Part One has even more. But what I want to focus on is the function of servicer fraud. What Do Servicers Do? A Case Study in Bad Design and Worse Incentives Servicers in a mortgage-backed security have two businesses. The first is transaction processing. This means taking in your mortgage money on one end and walking it over to the crazy tranches and payment waterfalls on the other end. This is clean, efficient, largely automated, requires little discretion and works very well, and implicit in it is that it is most profitable when you can harness economies of scale. Its considered a passive entity in fact, so there are no taxes applied in this passthrough mechanism. If servicers went active, say by looking for mortgage notes not in the trust 90 days after the fact or mortgage notes that are not in the trust that have defaulted, which is what theyd likely have to do to get out of this foreclosure fraud crisis, theyd face very severe tax penalties. Their other business is to handle default situations. In addition to the fixed fee they get for servicing each individual mortgage they get paid from default fees like late charges. They get to retain most, if not all, of these fees. So right away they have an incentive to not find ways to negotiate to get a mortgage to a good state. They also have a strong incentive to keep a steady stream of fees and charges going to their books rather than to investors. So anything that puts servicers in charge of negotiating mortgages, say the Obamas administrations HAMP program, is designed to fail. Because even without bad incentives, doing good work on modification is costly, time consuming, requires individual expertise and experience and doesnt benefit from automation or economies of scale. Which is to say it is the opposite structure of their normal business. And there are additional worries. Many of the servicers work for the largest four banks Wells Fargo, Bank of America, Citi, and JP Morgan and these four banks have large exposures to junior liens. These are second or third mortgages or home equity lines of credit that would have to be wiped out before the first mortgage can be modified. The four banks have almost half a trillion dollars worth of these exposures and, from the stress test, are valuing them at something like 85 cents on the dollar. Keeping a homeowner struggling to pay the second lien would be more worthwhile to these middlemen banks than getting him or her into a solid first lien to the benefit of the bond investor. So keep these in mind as you read about the servicers here. There have been worries that they, as a designed 8 Of 15

institution, were simply not qualified for this job going back a decade. They have massive conflicts with the investors they are supposed to be working for. They profit when homeowners collapse and lose money when they are brought up to a normal payment schedule (made current). And if the instruments dont have the notes necessary to bring standing to carry out the foreclosures they have to take a massive tax hit in order to take the note into the trust. And regulation to handle this isnt in place. No Regulator Because for all the talks of regulatory burden, there is no current federal government agency that regulates the servicers. Not the Federal Reserve. Not the Treasury. This is what happens when the financial industry writes the deregulation. Instead you have a patchwork of state regulators and attorney generals. Notice how President Obama has nobody to turn to and tell the press that So and So is on the case. In theory the OCC regulates servicers if they are part of a bank or a thrift. This must fall to the new regulatory counsel and the Consumer Financial Protection Bureau to investigate, where it will properly belong. (The Fair Debt Collections Act, which applies to debt collectors, doesnt apply to servicers. Here might be a fun idea for an enterprising staffer if there is no note producible, are servicers still legally servicers and thus exempt from the Fair Debt Collections Act? Just a thought.) Is it any wonder that servicers are rushing these foreclosures and making a mockery of the courts and producing systemic risk in the process? There needs to be an investigation of what is being done and why, because this problem is not taking care of itself. (Special thanks to Katie Porter and Adam Levitin, who you can read at credit slips, as well as Tom Adams and Yves Smith, who you can read at naked capitalism, for in-depth discussions on this material.)

Foreclosure Fraud For Dummies, 4: How Could This Explode into a Systemic Crisis?
Posted on October 11, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One, Part Two, Part Three, this is Part Four and Part Five.) Right now the foreclosure system has shut down as a result of banks own voluntary actions. There is currently a debate on whether or not the current foreclosure fraud crisis could explode into a systemic risk problem that perils the larger financial sector and economy, and if so what that would look like. No matter what happens, the uncertainty about notes and what is currently going on with the foreclosure crisis is terrible for the economy. Getting to the heart of this problem so that negotiations can be worked out is important for getting the economy going again. There is little reason to trust what comes out of the servicers and the banks in whatever they conclude at the end of the month, and the market will know that. Only the government can credible clear the air here as to what the legal situation is with the notes and the securitizations. But I wanted to get some unlikely but dangerous scenarios on the table in which this blows up. Bangs, not whimpers. The kind where Congress is pressured to act over a weekend. I had a discussion with Adam Levitin about how this could explode into a systemic problem. Title Insurance Market Breaks Down First scenario involves title insurance. Specifically if title insurers decide to take a month off from writing title insurance even on performing and current loans to investigate what is going on with note transfers. If that happened there would be no mortgage sales (except for those involving cash) in the country. The system would simply stop. Everyone with an interest, from realtors to Wall Street to construction to huge sections of 9 Of 15

the economy, would face a major crisis through this short-term pinch. There would be a call for Congress to step in immediately. You can tell that the title insurance market, which is largely concentrated and also holding very little capital for a nationwide crisis scenario, is investigating the current problems. They are holding off on certain types of foreclosed properties; if they decide to hold off all together you could see a scenario where Congress is pushed to act immediately. Lawsuits a Go-Go The second would be a wave of lawsuits. As we discussed in Part Two, many of the servicing agreements allowed for the trustees to force the depositors and sponsors to purchase mortgages without notes. That would be 100 cents on the dollar for mortgages worth pennies. If the trustees dont take action, the investors could sue them. And the tranche warfare on this issue is intense, as foreclosures versus a few more payments radically change the balance between junior and senior tranche holders (See Tracy Alloway on tranche warfare here). Heres what this could look like. Read left side up for what the lawsuit screaming looks like and the right side down for the response:

Much of the activity would center around the four largest participants in these areas, the Too Big To Fail institutions of Wells Fargo, Bank of America, Citi and JP Morgan. And many of these mortgage-backed securities are cheap. So in an interesting scenario you could see hedge funds buying MBS for pennies just for the option to sue firms that are likely backstopped by the government. If title insurance froze, or if the financial markets had a panic over fears of waves of lawsuits, there would be pressure for Congress to do something. Much of the law is New York trust law, so it isnt clear Congress can 10 Of 15

act. But there will be pressure. Because if this bad-case scenario happens, which there is a small but reasonable chance it could, progressives need to have a clear sense of what they want in exchange for negotiations when the financial industry comes flying in over the cliff, a list of demands and questions to replace the in-large-part steamrolling of TARP over anyones interests but the banks. Even if that doesnt happen, but the slow bleed of the current dysfunctional mortgage market continues, progressive wonk policy initiatives that fix this crisis and get the mortgage market going again should be at the front of the debate. Well cover this in Part 5.

Foreclosure Fraud For Dummies, 5: The Necessity of Government Action and Ways Out of The Crisis
Posted on October 12, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One, Part Two, Part Three, Part Four and this is Part Five.) Heres a guess: In one month, the large banks will conclude that there are no problems with its foreclosure processes. The massive fraud that was committed on the courts was the result of a few bad apples, but those are now gone and its back to business as normal. At this point, either as a citizen or as a financial market participant, would there be any reason to believe them? Is there any reason to believe that the servicer and foreclosure mill fraud is over? That securitizations actually have the proper legal documentation necessary? That borrowers and lenders are actually getting a chance to come to mutually beneficial situations? Is there any reason to believe they arent lying? Because servicers arent currently regulated. They have a patchwork of state regulators and the OCC may regulate their parent company if it is a bank or thrift, but theres no current government agent to provide any accountability here. So without action, theres going to be no one to confirm or deny that anything has actually changed in the housing market. In some ways this narrative already reminds me of the BP oil spill in the gulf. The Obama administration largely left it to BP to tell the government and the public what was wrong, hire the contractors and then also to tell everyone what the environmental damages were. It will surprise no one that the information BP sent out was wrong (see, for example, Kate Sheppard,Not an Incidental Public Relations Problem), but for better or worse, the Obama administration is now linked to whatever course and information BP chooses to pursue. Why not choose a different course for this one? One that emphasizes social justice through powerful banks having to follow the rule of law, corporate responsibility to not commit fraud, provides a space where those who are weak and poor get a fair say instead of being bulldozed over by the rich and strong, and actually starts to dig out of the mortgage crisis that we are in. Check out Mike Luxs Exploding foreclosure fraud issue: An opportunity for Democrats to turn the tide. Not only is it relevant, but it demonstrates that theres a good chance this is going to get worse before it gets better. Why not get in front of it, and change course from the disastrous path weve been taking? What Just Went Wrong in the Government Response? Because what weve done to this point hasnt worked. Shahien Nasiripour and Arthur Delaney wrote the definitive account of the failure of the HAMP program, Extend AND Pretend: The Obama Administrations Failed Foreclosure Program. Instead of continuing HAMP, its time for a fresh response. Pat Garofalo of the Center for American Progress has The Fix Is Over: Mortgage Foreclosure Scandal Offers New Hope for Homeowners which has a lot on what a new foreclosure relief program could look like: 11 Of 15

allowing housing counselors and other public entities to approve mortgage modifications directly, and if the borrowers servicer doesnt challenge the modification in 90 days, it automatically becomes permanent. Such a step would go a long way toward streamlining the program and getting borrowers who qualify through the maze of bureaucracy in a timely, clear fashion without leaving them in limbo for months on end. Mortgage mediation programsin which a bank must meet with a borrower, in the presence of a judge and housing counselors, before finalizing a foreclosureshould also be expanded.. Another new favorite policy option everyone should start considering: REMICs bestow enormous tax breaks to investors; these breaks should be revoked for any residential home mortgage loan holding entity that forecloses on more than a specified percentage of all of its mortgages. We have to remember what went wrong with HAMP: the servicers were in the drivers seat. We need a process that is involuntary, government-run and is standardizable on both the modification and on the foreclosure end. Between this and a clearing out of the current crisis to confirm change has actually happened we can start on a way out of this crisis.

Source: http://rortybomb.wordpress.com/2010/10/08/foreclosure-fraud-for-dummies-1-the-chains-and-thestakes/

Yep, me again... I had to turn this into a PDF file because of the NEED (mine and others) to better understand the mess created by the bankers and lawyers. When I found this on the web (site noted above as the source), I knew I had to make this information available to as many people as possible because of the damages created by the lawyers (Congress; by passing legislation, allowing it all to take place, and shipping jobs overseas to destroy the people, and the nation.), and banks (Lobbying; for our destruction, and perpetrating this fraud on the people with the support of our elected representatives). Hope this infuriates you! You will find more web sites of interest[Here ]. Courtesy of, Phil Daniels

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Heres a question thats been bothering me for a while: Ive been poking around county recorder websites for while. At least in my state, a real estate transaction typically involves recording a deed transferring the property and a deed of trust that gives the lender a lien on the property. I remember reading someone (maybe Tanta at CalculatedRisk) saying that you could require that the note also be recorded. So the question is: if notes were recorded would that solve the problem with not being able to locate them? Would a copy of a recorded note be an adequate substitute for the original? Or would the note have to be re-recorded every time it changed hands? Which would be why we have MERS, right? Mers being a huge issue. Peterson, Christopher Lewis, Two Faces: Demystifying the Mortgage Electronic Registration Systems Land Title Theory (September 19, 2010). Real Property, Probate and Trust Law Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1684729 And Peterson, Christopher Lewis, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System (October 5, 2009). University of Cincinnati Law Review, Vol. 78, No. 4, 2010. Available at SSRN: http://ssrn.com/abstract=1469749

ii

Terminology is frequently misused. Although mortgage note is not incorrect, it is confusing, and it generally just means note. There is a mortgage, meant to be recorded, which generally has to be recorded to be a perfected lien. Since mortgage is often used interchangably with the broader terms home loan or real estate loan, I actually prefer the term security instrument for precision. And there is the note. Notes are unrecordable. Statements about how notes are unrecorded is a major peeve of mine. They are not meant to be recorded. They do not conform to recordation standards. Suggestions to the effect that they should be recorded are a good tipoff to take whatever else a poster says with a grain of salt. Regrettably, this suggestion is frequently part of too many posts. Notes are unrecordable. In addition, the original can be like cash and meant to be kept secure. Sending it to a county for recording would be gross negligence by whomever did it. Did I say notes are unrecordable and theyre not meant to be recorded? AND Deed of Trust = security instrument. Another reason I prefer that term.
iii

Last reason: you can tell its important because all the smartest finance guys in the room thought it was important.
I would non-concur here. The note is important not because the SGITR think its important, but because its fundamental to proving debt. Theres an old saying: A students become professors, B students

go to Wall Street, C students become the judges. While this isnt strictly true in my experience (except for the professors), it is true that judges think the note is important, and I listen to them over the SGITRs, generally. While it is important, there is another problem the negotiability of those notes is not always obvious, and it is frequently the case that they are not negotiable instruments, and thus not under the UCC. As Prof. Dale Whitman (Nelson & Whitman, Real Estate Transfer, Finance & Development) writes in a recent law review article (How Negotiability Has Fouled Up the Secondary Mortgage Market, and What to Do About It ): There is simply no way to resolve this question [of negotiability] conclusively. Yet, it seems bizarre that the negotiability of the most widely used mortgage note form in the nation (Fannie Maes), employed in many millions of transactions, is uncertain and that no one has bothered to do anything to clarify it. It will be up to the courts, and as Whitmans article makes clear, this is an issue that has not been extensively addressed. He argues that the securitizers simply didnt care whether the note was negotiable. In addition, I would amend this statement If it isnt properly in the trust then there isnt clear evidence of the debt existing. There is plenty of evidence of the existence of the debt (that is, there is a whole loan package including copies of the note), but what is not clear is who is the lawful obligee/payee after transfer[s]. The reason why the negotiability/non-negotiability question is so important is that the have different rules for transfer, possession and claiming ownership. The assumption that the UCC rules control is not necessarily right. If the note isnt negotiable, common law mostly controls. The forced repurchase option will only be effective for solvent originators, so long as they are solvent, which wont be very long, particularly as FHA is probably going to be first in line before private labels (for sure).
Here (As more and more sites POP-UP to combat foreclosure fraud... consumer beware!)
Securitization is what happens when your promissory note for your home is sold to wall street and gets "securitized" [recorded] by the SEC [Securities and Exchange Commission]. This is a short expose on this process and why it's fraudulent to foreclose after securitization has been done.

http://www.youtube.com/watch?v=41nf-BDY1JE Find your home listed on the Securities and Exchange Commission (call them and ask how to do it)... http://www.sec.gov/ (You will also note how the US Government combats illegal immigration by putting this site in en Espaol) (Okay, I'll help) Finding Pooling And Servicing Agreements (PSAs) For Securitized Mortgage Loans http://mattweidnerlaw.com/blog/2010/05/finding-pooling-and-servicing-agreements-is-key-to-killing-your-foreclosure-case/
http://ftcsearch.ftc.gov/search?q=Foreclosure+Fraud&btnG=Search&output=xml_no_dtd&ie=UTF-8&client=ftc_consumer&proxystylesheet=ftc_consumer&filter=0

http://mortgage-home-loan-bank-fraud.com/ http://showmetheloan.net/States/statutes.html http://www.consumerdefenseprograms.com/sitemap/ http://www.expertlaw.com/library/limitations_by_state/ http://www.kscourts.org/cases-and-opinions/opinions/supct/2009/20090828/98489.htm

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