Latest Acquisition Extends Consumer Reach of Company’s Real Estate Vertical

MARIETTA, GA- HBN Interactive today announced the acquisition of IAmFacingForeclosure.com, a leading foreclosure help website.

IAmFacingForeclosure.com has grown by 200% during the last two months and is projected to have well over 500,000 UVs (unique visitors) in 2010. This growth is driven by the site’s collection of foreclosure help experts and foreclosure assistance companies.

“This is a hot area,” said Duane LeGate, CEO of HBN Interactive. “Foreclosures continue to plague the real estate market and there are no clear cut solutions for homeowners. Our mission at IAmFacingForeclosure.com is to is to walk the homeowner through the minefield of options and provide them with the service(s) and advice that best suits their personal situation.”

IAmFacingForeclosure.com is a perfect compliment to HBN Interactive’s portfolio of real estate related companies. Some of which include: HouseBuyerNetwork.com which focuses on short sales on behalf of the homeowner, SellMyHouseFast.com which introduces homeowners to quick sale solutions, and ~4,000 other real estate web properties with related resources. Since its establishment in 2004, HBN’s real estate vertical has expanded from a single website to include over 4,000 principal websites which consist of millions of monthly page views.

“We are very focused on helping homeowners face the challenges in today’s extreme real estate market. By leveraging HBN Interactive’s suite of services, homeowners can: sell their house in a quick and efficient manner, short sale their house with HBN’s experts, buy discounted property, and perform various other real estate related transactions.” added LeGate. “We believe the market will continue to struggle for years, and we plan to continue to bring innovative solutions to the market that will benefit homeowners that need immediate assistance.”

About HBN Interactive

Founded in 2004, HBN Interactive is a unique and leading Internet Real Estate Media Company. HBN Interactive has assisted close to one million homeowners needing specialized assistance. HBN Interactive has built a network of the best professional service providers in the real estate arena that can assist both home sellers and home buyers.

HBN Interactive Media Contact
For all media inquiries and interview requests, contact us.

Contributed by Kevin Chern, Total Attorneys, Inc.

Homeowners facing foreclosure are, understandably, looking for hope. News reports of homeowners successfully asserting the “produce the note” defense to stop foreclosure have sparked that hope in many. It seems only logical that a company commencing a foreclosure action should be required to demonstrate that it is the real party in interest before that action can move forward. But simply demanding that a mortgage servicer produce the note or establish itself as the real party in interest isn’t the magic bullet it sometimes appears in the popular press.

We know mortgage documentation is rife with errors, misrepresentations and missing links. Various studies have estimated the percentage of mortgage claims containing substantial errors between 57% and 80%. Katherine Porter’s 2007 study of mortgage proofs of claim in bankruptcy cases revealed that 52.77% of proofs of claim lacked at least one clearly-required document. What those errors mean for the homeowner depends not only on the nature of the error, but also on the state and jurisdiction in which the claims are prosecuted.

Success Stories

Attorneys in some states have had tremendous success with the defense. In September of 2008, the First District Court of Appeals in Ohio ruled on a case in which Wells Fargo Bank had commenced a foreclosure action based on a mortgage it did not own. (Wells Fargo Bank, N.A. v. Byrd, 178 Ohio App.3d 285, 2008-Ohio-4603.)

Although Wells Fargo subsequently acquired the mortgage by assignment, the trial court ruled that this later acquisition did not cure the jurisdictional defect and dismissed with prejudice. The trial court also ordered that the law firm filing the case on behalf of Wells Fargo submit proof that its client was the real party in interest in all future foreclosure actions filed by that firm.

Publicity surrounding Wells Fargo and a handful of other similar cases produced a flurry of real party in interest defenses and optimistic news coverage. A year later, the Ohio Supreme Court declined to review a similar case in Wells Fargo Bank, N.A. v. Jordan, leaving stand an Eighth District Court of Appeals ruling that “If plaintiff has offered no evidence that it owned the note and mortgage when the complaint was filed, it would not be entitled to judgment as a matter of law.”

At the same time, Florida legal aid attorney April Charney and a handful of others began challenging claims supported by affidavits of lost notes. It seemed that in the frenzy to slice, dice, flip and securitize the high-risk loans of the 1990s and early 2000s, many lenders and mortgage servicers had dropped the ball when it came to keeping accurate records. In many cases, the paper trail was broken, non-existent, or simply didn’t conform to legal requirements. Some plaintiffs in mortgage foreclosure cases found their claims dismissed outright for lack of documentation, and some homeowners found themselves in a better position than they’d ever imagined: enormous mortgage debt simply disappeared as it became clear that no proof of ownership of the debt could be produced.

It was heartening to see mortgage servicers taken to task and forced to follow the rules, but even in the oft-cited Byrd case, the real victory was scaled back considerably by the appellate court. While the dismissal was affirmed, the appellate court ruled that it should have been without prejudice; the order that the law firm submit additional documentation in subsequent cases was reversed. Those cases in which demanding the note and dissecting the paper trail resulted in a windfall for the homeowner were few and far between.

The State-by-State Difference

To a layperson, common sense dictates that a plaintiff would have to own the note and mortgage in order to file a complaint based on it; the big surprise is probably not the Ohio rulings above but the fact that the question ever arose. However, that question is far from settled in many states. Consumer attorneys in some states report that their courts are simply declining to entertain defenses like the one successfully raised in Byrd. The most likely explanation for this pattern is simple economy: a case dismissed without prejudice may be re-filed as soon as the defect has been cured, so many courts are apparently reluctant to go through the motions of dismissing a claim on procedural grounds only to have it filed as a new case soon after.

But disparate treatment of this issue by the courts isn’t the only—or even the most significant—difference from state to state. More than half of U.S. states allow for some form of non-judicial foreclosure. That means that the foreclosing party doesn’t have to file a court case in order to foreclose on the property. Non-judicial foreclosure doesn’t render true ownership of the mortgage irrelevant, but it does make it more difficult for the homeowner to pursue the issue.

While the defendant in a judicial foreclosure can simply raise the issue as a defense, the homeowner in a non-judicial foreclosure will typically have to file suit himself to get the issue of mortgage ownership and documentation before the court. That means not only filing fees and service of process, but also a host of procedural hoops unfamiliar to most homeowners. Few will be able to successfully prepare and argue such a claim without an attorney. That isn’t to say that the claim won’t succeed or isn’t worth pursuing in a non-judicial foreclosure state, but the process is far more complex, time-consuming and potentially expensive than the victory stories on television and in news reports might seem to suggest.

The Real Value of Demanding the Note / Questioning the Real Party in Interest

While demanding that the claimant produce the note / arguing that the claimant isn’t the real party in interest and doesn’t have standing to pursue a foreclosure action only occasionally results in a decision that effectively forgives the mortgage debt, the challenge can be a valuable tool for homeowners facing foreclosure. If a claim is dismissed and re-filed, that may buy the homeowner valuable time in which to negotiate or assemble funds to cure the default; the added procedural complications and the possibility that the mortgage servicer or alleged note holder may not be able to establish its claim provide an incentive for the claimant to compromise. Likewise, in a non-judicial foreclosure state, initiating a suit against the claimant may only rarely put an end to a foreclosure action altogether, but may still benefit the homeowner by slowing the proceedings and creating an incentive for the mortgage holder to negotiate a workable settlement.

– Kevin Chern
Total Attorneys, Inc.
25 East Washington Street, Suite 400
Chicago, IL 60602

Attention attorneys/auditor and other industry persons – please drop us a line if you think you can contribute to this blog.  Be seen!

As a homeowner begins research into the lending and foreclosure crisis, there will be many unfamiliar terms, names and companies that come to their attention. Chief among these will be MERS.

MERS is the acronym for Mortgage Electronic Registration Systems. It is a national electronic registration and tracking system that tracks the beneficial ownership interests and servicing rights in mortgage loans. The MERS website says:

“MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans. “

In simple language, MERS is an on-line computer software program for tracking ownership.

MERS was conceived in the early 1990’s by numerous lenders and other entities. Chief among the entities were Bank of America, Countrywide, Fannie Mae, Freddie Mac, and a host of other such entities. The stated purpose was that the creation of MERS would lead to “consumers paying less” for mortgage loans. Obviously, that did not happen.

This article will attempt to explain MERS in very general detail. It will cover a few issues related to MERS and foreclosure, in order to introduce the reader to the issues of MERS. It is not meant to be a complete discussion of MERS, nor of the legal complexities regarding the arguments for and against MERS. For a more in depth reading of MERS and findings coming out of courts, it is recommended that the reader look at Hawkins, Case No. BK-S-07-13593-LBR (Bankr. Nev. 3/31/2009) (Bankr. Nev., 2009) . It gives a good reading of the issues related to MERS, at least for that particular case. Though in Nevada, it is relevant for California.

(Please note. I am not an attorney and am not giving legal advice. I am just reporting arguments being made against MERS, and also certain case law and applicable statutes in California.

The MERS Process

Traditionally, when a loan was executed, the beneficiary of the loan on the Deed of Trust was the lender. Once the loan was funded, the Deed of Trust and the Note would be recorded with the local County Recorder’s office. The recording of the Deed and the Note created a Public Record of the transaction. All future Assignments of the Notes and Deed of Trust were expected to be recorded as ownership changes occurred. The recording of the Assignments created a “Perfected Chain of Title” of ownership of the Note and the Deed of Trust. This allowed interested or affected parties to be able to view the lien holders and if necessary, be able to contact the parties. The recording of the document also set the “priority” of the lien. The priority of the lien would be dependent upon the date that the recording took place. For example, a lien recorded on Jan 1, 2007 for $20,000 would be the first mortgage, and a lien recorded on Jan 2, 2007, for $1,500,000 would be a second mortgage, even though it was a higher amount.

Recordings of the document also determined who had the “beneficial interest” in the Note. An interested party simple looked at the Assignments, and knew who held the Note and who was the legal party of beneficial interest.

(For traditional lending prior to Securitization, the original Deed recording was usually the only recorded document in the Chain of Title. That is because banks kept the loans, and did not sell the loan, hence, only the original recording being present in the banks name.

The advent of Securitization, especially through “Private Investors” and not Fannie Mae or Freddie Mac, involved an entirely new process in mortgage lending. With Securitization, the Notes and Deeds were sold once, twice, three times or more. Using the traditional model would involve recording new Assignments of the Deed and Note as each transfer of the Note or Deed of Trust occurred. Obviously, this required time and money for each recording.

(The selling or transferring of the Note is not to be confused with the selling of Servicing Rights, which is simply the right to collect payments on the Note, and keep a small portion of the payment for Servicing Fees. Usually, when a homeowner states that their loan was sold, they are referring to Servicing Rights.)

The creation of MERS changed the process. Instead of the lender being the Beneficiary on the Deed of Trust, MERS was now named as either the “Beneficiary” or the “Nominee for the Beneficiary” on the Deed of Trust. The concept was that with MERS assuming this role, there would be no need for Assignments of the Deed of Trust, since MERS would be given the “power of sale” through the Deed of Trust.

The naming of MERS as the Beneficiary meant that certain other procedures had to change. This was a result of the Note actually being made out to the lender, and not to MERS. Before explaining this change, it would be wise to explain the Securitization process.

Securitizing a Loan

Securitizing a loan is the process of selling a loan to Wall Street and private investors. It is a method with many issues to be considered, especially tax issues, which is beyond the purview of this article. The methodology of securitizing a loan generally followed these steps:

• A Wall Street firm would approach other entities about issuing a “Series of Bonds” for sell to investors and would come to an agreement. In other words, the Wall Street firm “pre-sold” the bonds.
• The Wall Street firm would approach a lender and usually offer them a Warehouse Line of Credit. This credit would be used to fund the loans. The Warehouse Line would include the initial Pooling & Servicing Agreement Guidelines and the Mortgage Loan Purchase Agreement. These documents outlined the procedures for creation of the loans and the administering of the loans prior to, and after, the sale of the loans to Wall Street.
• The Lender, with the guidelines, essentially went out and found “buyers” for the loans, people who fit the general characteristics of the Purchase Agreement,. (Guidelines were very general and most people could qualify.” The Lender would execute the loan and fund it, collecting payments until there were enough loans funded to sell to the Wall Street firm who could then issue the bonds.
• Once the necessary loans were funded, the lender would then sell the loans to the “Sponsor”, usually the Wall Street firm. At this point, the loans are separated into “tranches” of loans, where they are then turned into bonds. Then, they went to the “Depositor”, usually either the Wall Street firm or back to the lender through as separate entity, and then they would be sold to the “Issuing Entity” which would be the created entity for the selling of the bonds. Finally, the bonds would be sold, with a Trustee appointed to ensure that the bondholders received their monthly payments.

As can be seen, each Securitized Loan has had the ownership of the loan transferred two to three times minimum, and without Assignments executed for each transfer.

(Note: This is a VERY simplified version of the process, but it gives the general idea. Depending upon the lender, it could change to some degree, especially if Fannie Mae bought the loans. The purpose of such a convoluted process was so that the entities selling the bonds could become a “bankruptcy remote” vehicle, protecting lenders and Wall Street from harm, and also creating a “Tax Favorable” investment entity known as an REIMC. An explanation of this process would be cumbersome at this time.)

New Procedures

As mentioned previously, Securitization and MERS required many changes in established practices. These practices were not and have not been codified, so they are major points of contention today. I will only cover a few important issues which are being fought out in the courts today.

One of the first issues to be addressed was how MERS might foreclose on a property. This was “solved” through an “unusual” practice.

• MERS has only 44 employees. They are all “overhead”, administrative or legal personnel. How could they handle the load of foreclosures, Assignments, etc to be expected of a company with their duties and obligations?When a lender, title company, foreclosure company or other firm signed up to become a member of MERS, one or more of their people were designated as “Corporate Officers” of MERS and given the title of either Assistant Secretary or Vice President. These personnel were not employed by MERS, nor received income from MERS. They werebeen named “Officers” solely for the purpose of signing foreclosure and other legal documents in the name of MERS. (Apparently, there are some agreements which “authorize” these people to act in an Agency manner for MERS.)

This “solved” the issue of not having enough personnel to conduct necessary actions. It would be the Servicers, Trustees and Title Companies conducting the day-to-day operations needed for MERS to function.

As well, it was thought that this would provide MERS and their “Corporate Officers” with the “legal standing” to foreclose.

However, this brought up another issue that now needed addressing:

• When a Note is transferred, it must be endorsed and signed, in the manner of a person signing his paycheck over to another party. Customary procedure was to endorse it as “Pay to the Order of” and the name of the party taking the Note and then signed by the endorsing party. With a new party holding the Note, there would now need to be an Assignment of the Debt. This could not work if MERS was to be the foreclosing party.

Once a name is placed into the endorsement of the Note, then that person has the beneficial interest in the Note. Any attempt by MERS to foreclose in the MERS name would result in a challenge to the foreclosure since the Note was owned by “ABC” and MERS was the “Beneficiary”. MERS would not have the legal standing to foreclose, since only the “person of interest” would have such authority. So, it was decided that the Note would be endorsed “in blank”, which effectively made the Note a “Bearer Bond”, and anyone holding the Note would have the “legal standing” to enforce the Note under Uniform Commercial Code. This would also suggest that Assignments would not be necessary.

MERS has recognized the Note Endorsement problem and on their website, stated that they could be the foreclosing party only if the Note was endorsed in blank. If it was endorsed to another party, then that party would be the foreclosing party.

As a result, most Notes are endorsed in blank, which purportedly allows MERS to be the foreclosing party. However, CA Civil Code 2932.5 has a completely different say in the matter. It requires that the Assignment of the Debt be executed.

• CA Civil Code 2932.5 – Assignment“Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.”

As is readily apparent, the above statute would suggest that Assignment is a requirement for enforcing foreclosure.

The question now becomes as to whether a Note Endorsed in Blank and transferred to different entities as indicated previously does allow for foreclosure. If MERS is the foreclosing authority but has no entitlement to payment of the money, how could they foreclose? This is especially true if the true beneficiary is not known. Why do I raise the question of who the true beneficiary is? Again, from the MERS website……..

• “On MERS loans, MERS will show as the beneficiary of record. Foreclosures should be commenced in the name of MERS. To effectuate this process, MERS has allowed each servicer to choose a select number of its own employees to act as officers for MERS. Through this process, appropriate documents may be executed at the servicer’s site on behalf of MERS by the same servicing employee that signs foreclosure documents for non-MERS loans.Until the time of sale, the foreclosure is handled in same manner as non-MERS foreclosures. At the time of sale, if the property reverts, the Trustee’s Deed Upon Sale will follow a different procedure. Since MERS acts as nominee for the true beneficiary, it is important that the Trustee’s Deed Upon Sale be made in the name of the true beneficiary and not MERS. Your title company or MERS officer can easily determine the true beneficiary. Title companies have indicated that they will insure subsequent title when these procedures are followed.”

There, you have it. Direct from the MERS website. They admit that they name people to sign documents in the name of MERS. Often, these are Title Company employees or others that have no knowledge of the actual loan and whether it is in default or not.

There, you have it. Direct from the MERS website. They admit that they name people to sign documents in the name of MERS. Often, these are Title Company employees or others that have no knowledge of the actual loan and whether it is in default or not.

Even worse, MERS admits that they are not the true beneficiary of the loan. In fact, it is likely that MERS has no knowledge of the true beneficiary of the loan for whom they are representing in an “Agency” relationship. They admit to this when they say “Your title company or MERS officer can easily determine the true beneficiary.

To further reinforce that MERS is not the true beneficiary of the loan, one need only look at the following Nevada Bankruptcy case, Hawkins, Case No. BK-S-07-13593-LBR (Bankr.Nev. 3/31/2009) (Bankr.Nev., 2009) – “A “beneficiary” is defined as “one designated to benefit from an appointment, disposition, or assignment . . . or to receive something as a result of a legal arrangement or instrument.” BLACK’S LAW DICTIONARY 165 (8th ed. 2004). But it is obvious from the MERS’ “Terms and Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans. To reverse an old adage, if it doesn’t walk like a duck, talk like a duck, and quack like a duck, then it’s not a duck.”

If one accepts the above ruling, which MERS does not agree with, MERS would not have the ability to foreclose on a property for lack of being a true Beneficiary. This leads us back to the MERS as “Nominee for the Beneficiary” and foreclosing as Agent for the Beneficiary. There may be pitfalls with this argument.

• When the initial Deed of Trust is made out in the name of MERS as Nominee for the Beneficiary and the Note is made to AB Lender, there should be no issues with MERS acting as an Agent for AB Lender. Hawkins even recognizes this as fact.
• The issue does arise when the Note transfers possession. Though the Deed of Trust states “beneficiary and/or successors”, the question can arise as to who the successor is, and whether Agency is any longer in effect. MERS makes the argument that the successor Trustee is a MERS member and therefore Agency is still effective, and there does appear to be merit to the argument on the face of it.The original Note Holder, AB Lender, no longer holds the note, nor is entitled to payment. Therefore, that Agency relationship is terminated. However, the Note is endorsed in blank, and no Assignment has been made to any other entity, so who is the true beneficiary? And without the Assignment of the Note, is the Agency relationship intact?

Uniform Commercial Code may address this issue, however, it can be argued in the negative:

Uniform Commercial Code§ 3-301. PERSON ENTITLED TO ENFORCE INSTRUMENT.

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a non-holder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

Are you confused yet? I am. Most attorneys are. And most courts are…….

Separation of the Note and the Deed

There is one more issue that I will now address. That is the separation of the Note and the Deed of Trust. Again, case law is confused on this.

In the case of MERS, the Note and the Deed of Trust are held by separate entities. This can pose a unique problem dependent upon the court. There are many court rulings based upon the following:

“The Deed of Trust is a mere incident of the debt it secures and an assignment of the debt carries with it the security instrument. Therefore, a Deed Of Trust is inseparable from the debt and always abides with the debt. It has no market or ascertainable value apart from the obligation it secures.

A Deed of Trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the Deed Of Trust without a transfer of the debt is without effect. “

This very “simple” statement poses major issues. To easily understand, if the Deed of Trust and the Note are not together with the same entity, then there can be no enforcement of the Note. The Deed of Trust enforces the Note. It provides the capability for the lender to foreclose on a property. If the Deed is separate from the Note, then enforcement, i.e. foreclosure cannot occur. The following ruling summarizes this nicely.

In Saxon vs Hillery, CA, Dec 2008, Contra Costa County Superior Court, an action by Saxon to foreclose on a property by lawsuit was dismissed due to lack of legal standing. This was because the Note and the Deed of Trust were “owned” by separate entities. The Court ruled that when the Note and Deed of Trust were separated, the enforceability of the Note was negated until rejoined. ( Note: LFI did the audit for this loan.)

All Saxon could do on this loan would be to rescind the foreclosure, reunite the Deed and the Note by Assignment and then foreclose again.

Other examples of this is that in the past month, LFI has done audits whereby it was determined that Notary Fraud was present with regard to the signing of the Deed of Trust. This immediately made the Deed of Trust void, and as a result, the Note was then “Unsecured Debt”, and the property was unable to be foreclosed upon. There is even question as to if the Note is void as well.

As I have attempted to show, the whole concept of MERS is fraught with controversy and questions. Certainly, at the very least, MERS actions pose legal issues that are still being addressed each and every day. As to where these actions will ultimate lead, it is anybody’s guess. With some courts, the court sides with the lender, and others side with the homeowner. However, there does appear to be a trend developing that suggests, at least in Bankruptcy Courts, MERS is losing support.

I would like to again make note of the fact that this is simply a basic primer on MERS and the issues surrounding it. To fully cover MERS, I could easily write 100 pages, quoting statutes, case law and legal theories regarding how to defend against MERS.. However, I will save that for the attorneys, and someday, when I have time to write a book on the battles occurring daily in the courts.

Update:

As I wrote this article, a case pending on appeal in Kansas was finally decided. This case, Landmark vs Kesler, Milliennia, MERS, Sovereign Bank and others was finally decided. It offered some interesting conclusions, and reinforces what I had written about in the above article.

I must stress that this case is a guide only. It was in Kansas, and draws from case law in many different states. What is important is that with any Court, case law within the jurisdiction of the Court must be considered first in arguments. If such case law for arguments does not exist, then case law from other jurisdictions can be used to support the arguments.

What this case does do is provide guidelines for arguing in other venues. I do find the case very interesting in that it does highlight the general issues that I addressed above. It supports Haskins very nicely.

It should be noted that various articles have already been written, some of which promote the idea that it will mean free homes for millions of people. This is not likely for various reasons. However, it does offer interesting possibilities regarding certain lawsuits that I am currently assisting with. Of course, LFI has anticipated this occurring and is currently assisting attorneys in refining the argument.

This case is about a foreclosure that had occurred. The lender is trying to overturn a default judgement in favor of another lender. MERS has sided with that lender. As such, the differences in this case could weigh heavy in future rulings. I will just cite relevant portions without going into great detail, which would take a day to write. My comments follow each quote from the ruling.

“While this is a matter of first impression in Kansas, other jurisdictions have issued opinions on similar and related issues, and, while we do not consider those opinions binding in the current litigation, we find them to be useful guideposts in our analysis of the issues before us.”

This supports my contention that this is only useful in other jurisdictions to argue, but jurisdictional case law takes precedence in each area. Therefore, arguments must be made that can overturn such case law.

“Black’s Law Dictionary defines a nominee as “[a] person designated to act in place of another, usu. in a very limited way” and as “[a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1076 (8th ed. 2004). This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves……..The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship.”

This is the essence of the Agency Relationship that I presented above.

“LaSalle Bank Nat. Ass’n v. Lamy, 2006 WL 2251721, at *2 (N.Y. Sup. 2006) (unpublished opinion) (”A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”)”

This case, if used and upheld in California, could portend great consequences for all homeowners.

The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is “[o]ne to whom property is mortgaged: the mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting “solely” as the nominee of the lender.

Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable.

“The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009).

“MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force.” 284 S.W.3d at 624; see also In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (standard mortgage note language does not expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal. 2008) (”[I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner.”); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. 2008) (unpublished opinion) (”[F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned. . . . MERS purportedly assigned both the deed of trust and the promissory note. . . . However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority . . . to assign the note.”).

This identifies the real issue, as I mentioned previously. The Note and the Deed were separated, so without Assignments uniting them, there can be no foreclosure.

What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. See Sheridan, ___ B.R. at ___ (”MERS is not an economic ‘beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid.”). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right. See Vargas, 396 B.R. 517 (”[w]hile the note is ‘essential,’ the mortgage is only ‘an incident’ to the note” [quoting Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 275, 21 L. Ed 313 (1872)]).

This reinforces the Hawkins argument that without a “Beneficial Interest”, there is no ability to enforce the note.

This ruling in Kansas comes down to several basic issues. These are that:

• MERS had no Beneficial Interest in the Note, therefore, they could not be a Party of Interest and had no authority in the case.
• MERS and the Agency Relationship did not exist with the Assignment of the Note without a new Agency Agreement.
• The Note and the Deed of Trust were separated, therefore, the Note could not be enforced by the Deed of Trust.
• MERS did not have a power to assign the Note.

This ruling, along with Hawkins, can offer the attorney a practical roadmap on how to attack MERS. It should not be taken for granted that this will apply in all states immediately, nor that this will be easy. Jurisdictional Case Law will certainly have to be fought out and overcome. Additionally, I do expect further appeals of this case, especially with other parties joining in to side with MERS because of the practical implications of this ruling.

Disclaimer: Pulatie and LFI are not attorneys and do not dispense legal advice. The purpose of LFI is to assist attorneys and homeowners in their fight.

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When facing foreclosure, the homeowner is always confronted with the difficult task of researching information to acquaint him or her with what to expect in the coming months. This research will include a number of different subjects covering such issues as the foreclosure process, loan modification, legal statutes, and current trends. Somewhere in the process of researching this information, the homeowner will come across the subject of forensic loan audits and TILA and RESPA. The question then becomes, “What is TILA and RESPA and how can it help me?”

TILA and RESPA are the two main pieces of Federal Legislation that govern certain processes regarding lending, and especially so in the mortgage lending arena. TILA stands for the Truth In Lending Act, and RESPA stands for the Real Estate Settlement Procedures Act. These are specific legislative acts designed to protect the borrower.

TILA is the main effort of Congress to ensure fair lending and to protect the borrower. Its purpose is to promote the informed use of consumer credit, the costs of borrowing money, the terms of the loan and other much needed information. It requires the providing of certain disclosures of relevant information for each transaction that is considered, and it provides the legal remedies for each violation of the Act.

RESPA is the “other” main effort of Congress to regulate lending. RESPA is designed to protect the borrower by ensuring (1) fair settlement proceedings through early disclosure of settlement costs, (2) the prevention of “kickbacks” and “illegal referral fees” that increase borrowing costs to the consumer, and (3) the prohibition of certain acts that increase borrowing costs.

There is much more detail to these acts, but the purpose of this article is to provide a basic understanding of the Acts and how courts and lenders are responding to various challenges. It will focus primarily on TILA, so that the reader will better understand the legal options of any TILA violation. (Most foreclosure defenses will be based upon TILA violations.)

Under TILA, when a mortgage transaction is considered, the lender must provide a borrower within three days of receiving a loan application a number of disclosures, of which the main disclosure is the Truth In Lending Disclosure. This disclosure identifies the terms of the loan, APR, Amount Financed, Finance Charge, Total Payments, and the Payment Schedule. These disclosures are to be as accurate as possible. The purpose of providing the disclosures is so that the borrower will be better able to compare loans from different lenders.

When the loan is ready to close, and you have the “final signing”, the lender is required to provide the borrower with a Final Truth In Lending Disclosure. This disclosure, along with the final settlement statement and the Right to Cancel Notice, are the key elements in foreclose defense, when arguing a TILA violation

TILA is a technical statute. This simply means that any “material violation” can invoke the remedies as provide for in the Act. The “material” violations that most frequently invoke potential remedies are:

• APR
• Finance Charge
• Amount Financed
• Total Payments
• Payment Schedule
• Right to cancel violations.

Common Remedies for violations of TILA are

• Attorneys’ fees and court costs for successful enforcement and rescission actions.
• Statutory damages, a minimum of $200 but no more that $2,000
• Actual damages
• Double the correctly calculated finance charge (but not less than $100 or more than $1,000 for individual actions).
• Rescission

For the homeowner in foreclosure trouble, the most important of the offered remedies is Rescission, and this article will pay particular attention to it. The other remedies do not offer any ability to stop a foreclosure as Rescission can, but Rescission is entirely misunderstood and is often used in the wrong situation.

Rescission is the process of legally canceling a loan. If a violation of material disclosures is severe enough, and the threshold for severity is quite low, then the borrower has the opportunity to “rescind” or “cancel” the loan. At that point, the confusion comes in.

In theory, this is the process of rescission:

1. Borrower finds violations of the TILA that offer rescission as a remedy.
2. Borrower notifies lender of rescission by letter.
3. The security interest (the Note and Deed of Trust) automatically becomes void and the lender has 20 days within which to take any and all actions necessary to reflect the termination of the security interest. The lender is obligated to return any money or property given as earnest money or down payment within those twenty days. The borrower is not liable for any finance or other charges and is entitled to recover all fees incurred in the transaction.
4. The borrower is obligated to return to the lender any money or property the borrower received as part of the credit transaction within twenty days, as their part of the rescission.
5. If the lender does not take possession of the property or money within 20 days, then the property is retained by the borrower and is held

Wow! You may get your home free and clear… at least that is what many scandalous loan modification companies and auditor firms say.

But here is the reality of rescission:

• In California, since homes are underwater and the borrowers owe more than the home is worth, they cannot tender back to the lender the money that was borrowed, so rescission is not an effective course of action in California, and for that matter, most other states as well.
• Courts have the ability to “change the order” in which rescission is tendered, meaning that the borrower must show the ability to make a valid tender, before the security interest in the loan is cancelled.
• No ability to tender the amount due means that there is no valid rescission.

In other words, rescission does not do what the homeowner probably wants the most – to remove any financial obligation connected to the house (as before they purchased it) – since the lender is only obligated to take back the original money lent, minus fees, and tear up the contract.

What to Expect when you rescind a loan

When you go to rescind a loan, you need to be aware of what will actually happen. What I write is based upon the experience of having done over 1000 audits, and working with attorneys who do attempt loan rescissions. (In this period of time, I have seen one offer of rescission, and a number of “talks” with lenders about rescission, always after a Restraining Order is granted to a homeowner trying to stop an auction. These “talks” have usually gone nowhere.)

When you and your attorney rescind a loan, here is the actual process:

1. Your attorney will usually send a “Demand Letter” to the lender. The purpose of the letter is to notify the lender that violations of the TILA have been found in your loan and you are invoking rescission rights as remedy.
2. The lender will respond in one of two ways: (a) ignore the letter altogether, or (b), send a reply where they deny that there are any violations of TILA and that they refuse to honor rescission.
3. At this point, the homeowner has only one real option left. That will be to file for a Temporary Restraining Order to stop the sale of the property, and to request a Preliminary Injunction to be granted stopping the sale on a more permanent basis, until the lawsuit that has been filed at the same time can be heard.
4. When the lawsuit is filed, and prior to the Preliminary Junction Hearing, if there is one Federal Charge alleged in the complaint, the lender will usually have the lawsuit remanded to Federal Court and away from State Court. The purpose will be to request a dismissal of all charges. They have a simple reason for doing this. The lenders know that Federal Court judges tend to be more receptive to the lender’s side and often will dismiss the case. This appears to happen more often than not. As a result, it is beneficial for lenders to have the case remanded to Federal Court.
5. If the lawsuit is not dismissed, then the Preliminary Injunction Hearing will be held. This is actually a “mini-hearing” of the case before a judge. Based upon what is presented as evidence, the judge will determine the likelihood of the homeowner prevailing at trial, and if he finds that there is a likelihood of the borrower winning the case, he grants the injunction. Once the Injunction is granted, the lender will usually begin to talk seriously with the homeowner and attorney about resolving the issue.
6. If talks do not work out, then the homeowner is going to trial. This is a process that will take months to years to reach a conclusion and will become very expensive, especially to the homeowner. (I currently have one client that has been in settlement hearings over a year, and her lawsuit began in Dec 07.)

The homeowner must understand that the lender has a very specific goal in mind during this phase of the lawsuit. The lender wants to stall the entire process, causing extensive costs to the homeowner. It is hoped that the homeowner will simply run out of money or give up and let the home be foreclosed upon, which happens quite often.

It should also be noted that Truth In Lending and RESPA lawsuits have been regularly filed since the mid 1990’s. Case Law is extensive and often contradictory. The lenders know the cases and the rulings and taper their arguments to fit those rulings. Most of the attorneys who are taking on cases do not know these cases, so many of the arguments that they make, the lenders already have the counter arguments ready.

The way to take on the lenders is to use different plans of attack, using statutes other than TILA and RESPA. The problem is that often a lender will attempt to raise the defense of Federal Preemption, whereby Federal Law takes precedent over state law.

Federal Preemption can be fought. In most states, the statutes exist to counter Federal Preemption claims. These statutes are versions of the Federal Trade Commission Act, Section 5, which identifies Unfair and Deceptive Acts and Practices (UDAP). Lenders will claim that that these are not applicable, however, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC have all at one time or another, in guidance letters, have asserted that even National Banks could be subject to such state statutes. Case law does indeed support such actions in many instances.

Conclusion

I hope that this article has provided much needed information regarding TILA/RESPA and what can be expected when one uses them to attempt rescission and then the likelihood of court action after rescission is denied and has cleared up misconceptions about the rescission process. My next article will provide information into the audit process and what a “true” audit is designed to accomplish.

Disclaimer:  Pulatie and LFI are not attorneys and do not dispense legal advice. The purpose of LFI is to assist attorneys and homeowners in their fight.

Countrywide Foreclosure Assistance – Homeowner story submitted by Jennifer  

I have been dealing with Countrywide Home Loans since 10/07. I spend more time stressing than anything else these days. We are 3 months behind in the foreclosure process because of increased escrow. I get the run around from countrywide and never talk to the same department no less the same person. I went to HUD the helped with this repayment agreement of 4x the original payment. I felt like even in the HUD office the Countrywide rep (California Office) controlled everything and heard nothing. Now we have a huge payment. We can make a larger payment but not 4x times larger.

They finally agreed on a repayment for the negative escrow, but like I said it is 4x larger. My husband works at a hospital, I do home health mostly hospice patients. My income varies. I have not gotten the paper work yet, and am frightened by what it might say.

I need help I am not internet smart and landed here by the grace of God. Many of the terms and words I read here I do not understand. I think I even posted this wrong to start. I have no idea where to go or what to do. It is easy to tend to a person in the last part of their life, give love and care you get it back 10 x 10 … but this ……… I am loosing the family home fast.

There is nothing to make you feel more like a looser than to loose your home. This battle takes the life right out of a person no less the will to fight.

I just need someone at Countrywide to give me assistance before I go into foreclosure to listen someone who wants to keep us in our home.I do not know how to get there from here.

Please help with any info #’s advice a step by step guide………….

Jennifer

Here is some advice from Moe -

Jennifer,

Never agree to take terms that you cannot afford. You would be just setting yourself up for failure and once you sign this plan, I am sure you are signing your rights away to ever bring suit against Countrywide.

Remember, this can be like a game of cards and their job is to make you jump through hoops and to protect themselves, NOT you. Your job is to protect you. Just because they offer you something does not mean you have to comply and take it. I have seen this happen many times. They may be bluffing. Cal the bluff and tell them no. This will not work and they can just take the house if they are not going to give you a long term plan for which you can afford.

As I say in almost every reply, you need a Qualified Written Request to be sent to them and you want a life of loan history of every penny you have ever paid Countrywide and a detailed description of where every darn penny went and while you write that letter you might as well ask for every darn paper you have ever signed with them that pertains to your loan.

Make them work. They don’t like to work when they have a million other people to work with. So, most likely you will win the hand, your bluff worked and you get a plan you can afford.

Do you have questions about Countrywide or any other lender or servicer, need free foreclosure help  or assistance in obtaining a loan modification, then please visit or forum at LoanSafe.org for live support and expert guides to help you through the foreclosure process. 

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By Moe Bedard

The foreclosure process varies in every state and it’s imperative that homeowners understand this process. Learn everything you can because this will affect you in every which way and it is something that should not be taken lightly. One thing is for sure, time is NOT on your side. But, an educated consumer is always an informed consumer who can make a “good” decision based on facts. Not fear!

Day 1 – Borrower misses first payment by a day. No penalties assessed at this time

Day 16-30 – A late charge is assessed to the borrower’s payment.
The lender or mortgage servicer will attempt to make contact with the borrower for an explanation.

Source Mortgage News Daily:

Mortgage notes usually carry a grace period, 15 days is typical but some are as short as 10 days. Many people “play the float” that is, delay through most of the grace period before making payment, and no one, including the lender thinks very much about it.

On day 16, however, a late fee is assessed. At this point there are no ramifications beyond that late fee and maybe a “friendly reminder” call from the lender’s customer service department. The late payment probably won’t even show up on the borrower’s credit report. On Day 30 that changes. At that point the borrower is in default and things quickly turn serious and the foreclosure process speeds up.

Day 45-60- The servicer sends “demand” or “breach” letter to the borrower stating the mortgage terms that have been. The borrower is given only 30 days to resolve the delinquent amount.

By day 45 the phone calls from the mortgage collectors will be coming pretty regularly. Most states have rules regarding collection activities and telephone calls including their frequency, content (no threats are permitted), and timing (early morning and late night calls are generally off limits,) but the calls, within legal boundaries, will be unremitting and the tone can vary from “gee, we just want to help” to aggressively demanding.

About 60 to 90 days after the initial missed payment the lender will send a notice of default, usually by Certified Mail, giving the borrower a finite period in which to cure the situation by paying all past due amounts, and by now collection costs are probably being added to the late fees. Once that remedial period passes, the collection department will refer the loan to the lender’s legal department which will, after another period of time, send the documents to a local attorney to begin foreclosure proceedings. By this time serious legal fees are accruing.

Day 90-105-The servicer refers the loan to its loss mitigation department / foreclosure department and retains an attorney or other firm to handle the foreclosure proceedings. Depending on the state where the home is located, the servicer’s representative may record a notice of default at the local courthouse and it will be published in the local newspaper

During this time your lender or servicer may offer you alternative ways to bring your account current:

Loan Workout- A loan workout is when you negotiate with your lender any kind of plan that will benefit both you and the lender when you are delinquent or in default. This is a broad term used in the industry to cover the different options you may have such as a loan modification, repayment plan, short sale, forbearance plan etc.

Loan Modification- This is when the lender modifies your current mortgage in order to work with you and make your mortgage more affordable. In the past this was only used when a borrower was delinquent but now it is being used before someone is delinquent. This will be the hottest term and way to help people avoid foreclosure.

Forbearance- This is used most of the time, when a Notice of Default has been filed. You are allowed to delay or reduce payments for a short period, with the understanding that another option will be used at the close of that time to bring your account to a current status. Your lender, if in agreement, will then temporarily cease legal actions.

Short Sale- This is used when all negotiations for a loan workout have failed and you are upside down on your mortgage meaning you owe more than it’s worth. The lender basically agrees to cooperate in the sale and take a loss. You place the home for sale and any offers are presented to the bank. Unlike a traditional sale when the homeowner decides what offer to take. The bank controls the negotiations and the homeowner has no say in the process. It’s a last ditch effort to save someones credit from a foreclosure filing.

Foreclosure Bail Out Loan – Is a new loan where the defaulted mortgage is paid off. This is usually a hard money mortgage and it is common for interest rates to approach 10-15%. Points can be as high as 5 and terms are usually short. In the 5 year range where a balloon payment will be due for the remaining balance. In order to qualify you must have sufficient equity. Hard money lenders are looking for 65-75% max loan to value and a decent equity cushion. You also have to have ability to repay as in a traditional mortgage.

Day 150-415– A notice of trustee Sale is filed and the home is scheduled to be sold at foreclosure sale or auction. This time range varies due to individual state laws and requirements.

In states with judicial foreclosures / where foreclosures are done via the court system, can sometimes extend this period to a year or more.

Nonjudicial foreclosure states can foreclose in as little as two months

A foreclosure is a legal event and there are benchmarks that must be met. Once the case is turned over to attorneys, the impending foreclosure must be advertised, usually in both the local papers and in the largest and closest metropolitan daily. The entire process can take a very long time from initial default to the actual public auction of the property. If a member of the military is an owner of the property, there are additional safeguards required by federal and in some cases state laws From the beginning of the process, however, the meter is running. The longer the foreclosure takes, the greater the debt that accrues and the larger the liability the homeowner has, something that will become critical down the road.

The law in most states gives the homeowner every opportunity to stop the process leading to foreclosure, right up to the minute that the auctioneer’s gavel comes down and sometimes even beyond. In some states there is a period after the foreclosure during which the homeowner can redeem the property (right of redemption.).

Redemption Rights: The rights of redemption, as specified in Internal Revenue Code Section 6337, are quoted as follows:

Sec. 6337. Redemption of Property. (a) Before Sale. – Any person whose property has been levied upon shall have the right to pay the amount due, together with the expenses of the proceeding, if any, to the Secretary at any time prior to the sale thereof, and upon such payment the Secretary shall restore such property to him, and all further proceedings in connection with the levy on such property shall cease from the time of such payment.

(b) Redemption of Real Estate After Sale.

(1) Period. – The owners of any real property sold as provided in Section 6335, their heirs, executors, or administrators, or any person having any interest therein, or a lien thereon, or any person in their behalf, shall be permitted to redeem the property sold, or any particular tract of such property at any time within 180 days after the sale thereof. (2) Price. – Such property or tract of property shall be permitted to be redeemed upon payment to the purchaser, or in case he cannot be found in the county in which the property to be redeemed is situated, then to the Secretary, for the use of the purchaser, his heirs, or assigns, the amount paid by such purchaser and interest thereon at the rate of 20 percent per annum

The best way for homeowners to to stop the foreclosure process without racking up extensive legal bills and ruining their credit histories is to start working on a solution with their lender or servicer before their problems get out of hand. The last thing you want to do is what many people choose to do when facing foreclosure, “Stick your head in the sand!”