Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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If a loan company goes out of business, and the loan servicer is "keeper of the documents" NOT "keeper of the record" -can the loan servicer take legal action to foreclose if they do not have power of attorney?
this is important to my case-thanks so much!
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If a loan company goes out of business, and the loan servicer is "keeper of the documents" NOT "keeper of the record" -can the loan servicer take legal action to foreclose if they do not have power of attorney?  this is important to my case-thanks so much!

 
Lindsay:
Your query subsumes a variety of topics discussed elsewhere in the message threads within this Forum.  And it touches upon a variety of legal topics which are only just now being explored by the nation'a courts because all too often foreclosures move forward without a debtor / defendant even presenting ANY defense at all.
 
It is NOT possible to answer fully and in detail without having far more information than you have shared, but there are some basic elements which can be sketched out economically.
 
First, it is essential that you understand that a typical residential mortgage transaction features two distinctive instruments exceuted by the borrower at closing and covered by different aspects of the law:  the promissory note and the mortgage or deed of trust.
 
The promissory note is almost universally a "negotiable instrument" under a body of law caled the Uniform Commerical Code (UCC).  The UCC is a law enacted separately in substatially identical form by all fifty state covering a wide variety of commercial financial activity.
 
By contrast, mortgage law varies considerably from state to state.  The mortgage or deed of trust is the security instrument which makes the subject real estate the security for the borrower's performance under the promissory note.  One major distinuishing difference between states is whether a state permits lenders to secure a transaction by a deed of trust rather than a mortgage and whether the state allows for a contractual right of "private sale" when a default is declared.
 
In mortgage states, foreclosure occurs through a court supervised judicial foreclosure.
 
In deed of trust states, upon a declaration of default, the foreclosure is conducted by a trustee named in the security instrument or by a successor trustee appointed in accordance with the terms of the instrument.
 
Under the UCC, the owner or holder of the promissory note usually has the right to enforce the note.  These are technical terms defined within the UCC.  Typically, in order for an entity to be the owner or the holder, the promissory note must be indorsed and delivered to the subsequent holder.
 
There are only a handful of exceptions to the requirement of indorsement and delivery and most are irrelevant to this discussion.  But to give a single illustrative example, one exception would be the circumstance where an unindorsed promissory note is amongst the assets of a decedent (person who dies).  Such notes may pass by Will or be distributed through a court supervised administration.  And the absence of an indorsement would not necessarily be an impediment to the change in ownership, though in most such instances either the executor or administrator would execute an indorsement, possibly with court permission.
 
In mortgage industry parlance, the named "Lender" on the original instruments is the mortgage originator.  And in most residential mortgage transactions within the United States, the mortgage originator sells the promissory note to a mortgage investor, usually through a series of transactions in which the mortgage is washed through two or more bankruptcy remote subsidiaries of larger institutional entities, within sixty days of origination.  It is very unusual for the originator to retain ownership of the promissory note, except in a small number of cases where the Lender is a depository thrift institution -- a savings and loan or a savings bank -- in which case the loan might be held on a portfoliio basis as an investment funded by the institution's savings deposits.
 
When the loan is sold, it is almost always indorsed and delivered.  In fact, this is usually done even BEFORE the loan is sold, as in most cases the lender makes the loan using money advanced by a commercial bank through a large revolving lending facility called a warehousing line of credit.  The loans funded through this warehousing line of credit are usually pledged as security for the warehousing loan.  Accordingly, almost immediately after closing and very often the same day, the promissory note is indorsed and delivered, usually by insured overnight air, to an institutional custodian named in the warehousing line of credit.
 
Note that in such a transaction, the originator remains the owner but the warehousing lender becomes the holder by the indorsement of the note, usually in blank, and delivery to the institutional custodian named in the warehousing loan agreement.  One can quibble about whether it is the warehousing lender of the institutional custodian which is acting as the holder.  The bottom line is that if the warehousing credit line is not repaid, the warehousing lender would typically have a right to seize and sell the promissory note held by the custodian as collateral for the loan.     

During this initial phase, the originating Lender is still the owner of the promissory note and tends to also still retain the rest of mortgage loan file.  But the promissory note is already in the hands of the institutional custodian.

Within about thirty to sixty days, the originating Lender sells the loan to the first of a series of entities involved in the process of securitization.  For a very small lender, the first sale may be to a larger "corresponding lender".  To a larger institutional lender, the first sale is usually to a bankruptcy remote subsidiary of the parent of the lender.  This bankruptcy remote subsidiary then would usually sell the loan as part of a bulk transaction, very often involving upwards of one thousand loans and a total amount of $500 million to $2 billion in face amount of these bundled loans.

Since most or all of the promissory notes for these loans were already delivered to the institutional custodian holding the collateral for the warehousing lender, the delivery of the loans is typically effected between one institutional custodian and another.  Or the institutional custodian might simply move the promissory notes from the sub-vault holding collateral for one customer to the sub-vault maintained for another customer.

Bear in mind that if the notes were first indorsed in blank, no further indorsement is necessary.

What happens to the remaining records depends somewhat on the nature of the sale transaction.  In many instances, these loans are sold for securitization pursuant to an agreement that the original Lender continue servicing these loans.  If the originating Lender remains the servicer, it may retain the originals of the bulk of the other loan files, while furnishing copies of critical documents to the buyer.  If the loans are sold servicing released, with the originating lender no longer having any further interest in the loans, it would be more common for the purchaser (or its designated servicer) to take custody of the original files and for the originator to retain copies.

The servicer would very often have the originals or copies of loan files other than the executed promissory note and mortgage or deed of trust, which would be in the vaults of the institutional custodian.

The promissory notes themselves, usually end up as collateral in a mortgage trust.  The trust typically involves an institutional trustee, usually a large commercial bank such as Deutsche Bank National Trust Company, Bank of New York, Wells Fargo Bank, N.A. or U.S Bank, N.A.  The trust is funded by the sale of trust certificates to institutional investors.  The creation of the trust typically includes filing a registration statement with the Securities and Exchange Commission (SEC).

Now we come to the heart of your question, which is whether the servicer has the documents and records and the lawful authority under a valid power of attorney to foreclose.

The answer depends almost completely on the facts of the particular case, as well as the law of your jurisdiction.  Note that based upon the discussion above, the servicer does not typically have physical custody of the promissory note or the mortgage or deed of trust.  These are typically held by the institutional custodian acting on behalf of the mortgage trust.

I have never seen a case which cleanly decides whether the institutional custodian holding on behalf of the actual owner (the mortgage trust) is sufficent to give the owner the right under the UCC as the holder.  But the mortgage trust typically IS the owner and might have the right to enforce the note as owner IF IT COULD PROVE THAT IT IS THE OWNER.

But proving that it is the owner is mildly problematic.  The loan was usually acquired as a part of a bulk transaction.  And negotiation is by indorsement and delivery.  Delivery was to the institutional custodian, as one of a thousand or more notes.  Usually, it is easier for the institutional custodian to simly produce the original indorsed note as proof that either the owner or the servicer is now the holder with the right to enforce the note.

But many times the foreclosure mills -- dishonest law firms representing the servicers -- are in a hurry to get the foreclosure under way.  And very often the foreclosure action is filed BEFORE the law firm and/or the servicer actually acquire physical custody of the promissory note which is the subject of the suit. 

If the promissory note remains in the vaults of the institutional custodian, the servicer cannot be readily said to be the holder.  A suit filed in the name of the servicer would probably be premature -- unripe -- before the servicer obtained delivery of the promissory note.

A suit in the name of the mortgage investor might actually NOT be unripe EXCEPT FOR THE PROOF PROBLEM.  The mortgage investor might actually OWN the promissory note, but it is in the physical custody of the institutional custodian.  Bear in mind that it is the servicer acting as the agent of the mortgage investor that is actually managing the foreclosure litigation.

In order to prove that the mortgage investor purchased the note in advance of the suit, the mortgage trust would have to produce its business accounting records, which they are loath to do, because these show obscene markups and profits and may vey well show complicity in the frauds perpetrated by the mortgage originators.

So again, it is EASIER and CLEANER for the mortgage investor to produce the indorsed note than it is to produce the other business records which would prove ownership thorugh indorsement and delivery.

*

All of the discussion above pertains to the promissory note and the right to enforce the note.

The mortgage is yet another matter.  And the right to enforce the mortgage is equally murky or even murkier.

Generally, under the common law, the mortgage lien follows the promissory note.  And in common practice, the originating Lender executes individual assignments of each mortgage contemporaneous to the sale of the promissory note.

Traditionally, any responsible investor would record each such assignment to show within the county records that it had obtained the rights to the mortgage.  But with increasing volumes in the mortgage industry over the past decade, the investors have increasingly cut corners.  One way they cut corners was to prepare a single blanket assignment covering hundreds or thousands of mortgages.  These were easy to execute, but difficult to record.

So most of the mortgage investors never bothered to record their assignments.

One problem with the indorsement and delivery of the promissory notes is that most indorsements are undated.  And absent some proof of physical delivery, proof of delivery is also problematic for the plaintiff.  Note that the notes were delivered to the custodian NOT the investor.  And the servicer actually had NO ROLE in this transaction, UNLESS it was the originator.

When coupled with the failure of the industry to record the bulk assignments, the PROOF PROBLEM of showing the date the mortgage investor had acquired its interest in the loan can be and IS readily overcome by simply forging an assignment

In other words, the mortgage plaintiffs forge the evidence they need to accomplish the judicial foreclosure.  This doesn't just happen now and then.  Virtually every assignment used in support of a judicial foreclosure in the United States today is a bald forgery.

The forgeries are either by the servicers or by contract perjurers and forgers employed by the servicers.

*

This discussion omits another variant on the mortgage assignment problem.  This is the special case, all too common, where Mortgage Electronic Registration Systems, Inc. is named as the Lender's nominee in the mortgage or deed of trust.

You can find much additional information about MERS by searching this Forum.

The key difference between the simple forgery of assignments by the servicer and its agents and the MERS case is that when MERS is named empoyees of the service later claim to be officers of MERS acting with authority when they execute the assignment forgery.  Moreover, they also very often falsely allege that MERS is also contemporaneously transferring its interest in the promissory note.  But this is always false and a fraud on the Court, as MERS NEVER OWNS ANY INTEREST in the promissory note!

A few courts around the country have begun to catch on to this ongoing fraud.  If you search this Forum and read the MERS related cases in the Legal Lounge at this site, you will find many potent cases showing that MERS is not the owner of the promissory note and has no authority or standing whatsoever to foreclose or to file a proof of claim in bankruptcy.  This is unraveling VERY FAST for MERS.  I would expect this to be increasingly inthe news over the next year and hopefully will ultimately result in some criminal indictments.

*

Bringing things back to your original question, the originating Lender is quite unlikely to still own your mortgage loan, though this lender may very well still be shown as the Lender of record within the county records.  The originating Lender probably delivered the promissory note to the institutional custodian acting for the warehousnig lender wthin a day or two of the loan's closing.  And the originating Lender probably delivered the original mortgage and copies of critical documents to the purchaser and the other original loan files to the servicer acting on behalf of the investor.

The originating Lender therefore probably has only COPIES of the original documents.

The current servicer is on somewhat thin ice bringing suit in its own name.  Usually, the suit is brought in the name of the mortgage investor.

IF the servicer is acting in its own name, it may not have to prove its agency to enforce the promissory note if it is the holder.  But it still probably has to show evidence of its agency to enforce the mortgage on behalf of the mortgage investor.

The servicer DOES have a power of attorney, but they are usually too lazy to produce it.  The power of attorney is built into the so-called pooling and servicing agreement.

IF the note and mortgage pleaded are made out to a Lender other than the plaintiff, then the plaintiff needs to prove indorsement and delivery.  IF the the promissory note pleaded lacks a valid indorsement, you have the basis of a pretty good initial defense.  You may even be able to get the suit dismissed due to lack of standing.  But this is usually just going to delay the foreclosure.

To STOP the foreclosure, you need to use discovery to PROVE the plaintiff's false pleading, forgery and fraud.  This is going to be very difficult to do without a really smart and experienced attorney and a good expert witness.

There are only a handful of really good attorneys specializing in foreclosure defense nationally.

You might want to try to identify an attorney in your area through the network of Oliver Max Gardiner, Esq., of Charlotte, North Carolina.  Max runs an aclaimed Foreclosure Boot Camp to train lawyers in foreclosure defense.  
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thank you for your reply-i have all my documentation to prove that did not have right to foreclose yet no attorney in upstate ny will take the case. i also filed a motion to vacate based on the facts and the judge dismissed. it gets better-but i wont publish since i am now filing suit as plaintiff because judges here dont like pro se defendants. The NY banking department wont get involved, the NYS Bar association wont get involved, and the NYS attorney general wont get involved.
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What a Good Job u did explaining this to Lindsay! Lindsay I feel your pain over a 1000 miles away right outside of St. Louis, MO. They won't do anything to help cause their in on the corruption if you ask me. To me they are highly biased and impartial down to the point their absolutely CORRUPT!

I'm sure NY is in on it as well. I know people up there in the mortgage business I feel they should of investigated already. But they won't. THEY REFUSE TO REALLY help those of us that REALLY know whats going on. Their knowledge is their power over us. But I know there are some more knowledgeable. And should know later this week if there's been a judge removed in Colorado soon.

 

I sure hope so! Us Prose need a win of this size!

Good Luck Lindsay most of us will do what ever we can to assist.

Kathy 

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