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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William A. Roper, Jr.
Within the very recent decision Grafton v. Shields Mini Markets, the Kentucky Supreme Court has reaffirmed that Kentucky is a lien theory rather than a title theory state:

As an initial matter, we are compelled to address the question of who actually "owned" the subject property at the time of the Masons' property-damage settlement. Kentucky law has long subscribed to the "lien theory" of mortgages and holds that "a mortgage is a mere security for debt, and that, substantially, both at law and in equity, the mortgagor is the real owner of the property mortgaged." Watt's Adm'r v. Smith, 250 Ky. 617, 63 S.W.2d 796, 800 (1933)  [*9]  (Citation omitted); see also, e.g., Whittaker v. Farmers' Nat. Bank of Somerset, 237 Ky. 596, 36 S.W.2d 18, 19 (1931). Thus, mortgages are treated no differently than any other lien and, generally, mortgagors - not mortgagees - are considered the owners of mortgaged property.

Accordingly, upon default a mortgagor's interest in real property is not forfeited. Rather, the mortgagee has only a security interest, and ownership of the premises remains with the mortgagor and subject to the mortgagor's right to redeem the property by paying the full debt plus interest and expenses incurred by the creditor due to default. Bolen v. Bolen, 169 S.W.3d 59, 64 (Ky. App. 2005), quoting Sebastian v. Floyd, 585 S.W.2d 381, 383 (Ky. 1979); see also KRS 426.005; KRS 426.525.

See:  Grafton v. Shields Mini Mkts., No. 2009-CA-001862-MR, COURT OF APPEALS OF KENTUCKY, 2011 Ky. App. LEXIS 3, January 14, 2011, Rendered.

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This distinguishes Kentucky law from that followed in so-called title theory states, such as Massachusetts where the Ibanez decision was recently handed down:

"Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor.  See G.L. c. 183, § 3; Saint Patrick's Religious, Educ. & Charitable Ass'n v. Hale, 227 Mass. 175, 177 (1917).  In a "title theory state" like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1, 6 (2010).  Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee.  See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751, 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315, 316 (1880) (although "as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands," mortgagee has legal title to property); Maglione v. BancBoston Mtge. Corp., 29 Mass.App.Ct. 88, 90 (1990).   Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone's home or farm and must be treated as such."

U.S. Bank, N.A. v. Ibanez, No. SJC-10694 (Ma. 2011)

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The Massachusetts Supreme Court used the title theory analysis in support of its holding that, in Massachusetts, the mortgage does NOT automatically follow the promissory note upon negotiation, but rather requires an express written assignment.

While it would be speculative to guess whether Kentucky will follow Ibanez in respect of certain other of the Court's thoughtful holdings, it would seem at least as respects lien theory versus title theory analysis, the law remains unchanged in Kentucky.

This information might inform the research of those seeking to understand the application of lien theory in Kentucky.

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William A. Roper, Jr.
The full text of the Grafton v. Shields Mini Markets decision is available at the Kentucky Courts website at:


A copy including links to some of the cited cases is also available through Google Scholar at:


The case may also be found at the free LexisOne site [sign-up required].
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William A. Roper, Jr.
The U.S. Bank N.A. v. Ibanez decision is now also available online at the Google Scholar site:

http://scholar.google.com/scholar_case?case=8646860858879196783

This version includes hyperlinks to many of the cases cited as authority within the decision.
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William A. Roper, Jr.
In my prior posts on the Grafton v. Shields Mini Markets decision and in the subject for the thread, I erroneously identified this as a decision of the Kentucky Supreme Court.  As is clearly shown within the text of the links given, the decision is that of the Kentucky Court of Appeals, the intermediate appellate court.

I apologize to all for the oversight and error.  It probably matters little in the continuing identification of KY as a lien theory state.

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