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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Dimon Lil
Please can we clearly discuss whether the post below is accurate or anywhere near accurate?  I put the link to the place I found this and some posters say it way wrong, but are not saying why it is wrong.

Important Points –

Original Mortgage Loan Documents are considered legal tender
Any entity bearing an original mortgage loan document is entitled to demand payment for that loan
The company servicing the loan does not have to be the entity holding the original mortgage loan document

i. A servicing company may collect payments and hold them internally until the bearer with the original mortgage loan documents calls for payment

ii. A servicing company works for the holder/purchaser of the original mortgage loan documents, NOT THE BUYER

The below scenario could also occur if an investor/purchaser of Original Mortgage Loan Documents goes bankrupt, fails, or merges into another entity.


Current Problem Scenario Facing Mortgage Loans

I. Buyer A gets mortgage from Mortgage Lender (Mortgage Company A) for Property A.

a. Note/Mortgage is created and filed with appropriate agencies

b. Mortgage Company provides servicing as well as holding the original loan

i. The loan is handled like a bearer bond (same as any cash transaction)

II. Mortgage Company A decides to sell the loan for cash to another company or investor(Trust A)

a. The loan is bundled with multiple loans into a Securitized Trust

i. Depending on Federal Requirements these become tax-sheltered instruments.

1. If 5% of the total bundled loans in the Securitized loan go to foreclosure, the trust loses its tax-exempt rating.

a. Trust A can sell the Securitized loan

i. Trust A can write off the 5% of bad loans as losses (tax-deductible)

1. The Original Mortgage Loan Document is in limbo, it could be destroyed, lost, or stuck in storage somewhere long forgotten.

ii. Trust A sells the rest to another company/investor (Trust B)

b. Trust B bundles the loans into another Securitized Trust

c. The pattern could potentially repeat any number of times until the loan is paid in full

b. Mortgage Company A can agree to continue as the servicing unit for the loan for a fee to the Company B.

i. Since Mortgage Company A is still servicing the loan the buyer is unaware the loan has been sold into a Securitized Trust

III. Buyer A decides to sell the property (becomes Seller A)

IV. Buyer B buys the property with another Mortgage Lender (Mortgage Company B)

a. Mortgage Company A (also the Servicing Company) tells title company the title is clear

b. Buyer A receives a Satisfaction of Mortgage or Release of Mortgage from Mortgage Company A

c. Mortgage Company A stops servicing whatever Trust the original loans is bundled.

V. Trust A/B/C file foreclosure proceedings against the original loan (Buyer A for Property A) because they are no longer receiving loan payments through the servicing company (Mortgage Company A) or from Mortgage Company B

a. New loan documents were created for the sale to Buyer B by Mortgage Company B for a new loan number with a different servicing company (Remember -clear title from Title Company)

VI. Buyer A presents the Satisfaction of Mortgage letter, it has no legal standing on the foreclosure. The ONLY valid document to clear a loan is the original mortgage loan document marked PAID IN FULL. Buyer A becomes liable to pay the balance of the original loan to Trust A/B/C or getting the original loan document returned marked PAID IN FULL.

VII. If Trust A/B/C can NOT produce the original loan documents, they do not have legal standing to foreclose.

VIII. If the original loan documents cannot be found the loan can be legally rescinded/vacated through the courts.

IX. What happened to the original mortgage loan documents? That is the issue. If they become lost, destroyed, or irreproducible, no one can prove they are truthfully or legally entitled to collect on the loan. According to the legal system, the loan is no longer legal tender.

a. It is the same thing as destroying a dollar bill and trying to convince the bank you had the dollar bill and you want it replaced. Since they have no proof of the dollar ever being in your possession or existing, they are not obligated to replace it. Even if you have a photocopy of it or the serial number of the bill, no one is obligated to replace the dollar bill.

X. What are the possible consequences to the typical homebuyer?

a. No Clear Title to sell the property

b. Servicing company filing foreclosure on property (if they do not have the original loan documents, they do not have legal standing to do this). This is a service they sometimes provide for Trust A/B/C.

c. Multiple companies (Trust A/B/C) filing foreclosures simultaneously on the property even though all loan payments are current.

d. Expensive court proceedings

e. Eviction pending clear title and court proceedings

f. Ruined credit pending clear title and court proceedings

g. Emotional distress and physical illness


http://forum.ml-implode.com/viewtopic.php?p=242008#242008
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Moose
Dimon Lil wrote:
Please can we clearly discuss whether the post below is accurate or anywhere near accurate?  I put the link to the place I found this and some posters say it way wrong, but are not saying why it is wrong.


Some quick points:

Quote:
Original Mortgage Loan Documents are considered legal tender.

Not quite - and there are variations from state to state - the promissory note is a financial instrument and the UCC governs promissory notes. "Legal tender" is something used to extinguish a debt.


Quote:
Any entity bearing an original mortgage loan document is entitled to demand payment for that loan

Again, not quite - there are recordation and assignment requirements that also vary by state


Quote:
The company servicing the loan does not have to be the entity holding the original mortgage loan document

True.


Quote:
i. A servicing company may collect payments and hold them internally until the bearer with the original mortgage loan documents calls for payment

Rarely. Payment terms are governed by the Pooling and Servicing Agreement (PSA) between the servicer and the trustee for the securitized trust.

 

Quote:
ii. A servicing company works for the holder/purchaser of the original mortgage loan documents, NOT THE BUYER

Maybe- unless the mortgage and accompanying note have been sold to another entity that retains the servicer to perform those functions. Again, the servicer is working under a contract with the trustee of whatever trust holding the notes and mortgages that secure them.


All of the above becomes confused if and when an intervening party like MERS becomes involved to screen the true ownership status through a proxy recordation/transfer scheme.


The rest of the outline has a few misstatements or assumptions but generally explains how a scenario could wind up - but:


Quote:
1. If 5% of the total bundled loans in the Securitized loan go to foreclosure, the trust loses its tax-exempt rating.

Not neccessarily. I've never seen anything in the tax code that would (or even could) reach in and set that as a rule for a securitized trust. 5% of what? The original note value?  5% of the number of loans?  The number of loans changes as the portfolio ages - refi's, sales, etc., so that won't work. If you have anything to the contrary I'd love to see it.


Quote:
i. Trust A can write off the 5% of bad loans as losses (tax-deductible)

Someone's confused. The trust doesn't pay income taxes - that's the whole point of it as a pass-through entity. The trust's value is contained in the bonds investors have bought in it. As loans are foreclosed, sold, etc., the tranches of bonds either get money from the trustee or don't based on the cash flow from the servicer.


Quote:
1.The Original Mortgage Loan Document is in limbo, it could be destroyed, lost, or stuck in storage somewhere long forgotten.

It can't be "in limbo."  It can definitely be lost, destroyed or simply too inconvenient to find, which is a major headache in jurisdictions that are enforcing presentment of them for a foreclosure.


Quote:
a. Mortgage Company A (also the Servicing Company) tells title company the title is clear

The title insurer does not ask the servicer - they pull an abstract of title. If the servicer has not filed a satisfaction of mortgage for the property, the title won't be clear and there won't be a sale transaction because there will be no title insurance.

Quote:
V. Trust A/B/C file foreclosure proceedings against the original loan (Buyer A for Property A) because they are no longer receiving loan payments through the servicing company (Mortgage Company A) or from Mortgage Company B

Can't really happen. The trustee does not know what individual loans are or aren't sold, paid off or going into foreclosure. They know the dollars coming from the pool and the numbers of loans in what status as required to be reported by the PSA with the servicer.  The servicer is the only one who can identify a loan and then act on it as the PSA dictates, which usually entails having the servicer put the loan out to a special servicer for foreclosure or bring on the attorneys to do it. 


The author paints a scenario that could only theoretically happen if the title company didn't do it's job and was dumb enough to issue a title policy on the second loan. And in that case, it is the insurer's responsibility.


And it's not the same thing as destroying a dollar bill. Dollar bills are currency; mortgages and notes that secure them have to have a chain of custody that is recorded by law, and again depending on the state, may even have to be together. 


Finally, there are simple equitable defenses against an attempt to foreclose on a former owner of a property where the loan has been paid off or the property sold. An attorney who files that kind of action risks sanctions for filing such a suit. And just as an affidavit of lost note is often recognized, the records of a prior property sale and affidavits from the parties (new lender and title company) are enough to get a summary judgment dismissal in what can only be described as a complete waste of everyone's time.


Key point - make sure the satisfaction of mortgage gets recorded.  In some states there is a legal time limit.


Moose






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