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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New Century Ch. 11 Case — Special Relief From Stay Procedures are an Option

by Alan S. Wolf
The Wolf Firm – USFN Member (CA)

When a bankruptcy case is filed by a major lender, it obviously reflects poorly on our industry. The headlines about the demise of the subprime sector more than prove this point. Moreover, the filing creates tremendous havoc throughout the industry. For example, the lender’s employees become understandably frantic because their jobs are in serious jeopardy, prospective borrowers generally lose their pipeline loans and eagerly search for other financing options, investors and master servicers scramble to move the servicing to more secure financial partners, and attorneys and general creditors often freeze their services pending some guarantee of payment. It’s a mess.

However, despite all of these problems, perhaps the biggest challenge caused by a major lender filing bankruptcy has to do with the automatic stay. Everyone knows that when a debtor files bankruptcy, an automatic stay is automatically created that protects the debtor from any act that can be construed as an act against the interests of the debtor. Thus, when a borrower files bankruptcy, the automatic stay precludes any foreclosure sale until the servicer first obtains relief from stay.

That same statutory result holds true when a lender files bankruptcy; immediately upon the bankruptcy filing, an automatic stay is created that protects the lender. Of course, if the lender happens to hold title to property (e.g., if the lender acquired title through an REO), it’s easy to see that the lender’s bankruptcy stay would preclude any foreclosure action against the property by any remaining lienholder. Less obvious, but equally true, is the fact that if the bankrupt lender holds a junior lien on a property, every senior lienholder on that property is stayed from proceeding with foreclosure until relief from stay is first obtained.

This is because if the senior lienholder had gone to foreclosure sale, it would have wiped out the debtor-held junior lien, an obvious violation of the stay. (See, e.g., In re March, 988 F.2d 498 (4th Cir. 1993)). Because the automatic stay is construed so broadly, some attorneys believe that if the bankrupt junior lienholder is merely servicing the loan for someone else (as opposed to being the holder of that note), the stay still applies, precluding the senior lien from foreclosing.

The application of the automatic stay to junior liens held by a mortgage lender that has filed bankruptcy has a tremendous impact on our industry. In any one case, the bankrupt lender may hold hundreds of thousands of junior liens and as to each of those properties secured by the debtor’s junior lien, the senior servicer must first seek relief from stay prior to foreclosing.

The need for relief from stay in so many cases has caused a nightmare not only for senior mortgage holders but also for the courts. Bankruptcy courts simply don’t have the staffing necessary to process so many new relief-from-stay motions. To avoid the administrative nightmare that would surely result from thousands of relief-from-stay motions clogging up their calendars, judges in some of the big mortgage lender bankruptcy cases have developed special orders that allow for a “simplified” method for obtaining relief from stay.

The old Empire Funding and Conseco Chapter 11 proceedings are examples of cases where the bankruptcy judges ordered a simplified procedure. Generally, the simplified methods involve providing debtor’s counsel, and other interested parties, with copies of certain documents, and if there is no objection within a set number of days, the stay is automatically terminated without need to file anything with the court.

The New Century Chapter 11 case filed on April 2, 2007, in the Delaware bankruptcy court involves literally hundreds of thousands of junior liens held and/or serviced by New Century. In recognition that the court could not possibly handle the thousands of relief-from-stay motions that would soon be filed, on June 7, 2007 the bankruptcy judge in the New Century case issued an order providing for a “simplified” method for obtaining relief from stay in that case.

The New Century order provides a similar procedure to that developed in the Empire Funding and Conseco cases — notice is given to debtor’s counsel and various other parties of the desire to have the stay terminated, and if no action is taken in 30 days, the stay automatically terminates without need for any court involvement. However, the New Century procedures differ from the Empire Funding and Conseco procedures in one significant way: the senior mortgage lender must pay to New Century $1,000 for each request (notice) made under the simplified procedure! Where does that come from? Why is the debtor entitled to payment when a senior lienholder seeks relief from stay?

It’s not quite as bad as it could be because each request can include multiple properties, and only the first 10 requests require the $1,000 payment — after that the lender can make as many free requests as it wants (i.e., the maximum the lender needs to pay is $10,000). Also, a mortgage lender does not have to follow this procedure and can always bring the normal court-filed motion for relief from stay. Nonetheless, this order presents a very bad precedent. We certainly don’t want to have to start paying debtors to obtain relief from stay.

Mortgage servicers should carefully assess whether they can go to sale where New Century has some sort of interest in a junior lien, and servicers need to decide which method of seeking relief from stay they will employ. It seems that the mortgage industry would be better served by not following the $1,000 per request method. There’s no reason to charge the $1,000, and we don’t want to encourage the spread of orders such as this. Also, the order only covers situations where New Century holds the loan. Thus, where New Century is merely servicing the loan, and the decision is made that the stay is invoked by that servicing interest, the order does not apply, and the normal relief from stay procedures would need to be followed.
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I'd respond in depth, but Mr. Wolf considers individuals like us "internet terrorists" .

I do have to say, though, that it is both entertaining and predictable that they are beginning to eat their own.  Nice to see that the United States Foreclosure Network - or USFN for you acronym junkies - is on the case making the world safer for those poor, helpless servicing companies.

I'm disappointed, Mr. Wolf. you've neither responded to my rebuttal nor stopped by for a visit. You must at least be internet savvy enough to be able to operate a web browser, no?
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What Mr. Wolf tries to perpetuate in this article is a common misconstruction that foreclosing agents such as MERS rely upon in order to confuse and confound the presiding judge in the foreclosure case.

The misconstruction I'm referring to is Mr. Wolf's reference to a "junior lienholder" actually being only the servicer in the loan.

The servicer of the loan holds no  lien upon the note. The servicer is merely that, a company with a contract with the lender or the successor to the lender to bill and collect the monthly mortgage payments. The servicer owns nothing except a contract with the lender....there is no contract between the servicer and the mortgagor (the one who owns the house.

The service contract is an agreement between the holder (owner) of the note and a company to guaranteee that the note owner gets paid monthly in a timely fashion. The servicer owns nothing and has no right to foreclose in the name of the note owner unless the note owner has given its actual authority to have instituted foreclosure proceedings against the debtor.

This is how MERS has allowed numerous people to become victims of predators like HomeSide Lending etc. Without any oversight at all on MERS' part, without any ownership on the part of MERS in the note itself, they allow any entity that can access their computer database to institute foreclosure proceedings because of some language in the mortgage that references MERS.

Mr. Wolf, for you to insinuate that a servicer is a junior lienholder is more of the twaddle perpetrated on honest Americans who have fallen victim to the schemes of the fraudsters...which, by the very nature of your statement, perpetuates the fraud.

There is no standing for a servicer to declare themselves a junior lienholder without some proof of their ownership in the note itself. A servicer has no standing to bring a foreclosure unless they prove actual authority to institute the foreclosure in the name of the holder of the note.

That is why it is critical for all involved in foreclosures to determine the holder owner of the note itself so as to stop a fraudulent foreclosure as soon as possible.

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