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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Sally Joe
OK sports fans, quick question:

Does anyone know with certainty who has the right to initiate foreclosure? The holder of the note?
How about the trustee?
How about a substitute trustee?
How about the servicer?
How about a special servicer?
How about Joe off the street?

It seems to me that only the actual holder of a note can order foreclosure, right?

Do state laws vary on this issue, or is there an overriding statute?

I can't believe that just anyone connected with the loan can order foreclosure, or it could be rather capricious. But does anyone know for sure?

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The answer would possibly depend on whether REMIC prospectuses were involved and, if so, how they were structured and also whether POAs or LPOAs were in effect - among a myriad of other possibilities as well...

The bottom line is that anyone, including Joe, can attempt to foreclose on you. The big question, as you have obviously already discovered, is who can do it legally in any given situation. Remember too, that, given some of the entities involved, it's only illegal if they get caught.
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Sally Joe

     Joe B and I are in very similar situations, and appreciate all of your help; indispensable as always. So the follow-on question is:

     Is there a quick and easy way to find out who has the legal right to initiate foreclosure?

     In other words, start here, if that doesn't tell you anything go here, etc...

1. Look at your note obviously.
2. Is it the Pooling and Servicing Agreement next?
3. Is it the prospectus for the investment pool?

     I guess I am just looking for a "yellow brick road" to follow.

     As an interesting aside, the servicer (you know who it is) assigned the substitute trustee who initiated foreclosure. That's basically why I am trying to find out. It looks like to wrong people assigned the substitute trustee, and then the substitute trustee initiated foreclosure. Sooooo, how to I determine if this was legal or not. It sure smells funny!!

     Anyone have any thoughts?

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The, "Wizard" would like to be MERS.

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Sally Joe

     Actually, I cannot find any evidence of MERS in my documentation, and it seems to me that it would have to be somewhere if they were involved.

     This is our old "friend" Fairbanks at work here...

     I think there's some shenanigans going on, and I can't find any information on the legal requirements for this situation (i.e. as Mike pointed out, who has the right to legally initiate a foreclosure action), and I am hoping someone here has had a similar problem, and can point me in the right direction.

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Since you're dealing with Fairbanks/SPS, SJ, I'm guessing that the "trustee" actually had zero to do with initiating the FC but that's just based on my own experience and evidence that I have in hand. Again, from what I have experienced first hand, the FC would have been brought by the servicer and not the Trustee.

Having said that, the prospectus in general, and the PSA specifically, are always good places to look. After that, if you can get access on line, try checking both your own county registry and the counties in which both the trustee and the servicer resides for "other" things filed ...

Aside - the Forbes "Paper Chase" article that Nye posted yesterday holds a clue or three as well. I had a very nice chat with both Attorney Charney and Mr. Condon yesterday after reading it myself...
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Additionally, you're going to want to check your state RS As, SJ. Maybe checking in with your banking dept would help ease the search - unless you enjoy digging through statutes on a weekend.

Ultimately, what it at least should come down to is whoever has title and interest in your note should be able to bring an FC action. Of course that rarely seems to fly upright and for any kind of distance before being sucked into the starboard side jet of an Airbus when you bring it to the attention of anyone in a position of authority for some unknown reason...

Drop me a line directly if you like, SJ. NOW I'm curious as to who the trustee is and what the prospectus and PSA look like.  I've also got ulterior motives for wanting to collect prospectuses these days as they seem to rapidly be gaining interest in certain sectors... Inquiring minds and all that...

And just so those of you playing the home game don't have to Go ogle me repeatedly -
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Sally Joe
Mike and Ann- Thanks for jumping in to help. Some follow-on...

Since you're dealing with Fairbanks/SPS, SJ, I'm guessing that the "trustee" actually had zero to do with initiating the FC but that's just based on my own experience and evidence that I have in hand. Again, from what I have experienced first hand, the FC would have been brought by the servicer and not the Trustee.
Agreed, the trustee was actually assigned by Fairbanks (with a Fairbanks VP signature) and filed in my county; convenient huh? Then then "trustee" initiated the f/c action.

Having said that, the prospectus in general, and the PSA specifically, are always good places to look. After that, if you can get access on line, try checking both your own county registry and the counties in which both the trustee and the servicer resides for "other" things filed ...
Next stop will be the PSA and prospectus. We'll see what they say. My note isn't helpful (obviously), so I guess the nest step will be these docs.
Unfortunately, I guess there's no overriding legal requirement here, huh? It seems to me that there can only be one entity that would have the right to initiate f/c, and that it MUST be the actual note holder... Darned shame!

Aside - the Forbes "Paper Chase" article that Nye posted yesterday holds a clue or three as well. I had a very nice chat with both Attorney Charney and Mr. Condon yesterday after reading it myself...
I gave it a cursory read, I will look at it more closely now. Thanks! I will probably have more questions later.
Thank you all again!

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Yeah, that sounds a little funky to me. I don't believe that servicers should have the authority to substitute trustees but what do I know. HEY, any of you guys from Bear, Merrill, CSFB, Fairbanks/SPS, LaSalle or anyone else watching care to chime in on this? LaSalle should know the answer to this if anyone should. Seems like you can't swing a dead cat around the industry without hitting them in a "trustee" role somewhere. No wonder BofA wants it for $21B. Too bad that sale was blocked at least temporarily.

Keep digging, SJ.
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Sally Joe wrote:

Agreed, the trustee was actually assigned by Fairbanks (with a Fairbanks VP signature) and filed in my county; convenient huh? Then then "trustee" initiated the f/c action.

This suggests to me that there is a POA of some kind floating around somewhere between Fairbanks/SPS and the current note holder. Knowing Fairbanks/SPS' propensity for not filing documents at county registries in a timely manner - i.e. less than a year after a document is legally created/authored - it may not surface until either they need it to or discovery, whichever comes first.

Keep a close eye on your chain of title at the county registry also. And if there isn't anything recorded there to support their position ask a clerk if you can get a print out of all of the entries in your name and the dates that they were made in order to show that between Date X and Date "Today" nothing was filed by them showing legal authority, etc.

Do they ask to have the document returned to anyone after filing by any chance?

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Sally Joe,
Mike is definitely right about everything he told you. However, I don't think the substitution of trustee should be a concern. You have to follow chain of title. Note was originiated with A sold to B. Then they hire an attorney to do the foreclosure.
I've fortunately had the luxury of my mortgage servicer loosing who the owner of my note is. Original note doesn't hold up if there's nothing documenting the assignment anywhere.
It'll be a miracle if I find out who owns our 2nd mortgage note. Originated with Argent sold To Ameriquest. Serviced by Homeq, they say it was placed in their office as a Wells Fargo loan. Argent/Ameriquest actually had the nerve to tell me now Homeq owns. Lets also say Wachovia reports on my hubbys credit bureau, Homeq on mine.
I got their proof of claim denied by banko judge on 4/19 then they hired another attorney. That attorney needless to say backed down and didnt file a motion to fight it and was stopped again. So if the actual lender can show documentation as to who owns note then they can foreclose. Original deed doesn't hold up if no one takes or proves ownership!
But finding an attorney for such a matter is impossible! I'm sure if you want help we can find out!


Good Luck ,

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Sally Joe:

I think that there are a couple of principles that need to be distinguished here.  And I think that I can help point you in the correct direction as to your inquiry.  But I also want to clarify that I am NOT a lawyer and I would encouage you to use my suggestions as a basis for further research and reading and focused inquiries of those with legal expertise in the are of your inquiry.

First, I would point out that there is an area of law generally called "agency" which is quite mature and well developed.  Generally, a principal can appoint an agent to act on the principal's behalf.  In a lay setting, we see this with general powers-of-attorney.  In a comercial setting, we see this with insurance "agencies".  These are just two of MANY examples.

Generally, subject to certain limitations, a principal can delegate the management of certain types of business to an agent, whether the agent is given authority orally or in writing.  In an informal setting, you can give your cloths to your neighbor or housekeeper and ask them to take your cloths to the dry cleaners and this may give rise to an agency relationship.  That person is acting as your agent as to the dry cleaning.  I am aware of one dry cleaning establishment that acts solely as an agent for another dry cleaner.  That is the one dry cleaner accepts laundry from consumers and simply DELIVERS it to the other dry cleaner some distance away and resolves a consumer delivery and pickup problem.  

Generally, any business subject to the statute of frauds could only be conducted by a WRITTEN POWER of attorney.  That is if it takes a written instrument to convey an interest in LAND under your state's statute of frauds, then someone could act as your agent and convey your interest in land ONLY under a WRITTEN power of attorney.

Mortgage servicing arrangements are inherently AGENCY arrangements, wherein the mortgage servicer is acting as the AGENT for the principal, the mortgage investor.  The PRINCIPAL in this case is the OWNER of the mortgage indebtedness.

To a certain extent, ALL corporations which exist through the corporate fiction of general business corporation laws act through AGENTS -- people serving as directors, officers, and employees of such corporations.  And one corporation can generally appoint another corporation as its agent.

You could read a big thick textbook or volumes of a good legal encyclopaedia about agency, but in the end, the agent is BOUND to do the bidding of the principal.  The principal has the right to control the agent, but subject to any written contract they have enterred into.  This bidding may be set out in the written agency contract (e.g. the mortgage servicing agreement) or in written guidance and instructions given by the principal after the agency arises. 

But just as the statute of frauds CONSTRAINS informal agency relationships, agency is ALSO constrained by statutes and court rules relating to institution of civil suits and foreclosure actions.

One general constraint imposed in most states upon agency is that only those persons with formal legal training and admitted to the bar may practice LAW.  So while I CAN appoint you by power of attorney to manage my bank or brokerage account, I CANNOT appoint you as my attorney-in-fact to undertake LEGAL WORK.  If you engage in legal work for me, particularly preparing legal documents or litigating a matter on my behalf in court, I think you can readily see that this constitutes the UNAUTHORIZED PRACTICE OF LAW.

So one constraint on the general agency between a mortgage investor and a mortgage servicer is that the servicer -- a corporation -- cannot engage in the practice of law on behalf of the mortgage investor.  Quite frankly, some servicers are playing VERY CLOSE TO THE LINE in this regard.


A second constraint involves what in a legal setting is generally referred to as "standing". 

“Under federal law, standing is also an aspect of the Article III limitation of the judicial power to ‘cases’ and ‘controversies.’  Sierra Club v. Morton, 405 U.S. 727, 731, 31 L. Ed. 2d 636, 92 S. Ct. 1361 (1972).  To comport with Article III, a federal court may hear a case only when the litigant has been threatened with or has sustained an injuryValley Forge Christian College v. Americans United for Separation of Church and State, 454 U.S. 464, 471-74, 70 L. Ed. 2d 700, 102 S. Ct. 752 (1982).

States have their own standing requirements as to litigants and litigation.  These DIFFER from state to state.

Under the Texas Constitution, standing is implicit in the open courts provision, which contemplates access to the courts only for those litigants suffering an injury.  Specifically, the open courts provision provides:
All courts shall be open, and every person for an injury done him, in his lands, goods, person or reputation, shall have remedy by due course of law.
“… our state constitution contemplates that plaintiffs seeking redress in the courts must first demonstrate standing.  Because the Texas Constitution requires the presence of a proper party to raise issues before the Court, standing is a threshold inquiry regardless of whether the plaintiff brings an individual or class action.  See Tex. Ass'n of Bus., 852 S.W.2d at 444.”  M. D. Anderson Cancer Center v. Novak, 52 S.W.3d 704; 2001 Tex. LEXIS 57; 44 Tex. Sup. J. 905 (Tex. 2001).

Since standing is a Constitutional imperative in Texas to achieve subject matter jurisdiction, it cannot be altered by legislation or by contract.   

“We therefore hold that standing, as a component of subject matter jurisdiction, cannot be waived in this or any other case and may be raised for the first time on appeal by the parties or by the court.”  Texas Association of Business v. Texas Air Control Board, 852 S.W.2d 440 at 445, 446; 1993 Tex. LEXIS 22; 36 Tex. Sup. J. 607 (Tex. 1993).

“A plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal authority; a party has capacity when it has the legal authority to act, regardless of whether it has a justiciable interest in the controversy [emphasis added].  See Hunt v. Bass, 664 S.W.2d 323, 324 (Tex. 1984); Pledger v. Schoellkopf, 762 S.W.2d 145, 146 (Tex. 1988).  …

We have noted that “the general test for standing in Texas requires that there ‘(a) shall be a real controversy between the parties, which (b) will be actually determined by the judicial declaration sought.’”  Id. at 446  (quoting Board of Water Engineers v. City of San Antonio, 155 Tex. 111, 283 S.W.2d 722, 724 (Tex. 1955)).”  Nootsie, Ltd. v. Williamson Cty. Appraisal Dist., 925 S.W.2d 659 at 661, 662; 1996 Tex. LEXIS 102; 39 Tex. Sup. J. 1049 (Tex. 1996).

I use the Texas examples by way of illustration.  You must necessarily look to the law of your state!

I am unfamiliar with the standing rules in Florida, where the important MERS cases were recently decided or in other jurisdictions, because I haven't studied this issue.  But this is surely something that is well litigated and is well established within your jurisdiction!


If you think about the guidance to standiing laid out in the Texas cases, it should be readily apparent that delegating litigation to a servicer or to MERS inherently has some CONSTRAINTS.  This is particularly true with MERS.

MERS has NO OWNERSHIP INTEREST IN THE PROMISSORY NOTE OR ALLEGED MORTGAGE INDEBTEDNESS.  It NEVER DOES.  And MERS has NO PECUNIARY INTEREST in the debt either.  What is the real controversy between a borrower and MERS?  We see that MERS completely FAILS the standing test in Texas!

And bear in mind that since standing is a jurisdictional issue in Texas and a jurisdictional issue framed by the Texas Constitution, it CANNOT BE CONFERRED either by the legislature OR by CONTRACT.  To put this another way, by the enactment of the Uniform Commercial Code in Texas, the legislature CANNOT have conferred standing on MERS or any other party.  Neither can ANY CONTRACT confer standing on MERS UNLESS that contract vests a pecuniary interest in the party seeking to act as agent (servicer).


There is yet another CONSTRAINT to the agency relationship and this is the constraint assocated with capacity.  In most states, minors lack the capacity to contract.  Incompetents also lack capacity.  Corporations may lack capacity when not properly registered.  And in some instances the legislature has expressly set forth specific capacity requirements.  For example, executors and administrators generally have the capacity to act on behalf of an estate.

Looking again to Texas law:

“A plaintiff must have both standing and capacity to bring a lawsuit.  Coastal Liquids Transp., 46 S.W.3d at 884.  The issue of standing focuses on whether a party has a sufficient relationship with the lawsuit so as to have a ‘justiciable interest’ in its outcome, whereas the issue of capacity ‘is conceived of as a procedural issue dealing with the personal qualifications of a party to litigate.’  6A CHARLES ALAN WRIGHT, ARTHUR R. MILLER, AND MARY KAY KANE, WRIGHT, MILLER & KANE, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1559, at 441 (2d ed. 1990).  We have previously distinguished between these two threshold requirements as follows:
A plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal authority; a party has capacity when it has the legal authority to act, regardless of whether it has a justiciable interest in the controversy.
Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 661, 39 Tex. Sup.Ct. J. 1049 (Tex. 1996); see also 6A WRIGHT, MILLER, & KANE, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1559, at 441 (‘Capacity has been defined as a party’s personal right to come into court, and should not be confused with the question of whether a party has an enforceable right or interest.’).”  Austin Nursing Center v. Lovato, 171 S.W.3d 845 at 848, 849; 2005 Tex. LEXIS 386; 48 Tex. Sup. J. 624 (Tex. 2005).

Now consider the decisions of the Florida courts using the Texas yardstick (which largely mirrors the Federal rule).  The Florida appellate court found that MERS had standing if it was the holder of the promissory note.

But it is VERY CLEAR that the Florida appellate courts are confusing standing and capacity.

When MERS is the holder, it has the legal authority to act.  Being holder confers the right to come into court.  But it is not deterinative of whether MERS has an enforcable right or interest.  What is MERS' justiciable interest in the controversy?  MERS is clearly not at risk for the mortgage indebtedness and is therefore not personally aggrieved.   

When MERS is the holder, it may have capacity, but it still lacks standing.

So in my view the Florida appellate cases were wrongly decided!  But I find this unsurprising in part because many of the District court cases taken on appeal were decided sua sponte based upon the standing issue in Judge Logan's and Judge Gordon's courtrooms.  At the appellate level, these decisions lacked an articulate and vocal advocate.  In one of the appellate cases, after MERS settling many of the cases, there was no appellee's brief filed at all!

* * *

Now I have taken you for a quick stroll of the legal framework of agency as it pertains to mortgage servicers and MERS.  Finally, I think that it is important to distinguish between agency as it applies to judicial versus non-judicial foreclosures.

I think that there would be widespread agreement that pursuant to the laws of agency -- and restricted almost solely by state laws regulating mortgage servicing -- that mortgage investors have the authority to confer by contract and delegate to mortgage servicers the authority to act as agents for the owners of the mortgage to collect mortgage interest, principal and escrows.  Similarly mortgage investors can delegating the remittance of interest and principal and the payment of taxes and insurance.  These are cahier, bookkeeping and accounting functions, which corporations can routinely delegate to employees or contract out to others.  Other business matters relating to the management of the mortgage investor's customer relationship seem also readily subject to subcontract.

But when the relationship sours and foreclosure seems imminent, things become a bit more murky.  Right off the bat, consider the question of the preparation of notices of intent to accelerate and notices of acceleration.  Are these legal documents?  If so, preparation of these document by the mortgage servicer might constitute the unauthorized practice of law.  How about the preparation of pleadings or affidavits?  Or an appointment of substitute trustee.  Or the management of litigation or the management of a trustee or substitute trustee in the conduct of a private sale under a private power of sale in a deed of trust?  Is the preparation of releases or assignments of mortgages and/or deeds of trust legal work?

There are many instances when corporations have their employees perform routine tasks on the corporation's behalf which involve some de minimis legal aspect.  Filling in a routine lease agreement or the preparation of a routine invoice or demand for payment hardly requires a lawyer.  But what if the corporation is doing the SAME work on behalf od ANOTHER?  Is this a corporate delegating business to its agent or is this UPL? 

The answer as to whether this agency involves the unauthorized practice of law (UPL) may DIFFER as to the servicer and as to MERS, given that MERS is NOT actually doing ANY of the management AT ALL, but is rather only lending its corporate name to the project and to the litigation as plaintiff.

I believe that some enterprising attorney is going to one day prove in Court that MERS has been engaged in the unauthorized practice of law and bring that entity's misconduct to a grinding halt.  I think that the successful attorney will also end up filthy RICH!


Your question though seemed to relate to the validity of a servicer's appointment of a substitute trustee.  And the question is a good one.  To the extent that the servicing agreement confers the authority upon the servicer to make such an appointment it seem plausible that it may be valid, UNLESS the appointment itself constitutes a practice of law.  And the servicer's management of the substitute trustee in a private sale IF authorized in the servicing agreement may also be lawful.

I have seen at least one appellate decision in the United States Court of Appeals showing that a mortgage servicer had standing.  This ruling seems unsurprising to me.  The mortgage servicer receives a mortgage servicing premium -- the difference between the gross note rate and the net note rate payable to the mortgage investor -- for servicing the loan.  The servicer seems to have a pecuniary interest in the mortgage indebtedness.  But MERS has no similar pecuniary interest!

I think that servicers usually have standing.  I believe that MERS NEVER has standing.  But standing is important in judicial foreclosures and unimportant in non-judicial foreclosures.

IF the servicer is holding the promissory note and is properly registered as a corporation, I believe that the servicer has capacity to bring suit.

IF MERS was holding the promissory note and was properly registered to do business in the jurisdiciton of the foreclosure, it would probably have the capacity to bring suit.  But this would not cure the standing problem.

Management of the non-judicial foreclosure under the private power of sale would not usually require any threshold test as to either standing or capacity, but would depend upon the contractual provisions of the agency agreement (servicing agreement) and the law relating to the unauthorized practice of law (UPL) for the local jurisdiction.

I am unclear how you are going to get much traction in opposing a private sale absent some unique statutory provision within your jurisdiction generally protecting borrowers. 

Depending upon your unique circumstances bankruptcy may be one alternative worthy of exploration.  But this clearly has many other implications and consequences. 


One other caution is in order.  One of the exceptional features of the Florida MERS cases was egregious pleading defects and false and fraudulent representations made in affidavits in support of those pleadings.  While it is POSSIBLE to completely BEAT the mortgage company when the mortgage company representatives come into court with such outrageous sham pleadings that they shock the conscious of the Judge, in a more ordinary setting, you are going to find that the Judge and the lawyers are in the same country club and will be playing golf together after the hearing.  The Court will very often overlook or excuse pleading defects.


There seem to be a number of very knowledgeable and passionate people posting to this forum.  But the overall theme is mortgage servicing FRAUD.  To the extent that you are similarly a victim of such fraud, there may be some hope in these posts.

But to any extent that your problem is really a cash flow and mortgage affordability problem, while the information may still be helpful, I believe that you should be very cautious about developing FALSE HOPE.  Most of the legal mechanisms are stacked in FAVOR of the mortgage lenders.

There are many lawyers specializing in consumer debt who can probably help you negotiate the best arrangement IF you are working with a reputable servicer.  If your servicer is engaged in a pattern of abusive and fraudulent behavior, your support group in this forum can be particularly helpful!  IN either case there is much to LEARN within this forum!

I apologize to ALL for the length of this post.  It has often been said that I am always in need of a good EDITOR!

Best of luck to you!  
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Those reading the Ohio Federal court opinions might also want to read or re-read the discussions as to standing and capacity contained in my Post of July 21, 2007, in this forum!

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