Very interesting hearing. But the most-interesting part of it is right here....
The largest and most complex harm that may exist with the loans in default or foreclosure today is that the paperwork for the loans was not transferred correctly. I emphasize that what constitutes a correct transfer is a gray area; we need more direction from courts and legislatures on this subject. But there are plausible legal claims that the transfers of the notes and mortgages were not effective to give the trust full enforcement rights.
Uh, yep. That's the short version of where the problem lies.....
And it only gets better....
The implications of problems with transfer are serious. If the trust does not have the loan, homeowners may have been making payments to the wrong party. If the trust does not have the note or mortgage, it may not have standing to foreclose or legal authority to negotiate a loan modification. To the extent that these transfers are being completed retroactively, it raises issues about honesty in creating and dating the assignments/transfers and about what parties can do, if anything, if an entity in the securitization chain, such as Lehman Brothers or New Century, is no longer in existence. Moreover, retroactive transfers may violate the terms of the trust, which often prohibit the addition of new assets, or may cause the trust to lose its REMIC status, a favorable treatment under the Internal Revenue Code. Chain of title problems have the potential to expose the banks to investor lawsuits and to hinder their legal authority to foreclose or even to do loss mitigation.
And you thought that was it? Oh no....
Another type of lawsuit risk is that consumers are able to sue the current holder of their note for violations that occurred at origination. Normally, these complaints fail because the holder of the note is thought to be a "holder in due course," a person that receives protection from most of the claims that someone could bring against the originator of the note. However, if the notes do not meet the requirements of negotiable instruments, there cannot be a holder in due course. The person with the note merely is the possessor "bearer paper," and can be sued for all wrongs associated with that note contract.
Now do you understand why nobody wants to come forward with the paper? Well gee, what if the Trusts or worse servicers wind up with successor liability for the wrongs committed by the LENDERS? (The trustees tend not to have much money - the servicers, on the other hand, are all the big banks.... oi!)
Finally, I want to share with the Panel that the lawyers that I have met over years of my research on mortgage servicingboth creditor lawyers and debtor lawyershave nearly universally expressed that they believe a very large number (perhaps virtually all) securitized loans made in the boom period in the mid-2000s contain serious paperwork flaws, did not meet underwriting or other requirements of the trust, and have not been serviced properly as to default and foreclosure.
Oh, it's not "just some paperwork" eh? Yeah.
The second type of lawsuit that seems certain to follow the exposure of the flawed foreclosure procedure is a claim by investors that problems at loan origination, including a lack of paperwork to support a valid foreclosure, or mortgage servicing mishaps have increased their losses. These suits most obviously will seek to force the banks to "buy back" or "repurchase" loans that were improperly placed into a particular trust for securitization or were improperly originated. Investors could also argue for money damages for lost revenue stream or breach of fiduciary duty by the trust or the servicer to exercise good judgment in favor of in investors interests. These suits could be incredibly expensive for banks, requiring the payments of large claims to make investors whole and to satisfy the plaintiffs attorneys who will bring such cases.
Yep. And those suits are just getting started.
But America does not have to continue in a "crisis." We do not have to tolerate abuse of the legal system, systematic errors, bloated fees, and chaos in the housing and financial sector.
Now, let's see the law come in and do the right thing.
We're well beyond the point where this should have occurred, but all good movements start with one step.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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