The news has been filled recently with tales of fraudulently foreclosed homes and the stories only get worse and more regular every week.
Even if you are completely current on your home mortgage payment, the events behind these wrongful foreclosures can affect you and your rights.
The problem stems primarily from two sources: mortgage backed securities and mortgage electronic registration systems. Mortgage backed securities are, essentially, a group of mortgages that are wrapped up together, turned into a trust or other “asset,” and then divided into shares which are sold on the open market.
These securities are then transferred repeatedly, as securities are meant to be. Since the original notes and mortgages were sold away from the primary lender, cash was freed up to make more home loans, which is good for consumers.
This led, of course, to such lowered standards for lending and inflated prices for houses that we had the recent real estate market crash of which we have yet to find the bottom, which is bad for everybody. So mortgage backed securities were the pumps that inflated the real estate bubble, especially in the absence of any useful regulation.
With all those mortgages packaged, sold and split into shares, some new problems were created, the first of which was figuring out who would take care of the mortgage.
Traditionally, if a mortgage was sold from one lender to another party, the transfer had to be recorded with the local recorder of deeds, like here in Jackson County. That way, anybody who was interested in the property could easily find out who to contact when it came time to buy or otherwise give required notice. Once the mortgage was packed in an MBS, however, the party to whom you sent payments was not necessarily the party who held the note or mortgage. This creates not only a problem for the homeowner, but also for the lenders. Enter MERS.
MERS is, well, an electronic registration system for mortgages. Upon creation of a mortgage, or deed of trust as used in Missouri, a notice to MERS was inserted in the note and mortgage and a registration number was assigned to the instruments. Then as the mortgage was transferred repeatedly, the changes were recorded in a central database. When it came time to foreclose or release a lien, MERS could be accessed to find the appropriate holder of the note and mortgage. It is estimated that some 60 percent of current mortgages are in the MERS system and the concept is pretty slick.
The problem is that MERS, as executed, doesn’t really comply with most states’ laws on recording of real estate transfers. It often splits the holder of the note (the promise to pay) and the mortgage (the lien on real estate), which can render the mortgage unenforceable (under some states laws).
It is a “black box” and it is not clear to the consumer that they are sending their payments to the right party. Records are not kept well, if at all and if the loan servicer (the company collecting the checks) determines that you are in default, your house could be foreclosed on by a party who isn’t legally tied to the house. Add a heaping of fraudulent intent and you have today’s mortgage morass.
Compounding this is Missouri law. In Missouri, the vast majority of liens are in the form of a deed of trust, instead of a mortgage. The main difference is the method of foreclosing.
Instead of filing a suit for foreclosure, under a deed of trust, once default has been declared and an opportunity for curing the default has run, the trustee has only to publicize a notice of foreclosure for 20 days before holding the sale. This sharply limits the consumer’s ability to fight the foreclosure if it is wrongful, whether because the loan is current or the trustee is the wrong party to do the foreclosure. The homeowner has to start a legal action, which is expensive and puts the burden of proof on them, not the mortgage company.
If you find yourself on the wrong end of a foreclosure action and you believe it is not legitimate, you need to contact an attorney immediately. You don’t have much time and you must act to protect your rights.
