July - 2009
Proper documentation of the loans was never made
From a milestone article in the NYT,
Stated simply, the notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.
But this seems not to have been a priority with many big banks. The result is that bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it.
How about that? As it stands, if the alleged owner of the loan cannot produce the note, then, foreclosure cannot take place.
Samuel L. Bufford, a federal bankruptcy judge in Los Angeles since 1985, has overseen some 100,000 bankruptcy cases. He said that in previous years, he rarely asked for documentation in a foreclosure case but that problems encountered in mortgage securitizations have made him become more demanding.
In a recent case, Judge Bufford said, he asked a lender to produce the original of the note and it turned out to be different from the copy that had been previously submitted to the court. The original had been assigned to a bank that had then transferred it to Freddie Mac, the judge explained. “They had no clue what happened after that,” he said. “Now somebody’s got to go find that note.”
“My guess is it’s because in the secondary mortgage market they have been sloppy,” Judge Bufford added. “The people who put the deals together get paid for the deals, but they don’t get paid for the paperwork.”
Judge Bufford is also the co-author of the following presentation to the Bankruptcy Court Judges: Where’s the Note, Who’s the Holder.
To the point, demand by all means proof of ownership of the loan from the bank or loan servicer.
Update: Don Iannitti from Mortgage Professional, recommends lender officers to include in their loan modification package the essential investor loan modification approval, as well as loan ownwership proof, in order to smooth sail the loss mitigation process involved.