According to this RISMedia article, Op-Ed: 60 Million Mortgages May Have Fatal Flaws, issues with the way mortgages were sold in the secondary market and the way the ways they were recorded in the local county offices may prevent many mortgage companies (or mortgage servicing companies) from foreclosing on delinquent homeowners. The problem apparently is due to a company called MERS (Mortgage Electronic Registration Systems, Inc.) which is a company that records the mortgages against the properties in the local county offices where the properties are located. While that is normal procedure, the problem is that MERS is basically an exchange where mortgage lenders can buy and sell mortgage loans without having to re-record the ownership of the mortgage notes. In other words, although MERS shows up as the mortgage lien holder on the public records, MERS does not actually own the mortgage loans. Since it is established case law that the mortgage loan holder (i.e. the note holder) must be identified and must produce the mortgage note (the mortgage note and the mortgage lien are 2 separate documents - the note is the borrower's promise to pay and the mortgage is the document that pledges the property as collateral in the event that the borrower does not pay), MERS, due to not being the actual note owner, cannot foreclose. The other problem is that the actual note holder does not own the mortgage lien since MERS owns that. The obvious solution to this problem is for the actual note owner to have the mortgage assigned to them by MERS (and pay the normal recording fees, etc.) or to just join in the foreclosure action and then proceed with the foreclosure. The problem is that MERS seems unable to find many of the actual notes which they hold on behalf of the note owners. There have already been court rulings in the Kansas Supreme Court and the U.S. Bankruptcy Court for the District of Nevada in which the judges ruled that MERS had no legal standing to forecloses since they did not own the note and could not produce the actual note showing who the note owner is. This could become a huge problem for mortgage lenders if more homeowners and attorneys become aware of this legal snafu.
According to the article, "As a registered security, the Note is a negotiable instrument, like money or a cashier’s check, and under securities law that Note must be given to the investor. In this case, mortgage backed securities, (MBS) were bundled together in a pool and shipped to…well, we don’t really know. One of the impediments to an MBS is the need to file assignments for the beneficiaries in each county each time the mortgage is resold. And apparently, no one holds them for very long because most have been passed around several times. In order to avoid the logistical nightmare of trying to maintain a public chain of title, the biggest lenders joined MERS, Mortgage Electronic Registration Systems, Inc. MERS was created with the sole intent of evading the recording fees due to the county in which the security is located. In so doing, in my opinion, they also destroyed the age-old practice of making a public record of information concerning real property in general, and legal interest specifically. The chain of title is a vital record produced to resolve many a dispute. Now, that’s gone. I believe, erased simply so they themselves, MERS, could siphon off the recording fees for themselves. They sold their business model to lenders as a better way to track mortgages that were being sold and resold all over the world. But, as there often is with a BIG IDEA, there were also unintended consequences. Only now are they coming to light. Until MERS was challenged in a foreclosure proceeding, no one had taken a look at the law. The law, according to a Nevada Judge, is that for purposes of foreclosure, both the Note and the Deed of Trust must be assigned. When the Note is split from the Deed of Trust, the Note becomes unsecured. A person holding only a Note lacks the power to foreclose because it lacks the security. MERS lost track of the Notes. In some cases, according to my research, they deliberately destroyed them."
The article states that in reviewing the judicial rulings the author has concluded the following:
- MERS is not the beneficiary of the Notes and has no skin in the game. It did not lend any money, collect any payments or do anything more than track the sale of the securities.
- Judicial procedure requires that parties identify themselves and prove their standing.
- Splitting the Note and Trust Deed leaves no party with standing to foreclose. The true holder of the Note, the security, paid the lender so the lender is covered. The true holder of the Note was insured by AIG so they are covered. AIG and the banks were bailed out by taxpayers. So, unless the American tax payer can produce a “blue-ink” original Note, no one has standing to foreclose.
- Allowing a foreclosure to proceed without the original Note places the homeowner in double jeopardy. If the original Note were to surface, the holder of the Note would be entitled to payment, but from whom? The borrower is still on the hook.
- MERS currently holds 50 to 60 million loans so this is no small matter. And, just because they have lost repeatedly doesn’t mean they will give up. They will keep right on foreclosing in hopes that the homeowner won’t fight back and, in most cases, they won’t be stopped.
If you are a homeowner in Middle Tennessee and your home is in foreclosure you should contact a real estate attorney and discuss the legal loophole described above to see if it can delay or even stop the foreclosure action against you. If that is not successful, or only helps you delay the foreclosure process you should contact me to discuss a short sale if (1) you have lost your job or have seen your income decline, and (2) your home is worth less than your mortgage balance. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.
If you need to sell your home fast via a short sale you can request help on my website at Get Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Expert.