By Christine E. Springer
Today I'm going to explain in basic terms what I consider to be the best strategy for using securitization in foreclosure defense. It may not be the only way, but it has worked for clients.
I do not offer securitization audits. When I refer to securitization audits in this post, I am referring to the reports that cost as much as $1500 by someone with access to a Bloomberg terminal.
My services are different in that securitization is just one aspect I look at. I also review the closing documents and the recorded documents to look at the whole picture.
There are a couple of other things that set me apart from other loan auditors. The first is that I have legal experience that comes from my background as a paralegal.
Second, I am an effective communicator and I write very well, making sometimes complex ideas easier to understand. Often, my work is the foundation for an attorney's ability to understand what causes of action may be available for a homeowner.
Each audit I do comes with an extensive written report that explains the factual and evidentiary issues. When you document through a report that the recorded documents are full of errors, and a lawyer or judge can physically hold that document in their hands, you don't look so crazy after all.
Solid written reports are very helpful after all the hype and novel foreclosure theories we saw during the foreclosure crisis. Many of these theories did not result in any victories for homeowners.
Remember, I am not an attorney and this isn't intended to be legal advice. The information in this post is based on my experience consulting on foreclosure cases over the last eight years.
Always consult with a competent foreclosure defense attorney in your state to get legal advice. The case law is now well developed in many states, and it's not wise to go it alone. Get help!
Judging by the e-mails I receive from homeowners, there is still a lot of confusion about how the securitization of residential mortgage loans applies to a foreclosure defense case.
So, today I'm going to explain how I have seen it successfully applied in foreclosure defense cases.
ONE Forget about the idea of "solving" the mystery of what happened to your loan in the securitization process. This will only drive you crazy and it can lead you down a rabbit hole you don't need to go into.
It is the bank's job to prosecute its foreclosure case, assuming they are the Plaintiff in judicial foreclosure.
You don't need to dig around and help them find evidence against you. And, what if your research confirms their assertion that a specific pool owns your loan? What then?
TWO Securitization is generally an accepted practice. There is nothing inherently wrong with securitizing debt.
The problems with the securitization of home loans are because of the sloppy paperwork and transfer of the loans through the securitization process. The sheer volume of residential loans that were securitized gave the banks an "out" when it came to the documents, at least on the way into the pools. Since the process was (and continues to be) sloppy, understand that the sloppy document practices HELPS YOU by giving you LEVERAGE against the bank.
Many of us understand the concept of standing. Similarly, if you are going to file a lawsuit (such as here in Arizona, a non-judicial foreclosure state) you need a reason, or a cause of action, based on facts and evidence. You can find your facts and evidence in your loan documents.
THREE Securitization is a complex argument and judges and even attorneys don't understand it. For that reason, your case will likely NEVER get beyond the issues related to the Pooling and Servicing Agreement.
You'll never get specific pool information outside of litigation, and even then, the bank will fight you tooth and nail before producing this information.
FOUR: If the Note and Deed/Mortgage are not both transferred properly to the same pool, the securitization details may not matter because the pool lacks standing.
FIVE Assuming you have received a response to a Qualified Written Request, requested documents from your servicer, or are in an active lawsuit, you probably have one or more copies of your Note at different times during the securitization process.
If the bank tells you the name of the mortgage pool, you should check the Note to see if it has been endorsed to the mortgage pool. Many times, if the mortgage pool is foreclosing, the Note is not properly endorsed to the mortgage pool.
SIX Critically review the recorded documents. You may discover that the Deed of Trust was assigned to the mortgage pool, but the Note is not endorsed to the pool.
This scenario is one of the situations contemplated by the UCC in the "note-split-from-the-deed" argument, which generally states that if the Note and Deed have been physically separated, you cannot foreclose on the Deed of Trust alone.
This is because the DOT is basically instructions on what to do if you stop paying on the Note. Also, the Note is what secures the debt on the home, not the Deed.
As I've said before, the UCC may not apply in your state. Your state's laws will govern how this should be done. In Colorado, for example, the laws provide that the loan does not have to be assigned if the foreclosing party is a "qualified holder" under the Colorado statutes.
You'll need to consult with a competent foreclosure defense attorney in your state for further guidance.
However, even if this concept does NOT apply in your state, this kind of scenario is still helpful when explaining in your pleadings and oral arguments why there are problems with the documents. It may just need to be positioned in a way that aligns with your state's case law instead of using the UCC as a cause of action.
You may notice other problems in the recorded documents. For example, if you find a Notice of Sale recorded by a default servicer (e.g., ReconTrust or Clear Recon) BEFORE they have been substituted, that Notice of Sale may be invalidated because the entity that recorded it did not have authority.
SEVEN Look beyond the old MERS arguments, robo-signers and notary problems in the recorded documents. MERS has won cases in many states that make it allowable for them to assign mortgages/DOTs.
I haven't seen a state yet that truly cares about Notary integrity. The foreclosure crisis has destroyed the credibility of Notaries in my opinion. What good are they when it's OK to stamp their name and forge their signature?
Similarly, robo-signing isn't that big of an issue anymore. We all know that foreclosure document processing companies are like sweatshops and these people were signing hundreds of documents.
I think the courts have lumped these issues into the overall sloppy patterns followed by all banks. I don't want you to think these don't matter, but I think they are best used as part of the overall pattern of sloppy document production and how they harmed everyone.
Some issues that I still like: forgeries, filings that have a third or fourth entity that shows up out of nowhere to attempt to foreclose, and assignments that transfer the loan to the wrong entity.
Forgeries are pretty easy to find if you pay attention. Also, you can usually Google these individuals' names and find plenty of examples of their signatures on the internet to compare them.
I also frequently see as many as five or six entities involved in foreclosing on the same property. I also frequently see assignments of the DOT when it has already been assigned to another entity.
EIGHT Securitization may not be a factor if the bank doesn't foreclose in the name of the mortgage pool. In this instance, there may be an argument that the loan was securitized and that's why the non-mortgage pool entity foreclosing may not have the standing to foreclose.
NINE Ultimately, when you compare the transfer of the DOT to the transfer of the Note, do they match up? Probably not! If this happens in your case, ask your lawyer about what happens when the Note and DOT are physically split and how that affects the foreclosing party's authority to foreclose.
These are all problems the bank creates for itself. Often, all you need to do is point out where they screwed up (factually and in the evidence) to use as leverage.
Since the bank essentially hangs itself in the majority of foreclosure cases, there's usually no need to obtain a securitization audit from someone using a Bloomberg terminal.
If you get an audit from me, you'll understand the facts and evidence. If you do need a securitization audit, your lawyer will tell you, and you can always get one later if you need it.
I would not spend the money on a securitization audit unless my lawyer told me I needed it for the defense of my case.
I hope this clears things up for you on my perspective on securitization! If you have questions or want to discuss a loan audit, please use the Contact form on the right side of the page.