Recommendation regarding verification of “ownership” of the mortgage

“The Task Force has recommended a requirement for a plaintiff in a foreclosure action to verify that it owns and holds the note. Typically, the plaintiff in a foreclosure action does not own the underlying note or loan that is secured by the property subject to the foreclosure proceeding. Freddie Mac’s servicers initiate foreclosure actions in their names, even though they are not the owners of the notes or loans in question, because they are the mortgagees as shown on the land records and they are the holders or otherwise in possession of the notes. During foreclosure proceedings, our servicers and foreclosure counsel have authority to negotiate and execute loan restructurings and other foreclosure alternatives with borrowers as well as attend mediation. To require investors who do not service the loan to be a party in the foreclosure action and attend mediation would be costly and unduly burdensome, which may result in additional costs being passed on to the borrower. The intended purpose of the mediation program could be achieved effectively without this verification requirement.”

Robert E. Bostrom
Freddie Mac
Executive Vice President
General Counsel & Corporate Secretary

“I am an attorney who has taken “produce the note” one step further.

I am current on my mortgage, and actually what prompted me to take the action I am taking is that I had paid off my second mortgage but my lender refused to surrender my paid off second mortgage note. My lender also refused to prove to me that it had my first mortgage note or that it had the authority to make payment demands.

So I decided to sue my lender.

I decided that if the “produce the note” strategy was working for people who were in default, it would work for those who are not in default. If the bank doesn’t have the right to foreclose, it doesn’t have the right to demand payment either.

The Uniform Commercial Code is the homeowner’s best friend.

UCC 3-501 requires a lender to “exhibit the note” when the lender makes demand for payment, and the borrower demands to see the note. Technically a demand for payment occurs every month, and it also occurs when a bank begins foreclosure proceedings.

UCC 3-501 also requires a servicer to show authority to make a demand for payment, if it does not own the note, but is merely servicing it. In the event a noteholder or servicer or will not exhibit the note or perform other legal requirements when requested to do so by the borrower, this UCC section allows the borrower to discontinue payments WITHOUT DISHONOR until such time as the noteholder or servicer complies with all laws or contract provisions.

Also helpful is UCC 3-309. UCC 3-309 requires the lender go through certain steps to prove up a note (make it enforceable) that is lost or destroyed. This is not easy for the lender to do, if one is willing to contest everything the lender does to try to prove up the note. This proof takes witnesses, who may not be able to say what the law requires, if the witnesses are thoroughly cross-examined. (Tip: Don’t let the lender get by with self-serving affidavits; take their witnesses’ depositions). Moreover, this section requires the lender to give adequate protection in the event the lender can make the lost note enforceable. That may be difficult for a lender that is under FDIC scrutiny and whose stock is in the tank.

I filed suit in March and so far my lender has vigorously put off answering my suit with what I believe was a meritless motion to dismiss, but has not yet produced either note, and has confirmed my unpaid note was sold to Fannie Mae. This is clearly a justiciable controversy as will be clear when I ask the court to allow me to put my future payments into the registry of the court until the note is proven up and authority to make demand is proven.

If the bank really believed it had the evidence to compel me to pay, it would have gladly produced the note by now with proof of authority to demand payment. They have steadfastly avoided having to do this. Chances are the note is lost or destroyed.

It gets even better. MERS is the sole beneficiary of my Deed of Trust (quite often the case for homeowners on Deeds of Trust since 2000). The Arkansas Supreme Court has just ruled in March of this year that MERS was not the beneficiary of a Deed of Trust (with language verbatim to mine) despite what the Deed of Trust said, because MERS has no interest in the note payments or in the corpus of the trust (homeowner’s obligation to pay). No beneficiary means the Deed of Trust is fatally flawed.

More and more it is looking like I will have the lien on my home removed and I may well never have a noteholder to pay. I could even get some of my money back.”

The number of default notices filed against California homeowners fell in the third quarter of 2009 compared with the prior three-month period, the result of lenders’ evolving foreclosure policies and an uptick in the number of mortgages being renegotiated, according to San Diego-based MDA DataQuick, which monitors real estate activity nationwide.

A total of 111,689 default notices were sent out during the July-through-September period. That was down 10.3% from 124,562 for the second quarter, and up 18.5% from 94,240 in third quarter 2008.

 ”It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings. If so, it’s not out of the goodness of their hearts. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses,” said John Walsh, DataQuick president.

The lenders that originated the most loans that went into default in the third quarter were Countrywide (7,583), Washington Mutual (5,146) and Wells Fargo (4,425). Along with Bank of America (1,979) and World Savings (4,237), they were also the most active lenders in the second half of 2006. The quarter’s default rate on loans originated in the second half of 2006 ranged from 1.7% or Bank of America to 11.9% for World Savings.

Smaller subprime lenders had far higher default rates for the period: ResMAE Mortgage was at 73.9%, OwnIt Mortgage 69.5%, BNC Mortgage 61.4%, Argent Mortgage 59.9% and First Franklin 59.4%. While these and most other subprime lenders are long gone, their loans were bundled, resold and now live on as “troubled assets,” Mr. Walsh said.

“There’s a batch of truly nasty loans that were made in mid 2006. There’s another batch made in late 2006. These are worse than the mortgages before and after, and it’s taking a long time to process them.”

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The key components to Obama’s program to avoid foreclosure are through loan modifications and refinancing. He has put forth a strategy to stabilize the housing market by providing homeowners the opportunity to get a loan modification or a refinance. This initiative has been called the Homeowner Affordability and Stability Plan (HASP). Many of us know it as “Making Home Affordable”.
Eligibility is based on the following:

• The property must be your homestead.
• The amount you owe on your property is either the same as the value of the property or slightly less.
• There is sufficient income to begin paying a new mortgage payment.
• The original loan must have originated on or before January 1, 2009.
• There must be a hardship.
• There must be an unpaid principal balance of $729,750 or less.
• Your mortgage payment must be more than 31% of your gross monthly income.

Aside from these eligibility requirements, there are several frequently asked questions that I am faced with on a daily basis, for example:

1. Do I have to stop paying my mortgage to qualify for a modification?

Technically, NO. We are suppose to be responsible individuals and continue paying our mortgage and still qualify for a modification. As much as I would love to say that lenders are providing loan modifications to all individuals that are current on their payments and meet the above qualifications, is not true. There are several lenders that have given loan modifications even to those that are current. However, the majority of lenders are giving priority and providing modifications to those that are at risk of losing their home for non-payment due to some kind of hardship.

I will never advise my clients to stop paying their mortgage, because there are ramifications. Non-payment will affect your credit score and foreclosure proceedings will commence against you. Therefore, for those that have no other alternative but to stop paying, do not lose hope. Consult with your lender or seek the advice of an attorney.

2. Will my equity line be modified
together with my first mortgage?

No. The loan modification program is only for the first mortgage. The second mortgage/equity line will need to be negotiated directly with the Lender or Servicer. It is best to modify the first and know how much money you have left in the month before negotiating with the second. It makes no sense to start modifying the second without knowing if you can even afford the first mortgage payment.

3. What type of interest rate is being offered through Making Home Affordable?

The interest rate may go as low as 2%. The idea is to get you an affordable payment. Through Making Homes Affordable, the first step is to reduce the rate of interest, second the term of the loan and last the principal of the loan. Each step will be given as needed depending on your particular situation and financial status.

4. Will I have to pay the property taxes and house insurance separately?

No. The new loan payment will include a monthly escrow amount for the payment of property taxes and insurance. This will be required.

5. What will happen to all my past due amounts, late fees and/or penalties?

Those that qualify for a loan modification through Making Home Affordable will not have to pay past due late fees. All other cost such as unpaid taxes, past due interest, etc. is usually added to the amount you owe. This also the case for many loan modifications that are not through Making Home Affordable.

The most important information to recognize from this article is that there are options available. The hardest part is acknowledging that you need help. We are all in this together and together many things can be accomplished. My best advice is to call an attorney for a consultation. Know what is available to you and plan your next steps accordingly.

For more information and a free consultation call now 305-254-4492.
Attorney Dania S. Fernandez, The Law Offices of Fernandez & Associates, P.A.,
6705 Red Road, Ste. 310, Coral Gables, FL 33143,
www.daniafernandez.com, email:dania@fap-law.com

Roland Smith, 41, pleaded guilty before U.S. District Chief Judge Garrett E. Brown, Jr., to one-count Information that charges him with bankruptcy fraud. 

According to Ralph J. Marra, acting United States Attorney for the District of New Jersey, on Oct. 31, 2003, Smith obtained a $137,750 mortgage loan using a false name and social security number. Smith admitted that on the loan application for the Jersey City property, he indicated that his name was “Ronald Smith.”

Later on Smith defaulted on the mortgage payments and foreclosure proceedings commenced by the mortgage lender. Smith filed a bankruptcy petition under the false name and social security number in an attempt to reorganize and discharge the fraudulently-obtained debt. 

Judge Brown continued the defendant’s release on a $150,000 bond pending sentencing, which is scheduled for Dec 7, 2009

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