I disclaim once again that the foundation for this blog came from an anonymous post I found. If you recognize the text, please claim credit.
Missing Notes/Fraudent Assignments of Mortgage and the Inability to Foreclose
As described above, lenders and all parties involved in the mortgage finance orgy rushed to close and sells loans so quickly that they failed to get even the most basic sales/transfer/ownership documentation prepared. This problem with the missing trust assets/promissory notes manifests itself each time MERS and/or the trustees for the bondholders brings a legal action to collect on a debt through foreclosure. Because neither MERS nor the bondholders trustees are holding the notes they lack proof of standing to maintain their legal actions and the actions are subject to dismissal. Many foreclosure actions have been dismissed based upon lack of standing. This a problem that it is a direct result of MERS “system”.
It appears that after MERS mortgage loans are flipped to the mortgage backed trusts the promissory notes are not actually delivered to the trustees. Nor are assignments of mortgages executed and delivered which evidence the fact the original lender has transferred the debt which is secured by the mortgage. This leaves the trusts with absolutely no paper evidence of ownership of the secured debt it purportedly owns. One informed lawyer who represents homeowners in Florida, April Charney, had foreclosure proceedings against 300 clients dismissed or postponed in 2007 for lack of standing. She is quoted as saying that “80 percent of them involved lost-note affidavits”. . . They raise the issue of whether the trusts own the loans at all,” Charney said. “Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule.” Ms. Charney, started challenging MERS and it members lost note affidavits after becoming skeptical of the a lender could possibly lose hundreds of promissory notes. (April Charney is widely regarded as the Forclosure Defense Goddess across the country. Prior to Charney’s groundbreaking work on foreclosures, defense just focused on delay. As a result of Charney’s work thousands of lawyers across the county are actively pursuing far more aggressive defense strategies and untold thousands (millions?) of homeowners have benefitted from her work.)
Florida Courts Dismiss Lost Note Cases
At least two Florida judges shared Ms. Charney’s skepticism regarding the copious amounts of MERS lost note affidavits and they issued show cause orders, sua sponte, challenging MERS to show proof that it held and/or lost notes in numerous actions. After evidentiary hearings these two alert judges dismissed twenty nine (29) MERS actions to foreclose for lack of standing. One judge struck MERS pleadings as being sham. (A press release regarding this case can be found on MERS’ own website here. while a St. Petersburg Times article on the subject can be found here. ) A South Carolina court dismissed a MERS action to foreclose for lack of standing even though MERS filed an affidavit wherein a person claiming to be an officer of MERS claimed that MERS was holding a promissory note. The South Carolina court vetted the MERS affidavit claim that it was the holder of the note after being apprised of the fact that MERS had previously told the Nebraska Court of Appeals that it never held promissory notes.
In late 2007 three Federal Court Judges in Ohio dismissed over fifty law suits brought by trustees of mortgage backed trusts where they could not produce the original promissory notes. Following these decisions the Bankruptcy Court in Los Angelas, California adopted a rule of practice which requires all foreclosing trustees or other plaintiffs to produce the original promissory note when bring an action to foreclose a debt or face sanctions for not doing so. Several court in New York have been routinely dismissing foreclosure actions brought by MERS or its members because they continually fail to produce promisssory notes.
Millions of Dollars in “Lost” Property
It is disturbing to know that some of the world’s largest financial institutions claim to be the trustees of thousands of trusts that may be missing millions of promissory notes. Many of these trusts continue to foreclose on properties in an effort to recoup investments they hold in mortgages. Most of these entities and institutions that have pooled investment or retiree dollars have not adequately disclosed to their investors or beneficiaries the problems they have with lack of ownership and how this problem might impact the investment pool. However as more borrowers, lawyers and judges learn that neither MERS nor these trustees are actually holding the promissory notes evidencing the debts they seek to collect through foreclosure, dismissals of these foreclosure actions for lack of standing will become routine. As it now has in New York, Ohio and Florida. This will also mean that bondholders from around the globe will be seeking to recover their loses from these institutions who never got around to obtaining the notes evidencing debts that were puportedly owned by these trusts.
A Legislative Fix?
For hundreds of years, foreclosure was a relatively simple matter and there were not a whole lot of defenses that a good foreclosure defense attorney could present. In this, the MERS/Securitization Decade of Foreclosures, the courts are presented with real challenges. Courts across the country are struggling to find a solution to the problems caused by the MERS problem and the securitization conundrum because a developing body of case law will prevent lenders from foreclosing on property that they claim an ownership interest in. As foreclsoure defense attorneys hone these themes and present increasingly sophisticated arguments, Courts will struggle with how they can continue to grant foreclosure when the facts and caselaw provide otherwise. The Florida Supreme Court Residential Mortgage Task Force Report and the new Residential Foreclosure Procedures promulgated as part of the Report illustrate the growing frustration Courts are finding with the current foreclosure process. It may take federal or individual state legislative change to respond to these issues.