Since beginning MFI-Miami, I've seen a lot of mortgage servicers attempting to foreclose on homeowners without being able to prove they are the proper custodian of the note or mortgage. I have one client right now who is beginning litigation against American Home Mortgage Servicing, Inc. partially because they can't provide proof of the transferring from Option One Mortgage Corporation or from the original lender. I have another client whose foreclosure was cancelled (with MFI's help) by Bear Stearns because they could not prove the transfer even happened. I could go on and on by listing other clients I've had. However, the point is that because Wall Street firms trade mortgage portfolios like Baseball cards, no one can identify the legal custodian of your note and mortgage is.
Here is basically how it works. You closed your loan with a lender. They sell it to an undisclosed mortgage aggregator for an undisclosed amount (usually around 1% of the face value of the mortgage), a 2.5% fee plus the points and fees from closing. The manager of this pool of loans then sells your loan to other aggregators, who also buy, sell, or trade these securitization pools like baseball cards. The managers of these pools then hire a servicing company to collect your payments. In some cases, a large lender or a bank like Countrywide or Bank of America may buy it and service it themselves. With all this trading, the servicing company you make your payment to may not necessarily be the legal custodian of your mortgage.
This gives you, as the homeowner, the upper hand in a foreclosure because only the legal custodian of the note or their authorized agent can foreclose on a homeowner. Through this maze of trades and counter trades, the mortgage and the note are moved upstream but in no case are all of the transfers of ownership recorded in the local property records. Although a fund manager could offer a plethora of reasons as to why, the real reason is, fund managers want to save a few dollars by avoiding taxes and filing fees that would apply to each recording. The people who buy and sell these pools also neglect an essential and basic element of property law. You can't sell, transfer, or modify what you don't own. Both the deed and the mortgage are considered an interest in real property and those interests must be recorded to be valid and legitimate. The real owner of the note is the only one who has the power to enforce the terms of the note and mortgage but the question is who is it?
One way you can protect yourself in a modification or short sale is to deal with the entity that actually holds the interest. Unfortunately, this information is almost impossible to find because of all the trading between funds. This is the problem with the securitization process because the legitimate holder of your note can try to make a claim against you after you sign the modification agreement or short sale with your current servicer.
The other way you can protect yourself is to demand indemnification from the servicing agent you are negotiating the short sale or modification with. This option is not only the best and easiest way to protect yourself but it is also the only fair way to do it. In most modification agreements, the servicer offering the loan modification has an indemnification agreement that holds them harmless for any fraud, deception and misrepresentation that may have occurred when executing the original loan. They also have a clause that forces you to acknowledge they are now the legal custodian of the note and mortgage. Mortgage Servicers are shielding themselves from liability. You should too!
So, how do you get indemnification from the servicer offering to accept the short sale or loan modification? You demand that a new title policy be issued that does not state exceptions to the securitization process. In order to be sure that the title insurance company doesn't deny you coverage because for lacking full coverage, you must disclose to the title agent in writing that the possibility exists that others may have an interest in the property or the mortgage.
If the agent refuses to issue the policy without an exception, it probably means they were the ones who did the closing and were fully aware of the securitization process and failed to disclose this information to you. Depriving you of the knowledge of who the real lender is and to whom a rescission letter or Qualified Written Request should be sent could arguably extend your three day right of rescission indefinitely.
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