Posted by David Butler on December 18, 2009 at 14:26:03:
In Reply to: MERS posted by Lynn on December 18, 2009 at 07:31:46:
Hello Lynn,
There is a lot of misinformation floating around on this topic, no question about that. But at the root is some validity to the various "produce the note" discussions. Some points of clarity here:
Generally, it is not the electronic recording system the courts are not recognizing. Rather, it whether or not MERS, or any other third-party securitization Trustees or servicing firms have standing to sue for foreclosure, as opposed to other legal action. This standing has its foundation in several principles:
1) Is the plaintiff the noteholder, or a bona fide agent of the noteholder, proceeding through foreclosure under the terms of the note AND the security agreement (mortgage, deed of trust) on which the foreclosure of the collateral property is based?
2) Does the plaintiff have the actual ORIGINAL note (not a copy)in hand ; or alternatively acceptable certified copy of the note, or legally sufficient Lost Note Affidavit, to serve as evidence of the debt)?;
3) If the note is in the hands of a third-part holder, other than the original beneficiary, has the note been properly endorsed; and more importantly, has the assignment of the security instrument (mortgage) tied to the note been properly drawn and recorded?
The failure of any of the above elements can be expected to cause the foreclosure process to be stopped, as it should.
A note is evidence of the debt. No note, no debt. Here are some previous helpful discussions on the related topics to start with:
A Note On Notes
http://www.creonline.com/cashflow/wwwboard3/messages/16676.htmlRe: How do you perfect a lien?
http://www.creonline.com/cashflow/wwwboard3/messages/7116.htmlPost a Bond or try some alternatives
http://www.creonline.com/cashflow/wwwboard3/messages/15094.htmlThere are provisions in negotiable instruments law to file an affidavit of lost note, that can be used in the alternative. But those present a lot of problems, particularly in how the institutional lenders and servicers have been handling them. Here's a very good article on the topic from three years ago, that really covers a broad range in excellent balance discussion on all sides of the problems in play.
Lost Note Affidavits & Skeletons in the Closet
http://www.calculatedriskblog.com/2008/02/lost-note-affidavits-skeletons-in.htmlJudges throwing out bad foreclosure cases are rarely throwing out the note balance. In the few cases where I have seen the balances eradicated, it was generally tied to punishment for plaintiff's egregious conduct somewhere in the mix.
Otherwise, the courts are generally dismissing the foreclosure action for lack of standing, lack of acceptable evidence, or failure to follow the state's mortgage laws somewhere along the line. In such cases, the lender or servicer can always start over, and do it right the next time.
One problematic area, even if the original note can be produced... is that where the note has been legally separated from the security instrument by failure to properly assign the mortgage with the note when the note was transferred to another party, as appears to be the case with many of the MERS accounts.
In such cases, the foreclosure also risks being dismissed, as the note is no longer secured by the property, even though the security instrument itself is still on record. At that point, the security instrument is now nothing more than a cloud on title than can be removed when necessary, through a quiet-title action. There are reasons for this too, and mainly for the general protection of the public at large.
But the now unsecured note can be proceeded on by an action for recovery of a debt, and would become a general lien against the Payor once a judgment is issued and properly recorded. However, you still have to have the note, or an court accepted affidavit of lost note, in order to provide evidence of the debt.
The problem of course is that the note is likely impaired at that point, so far as any collateral is concerned. And you still have the time and trouble of file a subsequent collection action, to enforce the judgment.
BTW... as seen in the three year old article above, there are a lot of problems out there these days with buying institutional notes. The reality is, these deals have always required extra due diligence, as we have reviewed in our Workshops over the years.
Now we've been walking through many more of those land mines on our deals for at least two years now - both from the the perspective of the note validity issues; as well as the growing impediments being legislated to delay foreclosure, or extend tenant rights on defaulted properties.
We support the policies... but we don't want to lose money as a result. So, we pay much less for the nonperforming paper, than the 55% ITV (based on lower of property value or note balance) top dollar we used to pay on the best of it. That's the only really sure way to reduce the associated risks.
Hope that helps, and Many Happy Returns...
David P. Butler
Nascent Equity
Hotspur Investment Group
- Re: MERS & Produce The Note Marc Faulkner 19:56:33 01/04/10 (1)
- Re: MERS & Produce The Note David Butler 15:09:54 01/09/10 (0)