WHY THE TITLE OF THE FORECLOSURE SALE IS PROBABLY DEFECTIVE

8/7/2019 WHY THE TITLE OF THE FORECLOSURE SALE IS PROBABLY DEFECTIVE

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The Problem ofThe Problem ofForeclosure TitlesForeclosure Titles

In NSP AcquisitionsIn NSP AcquisitionsWhy The Title of the Foreclosure SaleWhy The Title of the Foreclosure Sale

Buyer Is Often DefectiveBuyer Is Often Defective

How Can We Deal With the Problem?How Can We Deal With the Problem?


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SecuritizationSecuritization

Flow Chart andFlow Chart andStructureStructure


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Transfer of Promissory NoteTransfer of Promissory Note

Negotiable instrument under Article 3 ofNegotiable instrument under Article 3 of

the UCCthe UCC

Transferred by:Transferred by: EndorsementEndorsement

Delivery of the instrumentDelivery of the instrument

Acceptance of deliveryAcceptance of delivery Negotiation = Endorsement + Delivery +Negotiation = Endorsement + Delivery +

AcceptanceAcceptance


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Transfer of MortgageTransfer of Mortgage Mortgage is a real estate instrumentMortgage is a real estate instrument

Subject to the statute of fraudsSubject to the statute of frauds

Must comply local real estate lawMust comply local real estate law

Transferred by:Transferred by:

Written assignmentWritten assignment

Delivery of the instrumentDelivery of the instrument

Acceptance of deliveryAcceptance of delivery Recording of transferred mortgageRecording of transferred mortgage

Assignment = Written Transfer/AssignmentAssignment = Written Transfer/Assignment+ Delivery + Acceptance + Recording+ Delivery + Acceptance + Recording


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Notarization RequirementsNotarization Requirements Most state laws require strict complianceMost state laws require strict compliance

Signer must admit, by oath or affirmation, in theSigner must admit, by oath or affirmation, in thePRESENCE of notary to having voluntarilyPRESENCE of notary to having voluntarilysigned the document, and signers capacitysigned the document, and signers capacity

Signer must make the OATH or AFFIRMATIONSigner must make the OATH or AFFIRMATIONbefore signingbefore signing

Must identify the signer by a federal or stateMust identify the signer by a federal or stateissued photographic IDissued photographic ID

Penalties include civil and criminalPenalties include civil and criminal Felony in most states to take a falseFelony in most states to take a false

acknowledgementacknowledgement

Document is invalid with improper notarizationDocument is invalid with improper notarization


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The Alphabet ProblemThe Alphabet Problem

With Securitized TransfersWith Securitized Transfers The loan closed in the name of theThe loan closed in the name of the

Broker/LenderBroker/Lender

Broker is funded by Warehouse Line of CreditBroker is funded by Warehouse Line of Credit

Warehouse Lender then sells paper to aWarehouse Lender then sells paper to aSpecial Investment Vehicle (SIV)Special Investment Vehicle (SIV)

SIV then sells paper the Sponsor/DepositorSIV then sells paper the Sponsor/Depositor

Sponsor or Depositor then transfers to TrustSponsor or Depositor then transfers to Trust


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How Many TransfersHow Many Transfers

AA--Transfer:Transfer: Consumer to BrokerConsumer to Broker

BB--Transfer:Transfer: Broker to Warehouse LenderBroker to Warehouse Lender

CC--Transfer:Transfer: Warehouse Lender to SIVWarehouse Lender to SIV

DD--Transfer:Transfer: SIV to the Depositor or SponsorSIV to the Depositor or Sponsor

EE--Transfer:Transfer: Depositor or Sponsor to TrustDepositor or Sponsor to Trust


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How Many DocumentsHow Many Documents

FourFour assignments and deliveries andassignments and deliveries andacceptances of the Mortgageacceptances of the Mortgage

FourFour endorsements and deliveries of theN

oteendorsements and deliveries of theN

ote EightEight separate notarizationsseparate notarizations

EightEight UCCUCC--1 financing statements1 financing statements

FourFour recordingsrecordings

FourFour filing and transfer feesfiling and transfer fees


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ABCDE Problem with the NotesABCDE Problem with the Notes

A.A. Consumer signs and delivers to Broker/LenderConsumer signs and delivers to Broker/Lender

B.B. Broker/Lender must endorse & deliver toBroker/Lender must endorse & deliver to

Warehouse Lender & written acceptanceWarehouse Lender & written acceptance

C.C. Warehouse Lender must endorse &Warehouse Lender must endorse &

deliver to the SIV & written acceptancedeliver to the SIV & written acceptance

D.D. SIV must endorse and deliver to theSIV must endorse and deliver to the

Depositor & written acceptanceDepositor & written acceptanceE.E. Depositor must endorse and deliver toDepositor must endorse and deliver to

the Trust & written acceptancethe Trust & written acceptance


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The AllongeThe Allonge

A paper attached to a negotiable noteA paper attached to a negotiable note

Purpose is to provide written endorsementPurpose is to provide written endorsement

Only used when back of negotiableOnly used when back of negotiable

instrument isinstrument is FULLFULL (no room)(no room)

No need for notarizationNo need for notarization

Simple signature and title sufficient,Simple signature and title sufficient,

as with endorsement on noteas with endorsement on note


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Similar ABCDE ProblemSimilar ABCDE Problem

With the Mortgage InstrumentWith the Mortgage Instrument

A.A. Consumer must sign and deliver to BrokerConsumer must sign and deliver to Broker

B.B. Broker must assign and deliver to the Warehouse LenderBroker must assign and deliver to the Warehouse Lender

C.C. Warehouse Lender must assign and deliver to the SIVWarehouse Lender must assign and deliver to the SIV

D.D. SIV must assign and deliver to the DepositorSIV must assign and deliver to the Depositor

E.E. Depositor must assign and deliver to the TrustDepositor must assign and deliver to the Trust

And all these assignments must be recorded!And all these assignments must be recorded!


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Who Holds the Bearer PaperWho Holds the Bearer Paper

and Mortgages for the Trust?and Mortgages for the Trust?

Normally a thirdNormally a third--party bank that providesparty bank that providesdocument custody services to the trustdocument custody services to the trust

Provides trailing document filingsProvides trailing document filings

Provides custody chambers for all membersProvides custody chambers for all members

Executes assignments for membersExecutes assignments for members

Execute endorsements for membersExecute endorsements for members

Executes deliveries and acceptancesExecutes deliveries and acceptances

Provide onProvide on--line document status certificationsline document status certifications


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What Does Trust Really Hold?What Does Trust Really Hold?

Electronic data with loan numbers & collateralElectronic data with loan numbers & collateraldescriptionsdescriptions

Electronic image of the original deed of trustElectronic image of the original deed of trust

Electronic image of the original mortgage noteElectronic image of the original mortgage note

Rights in the documents by way of UCCRights in the documents by way of UCC--11financing statements and the pooling & servicingfinancing statements and the pooling & servicingagreementsagreements


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The 3dThe 3d--PartyParty

Outsource ProvidersOutsource Providers Fidelity National Default ServicesFidelity National Default Services

First American National Default ServicesFirst American National Default Services

National Default Exchange, LPN

ational Default Exchange, LP(Barrett Burke Owned Entity)(Barrett Burke Owned Entity)

Promiss Default SolutionsPromiss Default Solutions(McCalla Raymer Owned Entity)(McCalla Raymer Owned Entity)

National Trustee ServicesNational Trustee Services(Morris Schneider Owned Entity)(Morris Schneider Owned Entity)

LOGS Financial ServicesLOGS Financial Services(Gerald Shapiro Owned Entity)(Gerald Shapiro Owned Entity)


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What Do the OutsourceWhat Do the Outsource

Providers Do for the Servicers?Providers Do for the Servicers? Create AssignmentsCreate Assignments

Create AllongesCreate Allonges

Create EndorsementsCreate Endorsements

Sign documents as if they were the VP or SecretarySign documents as if they were the VP or Secretaryof a Bank, SIV, Depositor, Sponsor or the Trustof a Bank, SIV, Depositor, Sponsor or the Trust

Notarize these documentsNotarize these documents

Create Lost Note AffidavitsCreate Lost Note Affidavits

Create Lost Assignment AffidavitsCreate Lost Assignment Affidavits Create Lost Allonge AffidavitsCreate Lost Allonge Affidavits

Draft court pleadings and noticesDraft court pleadings and notices

Draft default correspondence, reports, etc.Draft default correspondence, reports, etc.


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How to Identify a DefectiveHow to Identify a Defective

Endorsement or AllongeEndorsement or Allonge

Allonge can never be used to transfer aAllonge can never be used to transfer a

mortgagemortgage

Allonge can never be used if there is enoughAllonge can never be used if there is enough

room on the original mortgage note for theroom on the original mortgage note for the

written endorsementwritten endorsement

Note is endorsed and not assignedN

ote is endorsed and not assigned Date of the endorsement is before or after theDate of the endorsement is before or after the

date of the registration of trustdate of the registration of trust

And much more And much more


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Defective EndorsementsDefective Endorsements

Notary is from Dakota County, MinnesotaNotary is from Dakota County, Minnesota

Notary is from Hennepin County, MinnesotaNotary is from Hennepin County, Minnesota

Notary is from Jacksonville, FloridaN

otary is from Jacksonville, Florida Signors company has no offices in notarys stateSignors company has no offices in notarys state

Date of endorsement and date of notarizationDate of endorsement and date of notarizationare differentare different

Signors name is stampedSignors name is stamped not written in scriptnot written in script

Signor claims to have signing authoritySignor claims to have signing authoritybut no authority attachedbut no authority attached


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What About the Mortgages?What About the Mortgages?

Assignments and delivery follow same model as with theAssignments and delivery follow same model as with thenotesnotes

MERS is used to avoid registration of each assignmentMERS is used to avoid registration of each assignmentwith local register of deedswith local register of deeds

MERS claims no beneficial interest in the noteMERS claims no beneficial interest in the note

MERS claims no ownership rights in note or mortgageMERS claims no ownership rights in note or mortgage

MERS claims it is nominee for true ownerMERS claims it is nominee for true owner

MERS delegates signing authority to all MERS membersMERS delegates signing authority to all MERS members

to sign documents as officers of MERSto sign documents as officers of MERS MERS does not supervise any of its designated signorsMERS does not supervise any of its designated signors

MERS is not registered as a foreign corporation in mostMERS is not registered as a foreign corporation in moststatesstates


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How Does TrustHow Does Trust

Establish Lawful Ownership?Establish Lawful Ownership? Unbroken chain of note endorsements andUnbroken chain of note endorsements and

acceptances from A to B, B to C, C to D,acceptances from A to B, B to C, C to D,and D to Eand D to E

Unbroken chain of mortgage assignments andUnbroken chain of mortgage assignments anddeliveries and acceptances from A to B, B to C,deliveries and acceptances from A to B, B to C,C to D, and D to EC to D, and D to E

Unbroken chain of UCCUnbroken chain of UCC--1 financing filings1 financing filingsthroughout the chainthroughout the chain

Unbroken chain of recorded mortgageUnbroken chain of recorded mortgageassignmentsassignments


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But What Is FiledBut What Is Filed

In a Typical Foreclosure?In a Typical Foreclosure? Complaint alleging that the borrower (A)Complaint alleging that the borrower (A)

executed a note and mortgage in favor of theexecuted a note and mortgage in favor of the

plaintiff (E)plaintiff (E)

Note and mortgage from borrower (A) toNote and mortgage from borrower (A) to

originating lender (B) attachedoriginating lender (B) attached

Sometimes a purported mortgage assignmentSometimes a purported mortgage assignment

from (B) to (E) attached, also purporting tofrom (B) to (E) attached, also purporting to

assign the noteassign the note

This assignment always defective, often notThis assignment always defective, often not

recordedrecorded


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The Paper Trail andThe Paper Trail and

The Lack of Truth in LabelingThe Lack of Truth in Labeling Electronic dataElectronic data

Fake dates & forged signaturesFake dates & forged signatures

False notarizationsFalse notarizations

False assignmentsFalse assignments

Fake endorsementsFake endorsements

Fraudulent lost note affidavitsFraudulent lost note affidavits

Recreated documents & recordsRecreated documents & records

Allonges and moreAllonges and more


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Is the Trust Really Secured?Is the Trust Really Secured?

MAYBEMAYBE But it would be very difficult for anyBut it would be very difficult for any

securitized trust to produce a valid set of originalsecuritized trust to produce a valid set of original

and unbroken assignments and endorsementsand unbroken assignments and endorsements Even if the trust producesEven if the trust produces ALLALL of the requiredof the required

documents, there is still the issue of the legalitydocuments, there is still the issue of the legality

of the role ofMERS on all required documentsof the role ofMERS on all required documents

for recordingfor recording


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Questions?Questions?David WiechelDavid Wiechel

Telephone 937Telephone 937--765765--45464546

Email [email protected] [email protected]

111 East Cecil Street111 East Cecil Street

Springfield, OH 45504Springfield, OH 45504

WHY THE TITLE OF THE FORECLOSURE SALE IS PROBABLY DEFECTIVE

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