Livinglies's Weblog

The essential issue remains: who if anyone has a title interest under the security instrument? It would appear that many “lenders” have attempted to make various provisions for transferring the note since they knew they would be either selling it for money or using it to replace a non-performing loan under a pooling and service agreement. However, unless the recorded instruments followed the traveling note, we still end up with the same incurable result: one party is named as mortgagee and another party is the “note holder.”

The definition of the “note holder” while attempting to be precise is not so — because of the way the process of securitization works. First you have the initial transmittal which may or may not have been executed as an assignment by allonge or indorsement. If the transaction was not an assignment and the “lender” received “payment” (cash or other consideration, like relieving it of the obligation to substitute a performing note for a non-performing note) then the note is “PAID.” If it is properly assigned, then the security instrument has one party as mortgagee with no interest in the note and another party with the note and no power over the mortgage.

Add to this the fact that co-obligors (insurers, guarantors, reserves, credit default swaps) are added to the chain as the note travels upward to the investor, and the fact that the right of allocation of payments to other notes or from other notes is present because of cross collateralization in the tranches, and then add the fact that the certificate of asset backed securities may have been transferred, sold, pledged or otherwise transmitted to yet another party and you have (a) a question over title over the note (b) a question of whether the note holder got paid even if the borrower made no payments and (c) an unsecured obligation because the investor never received a recorded interest in the underlying property.

Thus an attempt at modification of the note could be successful if the right people are involved, but that doesn’t change the essential nature of the obligation — i.e., that it is unsecured and that the homeowner has a right to quiet title — or at the very least a right to a declaration as to who is the payee and who is the proper enforcing authority under the mortgage if it somehow remains valid.

The inclusion of language in various instruments of transmittal, modification or even satisfaction of the mortgage does nothing to resolve the issue of severance of the security interest from the note and the fact that the terms of the note were changed without the borrower’s permission. It is one thing to assign a note; it is quite another to add and subtract terms and parties to it.

In my opinion modification is not possible without either producing a proper chain of title and all the required recorded instruments as per state law, or a title policy that is issued without exceptions AFTER disclosure to the title agent in writing regarding the issues raised by securitization.

I doubt if any title agency or carrier would underwrite such a policy. When I have confronted “lenders” with this issue their response, so far, is that in a modification no title policy is necessary. This is lame as well as incorrect. If they are right, they should have no problem getting the title agent who issued the original policy to confirm in writing that he/she is in possession of all the required disclosures and agrees with the lender that the original title policy is unaffected by the modification, despite the issues presented regarding securitization of the loan.

see also post #1450Mortgage Shortsales and Modifications

Filed under: CDO, currency, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: chain of title, foreclosure defense, foreclosure offense, quiet title, title |