The Case Against the Escrow Agent: Did Escrow Close on Mortgage Loan

The possibility of a lawsuit against the escrow agent in the closing of the mortgage loan that was subject to securitization or claims of securitization raises several essential issues. In most cases the escrow agent is also the title agent. The title agent has it issued a title commitment and a title policy presumably based upon their research of the transaction and preceding transactions that were recorded in the public records of the county in which the property is located.

The exchange shown below raises the question of whether escrow had in fact ever been closed. I would raise one more question. Is there any way in which escrow could have been closed? Was the closing a sham?  Of course this does not apply to all loan originations but it probably applies to the great majority of loans that are considered to have been originated by a pretender lender and closed by an escrow agent.

Consider the following fact pattern: the closing agent receives documentation that must be executed before the closing agent releases money from escrow to the borrower or releases money for the benefit of the borrower. In that documentation the name of the lender is clearly shown on the promissory note and presumably the mortgage or deed of trust.

In analyzing this transaction we must stop here and pause to consider what is happening. The originator at this point is offering to make a loan provided that the borrower first executes (signs) the closing documents which includes the note and mortgage or deed of trust. The issue as I have raised in court is what happens when the originator doesn’t make the loan? The additional question here is what happens when the originator never receives delivery of the note and mortgage? It seems to be well settled that recordation of an instrument does not constitute delivery of the instrument.

So we have an originator who did not make the loan and never received possession of the note and was clearly not the lender. If that is the case, I can see no legal basis for treating the transaction as though there was a closing at escrow. My opinion is there was no closing. The escrow agent had done the right thing, the note and mortgage would of been handed back to the borrower. And since the escrow agent is normally a title agent for one of the major title insurance companies, there appears to be a very deep pocket for damages if a cause of action can be brought against the escrow agent.

The key to any exploration of this cause of action would be getting the closing instructions in the closing documents, including the wire transfer receipts and the wire transfer instructions. The wire transfer receipt and instructions might represent the only documentation showing that a third-party was the actual lender in the transaction and that the originator and escrow agent failed to protect the actual lender by having the note and mortgage (or deed of trust) executed (signed) in favor of the party who supplied the funds at closing.

Any escrow agent who wasn’t “in on the game” would probably have reported to all of the proposed parties that the transaction cannot be closed without showing that the money wired into the account of the escrow account had indeed come from the originator or as a result of some legal relationship between the originator and the source of funds. Of course this leads to the issue of whether the parties would be admitting to a table funded loan which is predatory per se according to Reg Z.

In the case of Jacobitz v Thomsen, 238 Ill. App. 36,  the appellate court correctly said “the note never became an obligation binding, as such, upon the defendants.”

As the facts are revealed in this massive fraudulent scheme, my initial comments back in 2007 when I started this blog appeared to be fully corroborated. Closing was never completed. It is not that the homeowner needs to rescind the transaction because that would be admitting that the transaction occurred. The point is that the transaction did not occur. And thus the point is that the homeowner never owed any money or any other obligation to the party designated as the “lender” or “mortgagee” or  “beneficiary” (under the deed of trust).

The failure of lawyers and the courts to take notice of this fact has not just resulted in bogus foreclosure sales at bogus auctions.  It has resulted in Wholesale fraud in which money was taken from investors under false pretenses and then used in ways that the investors never intended. The investors failed to receive the protection of a promissory note or an enforceable mortgage, which is the allegation that the investors are making when they sue the investment banks that sold them the bogus mortgage bonds.

see http://livinglies.me/2013/12/26/beforeyou-open-your-mouth-or-write-anything-down-know-what-you-are-talking-about/

Here is Dan Edstrom’s Response (Thanks Dan)

Excellent source of information for lawyers.  Here is what I think is critical that you need to include and discuss.
My assumptions are that it is well established that escrow requires specific performance (at least this is true in CA, and probably all other states).
My assumptions are that the following is generally true in all states.
Without fulfillment of the conditions precedent to closing escrow, escrow cannot close (specific performance).
If escrow never closed you have failure of delivery of an instrument.  The conclusive presumption of delivery avails an alleged note holder nothing if escrow did not close.  In CA it is stated this way:
No delivery of the note, within the meaning of section 3097 of the Civil Code, took place. As the court says in Sousa v. First California Co. (1950), 101 Cal.App.2d 533, 539 [225 P.2d 955],“Only after strict compliance with the condition imposed … does the escrow holder begin to hold for the party thereby entitled. …” Bogan v. Wiley (1949), 90 Cal.App.2d 288, 292 [202 P.2d 824], holds, “No rule is better settled than the one that the payee gets no property in a negotiable instrument until its delivery.” And Todd v. Vestermark (1956), 145 Cal.App.2d 374, 377 [302 P.2d 347], states: “… a delivery or recordation by or on behalf of the escrow holder prior to full performance of the terms of the escrow is a nullity. No title passes.”
You could state what you listed in your article a different way (that the payee provided no consideration at loan closing): [EDITOR’S NOTE: POSSESSION VERSUS AUTHORITY OR RIGHT TO ENFORCE THE INSTRUMENT]
Yet these respondents recognize the rule that a security interest serves as an incident to the debt (Civ. Code, 2909), and on oral argument before this court admitted “if we didn’t have a promissory note, and if it … wasn’t an obligation … [t]here would be nothing for that security to secure; so it couldn’t exist.” Moreover, as the decisions have held, the mere recordation of a deed of trust by the escrow holder, in accordance with the trustor’s instructions, does not establish delivery. Thus in Jeannerette v. Taylor (1934), 2 Cal.App.2d 568 [38 P.2d 831] (petition for hearing in Supreme Court denied), the “title company, following plaintiff’s instructions, recorded a deed to the property which she had signed and acknowledged, the defendant being named therein as the grantee. Following this the title company … mailed the recorded deed to defendant.” The court then stated: “The evidence shows that this was done without express authority. … No one who had possession of the deed was authorized by plaintiff to deliver the same to the defendant. The delivery to the title company was for the limited purpose of recordation. No authority was thereby conferred to make delivery, and its act in mailing the instrument to the defendant did not have the effect of passing title …” (Pp. 569-570.)
Holder and Holder in due course may not apply if there was no consideration and escrow never closed:
Since Builders did not become a holder in due course, the conclusive presumption of delivery avails respondents nothing. (Civ. Code, 3097.) The cited case of Baker v. Butcher (1930), 106 Cal.App. 358, 367 [289 P. 236], does not apply; respondent Walker’s admission 231*231 that his rights depend upon the status of Builders as a holder in due course proves fatal.
The following quote seems to agree with what you are saying, that the Plaintiff can sue based on the obligation or the contract:
Respondents fourthly and finally contend that the conception of the payment of $4,022.14 as a condition precedent to delivery necessarily must void the entire transaction or work an unjust enrichment to appellants. In essence this contention suggests that appellants must rescind the contract in order that no unjust enrichment accrue to them; that, having elected to accept certain contractual benefits, they must ignore Henderson’s breach of his duties. Yet respondents seek to collect upon a note under which appellants are not obligated for want of delivery; respondents’ rights properly rest only upon the underlying contract or in quasi-contract. Thus, as is stated in Jacobitz v. Thomsen, supra (1925), 238 Ill.App. 36–“the note never became an obligation binding, as such, upon the defendants. … The reversal in this case, however, will be without prejudice … to any right Thullen may have to recover from defendants whatever sum, if any, may be due from them under the terms of the original contract … or the value of work, labor and materials furnished. …” (Pp. 38-39.) Gray v. Baron, supra (1910), 13 Ariz. 70, 74, likewise points out–“Under the terms of the escrow agreement and the facts … there was no such delivery of the note … and … the judgment entered by the court for the plaintiff requiring the payment of the note … [must be reversed as] outside of the issues set forth in the pleadings. … The theory of the trial court seems to have been that the plaintiff had established a cause of action based upon the breach of a contract to purchase the stock. The error of the trial court was … in attempting to enforce such a cause of action … in an action based simply upon the promissory note, and not one based upon the breach of the contract to purchase.”
All of the above quotes come from Borgonova vs. Henderson, 182 Cal.App.2d 220 (1960), attached.
Getting back to the conditions precedent, here are some that I have seen.  But keep in mind that all of the loan closing documents I have seen are different.  Some bring up certain conditions different from others (your mileage may vary).  The following are all from one loan closing (notice the impossibility of meeting the conditions precedent):
BORROWERS CLOSING INSTRUCTIONS
You are authorized to deliver and/or record the above and close in accordance with the estimated closing statement contained herein (subject to adjustment);
and when you can procure/issue a 06-ALTA Loan w/Form 1 – 1992 coverage from Policy of Title Insurance from Fidelity National Title Insurance Company with a liability of $500,000.00 on the property described in your Preliminary Report No. 4008203, dated August 16, 2005, a copy of which I/we have read and hereby approve.
SHOWING TITLE VESTED IN:
[borrowers names …]
FREE FROM ENCUMBRANCES EXCEPT:
[…]
6.   A First Deed of Trust, to record, securing a note for $500,000.00 in favor of Mortgage Lenders Network USA, Inc..
LENDERS CLOSING INSTRUCTIONS
Named Lender who provided the closing instructions: Mortgage Lenders Network USA, Inc.
[…]
Residential Funding Corporation has a security interest in any amounts advanced by it to fund this mortgage loan and in the mortgage loan funded with those amounts.  You must promptly return any amounts advanced by Residential Funding Corporation and not used to fund this mortgage loan.  You also must immediately return all amounts advanced by Residential Funding Corporation if this mortgage loan does not close and fund within 1 Business Day of your receipt of those funds.
Closing Agent/Attorney acknowledges the foregoing instructions and understands that failure to properly follow set of instructions may result in legal recourse by MORTGAGE LENDERS NETWORK USA, INC.
Identified conditions precedent in this case that may not have been met:
  1. No exception on Borrowers Closing Instructions for the security interest claimed by Residential Funding Corporation (who by the way was the sponsor of thousands of attempted securitization transactions) in the Lenders Closing Instructions
  2. No exception on Borrowers Closing Instructions for the security interest claimed by MERS on the Security Instrument (Deed of Trust in this case), which states “Borrower understands and agrees that MERS holds only legal title to the interests granted by the Borrower in this Security Instrument…”
  3. Approximately $329,000 was sent to Ocwen Loan Servicing to pay off an earlier 1st lien.  Ocwen was not the payee, beneficiary, mortgagee or assignee and was not listed on any recorded document.  A few weeks after closing, Ocwen recorded a full reconveyance stating that they were the beneficiary.  However, Ocwen was a stranger to the chain of recorded documents.  In this case the Borrower contends that payment was sent to the wrong party (the alleged note holder, beneficiary and assignee was New Century Mortgage Corporation) and the reconveyance is a wild deed.  Thus Residential Funding sent approximately $329k to Ocwen and the Borrower never received the benefit of the bargain as this money was never given to the Borrower or used for the Borrowers benefit.  Thus the encumbrance remains.
  4. The payee provided no money to escrow and the escrow company had full knowledge of this (in fact every other party had knowledge of this fact except the homeowner who was the least sophisticated party present).
In my opinion if the borrower was fooled at loan closing, the escrow should not have closed.  That is unless the escrow company was fooled also.  But they were not fooled – they knew everything.
Remember also that the homeowner never sees MERS or the above loan closing instructions until they are put before the Borrower on the day of signing.  Up until about 2010 I would say that there was no homeowner who could have remotely understood what any of the above meant.

 

 

Why Title Insurance on “Securitized” Properties are Worthless

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Editor’s Comment:  
If you can’t rely on the title report issued by the title agent and title carrier, what chance do you have of getting clear title to that bargain you were picking up dirt-cheap?

While many writers are theorizing about title problems, there are actual cases being litigated but are largely missed in reporting because nobody catches their significance. It all boils down to this: title insurance companies are (a) going to avoid paying or defending a claim that they deemed is not covered by the title policy and (b) generally, even when you would expect that they would be liable for such damages they cannot responsible for damages caused by title defects arising out off record transactions like in MERS. The courts are heavily favoring the title companies in most cases.

Hot off the presses, Mark A Brown and Christopher W Smart have published an article in The Florida Bar Journal July/August Edition starting on page 47–see link below. While they disagree with some of the rulings contained in that article it is obvious that one way or the other, you are pretty much screwed when dealing with foreclosure properties unless you have safeguards in place by renegotiating the contents of the title policy (something we were successful at here in Arizona), AND by obtaining cures of all potential title defects via Court Order. While this increases the expense of closing, is assures the buyer of something he is not getting now — clear title without clouds or defects and real insurance if the defects cannot be cured.

In cases involving foreclosure resulting from off record activity, even if the title insurer wins it will be years before the issue is resolved and if a temporary injunction is not entered preventing the new foreclosure from a pretender lender, the foreclosure will be allowed and so will the eviction. The worst case scenario is that the person buying such property for use or investment ends up, at a minimum, out of the house, no right to possession, no way to sell it, and no way to refinance it. No title, no possession and clawing their way back to the money or the house with the former “owner” and the title insurer fighting you every step of the way.

As the authors point out, if you have a contract to sell or finance your property, the buyer or financing entity is not going to wait around for 3 years while you figure out how to offer clear title. The very fact that there are many decisions, each in conflict with the other, presents an obvious cloud on title, which will stop any sale or financing, and probably presents a fatal defect in title for which the title carrier should pay you in full but (a) only if you make them through additional litigation and (b) without the damages you suffered during the long delays of seeking curative title instruments and litigating the rest of the case.

Does this make title insurance worthless? Yes, if you allow them to make exceptions for properties on which there was off record activity and they disclaim that that title is as reported in the policy. The position of the carriers, apparently supported by the courts, is that the title report given to you by the title company does not need to be correct and could even be negligent without any liability arising out of their conduct. Their liability is limited strictly to what is in the title insurance contract in its FINAL form, which often differs remarkably from the policy COMMITMENT.

For “unreasonable” delays there are a few scattered cases in which the insured buyer was allowed damages but then there is another fight over the right to recover attorney fees when you finally get them to pay — and no lawyer is going to take one of these complex cases on contingency.

If you already own property and you took no protective measures then you might want to initiate a transaction in which the property is refinanced or title changes to a trust or another party in which new title insurance is required. Then hire someone who knows what they are doing to hammer out the right title policy terms, and file a quiet title action to confirm that title is as reported. If you don’t own the property yet, then operate on the same assumptions and (a) make sure you actually have good title and (b) you actually have a title policy that will pay if the title had defects or was clouded.

It is insane that the title carriers are getting away with this. Everyone relies on the title report from the title agent and the title carrier. The way these cases are going, the buyer must always get an independent title and securitization review if they want to sleep at night. And closing without a licensed, competent attorney who is familiar with off record transactions like MERS, maximizes your risk even though it minimizes your expense. My suggestion is that you treat it as part of the cost of the house. If you spend another $3,000 it is money well spent.

At a minimum it would seem that if you are buying property you should obtain the combo title and securitization report here or elsewhere from someone who knows what they are doing.

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Short Sale No Protection Against Bank

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Editor’s Comment:

As if on queue this story appears. I have been warning buyers of short sales that they face strong headwinds in maintaining ownership of the house, keeping possession, and the general fact that buying a short sale probably is buying into litigation now or later.

This guy is a true innocent buyer without any real notice of the problems he was buying into. His realtor obviously didn’t tell him because the realtor’s compensation is based upon the sale closing. The title agent didn’t tell him for the same reason. And the bank selected as the ” designated hitter” to receive money and execute papers showing the old mortgage was satisfied and the foreclosure was over probably didn’t even know who to call or why because, like the originator at the original closing on the loan, was just a fee for service “satisfied” instead of a fee for service originator.

So the designated forecloser keeps proceeding — and in this case apparently foreclosed on the house without the new short sale buyer knowing a thing about it, evicted the tenants, which now included the shortsale buyer, and then broke in, removed all the personal belongings leaving this guy with a lawsuit for trespass and the loss of his furniture and personal belongings.

This will continue until we accept and act upon the fact that the foreclosures and the would-be originators of foreclosures have no right to even be at the table — same as when the old old loan was created.

KC Man Sues Bank Over Foreclosure Error

Claim: JPMorgan Chase Changed Locks, Seized New Owner’s Property

KANSAS CITY, Mo. — A Kansas City man is taking on banking giant JPMorgan Chase, accusing the company of something that he said would have landed anyone else in handcuffs.

Allan Danforth bought a house in a short sale in fall 2010. JPMorgan Chase held the previous owner’s mortgage. Danforth said two months later, without notice, the bank changed the locks and hauled away $25,000 worth of furniture, appliances and family heirlooms.

“I had to bust in through the basement window here,” Danforth said, pointing to the house that he was forced to break into more than 18 months ago.

He said JPMorgan Chase’s contractor, Safeguard Properties, ignored “No Trespassing” signs on the garage, changed the locks on his home and cleaned it out two months after he paid cash for the property.

“It was basically stuff that was 150 years of family history,” Danforth said. “I feel violated and I felt like the house wasn’t even safe to go into for a while.”

Danforth said Safeguard Properties could find his family heirlooms. He said JPMorgan Chase just gave him a runaround.

“They’re the big bank and they don’t care,” he said.

“It’s a wrong built upon wrongs,” said attorney Tony Stein.

He said it’s a wrongful foreclosure.

“We fully intend to go into court and have a Jackson County jury try to decide the eventual outcome of this case in the only language JPMorgan Chase understands,” Stein said. “The language of money.”

In his lawsuit, Stein accuses JPMorgan Chase of theft, trespassing and reckless indifference.

Jackson County court records show that on Sept. 9, the previous homeowners transferred the house to Danforth. The bank signed off 12 days later.

“For the very company to release their deed of trust and thereby release all their rights against this property, and then two months later, send in a company to clean this thing out? You’ll have to ask them why they’d do something like that,” Stein said. “It defies logic.”

Danforth and his attorney said the bank has ignored their letters. When KMBC investigated the case, a spokeswoman for JPMorgan Chase had a response.

“We made a paperwork mistake when the property was sold, which resulted in our service partner changing the locks and winterizing the property to ensure its security,” the statement said.

The company did not comment how it plans to settle the dispute.

“I’m not the first one. I will not be the last, unfortunately,” Danforth said.

He said he has installed a security system in case of another “paperwork mistake.”

“If it were you or I doing it, we’d be sitting in jail right now,” Danforth said. “Why isn’t JPMorgan in jail?”

Safeguard Properties deferred comment to the bank.

Danforth’s lawsuit is before the Jackson County Court and claims actual damages in excess of $25,000. Under law, Stein said members of Danforth’s family could be entitled to recover as much as $1.5 million in punitive damages.

Danforth’s copies of important documents were inside the house and were taken by Safeguard Properties. Experts said in case of a fire or burglary, it’s a good idea to have copies of important documents in a digital form or a safety deposit box.


BOFA-Aurora Appraisal Fraud $1.8Million Lawsuit Filed in New York for One Homeowner

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Use this form under the heading “Best Practices” — Excellent in every respect. Hats off to Ivan Young of the Young Law Group in Bohemia, New York. I say the Defendants have a collective exposure of several million dollars. If I can find one lawyer that writes a complaint for identity theft on a client like this, we will have completed our forms library. They never could have done this without falsely inflated appraisals, falsely inflated ratings and without stealing the identity of credit worthy borrowers.

Appraisal Fraud Newby- Complaint 12302011

Talk about a lawyer who gets it!! These lawyers all get it and they are after the the biggest players, weaving together the fraud and the participants in the fraud in an artful way that will in my opinion easily get past a motion to dismiss. My only regret is that these lawyers are so good at  pleading and most likely so good at discovery that the case will settle before we get much more out of this case. I am fairly certain that these lawyers were probably threatened with all sorts of consequences if they file the suit. This lawsuit says “Bring it on!”

Here are the things I like about this lawsuit:

  1. It puts appraisal fraud front and center in the complaint. Nothing timid about this.
  2. The Defendants include everyone in the securitization chain including, counter-intuitively but factually correct, the Aurora Lehman Nexus with BOA and Countrywide.
  3. The point is that but for the appraisal fraud none of these players would have played the game at all, and this is clear from the complaint.
  4. BOA “expected or should reasonably have expected its acts and business activities to have consequences within the State of New York, County of Nassau.”
  5. Paragraph 7 correctly states the interrelationship between BOA and the CW companies.
  6. Nailing the appraiser for failing to register in the State to do business. Could lead to blocking the appraiser from filing any defense.
  7. Names the individual appraisers as Defendants — the only way to have someone on the hook who can flip on the other defendants and admit the wrongdoing.
  8. The lawyer figured out the relationships between the different appraisers and appraisal companies before he filed the suit. So when they come in trying to play the shell game they will end up with dirt all over themselves.
  9. The lawyer figured out the interrelationships between the appraiser, the title agents, the title agent etc. before he filed the suit.
  10. The lawyer nails the facts on appraisal fraud. Then traces step by step how the value was inflated.
  11. The allegations weave in violations of TILA and RESPA seamlessly so that the facts speak for themselves without interpretation required.
  12. The clear language of the complaint details the manner in which the Plaintiff was duped and the manner in which the plaintiff was financially damaged in money and credit standing.
  13. “Countrywide fully knew that the loan was based upon a completely bogus appraised value” and “immediately sold, transferred or assigned Plaintiff’s’ first mortgage to Aurora Bank, F.S>B. a/k/a Aurora MSF Lehman.”
  14. RICO, instead of looking like it is out of the blue or a stretch, is an obvious next step, and the lawyer takes it with ease.
  15. READ THE REST YOURSELVES. REMEMBER THIS IS ONE CASE AND NOT ALL CASES ARE THE SAME AND NOT ALL STATES ARE THE SAME. CONSULT WITH A LAWYER!

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Signing New Docs Creates New Loan and Waives Prior Defenses

Question from blogger:

In an awkward position and can’t seem to get a straight answer.  We refinanced our property in 2006 and in 2009 received a letter from the title insurers requesting we re-sign all docs.  The note is lost and was never recorded with the county.  I can’t find precedent in such a case and am unsure if quiet title action is the course to pursue.

Any thoughts?

Sounds to me that there are obvious title defects, that the title agent is worried about liability and that the ability of ANY mortgagee to enforce the note and mortgage is in doubt or maybe impossible. Don’t give up your superior position until you speak to a lawyer who understands securitization and mortgages.

It is possible that you don’t have a note or mortgage but that doesn’t mean you have no obligation. If they want to re-establish the formal documentation the burden should be on them, not you. Press the point aggressively since you appear to be in position to demand a very favorable settlement.

Foreclosure Offense: Notice to Title Agent and Carrier

The title agent that performed your closing probably was aware that securitization of your loan was in process and therefore knew that the real parties in interest and the fees paid between undisclosed parties had not been disclosed to you and in fact were actively hidden, because you would have known that the nature of the transaction you thought you were doing (a mortgage loan) was in fact only part of a fraudulent scheme to issue unregulated securities under false pretenses. Now you are in a position to assert a claim against the title agent for malpractice, assuming the title agent was also the escrow agent, and a claim against the title carrier because they issued you a title policy and now you have a cloud on title. (if you paid for and received an owner’s policy).

If those assumptions are true then you should send the following letter addressed to the title agent and to the insurance company that issue your title insurance (For example, Chicago Title and Guaranty).

Re: Escrow settlement Number (NOTE: this can be found in your closing documents and if you can’t find it you can call the title agent and ask for the settlement number)
Names of Buyers:
Names of Sellers:
Date of Closing:
Address of property:
Title Policy Number:

CERTIFIED MAIL RETURN RECEIPT REQUESTED

Dear Sirs or Madames:

Please be advised that we are the buyers in the above referenced transaction. At that closing it was represented to us that the name of the mortgage lender(s) was/were __________________. The loan closing(s) took place, and the deed was transferred. A policy of title insurance was issued to us as owners of the property, as referred above.

Subsequently, we have learned that the loan was not funded by the nominal lender(s) on the loan documents, that undisclosed third parties were involved and that undisclosed fees were paid to undisclosed third parties and to disclosed third parties in connection with our closing. In fact, we have learned that our signature on the promssory note was used without our knowledge or consent as a negotiable isntrument whose terms were altered without our knowledged or consent ultimately ending up in the hands of third parties that were not disclosed and owned by investors who were also undisclosed third parties. All of these facts were either within your knowledge or were accessible to you through due diligence.

The existence of various agreements, including assignment and assumption, pooling and service, credit default swaps, insurance, and cross collateralizaation agreements, casuses the allocation of the payments made on the notes to be contractually altered from the terms of the original note. Second, the nominal lender was, as you know, paid in full, plus paid a fee of 2.5% for posing as the real lender when in fact it was not the real lender. Thus the rescission rights are obscured and indefinitely extended. Through other correspondence we have communicated our declaration of rescission of the loan(s).

Based upon the equitable and legal interests of dozens, if not hundreds of third parties, in our mortgage and note, a cloud on title has existed since the moment of closing. Now we are seeking to modify the loan documents, but we need a new policy of title insurance or an addendum continuing the old policy. We have consulted counsel and we have arrived at the opinion that a cloud on our title exists becuase of the misbehavior and neglience of all parties at the closing. Under the terms of the policy, it is your obligation to clear the cloud and issue confirmation that the title to the property and the encumbrances are as represented at closing.

Demand is herewith made that you either cure the deficiency in title or pay to the undersigned all sums paid before, during and after closing pursuant to the flawed closing, includling the loan balance(s).

Sincerely

Signature of both borrowers

Mortgage Short Sales and Modifications: Make certain you get a new title insurance policy without exceptions for the securitization process or you could be facing the same situation with a different party — the one who REALLY owns your note and mortgage

So the only way you can protect yourself in a short sale or modification is to either deal with the real parties in interest, or to get indemnification from the party offering to accept the short sale or modification AND a new title policy that does not state exceptions to the securitization process. In order to be sure that the insurance company does not disclaim coverage because the application for title insurance lacked full disclosure, you need to make certain that you have disclosed in writing to the title agent what he/she already knows — that it is possible that others might have an interest in the property or the mortgage.

Nearly everyone is missing an essential and basic element of property law — you can’t sell, transfer, alter or modmify title that you don’t own. The deed is an interest in real property. The mortgage is an interest in real property. Interests in real property MUST be recorded to be valid, but the converse is not true. Just because you have an interest recorded in real property does not mean you own it.

Take for example the old deal where you pay a certain amount of money every month and THEN get title. The sellers thought they were cleverly avoiding the cost of foreclosure. But the courts have uniformly held that an agreement for deed is the same as a deed with a mortgage. So even though the Seller is the title owner of record, he istreated as though he is only a lender with a mortgage and the buyer is treated as though he is the owner of record. Thus he is rquired to file a foreclosure action on property he already has “legal” title to.

The securitization of mortgages created a very similar situation. The “lender” on the Trust deed or mortgage has already been paid by the undisclosed mortgage aggregator upstream in the securitization process, plus a 2.5% fee, plus the points and fees at closing. From the “lender’s prospective, the “lender” has no asset and therefore no right to enforce the mrotgage even if the borrower misses the first payment. It is for this reason that the “lender” does not report this as a loan outstanding, it doesn’t require the lender to provide a reserve against defaults or delinquencies, nor does the “loan” count in the “lender’s” reporting to the government regulatory agencies.

Through the process of securitization the note, and sometimes the mortgage is moved upstream, but in no case are all of the “movements” recorded in the local property records because of many reasons, not the least of which is avoiding the stamps and taxes that would apply to each recordation.

Thus the REAL owner (holder in due course) of your note is the one who actually MIGHT have the power to enforce the note and foreclose on the rpoperty, but one thing is certain — the “lender” at closing has no right to proceed. To prove your point you need only ask the “lender” where the money is going to go if they foreclose on the property, and sell it to a third party. The answer will surprise you.

So the only way you can protect yourself in a short sale or modification is to either deal with the real parties in interest, or to get indemnification from the party offering to accept the short sale or modification AND a new title policy that does not state exceptions to the securitization process. In order to be sure that the insurance company does not disclaim coverage because the application for title insurance lacked full disclosure, you need to make certain that you have disclosed in writing to the title agent what he/she already knows — that it is possible that others might have an interest in the property or the mortgage.

If the agent refuses to issue the poplicy without the exception for securitization you have an independent third party witness who will make your case. Otherwise someone needs to either proceed in “friendly suit” in foreclosure to finish the deal, giving published notice to all people who might have an interest and forcing the lender to perform due diligence in reaching those people, or filing a quiet title. In most cases this will lead to you simply getting the title free and clear if they cannot satisfy these requirements.

One of the interesting scenarios here is that if you have a title agent who refuses a clear policy it might be the same agent who did the closing knowing that the securitization process was in play but failed to appreciate the effect and failed to disclose this knowlegde to the borrower — thus depriving the borrower of knowing the real lender and therefore the real party in interest to whom a rescission letter could be sent. This, it could be argued, extends the three-day rescission rights indefinitely. And the three-day rescission remedy is much stronger that the 3 year rescission.

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