Moral Hazard in Non-Judicial Sale: Trustee commits violations of FDCPA and other statutes!

From Eaine B

Editor’s Note: I have long advocated sending letters, objections to sale and complaints against “trustees” named (or substituted) on deeds of trust who initiate foreclosure proceedings. Indeed, it is highly probable that because of statutes attempting to protect the trustee from liability, the trustee is at best usually named only as a nominal party in a lawsuit challenging the legality of the non-judicial sale, demanding the identity and contact information of the creditor and getting a full accounting from the real creditor.

I would argue that this reader’s comment is more on target than they even know. Because that is the point — knowledge. If the “trustee” knowingly proceeds when it KNOWS there is a question of title, a question of who is the creditor, and knows that this loan was sold to third parties that have not been disclosed to the Trustor nor the Trustee, then the trustee is more than a nominal party, to wit: they are a co-venturer in a  fraudulent scheme.

Typically non-judicial action commences under a “substitute trustee”.  One would ask why it was necessary to call in a “substitute trustee” from the bullpen, when the current one is just fine. The only possible answer is that the old trustee either doesn’t want any part of this, or won’t do it without following industry standards to confirm ownership etc. It would seem fairly obvious that if the existing trustee is still in business and continues to qualify as a trustee, the only rational reason to change trustees is because the actors wish to do business with people who won’t ask questions.

Often the “substitution of trustee” is backdated, undated or dated after the notice of sale, notice of default etc., so there is a simple procedural angle to set back the sale if you are actually reading the documents, and getting a title report.

More substantively, the “substitute trustee” is granted that position by a party who in all probability does not have the power to grant it — but that requires a forensic analysis, title report, and probably a lawsuit to establish. For example, if some person unknown to MERS assumes the title of “assistant Vice president of Mortgage Electronic Registration Systems” and signs the substitution of trustee or any other document, they probably lack the power to do so, or they lack the documentation showing they have the power to do so.

This actually runs to the core of moral hazard in non-judicial states. Anyone who knows you have missed payments, could file a “substitution of Trustee” document in the county records, send you a notice of default, notice of sale and sell your property to the highest bidder — all BEFORE your real servicer (who we know is only a pretender lender) even knows about it. It is a scam waiting to happen. The scammer then takes the money and runs. Meanwhile you have most likely given up and left the house so it is now abandoned. This scenario can only happen in non-judicial states, where the statute authorizing a non-judicial foreclosure sale ASSUMES that the right party is doing the right thing under proper authority.

When mortgages were simple, and securitization was only an idea, the opportunity for abuse in non-judicial states was present but generally controllable because your true lender had control of the loan, they knew when you were delinquent, and they would be in touch with you, during which time it might come out that you had already received a notice of sale from a “substitute trustee.”

In the world of securitization where the potential real parties in interest are almost infinite in number, where the credit report is used rather than the title report, and where various layers of companies are used to create plausible deniability, insulation from liability and the ability to move things around “off-balance sheet” or “off record” at the county recorder’s office, the potential for abuse is practically infinite. And true to form, my experience is that virtually every foreclosure in a non-judicial state contains at least the taint of this abuse and often facially shows the failure to use proper documentation.

Comment submitted by Eaine B—–

Trustee commits violations of Fair Debt Collections Practice Act!
A good cause of action against Northwest Trustee Services Inc, Routh Crabtree Olsen PS is that I have found they sell your private information to the public. Go to http://www.usa-foreclosoure.com and find your foreclosure….then buy for $39.00 a copy of the title report that is supposed to be private between the trustee and the beneficiary. Any public person can order your report online. This is mail and interstate violations. Make a complaint to the Bar association, and the FTC and your state Attorney General.
Call the title company on the top of the form and ask them. Then perhaps you can file a suit against Routh Crabtree Olsen and Northwest Trustee Services Inc for violations of 15 USC 1692 Fair Debt Collection Practices Act violation. It’s triple damages. Most likely they will have sent you a letter from Routh Crabtree Olsen. One I got even quotes the 15 USC 1692. So obviously THEY know about it. The owner of Routh, Crabtree and Olsen is Stephen Routh and Lance Olsen. Routh has various companies in AK, MT, AZ, CA etc. Just look at the list on the various web sites. http://www.usa-foreclosure.com has the same address as Routh Crabtree Olsen and Northwest Trustee Services and as Routh in AK.
Also, the process serving company that they use is owned by them.

Reg Z TILA Amendment requires new owners and assignees of mortgage loans to notify consumers of the sale or transfer

The Federal Reserve Board has issued an interim final rule under Regulation Z to implement the recent Truth in Lending Act (TILA) amendment that requires new owners and assignees of mortgage loans to notify consumers of the sale or transfer.

While mostly helpful in foreclosure defense,  the rule leaves open the question of ownership of the loans. Because of the practice of “assignment” of the loans to a special purpose vehicle, the Fed stopped there in its inquiry. If it had taken one step further it would have seen that the indenture to the mortgage backed bond conveyed an ownership interest in the loans supposedly assigned. it also leaves open the problem of whether the loans were accepted into the pool or were time-barred or were defective for failure to meet the requirements of recordation or recordable form set forth in the enabling documents.

The TILA requirement has been in effect since the May 20, 2009, enactment of the Helping Families Save Their Homes Act of 2009. Compliance with the specifics of the new rule is optional until January 19, 2010. As a result, new owners may (but need not) rely on the new rule immediately to ensure they are in compliance with TILA. Violations give rise to liability for statutory damages, including up to $4,000 per violation in individual actions or up to $500,000 in a class action.

The transfer notice requirement applies to all closed-end and open-end consumer-purpose mortgage loans secured by a consumer’s principal residence. It requires any person that acquires more than one mortgage loan in any 12-month period to provide a transfer notice without regard to whether the new owner would otherwise be a “creditor” subject to TILA. Mere servicers of mortgage loans and investors in mortgage-backed securities or other interests in pooled loans do not acquire legal title to loans and are not subject to the new rule. However, trusts or other entities acquiring legal title to the securitized loans are subject to the rule. The notice requirement is triggered by a transfer of the underlying loan, regardless of whether the assignment is recorded. Thus, assignees are not exempt from the duty to provide notice merely because the mortgage (as opposed to the note) is in the name of Mortgage Electronic Registration Systems (MERS), for example.

The new rule does not affect the separate notification requirement under the Real Estate Settlement Procedures Act (RESPA) for servicing transfers on mortgage loans. Accordingly, new owners who acquire both legal title to a mortgage loan and the servicing rights will need to satisfy both the TILA and RESPA notification requirements.

  • The notice must be given on or before the 30th calendar date after the date the new owner acquires the loan, with the acquisition date deemed to be the date that the acquisition is recognized in the new owner’s books and records. In the case of short-term repurchase agreements, the acquirer is not required to give the notice if the transferor has not treated the transfer as a loan sale on its own books and records. However, if a repurchase does not occur, the acquirer must give the notice within 30 days after it recognizes the transfer as an acquisition on its books and records.
  • The notice must be given even where the new and former owners are affiliates, but a combined notice may be sent where one company acquires a loan and subsequently transfers it to another company so long as the content and timing requirements are satisfied as to both entities.
  • The notice must contain the information specified by the new rule, including contact information for any agents used by an owner to receive legal notices and resolve payment issues.
  • The required information also includes a disclosure of the location where ownership of the debt is recorded. If a transfer has not been recorded in the public records at the time the notice is provided, a new owner may satisfy this requirement by stating that fact.
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