Foreclosing on Nothing: The Curious Problem of the Deed of Trust Foreclosure Without Entitlement To Enforce the Note
Dale A. Whitman*
Drew Milner**
In this article we propose to examine the extent to which a party conducting a nonjudicial foreclosure of a mortgage or deed of trust must establish that it is entitled to enforce a promissory note that the mortgage or deed of trust secures. It may seem patently obvious that such a showing is required, but that proposition turns out to be far from true.
In Part I, we provide background on the law governing the transfer of the right to enforce notes, particularly negotiable notes under UCC Article 3. We also describe the nature and structure of nonjudicial foreclosure in the United States. Part II looks at seven western states that use nonjudicial foreclosure of deeds of trust and investigates whether and how those states require proof of the right to enforce the note. In Part III, we consider the same issue across the rest of the nation, but rather than engage in a state-by-state analysis, we examine only recent judicial decisions addressing this point. Part IV discusses the related issue of enforcement of notes that have been lost, a problem that is addressed by UCC Article 3 but largely ignored by the nonjudicial foreclosure statutes. Finally, our overall conclusions are set out in Part V.
I. THE FORECLOSURE CRISIS
The foreclosure crisis that began in the latter half of 2007 has been a bitter pill to swallow for the American economy at large and for many thousands of families who have lost, or are in the process of losing, their homes to foreclosure.1 But even such pervasively bad news has a good side, for there are many lessons of law, economics, and policy to be learned from this experience. This article addresses one such lesson.
Before the crisis began, most lawyers familiar with the process of mortgage foreclosure in the United States would probably have regarded it as a satisfactory, if not somewhat dull, area of the law. Foreclosure did not generate much appellate litigation, and those few lawyers who specialized in the field, mostly representing lenders, had little difficulty in getting the results they needed from the mechanisms of foreclosure.
That process has now changed radically. The foreclosure crisis resulted in the creation of a new kind of lawyer: the foreclosure-defense specialist. As these specialists began to poke and prod at the foreclosure process, they found plenty of weaknesses. They raised dozens of questions about precisely what sort of evidence or proof, and in what form, needed to be adduced by those instigating foreclosure, particularly when the loan had been sold on the secondary-mortgage market. For example, they forced the courts to focus on issues such as whether a chain of mortgage assignments (recorded or not) was required as a prerequisite to foreclosure.2
In addition, the impact of the Mortgage Electronic Registration System (MERS) became highly controversial.3 MERS was created by a group of major mortgage-market participants in the mid-1990s as mortgage loans were traded on the secondary market, primarily to avoid the necessity of repeated recordings of mortgage assignments.4 MERS holds mortgages as “nominee” for the loan owner, but the scope of MERS’s authority as nominee was unclear.5 For instance, could MERS foreclose in its own name?6 Was it entitled to notice of foreclosures or other actions affecting the property?7 Did the fact that MERS held the mortgage while an investor held the note create a separation of the two documents that would somehow be fatal to the effort to foreclose?8 A whole constellation of related issues arose around MERS’s involvement in the foreclosure process.
While plenty of uncertainty existed, one concept clearly emerged from litigation during the 2008-2012 period: in order to foreclose a mortgage by judicial action, one had to have the right to enforce the debt that the mortgage secured.9 It is hard to imagine how this notion could be controversial. From its earliest beginnings, American mortgage law held that a mortgage must secure an obligation, and since foreclosure is a means for the creditor to realize on the obligation, the foreclosing creditor must be entitled to enforce that obligation.
10 As the Restatement explains, “The mortgage becomes useless in the hands of one who does not also hold the obligation because only the holder of the obligation can foreclose.”11 In the case of a loan that has been sold on the secondary market, this means that the right to enforce the obligation must have been transferred to the party now purporting to foreclose the mortgage, or if the foreclosing party is an agent, to its principal.12
Observe that the obligation must be explicitly transferred, not the mortgage. For this reason, in the absence of a contrary statute, an assignment of the mortgage is not necessary to transfer the power to foreclose.13 As the old cases put it, the mortgage follows the note14 and will automatically inure to the benefit of the party to whom the obligation is owed.15
The best example of the crimes committed will be Nebraska because of the 2005 MERS v. NE Dept of Banking & Financial, were MERS won the fight that they were not a “mortgage bank” in the NE Supreme Court case.
However that NE employment is low and it is a Red State and the whole CRA and people purchase properties they could not afford stop common sense from being used. As NE got the statutes to combat the illegal foreclosures, but because of the 50 State Attorney settlement provided monies to the State to look the other way, and take the monies from the settlement and pug the holes in the State budget.
In NE MERS is not even register in the State to doing business and has not register at the NE Secretary of State Office that is required of out of State companies to do. No company can used the State’s court system as they are not register, but MERS has filed forgeries to the counties Register of Deeds Office these forged assignment of Deed of Trusts.
Example: Washington Mutual Bank (WaMu) was declared a “failed bank” on Sept 25, 2008, and the mortgage servicer of 1.3 million government insured loans (Wells Fargo Bank Mortgage Servicer) that had the Notes signed endorsed in blank and relinquished to Ginnie Mae in a bankruptcy remote procedure to prevent a bankruptcy court from seizing the loan in the event of problem at the bank.
However when one blank signs a Note and hands it off without a purchase occurring of the debt, it destroys the Note forever because it not only separates the Notes and the Deed of Trust, it more importantly separates what make a Note a Note and that is it separates the Note from the debt making the Note no longer a Note.
In 2008 NE put into law the Foreclosure Protection Act and as part of that Act is Statute 76-2710 where the holder of the debt is the “lien holder” and not some electronic registry without any authority to enforce the debt.
FDIC allowed the public to believe that JPMorgan had purchase all of WaMu loans when in fact that did not happen, and as all that deal was not publish to the public, there was no question of these 1.3 million loan that Wells Fargo was servicing.
It appeared that Wells Fargo purchase the loan back on Jul 31, 2006, but only made an agreement for the mortgage servicing. Now as there was no way legally for these 1.3 million loan to be foreclosed because the separation of the Note, debt & security instrument, however Wells Fargo in concert with MERS as has the forgeries submitted making it appear as if Wells Fargo is actually the owner of the debt instead of WaMu, and notify the homeowner and court that it is the holder of the Promissory Note, and in some case does not even inform the court that WaMu was at one point the owner of the debt.
Wells Fargo trick the county register by saying it is the law holder of the Note, but fail to mention it only as the custodian of record, but simply by submitting the assignment of the Deed of Trust subject that at some point Wells Fargo purchase the debt, when in fact that never happen!
Wells Fargo has “No Standing” to ever foreclose on the WaMu loans as not even a dead WaMu can. This is a fatal flaw on the Ginnie Mae Mortgage Backed Securities program as the securities actual don’t have any underlying collateral, and WaMu exposes a MBS system were Notes are not purchase and as a result make the Notes forever non-negotiable!
Great article yet curiously devoid of the facts on the ground where servicers foreclose for defunct entitities with no note, no security instrument and absolultely no rights of a holder. And if getting the semblance of holder status requires forgery, perjury and other criminal acts, so be it. Not for Nothing Ocwen was caught in 1999 assigning nearly a million notes from BK entities to themselves in MERS. The only reason they got caught was they were too cheap to pay the transfer fee to MERS and MERS locked them out. Any “solutions” put forth are pointless without addressing the widespread fraud and manufactured defaults servicers use to illgally foreclose on collateral they never owned and will never pay to the “real” holder if one even exists.
2009 – Ocwen v. Mers, not 1999.
Dolly Madison-
In the complaint ‘Ocwen v. MERS’. Scott Anderson is mentioned as the only person at Ocwen with authority to sign or pay bills I think it was. IN any case, while I am familiar with Ocwen being locked out of MERS for nonpayment, I was never able to find Scott Anderson. There was a link on msfraud claiming to be THE Scott Anderson, but I was able to ascertain that that was t him either- you are the only person besides myself to mention Ocwen v MERS, just wondering if you found Scott Anderson. Thx
What do you mean by “found”? As in is he a real boy? He is, and Matt Wiedner has a depostion of him and co-conspirator Letica Arias on his blog…
I believe that if the courts would be less pro creditor and adjudicated on the facts and less on discretion, case law and procedure folks would have a better chance at making a dent in the illegal enterprise. The banks seem to lose only enough to make a story and never enough to stop the game. It is our courts that finalize the fraud. It is our attorney general offices that are cutting the deals to make the creditors bullet proof through a tax deductable settlement that benefits no homeowner. The real fraud is in the court. If the court would find for the real victims in a big way we would see a change in industry practices. They keep the machine going. A win here and there means nothing. It’s just enough to keep the people hopeful and think that there is still true justice in the foreclosure adjudication racket. I say racket because after reading so many cases I realize that this scale can never be balanced. Only the hand of GOD can grant real justice as the courts are the dog and pony show before they give it all to the banksters. Woe Ye layers and Judges! One day the chickens will come home to roost. Until then enjoy.
I believe that if the courts would be less pro creditor and adjudicated on the facts and less on discretion, case law and procedure folks would have a better chance at making a dent in the illegal enterprise. The banks seem to lose only enough to make a story and never enough to stop the game. It is our courts that finalize the fraud. It is our attorney general offices that are cutting the deals to make the creditors bullet proof in the long run by settlements through a tax deductible settlement that benefits no homeowner. Considering the amount of profit the creditors get, the settlement is small beans and is just the cost of doing business. It is all an illusion people! I too would settle to pay 80 million if I get away with stealing 1 billion and get to keep property and a lien on the income of every client I screwed in the form of a deficiency judgment. This is the wizard of Oz. Look over here, Look over here! The real stuff is happening in t he court by the guys in the black gown.
The real fraud is in the court. If the court would find for the real victims in a big way we would see a change in industry practices. We need to vote for new judges when the elections come around. Pick any one other than the judges that have been there a while and have their sweet heart deals in place.
They keep the machine going. Just like BoA only accepting enough HAMP to fly under the radar. A win here and there means nothing. It’s just enough to keep the people hopeful and think that there is still true justice in the foreclosure adjudication racket. I say racket because after reading so many cases over the years, I realize that this scale can never be balanced by the written black letter law.
Take a look at the UCC it’s been lobbied to death! It is to the point where you only need to allege you owe money. You can find or steal a promissory note and stamp it with a blank endorsement and viola! A valid instrument! Or get a robo-signer to make a lost note affidavit and your goose is cooked. They no longer need to prove up with real wet ink instruments, copies are enough and falsified chain of ownership is good and dandy. What a travesty. This is especially true in Cook County Illinois. Watch these judges in action, they advocate better for the bank than the Plaintiffs attorney. I don’t know why the banks hire an attorney for? The Judges do a better job at arguing under discretion for the bank. Not every Judge is that bad but the big 12 at the chancery department at the Daily Center know what Im talking about if no one else does. They have even privatized the act of serving process with a General Administrative order 2007-3. It’s a mess!!! Maybe the trick is to start suing the judges? Im sure we can find bias and which ones legislate from the bench amongst other acts of treason if we look hard enough. Never go to court without a transcriptionist and a by stander to compare the writings. Get a copy of the transcript right away before it gets doctored.
Only the hand of GOD can grant real justice as the courts are the dog and pony show before they give it all to the banksters. Woe Ye layers and Judges! One day the chickens will come home to roost. Until then enjoy.