The Problem of The Problem of Foreclosure TitlesForeclosure Titles

In NSP AcquisitionsIn NSP Acquisitions

Why The Title of the Foreclosure Sale Why 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?

SecuritizationSecuritizationFlow Chart and Flow Chart and

StructureStructure

Transfer of Promissory NoteTransfer of Promissory Note

Negotiable instrument under Article 3 of Negotiable 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

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/Assignment Assignment” = Written Transfer/Assignment

+ Delivery + Acceptance + Recording+ Delivery + Acceptance + Recording

Notarization RequirementsNotarization Requirements Most state laws require “strict” complianceMost state laws require “strict” compliance Signer must admit, by oath or affirmation, in the Signer must admit, by oath or affirmation, in the

PRESENCE of notary to having voluntarily PRESENCE of notary to having voluntarily signed the document, and signer’s capacitysigned the document, and signer’s capacity

Signer must make the OATH or AFFIRMATION Signer must make the OATH or AFFIRMATION before signingbefore signing

Must identify the signer by a federal or state Must identify the signer by a federal or state issued photographic IDissued photographic ID

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

acknowledgementacknowledgement Document is invalid with improper notarizationDocument is invalid with improper notarization

The Alphabet ProblemThe Alphabet ProblemWith Securitized TransfersWith Securitized Transfers

The loan closed in the name of the The 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 a Warehouse Lender then sells paper to a Special 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

How Many TransfersHow Many Transfers

A-Transfer:A-Transfer: Consumer to Broker Consumer to Broker

B-Transfer:B-Transfer: Broker to Warehouse Lender Broker to Warehouse Lender

C-Transfer:C-Transfer: Warehouse Lender to SIV Warehouse Lender to SIV

D-Transfer:D-Transfer: SIV to the Depositor or Sponsor SIV to the Depositor or Sponsor

E-Transfer:E-Transfer: Depositor or Sponsor to Trust Depositor or Sponsor to Trust

How Many DocumentsHow Many Documents FourFour assignments and deliveries and assignments and deliveries and

acceptances of the Mortgageacceptances of the Mortgage

FourFour endorsements and deliveries of the Note endorsements and deliveries of the Note

EightEight separate notarizations separate notarizations

EightEight UCC-1 financing statements UCC-1 financing statements

FourFour recordings recordings

FourFour filing and transfer fees filing and transfer fees

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 negotiable Only used when back of negotiable instrument is instrument 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

Similar ABCDE ProblemSimilar ABCDE ProblemWith the Mortgage InstrumentWith the Mortgage Instrument

A.A. Consumer must sign and deliver to Broker Consumer 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 SIV Warehouse 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!

Who Holds the Bearer PaperWho Holds the Bearer Paperand Mortgages for the Trust?and Mortgages for the Trust?

Normally a third-party bank that provides Normally a third-party bank that provides document 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 on-line document status certificationsProvide on-line document status certifications

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

Electronic data with loan numbers & collateral Electronic data with loan numbers & collateral descriptionsdescriptions

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 UCC-1 Rights in the documents by way of UCC-1 financing statements and the pooling & servicing financing statements and the pooling & servicing agreementsagreements

The 3d-PartyThe 3d-PartyOutsource ProvidersOutsource Providers

Fidelity National Default ServicesFidelity National Default Services

First American National Default ServicesFirst American National Default Services

National Default Exchange, LPNational 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)

What Do the Outsource What 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 Secretary Sign documents as if they were the VP or Secretary

of 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.

How to Identify a Defective How to Identify a Defective Endorsement or AllongeEndorsement or Allonge

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

Allonge can never be used if there is enough Allonge can never be used if there is enough room on the original mortgage note for the room on the original mortgage note for the written endorsementwritten endorsement

Note is endorsed and not assignedNote is endorsed and not assigned Date of the endorsement is before or after the Date 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 …

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, FloridaNotary is from Jacksonville, Florida

Signor’s company has no offices in notary’s stateSignor’s company has no offices in notary’s state

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

Signor’s name is stamped – not written in scriptSignor’s name is stamped – not written in script

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

What About the Mortgages?What About the Mortgages? Assignments and delivery follow same model as with the Assignments and delivery follow same model as with the

notesnotes MERS is used to avoid registration of each assignment MERS is used to avoid registration of each assignment

with 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 members MERS 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 it’s designated signorsMERS does not supervise any of it’s designated signors MERS is not registered as a foreign corporation in most MERS is not registered as a foreign corporation in most

statesstates

How Does TrustHow Does TrustEstablish Lawful Ownership?Establish Lawful Ownership?

Unbroken chain of note endorsements and Unbroken 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 and Unbroken chain of mortgage assignments and deliveries 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 UCC-1 financing filings Unbroken chain of UCC-1 financing filings throughout the chainthroughout the chain

Unbroken chain of recorded mortgage Unbroken chain of recorded mortgage assignmentsassignments

But What Is FiledBut What Is FiledIn 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 the executed a note and mortgage in favor of the plaintiff (E)plaintiff (E)

Note and mortgage from borrower (A) to Note and mortgage from borrower (A) to originating lender (B) attachedoriginating lender (B) attached

Sometimes a purported mortgage assignment Sometimes a purported mortgage assignment from (B) to (E) attached, also purporting to from (B) to (E) attached, also purporting to assign the noteassign the note

This assignment always defective, often not This assignment always defective, often not recordedrecorded

The Paper Trail andThe Paper Trail andThe 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

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

MAYBE – But it would be very difficult for any MAYBE – But it would be very difficult for any securitized trust to produce a valid set of original securitized trust to produce a valid set of original and unbroken assignments and endorsementsand unbroken assignments and endorsements

Even if the trust produces Even if the trust produces ALLALL of the required of the required documents, there is still the issue of the legality documents, there is still the issue of the legality of the role of MERS on all required documents of the role of MERS on all required documents for recordingfor recording

Questions?Questions?David WiechelDavid Wiechel

Telephone 937-765-4546Telephone 937-765-4546

Email dwiechel@woh.rr.comEmail dwiechel@woh.rr.com

111 East Cecil Street111 East Cecil Street

Springfield, OH 45504Springfield, OH 45504