REQUIRED READING: In today's high-speed, high-tech world, how often do we mindlessly hit the ‘accept’ button just to get quickly to our desired electronic destination? Probably more frequently than we might like to admit.
We rationalize it by telling ourselves this is the price for keeping pace with the avalanche of personal and business e-transactions amassing by the minute, every day. Of course, somewhere in the back of our minds, a little voice occasionally counsels us to ‘read those conditions’ lest we unwittingly ‘accept’ an obligation (legal, moral or other) that could be costly. But, overall, speed typically wins the debate nowadays.
It also has won the day in the mortgage industry over the past several years – first during the boom times and later in the wake of that acquisition wave, as proper care of necessary documentation has taken a backseat to getting the transaction completed, whether it was closing a mortgage or, later, executing a foreclosure.
The evidence is overwhelming as investors and servicers continue cleaning up title chains and securing proper documents of record. The ability to prove ownership of that mortgage or deed of trust on county records is paramount.
Hard proof came again this past summer, when a New Jersey Superior Court appellate division ruled that Deutsche Bank had to start the default foreclosure process all over again on a property it tried to foreclose in 2008. The appellate division said in its ruling that "the assignment was not perfected until after the filing of the complaint, and the plaintiff presented no evidence of having possessed the underlying note prior to filing the complaint."
In sum, Deutsche Bank did not have standing when it filed the original complaint because it did not have an assignment, nor did it demonstrate that it possessed the note at that time, the court ruled.
Poor documentation, bad title chains and missing loan assignments can prevent lenders from selling loans and properties or securing releases on liens if the loan is paid off. Further, it can unnecessarily impede foreclosures, delay bankruptcy proceedings and confuse borrowers on what refinance and modification options they may have.
The longer such disconnects and delays continue, the more we have stopped the cleansing process that will have to take place if a true recovery is to take hold. Such issues are playing out in the secondary market, where larger investors are finding they need support, especially for the scratch-and-dent loans they buy that have been sold any number of times over the years. Investors buying on a grand scale need current owner searches or document retrieval so that when missing intervening assignments are discovered, they can be executed and recorded on county records (or the proper owners can be found).
A thorough examination of the collateral file includes a review of the note, the assignment of the note, the recorded mortgage/deed of trust, all assignments of the mortgage/deed of trust and the title policy, as well as the retrieval of all recorded documents at the county level. Today, documents can be electronically recorded in about 500 U.S. counties (out of some 3,600 total), but from a practical standpoint, 80% of all recording volume is done in a third of all counties anyway, and most of those have e-filing capabilities.
Here's the rub: As a loan owner, if you are not on record as such, you are not getting adverse notices from another lender or country where taxes have not been paid, and you may only learn this when there's a tax sale. If a loan owner is not on record and a borrower pays off a note and the loan owner then tries to release a lien, the county may kick it back.
If another lender files a foreclosure and you are not on record to receive that notice, you lose your ability to protect your interest. In some states, once the foreclosure sale has happened and the sheriff records his deed to the buyer, you have lost your entire balance simply because poor processes kept you from recording the proper assignment(s).
Mike Wileman is president and CEO of Orion Financial Group, based in Southlake, Texas. Orion specializes in providing mortgage assignments, lien releases and document retrievals. Wileman can be reached at (888) 316-7466.