REQUIRED READING: John Maynard Keynes once wrote, ‘It is better to be roughly right than to be precisely wrong.’ However, Keynes never worked in mortgage servicing – otherwise, he might have reconsidered his quote, especially in regard to loan assignment.
In theory, an assignment seems like a benign and foolproof item. In reality, however, an assignment can be the launching point for a surplus of problems. Indeed, assignments that are handled in the Keynesian notion of being merely ‘roughly right’ can bring endless anxiety into a servicer's life.
For servicers that prefer existing in a stress-free working environment, there are five key assignment-related errors that need to be avoided at all costs.
On the surface, the basic principle of an assignment does not seem very confusing.
‘An assignment is simply a document that evidences the transfer of a loan from one party to another,’ says Alice P. Sorensen, chief operating officer at Orange, Calif.-based LRES Corp. ‘Think of it as a birth certificate that travels with the loan for the rest of its life.’
However, Sorensen notes that the first major mistake can occur at the very beginning of the process if the assignment has erroneous data.
‘Clerically incorrect information will create grand grief for some future servicers,’ she says.
Equally problematic is the absence of crucial data.
‘There is a problem if the servicer leaves blank the name of assignees,’ says Myron Finley, chief legal officer and general counsel of Nationwide Title Clearing, based in Safety Harbor, Fla. ‘There are problems filling in blanks after the document is already signed and notarized. That opens doors to allegations of mortgage fraud.’
Finley adds that it is vital to know the lender of record associated with the assignment. ‘If you don't know who the lender of record is, it undercuts everything you do at the assignment,’ he says.
Cindy Gainsforth, executive vice president at Pasadena, Calif.-based Rekon Technologies, states that a missing chain of assignment is also a major error.
‘This happens because either the servicer did not record the assignment, or it was left in a file with the belief that whoever buys it would assign it,’ she says.
On the cheap
Over the past few years, the costs of mortgage servicing have climbed dramatically. Not surprisingly, many servicing operations are eager to keep their expenses low. And this is where the second key problem in assignments occurs.
‘The biggest mistake, in my opinion, is not recording the assignment when a trade takes place as a means of reducing your transfer costs,’ says Sorensen. ‘It is foolish to think that you do not need to record an assignment until you do your next trade. In fact, the failure to record will expose you to tremendous title issues.’
Mike Wileman, president and CEO of Orion Financial Group, based in Southlake, Texas, believes that some servicers mistakenly assume they will save money by not outsourcing this process.
‘Too many people try to do assignments in-house,’ he observes. ‘But if they are not prepared to do them properly, it costs two to three times the work. People try to save a few pennies, but it creates more problems down the road.’
Even if the in-house assignment process is free of mistakes, there are still plenty of problems when it comes to dealing with the county registrars.
‘Many of the counties are antiquated in the technology they use,’ says Sorensen. ‘They cannot keep up with the volume of trades that take place.’
Gainsforth warns that servicers need to realize that there is no uniform standard in assignment registrations.
‘Some servicers think they can just create a template,’ she says. ‘But there are more than 3,600 recording districts in the U.S., and they have different recording requirements. Some districts are very particular at how assignments are created.’
Scott Goldstein, president and CEO of Farmington Hills, Mich.-based National Default Exchange LP, concurs.
‘Some counties want their own font size and margin size,’ he says. ‘Some want to have a name printed under the signature, and some don't want a name printed under the signature.’
There are also distinctive assignment requirements at a state level.
‘In Mississippi, there is a new requirement that a borrower's name and phone number appear on every document,’ says Finley. ‘Some people feel that goes too far and can lead to invasion of privacy concerns. So, in Mississippi, you can leave the phone number off for an extra $10 fee. But various counties in the state interpret that requirement differently.’
Finley adds that South Carolina has its own unique requirements regarding who witnesses the assignment.
‘In South Carolina, a notary has to have his or her signature witnessed as well,’ he says. ‘If you are not aware of that, your assignment gets rejected.’
Le mystere du MERS
Another key assignment problem involves the Mortgage Electronic Registration Systems (MERS).
‘One of the biggest issues today in assignments is the large quantity of assignments servicers have to prepare in the event of default,’ says Gainsforth. ‘Due to MERS' ruling that legal action cannot be filed in MERS' name, plus the increased rate of default in the past few years, servicers experienced a spike in volume that they did not anticipate and did not have the experienced staff to manage.
‘As a result,’ she continues, ‘backlogs in assignments were created, delaying the foreclosure process. This resulted in monetary loss in the form of fines from MERS and/or investors. MERS imposes a $10,000 fine for each legal action filed in MERS' name, while investors impose daily curtailments when foreclosures are delayed.’
‘MERS is still not well understood, even in the industry,’ says Finley. ‘There is also the question of the MERS identification number – sometimes it is not on the assignment when it gets recorded, or the wrong number is attached to a loan. Borrowers might not find their loan in MERS, which leads to a lot of upset borrowers. Or an assignment out of MERS sometimes happens without being deactivated within MERS. The homeowners see a release filed in the public record, but they see it is still in MERS and wonder whether or not it is still in MERS.’
Needless to say, aggravating the borrower is also a major no-no – especially in today's servicing environment.
‘If the borrower pays off a loan but the servicer is not be able to release a lien in a timely manner, that is poor customer service,’ says Wileman. ‘Not to mention, that it could lead to litigation.’
Sorensen urges servicers to be aware of potential fraud schemes that could snag borrowers.
‘There is a scam in which an unscrupulous person sends out a notice to the borrower that the loan was sold when, in fact, it hasn't been traded,’ she says. ‘The borrower makes payments to a new place, but the loan will go into default with the real lender. Meanwhile, the scammers take one or two payments from unsuspecting borrowers. It is critical for servicers to stay on top of collections so problems like this do not turn into other issues.’