Does A Loan Servicer Even Have The Power To Foreclose?Posted on October 20, 2015 by
The process is supposed to be simple. If you have a securitized mortgage, you make your payments to a servicing company. The servicing company is granted the authority by the certificate holder of the loan to collect the payments and enforce the terms of the loan. But what if that servicer never actually had the right to collect? Even if they had the right, what if they covered all of your missed payments to the certificate holder and its trust that owns your mortgage? If this were the case, your loan is current. Would the servicing company have the right to foreclose on your loan that is current with the certificate holder/trust?
In most cases the servicers are making the mortgage payment to the certificate holders (the owners of the debt), whether the borrower makes their payment or not. This means that the certificate holders of the loan are getting paid, therefore there is no default giving them a reason to foreclose. This certainly explains why you very rarely see a declaration by the certificate holders or their trusts claiming a default! The servicer makes the payments and collects their service fees until they decide to foreclose, despite the fact that the certified holder of the debt never experiences a default. Once they foreclose on the loan, they can collect even more fees. Pretty sweet racket for the servicers, right?
If that isn’t brazen enough for you, the servicers are even using the certificate holder’s own money to pay them off! There is a clause in the REMIC trust prospectus that flat out tells the certificate holders that some of their money will be put into a pool that will be used to pay out the expected returns. To break it down even more, the investors provide money to the mortgage servicers by buying mortgage backed securities, then, if a homeowner misses a payment, the servicer makes the payments to the investors using the investors’ own money! The servicer skims their service fee off of each payment to the investor, and keeps this ruse up until they decide to foreclose on the homeowner.
The most astonishing thing is that in most cases these servicers never had the right to service the mortgage in the first place. According to Pooling and Servicing Agreement of the REMIC trusts that are supposed to have provided the funding for mortgage loans, the servicer is working on behalf of a REMIC trust which includes the loan. As I’ve explained in previous articles, these trusts were almost never formed. Since the trust was never formed and does not include the loan, the servicing company has no authority to enforce the loan on behalf of the trust!
This fraud takes on an important role when it comes to TILA rescission. According to TILA, a borrower has the right to know who the creditor is on their loan. That is to say that the borrower has a right to know what company or entity provided the money for the loan. In the case of securitized loans, the identity of the creditor was not provided. Since the creditor on the loan is not identified, the loan was never consummated. TILA gives a three-year window from the date that the loan was consummated during which time the loan can be rescinded. Therefore a mortgage from 2006 could still make a valid TILA rescission claim if the creditor was never identified. The servicer might argue that the loan was consummated because it was signed and the borrower made payments, but unless they can provide the real paperwork showing who the original creditor was, that they were identified at the time of closing, then provide documentation for all of the sales and assignments that led to the servicer having the right to enforce the loan, they have no power to contest the rescission in court!
Fortunately, the law has caught up to the banks. Not only has TILA rescission provided homeowners with a powerful tool to stop foreclosure and stay in their house longer, it also creates an opportunity for investors to do some pretty amazing deals. The tides have turned and the banks are being forced to negotiate on our terms. No more begging the banks to accept our short sale and REO offers only to have them demand ridiculously high prices. We can now get the banks to the table and demand that they prove they have the right to enforce a loan.
This makes it more important than ever that homeowners and real estate investors act NOW. This is a massive opportunity for real estate investors. If you know of anyone with a defaulted or underwater note, you need to get in contact with my office immediately at (706)-485-0162. I have spent the last two years building up a team of experienced attorneys and fraud examiners/forensic auditors who specialize in exposing fraud committed in the mortgage process and using that fraud as leverage to negotiate the sale of notes. This opportunity is not going to be available forever; we need to strike while the iron is hot!
We have a huge opportunity to help homeowners and do some great deals with multiple exit strategies. For more information, call me at 706-485-0162.