Changing Horses in Mid-Foreclosure

Once upon a time a Lender and a Loan Servicer were in a very busy horse race to get to the end of the home foreclosure crisis.  The Lender was very busy indeed, and the Loan Servicer said, “Give me these files and I will foreclose them before you can get to them.”  The Lender was far too busy to even assign the mortgages to the Loan Servicer before the Loan Servicer started filing foreclosures. You cannot really do that.  The plaintiff has to have subject matter jurisdiction in order to bring the complaint before the court.  If the Lender starts the case and then transfers the loan to the Loan Servicer, that is fine.  But if the Loan Servicer files the foreclosure case AND THEN the Lender assigns the loan to that Servicer—that is a problem. The plaintiff was not the right plaintiff.  All those foreclosure cases had to be dismissed and re-filed by the right party, which slowed the race to finish the foreclosure crisis. Do not file foreclosure before you have subject matter jurisdiction, and do not change plaintiffs in mid-foreclosure.   Read More

Osmosis & Uniform Commercial Code

Osmosis is the transfer of gas or fluids through a semi-permeable membrane—oxygen passes through capillary walls to mix with blood, thereby oxygenating the blood.  Our bodies depend on osmosis, and some business transactions follow that organic model with the Uniform Commercial Code. The Uniform Commercial Code (UCC) is a comprehensive code addressing most aspects of commercial law.  First published in 1952, its purpose is to help commerce flow smoothly.  In real estate, if the note is transferred properly, then the mortgage automatically follows the note according to the UCC.  However, the UCC was designed as a set of default provisions in the absence of a contract. In the survival of the fittest, banks sometimes overlook the trust documents that govern what a trust can and cannot hold.  A trust document, a contract, trumps the UCC.  If the trust document says the trust cannot hold the note, then the trust cannot hold the note.  In the presence of such a contract, that contract overrides the osmosis of UCC. Osmosis is vital to life, and a contract is a significant part of real estate transactions. Read More

Trust & Convey

The Uniform Commercial Code (UCC) is a comprehensive code addressing most aspects of commercial law.  First published in 1952, its purpose is to help commerce flow smoothly.  In real estate, if the note is transferred properly, then the mortgage automatically follows the note according to the UCC.  However, the UCC was designed as a set of default provisions in the absence of a contract. Fifty years ago this was not an issue because the bank held the loan for the period of the loan.  The bank was the servicer and held the note and mortgage.  Then about the 1970’s, securitization started with Fannie Mae and Freddie Mac bundling only low risk loans.  In the 1990’s, securitization began to include high risk loans.  The loans were sold to companies created strictly for the securitization process to transfer those loans into trusts, which would be sold as securities. There are a lot of laws in play, and a lot of sorting out which is superior.  With a trust, the trust document is where you have to start.  If the trust document says the trust cannot hold the note…then the trust cannot hold the note.  Thus the documents in the pooling and servicing […] Read More