HO– USE BILL NO. 1506 | VA Attempts To Fix Fraudclosure – Banks Go Nuts

They’re trying to kill this bill folks – get on the phones if you live in VA, and do it NOW.

§ 55-59.5. Sale by trustee; additional requirements; nominee cannot request sale.

A. On or after July 1, 2011, if a deed of trust or mortgage has been assigned by the original grantee or mortgagee, the trustee, or any substitute trustee, under any deed of trust or mortgage shall not proceed with any sale of the property unless (i) all assignments of the deed of trust or mortgage have been duly recorded with the land records of the locality in which the property is located and (ii) the person who asserts that he is the holder of the obligation secured by the deed of trust or mortgage can directly trace his interest through the duly recorded assignments to the original grantee or mortgagee.

B. If all assignments of the deed of trust or mortgage have not been duly recorded with the land records of the locality in which the property is located, the trustee, or any substitute trustee, may proceed with the sale of the property conveyed to him by the deed of trust or mortgage upon (i) the recordation of any assignments necessary to trace the interest of the person who asserts that he is the holder of the obligation secured by the deed of trust or mortgage to the original grantee or mortgagee or, if an intervening assignment cannot be recorded because the assignee no longer exists, the provision of an affidavit by the party secured to the trustee, or any substitute trustee, attesting under penalty of perjury that the person is the party secured under the deed of trust, and (ii) the payment of all fees, taxes, and other costs applicable to the recording of the assignments. The person who asserts that he is the holder of the obligation secured by the deed of trust or mortgage is solely responsible for paying all fees, taxes, and other costs required in clause (ii).

C. A nominee of a grantee, mortgagee, or beneficiary for a deed of trust or mortgage has no authority to request that the trustee, or any substitute trustee, proceed with any sale of the property and the trustee, or any substitute trustee, shall not proceed with any such sale upon the request of the nominee. As used in this section, “nominee” means a person who is designated in the deed of trust or mortgage, or who is subsequently designated to act on behalf of the grantee, mortgagee, or beneficiary. The term “nominee” does not include an agent or other fiduciary.

§ 55-59.6. Foreclosure; civil penalty for fraud; civil action.

A. Any person who (i) knowingly makes, uses, or causes to be made or used a false or fraudulent record, document, or statement or (ii) knowingly swears or affirms falsely to any matter, in support of any foreclosure upon property under this chapter shall be liable for a civil penalty of $5,000 for each violation.

Bingo.  No more fraudclosure in VA.  No assignments, evasion of recording fees, sorry, no foreclosure.

Fix it or don’t foreclose.

Now here’s the problem the banks have with this – If the originator is bankrupt and there were no other assignments, who do you get to assign the note?

Let’s presume the following:

Joe’s Bait-N-Mortgage -> Lehman -> Lehman Depositor -> Trust

The Trust in turn hired “Jack’s Servicing” to service the loan.  Incidentally, Jack is a successor to Joe.  He’s not Joe, but he bought Joe’s assets in a bankruptcy proceeding after Joe blew up.

This is a somewhat-abbreviated chain, but it’s close enough.  Lehman was the securitizer and they set up an LLC to be the Depositor.  That “true sale” was required in order to get the “Holder in Due Course” treatment.  Only the Depositor can transfer assets into the Trust according to the PSA that controls the deal.

Now Joe endorsed the note in blank, and then sat on it.  He never delivered it to Lehman, who of course couldn’t deliver it to anyone else.

Lehman has failed.

Jack seeks to foreclose as the servicer.  He has authority to do it on behalf of the Trust.

However, when he does so it is discovered (via the Trust’s remittance information) that The Trust does not have the mortgage paper in it.

Oops.

So now we go back to Joe (which is now Jack), and we find the original “Endorsed in Blank” note.

Fine, right?

Nope.

See, Joe has no contract with Jack and never did.  His contract to deliver the note was with Lehman.  But Lehman is bankrupt.

So now the attorney calls up Joe’s document guy (who is defunct but his assets were bought by Jack) and says “I need you to give me an assignment.”

That guy says “What?  Who the hell are you?”

Jack’s lawyer says “Why we hold the paper 867-5309 and you have the physical document endorsed in blank.”

The guy says “Oh, that deal.  Yeah, we have it.  We were paid for it three years ago by Lehman Brothers; it’s off our books.”

Jack’s lawyer says “I know that, but we need the assignment so we can record it and foreclose.”

The guy responds “Uh, go talk to Lehman.  Didn’t you hear me – that deal was off our books three years ago.”

Jack’s lawyer says “But Lehman is bankrupt; there’s nobody to call over there.”

The guy says “I think I read something about that in 2008.  Oh yeah, I did.  Not my problem, and not my contract.  My contract wasn’t with you, isn’t with you, and can’t be with you now.”

Jack’s lawyer contemplates this.  He can probably bitch and get the guy to perfect his transfer to Lehman, but that’s a bad thing, not a good one.  See, if he does that the paper goes into Lehman’s bankrupt estate, probably never to come back out.  That would be bad, as it would this loan into an instant zero for the so-called Trust that allegedly has it but really doesn’t.

See why the banks don’t want to have to actually prove up anything?  They can’t, and if they’re forced to then suddenly what really happened all those years comes out in open court.

Maybe this is a small problem and maybe it’s a big problem.  Maybe it’s no problem at all.  But if it’s no problem at all, why are the banks raising hell about being forced to prove up the provenance of the alleged debt they seek to enforce the security interest upon?

Yeah.

Now get on the phone.