Servicers Commit Fraud Foreclosing on Mortgage Loans

[Oct 24, 2010.]

 

The mortgage scene has changed in recent years. Once upon a time, banks made mortgages and kept those loans in their own portfolios. Not so these days. In order to keep the money flowing, mortgages and home equity loans are securitized. That means they are bundled and sold in pools to investors.

When a homeowner stops paying a mortgage, the lender has the right to foreclose and take the title to the property acting as security. The legal device which allows the mortgage lender to foreclose is called the deed of trust or mortgage. Legally, if the mortgage lender wants to foreclose it needs to be in possession of the deed of trust or mortgage. Until now, judges have not been enforcing this.

Judges deciding on foreclosure proceedings have been accepting affidavits from mortgage loan servicers that state they are in possession of and have reviewed th mortgage paperwork. Recent investigations have revealed that loan servicers have been making false affidavits. In what is now called the "robo-signing" scandal, hundreds of affidavits have been found to be false.

When mortgages and home equity loans are sold in bulk, the transfer of official paperwork is often left undone. This means that the investors who own the mortgages may not possess the paperwork necessary to proceed with a foreclosure. If the homeowner stops paying, the investors may be without the power to recoup their investment by seizing the property.

While several major servicers have stopped their foreclosure proceedings to examine their foreclosure processes, Bank of America is moving forward. Bank of America has stated that it is confident its processes are correct.

Many of the servicers use MERS, the Mortgage Electronic Registration System. MERS digitizes and centralizes the paperwork that goes with bundles of mortgages. About 60% of mortgages are covered by MERS. MERS staff maintains that they are guarding the rights of investors properly. Judges are now questioning this statement.

Legal actions against loan servicers are piling up. Many homeowners may have been foreclosed upon illegally. As the investigations are ongoing, facts will continue to roll in.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.