Much has been made recently on the news about mortgage assignment fraud and the bank’s overall bad behavior during the housing crisis. The purpose of this article is to give you an understanding about why banks did what they did and how it constitutes mortgage assignment fraud.
Mortgage Assignment Fraud | Background
Mortgage Assignment Fraud
In the past ten years, thousands of residential mortgages were bundled together into securitized trusts, with banks selling shares off to Wall Street investors in a manner similar to selling shares of stock. Since banks were no longer holding onto their mortgages, their motivation was to create mortgages rather than to avoid creating ‘bad mortgages’ because these bad mortgages would be someone else’s problem.
These trusts were given a name, and the name of the trust detailed the bank involved and the year the trust was created. For example, a trust name may be ”XXX Home Loan Trust 2006 Bank.” The name indicates information about the particular trust such as the year it was created (2006). Each securitized trust had a Closing Date. The closing date is the date that the individual mortgages were put into the Trust by its custodian. The custodian must certify that each mortgage note is endorsed in blank and that the ownership of the note has been transferred. This proof is most often an Assignment of Mortgage.
Mortgage Assignment Fraud | The foreclosure problem
Once loans began defaulting, Trustees discovered that the laws regarding Mortgage Assignments varied significantly from state to state. One of the most significant issues was whether Mortgage Assignments could be back-dated or have retroactive effective dates. This issue arose because Trustees and their lawyers discovered in the foreclosure process that the Assignments could not actually be located, or that certain states did not allow blank Assignments. Since this issue hadn’t yet been resolved, the assignments were signed and notarized as if the transfer took place many years after the actual transfer date.
Mortgage Assignment Fraud | The solution
To solve the dilemma of the missing Assignments, new Assignments were created and recorded, and most of these Assignments did not state the actual date that the Assignment took place. These new Assignments were prepared by specially selected law firms that specialized in providing mortgage default services to lenders. The new Assignments were prepared in the name of Mortgage Electronic Registration Systems (MERS) as “nominee” for the mortgage company.
Mortgage Assignment Fraud | The solution hitting the fan
The new Assignments were prepared to conceal the actual date that the property was acquired by the Trust. An examination of the Assignments filed showing the grantee as the Trust – such as our earlier example of “XXX Home Loan Trust 2006 Bank” – shows that most of these new Assignments were prepared and filed in 2008 and 2009. While the exact closing date can only be determined by looking at the trust documents, any Trust that includes the year in 2006 in its title most likely closed in 2006. These assignments showing dates 2-3 years later obviously didn’t add up. The reason is that if a Mortgage Assignment is dated, notarized, and filed in a year after the year set forth in the name of the grantee trust on the Assignment, it is actually an Assignment specially, and in many cases, fraudulently, made to facilitate foreclosures. In many cases, some of these new Assignments were created after the foreclosure process had been initiated. Hence, we have mortgage assignment fraud.
The mortgage industry was so concerned about this type of mortgage assignment fraud that in the Fall of 2010 it took the unbelievably ballsy step of trying to cram through Congress legislation that would have validated foreclosures by rubber stamping the questionable documentation behind securitized mortgages. Thankfullly, President Obama vetoed that legislation that would’ve allowed mortgage assignment fraud.
Mortgage Assignment Fraud |Conclusion
During the roaring 2000′s, banks were in such a hurry to create mortgages and sell them on in the secondary market that they were careless with their paperwork; particularly with mortgage assignments. When foreclosures started coming in, many of the mortgage assignments could not be found. Rather than facing the problem, banks hired another company to create new assignments to replace the missing ones and put in new dates. If a mortgage assignment was dated & filed a year after the trust was sold on the open market, then it was ruled that the assignment was created solely to facilitate a foreclosure, and as such, constituted mortgage assignment fraud.
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