Ever wonder who really owns your loan? If it has been securitized, chances are it went through the MERS system, and you can search their data base. My loan is held in portfolio, so I’d be interested to know just how much information is available to you on the MERS site. Comments?
3685 Boulder Patch listed today for $1,295,000. This is notable in that it is the first house to be listed at over $1M in over a week. In fact, there have only been a handful over $750K listed. (this post was written a couple days ago)
17881 Brushland just listed at $114,000. This is one of the very few cases I know of where the HOA foreclosed on a property before the bank. Woodland Village HOA foreclosed on 27 August for $4671 in delinquent dues, penalties, interest and fees. On 8 September, the bank foreclosed for $99,920 with $293,980 owing on the original $242,250 loan. Confused, I called the Assessor for clarification. I may not have all the legalese correct, but this is what I was told: In a normal foreclosure, the HOA can only recover 6 months worth of delinquent dues, though much more may be owing. By foreclosing for the full amount owed and taking "ownership", they have an enforceable lien in place ahead of the bank, and the bank has to pay the full amount to clear title when they foreclose. So it seems that when a HOA forecloses, they become more of a caretaker than an owner. Sure the bank missed the boat on this one and cost itself (and us) some money, but the HOA did not receive a $99K windfall.
Fitz Garage was on the Redevelopment Agency Agenda for yesterday, but the meeting was canceled. Reno Parking Garage LLC was scheduled to buy the land under the garage from the City for about half of what the City paid back in 2005 when they took the garage by eminent domain for the trench project. The list of officers for the buyer hasn’t been posted yet, but the Resident Agent is the same one Fernando Leal has used on ALL of his entities, which would make sense. It’s unclear if the land sale ran into trouble, or if the cancellation of the meeting was related to a larger bond refinancing relating to a couple other ReTrak properties.
I’ll be back over the weekend with a slightly more detailed look than usual at the monthly foreclosure statistics for Washoe. Is Robogate having an effect here?
smarten
Good post Mike.
The MERS subject, I find interesting. MERS is a registration system which was created by larger institutional lenders to skirt most states’ recording requirements for mortgage assignments. In your typical case, assignment of a mortgage usually is evidenced by a writing which gets recorded with the local Recorder, and then is notice to the world for all future ownership purposes. But when you slice and dice a mortgage into hundreds or thousands of fractionalized pieces, the recording costs [and confusion can] become substantial. And then of course there’s the question of who has the power to declare a default; proceed with a trustee’s sale; reconveyance after payment; etc., etc? So similar to your typical institutional lender which retains servicing rights after mortgage origination/sale in the secondary market, MERS becomes that “straw person.”
As I understand it, the whole MERS artiface has come under recent attack, especially in bankruptcy court, where the question of mortgage ownership is raised by the debtor and MERS is required by the court to provide written evidence it is the owner of the obligation secured by that mortgage and thus entitled to foreclose. Invariably, MERS is unable to produce that evidence.
So I guess as a follow up to Mike’s post, if your loan appears in the MERS database, it means it has been bundled with a series of other mortgages into a larger pool which has been sold on a fractionalized basis to hundreds and perhaps thousands of investors. Don’t know what relevance this would have to your average non-defaulting mortgagor, but just for giggles, try demanding surrender of the original of the note secured by your mortgage [something a court would demand if the holder had brought suit to collect that owed thereunder] as a condition to pay off and see what happens!
I’ve oftentimes thought about this because you’re absolutely entitled to demand surrender of the original of a note as a condition to actual payment. And in most states, your mere offer to pay off an obligation [a tender] is equivalent to actual payment [whether or not you physically make that payment] as long as you don’t include any pre-conditions with your offer you’re not entitled to demand. So if your tender is rejected [because the apparent holder of your note cannot surrender the original as a pre-condition to payment], the security becomes extinguished and your obligation to satisfy all ancillary portions of the obligation [like continuing interest or attorney’s fees in case of non-payment] become extinguished as well. What you’ve then accomplished is converting a secured mortgage into an unsecured note [that cannot be produced so as to be enforced]. Now you may have to convince a judge to judicially declare what I have suggested [and as a condition he/she may require you to deposit actual payment with the court], but as I said, interesting.
billddrummer
@smarten,
Equally good, if not excellent, post.
With respect to the mechanics of a MERS-recorded deed of trust–
If in bankruptcy court the mortgage obligation is deemed uncollectable because of the inability to produce an original note, and the lender becomes an unsecured creditor without a corresponding right to collect (because as you point out, the unsecured obligation can’t be supported either), then will that lender be compelled to write off the full loan balance?
And if so, does the debtor then get to keep the property lien-free?
Further to this argument, if in fact the lender does charge off the full loan balance, does that lender then have recourse through MERS to the investment bank that packaged the original security?
It seems to me that this issue is at the crux of the argument against MERS.
smarten
I don’t know the answer BillD. Perhaps some of our BK attorney contributors can provide more insight?
But based upon what I’ve read in the press, the scenerio I describe is what has brought down the MERS system. Typically the “MERS” creditor initiates foreclosure; the mortgagor files BK [which automatically stays the foreclosure]; the creditor files a motion in BK court seeking relief from the stay; and then the creditor is hit with a demand from the debtor that the creditor produce the original of the note secured by that mortgage [which proves the “MERS” creditor is the actual owner]. When the creditor can’t, it is downgraded to unsecured status [although the note obligation is not written off, as a practical matter, that may be the net effect assuming unsecured creditors are paid (next to) nothing].
Actually, think of the process as a BK “cram down” [a subject we’ve discussed before on this blog]. Although I don’t think the court’s power actually extends to mortgages [although Obama was trying to change the law so that it did], assume for the moment we’re in a Chapter 13 wage-earner BK; the debtor owns a vehicle he/she has conveyed to a creditor as security for an auto loan; and, the debtor’s indebtedness exceeds the value of the vehicle [i.e., the debtor is “underwater”]. It’s my understanding the court can REDUCE the amount of the secured creditor’s obligation to the value of the security. In other words, a portion of the creditor’s note obligation simply “evaporates.”
In the MERS scenerio, essentially ALL of the secured creditor’s obligation evaporates.
Martin
So I go out and borrow a sum of money to buy a house. The loan is evidenced by a note secured by my house. I go into default. The lender commences foreclosure proceedings against me. I file bankruptcy, and I demand that the lender produce the original of the note I signed. The lender cannot produce the original of the note. Which means the lender cannot foreclose? The loan becomes unsecured? Maybe so, but the house becomes an asset of the bankruptcy estate does it not? If there is any equity in the house, that equity (and the house) belongs to the bankruptcy estate, not me?
What if there is no equity in the house? Could not the lender move the bankruptcy court to lift the automatic stay and allow the bank to proceed with foreclosure, since there is nothing of value to the bankrupct estate?
Any bankruptcy lawyers out there?
Reno Ignoramus
For those of you who seek further enlightenment, google “Joshua and Stephanie Mitchell, US Bankruptcy Court, District of Nevada”
Reno Ignoramus
Perhaps I ought to add that the ruling in Mitchell is not universally accepted throughout all the jurisdictions. Infact, it appears to be a minority position.
John Newell
Martin,
While I will count on any BK attorneys reading this to correct any errors, as I do not do BKs, I wanted to point out a couple of things that stood out to me.
First, under NRS 115.010, $550,000 of value/equity of homesteaded real property in Nevada is exempt from execution, and thus is usually an exempt asset under BK law, subject to some limitations. Please note also that the exempt amount may be lower, depending on when the property was purchased and how long the debtor has lived in the state. And while it is true that a homestead does not protect the property from notes secured by the real property, in the hypothetical Smarten presented above (and in the case referenced by RI) the note is no longer secured by the real property. Arguably, the entire value of the property up to amount exempted under the homestead would be exempt under Chapter 7, and would likely be excluded from the available for liquidation test for Chapter 13.
Second, in the hypothetical above, the moment a court found that the note was no longer secured by the real property, the debtor becomes the owner of the property free and clear, assuming no other encumbrances. In other words, there would be 100% equity in the property, unless someone else has a valid secured claim, and therefore the property is an asset under the BK at it fair market value. However, if the property is homesteaded, and the value is under the allowed homestead exemption, then the asset likely cannot be liquidated by the BK court.
Carleton
So the deadbeat borrower gets to keep the house free and clear just because the bank can’t produce the original note?
The borrower got the money from the lender didn’t he? He used it to buy the house, didn’t he? He defaulted on his obligation to the lender didn’t he? And you are saying he gets to keep the house?
I am no fan of the banks, but that seems wholly absurd.
Sully
Carleton, have no fear. If this happens too many times the FED will make it right with QE-III. After all it doesn’t cost them anything and will give them an excuse to try for the third time what didn’t work the first time nor will the second time. 🙂
Mitchell
John, I think you misread the Court’s ruling in the Mitchell case referred to by RI. The Court did not say the note is no longer secured by the real property. The Court said that MERS did not have standing to commence a foreclosure as the beneficiary of the deed of trust. These are very different things. The note is still secured, the Court simply requires that the proper beneficiary under the deed of trust ,and not MERS, must commence the foreclosure.
Very different.
And so Carleton, the Court is not saying that the borrower now owns the property free and clear. The absurd result you fear is not the case.
John Newell
Mitchell,
You are correct — if the proper beneficiary can produce the note. If the proper beneficiary cannot produce the note on demand, then the effect under the Mitchell ruling is the same as in Smarten’s hypothetical. The court is clear that the note must be produced by the proper beneficiary.
So, if we accept that the perfect storm hypothetical Smarten put forth, do you see an error in my analysis (and I am not being a smartass — I really would like the feedback).
RFuld
The notion that trillions in dollars of mortgage debt will never have to be repaid, and the debtors owing those trillions will receive a massive windfall, because the lenders cannot produce the original notes is, with all due respect, just plain silly. The notion that the creditors to whom those trillions of dollars are legitimately owed will never be able to foreclose because they cannot produce the original notes is again, with all due respect, just plain silly.
If anybody reading this blog really thinks that the milti-billon dollar banks and insurance companies and investment capital funds and the multi-billion dollar hedge funds who share interests in the repayment of these trilions of dollars are without the political and financial resources to arrive at solution that is favorable to their interests, then I would like to talk to you about making an investment in a gold mine I own in Somalia.
MikeZ
The inescapable problem is: without the proper, original paperwork, there will be mistakes made, and bad forclosures are big news (and a potential financial liability), perhaps big enough to counteract any political influence the creditors have.
Only time will tell how silly it is.
Harvey
Once again, MikeZ displays his ignorance, or naivete. Welcome to the Oligarchy of the United States.
RFuld’s comments are exactly correct.
John Newell
I would agree that expecting the perfect conditions for the above scenario to play out with respect to trillions of dollars of housing loan debt is silly. However, the discussion was targeted at the idiosyncratic provisions of Nevada law, and specifically a situation in which a Nevada borrower took advantage of BK protection. Do you not find it equally silly to extrapolate your macro conclusion from such a narrow, hypothetical discussion?
John
The bank is NOT responsible for the remainder if the hoa forecloses. Further in nevada the maximum is 6 months not 9.
MikeZ's Vanishing Credibility
I usually reserve this type of thing for MikeZ, but just John (as opposed to John N), what are you talking about? Mike (G, not Z) did post it was six months, not nine. As for whether the bank is responsible for the HOA fees past due, if Mike is correct that, by foreclosing, the HOA has established a lien, then in this situation, why would the bank not have to redeem the lien to clear title on retaking the property? Care to explain further so we can all be enlightened?
Drive by Poster
John –
You are about 2 years behind the times. In 2009, the Legislature extended the super-priority of an HOA’s lien to 9 months of assessment from 6 months. NRS 116.3116.
Drive by Poster
I think what is being forgotten is that with secured debts, it is all about the priority of the lien. That determines who gets paid when. No one recovers more than their secured interest. If there is any extra after a senior lien is satisfied, then a junior lien gets paid and on down the line until either all secured interests are paid or there isn’t any money left.
inclinejj
17881 Brushland just listed at $114,000. This is one of the very few cases I know of where the HOA foreclosed on a property before the bank. Woodland Village HOA foreclosed on 27 August for $4671 in delinquent dues, penalties, interest and fees. On 8 September, the bank foreclosed for $99,920 with $293,980 owing on the original $242,250 loan. Confused, I called the Assessor for clarification. I may not have all the legalese correct, but this is what I was told: In a normal foreclosure, the HOA can only recover 6 months worth of delinquent dues, though much more may be owing. By foreclosing for the full amount owed and taking “ownership”, they have an enforceable lien in place ahead of the bank, and the bank has to pay the full amount to clear title when they foreclose. So it seems that when a HOA forecloses, they become more of a caretaker than an owner. Sure the bank missed the boat on this one and cost itself (and us) some money, but the HOA did not receive a $99K windfall
You both are correct but it is 9 months confirmed by the Nevada Ombudsman’s Office
ali sikder
I am RE. broker. i have been prfocessing short sale of a propertyh but there was a third lien which was tranfer from whilshire bank to Bank of america. both we could not find the loan . pl. let me know how can I get that loan number. i will highly appredciated if you will give me some instrfuction.
thanks.
Ali Sikder