20 Jan Mortgages in Bankruptcy: Who really is the Real Party in Interest?
Who really owns the mortgage? Do you really know? How many times has it been sold? How many times have its servicing rights been sold? Where is the underlying note? Is it perfected?
If a Bankruptcy is filed, who is the proper party in the Bankruptcy? Who really is the real party in interest to come before the Bankruptcy Court on a mortgage?
Due to the complexities of securitization, it’s often difficult to ascertain who really should be a proper party in Bankruptcy Court. In a nutshell, mortgages are generally originated by a broker, then sold. They may be sold multiple times, but usually end up in some sort of trust pool with thousands of other mortgages. The pool is managed by various parties and subject to servicing agreements.
Who you make your mortgage payments to, however, is usually not who you really owe the money too. Instead, they are the “servicer,” which is simply a party that collects the payment for the real owner/trust pool. In many of the Bankruptcy Cases I file, I see Motions for Relief of Stay filed. If granted, this allows a foreclosure to resume and not be limited by the Bankruptcy Restraining order called the automatic stay under 11 USC 362.
But the problem is, that the party attempting to get permission to continue the foreclosure, many times, is not even the correct party!
It seems that every week I see more and more falsities concerning the true party in interest being submitted in legal pleadings before the court. Below is an excerpt from an attorney who admits that their client was the wrong party in the Motion for Relief of Stay. What is more disturbing is that eventually we were able to resolve the relief of stay with an Adequate Protection Order(an agreement entered into by the borrower and lender and signed off by the judge, which allows the bankruptcy protection, provided the debtor makes certain concessions, but also allows for immediate relief to proceed to foreclosure if the debtor breaches) but which was signed by the wrong party! In other words, there now exists a Court Order between my client and a lender that has nothing to do with my client or her property!
“Upon reviewing this matter, it appears the Motion for Relief from the Automatic Stay filed by our firm on June 27, 2007 was erroneously filed in the name of Windsor Management Co. which has no interest in the Subject Property. Your e-mail of December 14, 2007 indicating that Aames Funding Corporation assigned the Deed of Trust and Note to U.S. Bank National Association is correct. America’s Servicing Company filed the Proof of Claim as it is servicing the Debtors’ loan. To resolve this matter I suggest we file an Amended Stipulation Granting Adequate Protection which reflects U.S. Bank National Association as the beneficiary of the Deed of Trust.”
Ya right. My client is going to amend and not say boo to the court they just defrauded???? Or take this other case where the Motion for Relief of Stay contained more false representations to the court concerning who owned the note:
ME: “Moreover, the declaration is very disturbing in that it commits perjury in stating the note was executed by my client to Wamu on a certain date, when in fact it was executed by my client on a different date to Venture Capital! I would suggest an immediate amendment.”
ATTORNEY RESPONSE: “We do a lot of WaMu work and can tell you there is not a pattern or practice. There clearly is a mistake in the declaration, but this is the first time Iâ€™ve seen this issue arise for WaMu. It certainly is not fraud by any stretch. Weâ€™ll get it straightened out, Iâ€™m just perplexed by your approach. I certainly appreciate you bringing it to my attention.”
So the bottom line is that I’m not sure who really is the Real Party in Interest or who owns the note, at least when it comes to Bankruptcy Court. I do not know, my clients do not know, and the attorneys we are fighting do not seem to know either.
How can something so simple as ownership be so complex? I own this computer I’m writing on, its in my possession and I bought it. I own a bank account and it has my name on it. Why can’t the Mortgage Company just show us the Note with their name on it to prove they own it?
Hmm, could it be that the original note was scanned and shredded and they never thought they would need to provide it because of the increasing real estate market and low foreclosure rate until now? Could it be that they wanted to save the costs associated with perfecting their interest in the note and storing the same in a warehouses or scanned media instead? Could it all boil down to cutting corners?
We shall see. Litigation is pending. Answers will soon come. But for now, I sure wish I could bet some money on this hand in Las Vegas that no one really knows who owns the note, where it is, and who really is the Real Party in Interest.
Written by Michael Doan
Bankruptcy Law Network (BLN)
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