Banks Looking Further Than Robo Signers; “Lost Note” Affidavits a Point of Failure

[Joanne98]

As readers no doubt know, we’ve indicated from early on in the foreclosure crisis that problems with foreclosures of mortgages held by securitizations went well beyond the now well known “robo signer” issue. The most difficult to resolve and apparently widespread problem is the failure to convey the note (the borrower IOU) properly to the trust (the legal entity that holds the notes on behalf of the investors) as specified in the pooling and servicing agreement.

Kate Berry of American Banker reports that the banks that are reviewing their internal processes are looking beyond the robo signers’ verification (or more accurately, failure to verify) borrowers’ indebtedness. One area of vulnerability being highlighted is the use of “lost note” affidavits. We had flagged this earlier as a possible way the banks could be finessing their failure to convey the notes correctly to the trust. In particular, the Florida Bankers’ Association made a very odd, indeed implausible claim, suggesting that borrower notes were routinely destroyed because they had been scanned electronically. Tom Adams, a securitization expert, and I both found that farfetched; it would be like burning down a warehouse full of cash (although we have learned that one defunct subprime originator did appear to have destroyed some notes, but the lawyers we have spoken to about this are of the view that this is not a common activity).

So why would the Florida Bankers’ Association claim that banks had engaged in a hugely irresponsible activity? Perhaps to provide legal cover for the use of lost note affidavits to cover for the fact that the not had not been conveyed properly; claim it’s lost rather than use the other apparently common route for finessing the problem: fabricating documents that show that the note was signed by all the relevant parties in the proper manner, which includes on a timely basis.

From American Banker (and note the section we boldfaced):

Servicers are looking more broadly at all other documents involved in foreclosures, including “lost-note” affidavits and mortgage assignments, to ensure the chain of title actually lets them foreclose on a borrower in default.

http://www.nakedcapitalism.com/2010/10/banks-looking-further-than-robo-signers-lost-note-affidavits-a-point-of-failure.html

[grasswire]

1. comments section there is pretty interesting

So JP Morgan has dropped MERS. I don't know enough to know what that truly means.

[JohnWxy]

2. I'm shocked, shocked I tell you, that banks would cheat when much money is involved. After all

Alan "Mr. Magoo" Greenspan told me we can trust the marketplace and we don't need fraud laws.

(for those who don't know who Mr. Magoo was, he was a cartoon character who was nearly blind but drove his car around as if he could see just fine ... causing much mayhem. As a cartoon it's funny....different story when it's the Chairman of the Federal Reserve who couldn't see the coming catastrophe of unbridled greed that capped Greenspan's career at the Fed).

[KoKo]

3. K&R...Gotta keep this out there in the Public Forums...! K&R!

[Waiting For Everyman]

4. K&R n/t