Original posted on Credit Slips by Katie Porter:
In 2007, I wrote an article showing that notes and mortgages were often missing from bankruptcy mortgage claims, despite a clear rule that they should be attached. That finding did not establish that companies do not have such documentation. At that time (a long-ago era of blind faith in commercial entities), some people suggested to me perhaps creditors simply do not wish to be bothered with the time and expense to comply but that all transfers were valid. In the intervening years, story after story has emerged about mortgage servicers who brought foreclosure cases without being able to show their clients had a right to foreclose. Homeowners, desperate to stave off foreclosure while negotiating for a loan modification or waiting for HAMP to become operational, are increasingly demanding that lenders "produce the paper." In legal terms, this means the servicer should show that it is the authorized agent of a trust or other entity that is the holder of the note and the assignee of the mortgage.
Upon challenge, many companies have been unable to show they had the paperwork, leading to their cases being dismissed (see here, here and here for some examples). The hard part has been to figure out the longer term consequences of lacking a proper chain of negotiation and assignment. What is the effect of an assignment of a mortgage in "blank"? Is this an incomplete real estate instrument that has no valid effect, similar to a deed without a grantee? Can parties go back after the fact and create assignments today to correct problems in transfers from years ago (and if so, what about when the chain of title involves a now defunct lender or bank? what about corrections to chains of title made after the debtor files bankruptcy and the automatic stay is in place?)
Lenders and their agents seem to busy churning out assignments to repair defects and create a paper trail. Of course, with all this paperwork creation, there are bound to be some slips-ups. Follow this link and click on "view image" to see the public recordation of an assignment "for good and valuable consideration" of a mortgage to "Bogus Assignee for Intervening Asmts, whose address is XXXXXX." If this works to assign a mortgage, what is the purpose of requiring assignments at all?