Where’s the note?

I have a postcard which I mounted on my wall.  It says One by one, the penguins steal my sanity.  I think that’s pretty self explanatory, don’t you? 

Last week, they stole another piece of sanity pie and I totally enjoyed a class on ALTA title insurance.  Whoa, those are some pretty powerful penguins, I can hear you thinking to yourself.

Actually the class was enjoyable.  I learned things I hadn’t previously known.  That passes the acid test for was it worth my time?

The teacher digressed from the content topic with a recent experience she’d had sitting in a courtroom.  She had listened to an attorney argue for a reconveyance of a loan based on the servicing agency’s default.  They had not provided the documents asked for and no one had responded to the summons for the hearing. 

The judge kept saying, “But they borrowed the money.  Why do they expect to not pay it back?”  She was not hearing what the attorney was saying.  He finally had to stop and ask, “Your Honor, if you can point to anyone in this courtroom who has come to answer the questions my clients have asked under the Fair Credit Reporting Act, I will close my briefcase and walk away.”  She couldn’t do it, so he continued, “Your Honor, if no one can come here, summoned under law, to show how they are behaving in accordance with the law, my clients have the right to ask for default and to set aside the debt.”  She granted the default and it will be interesting to see what happens going forward because the case is still pending in parts of its particulars.

What were the parties asking?  To have the investor identified and verified and to inspect the contract the investor had with the servicing agency, allowing them to collect the debt on behalf of the investors.

Did you read the previous post on CDO’s?  If not, go back and click through to the visual on how CDO’s and MBS’s were traded.  Do you have a glimpse of what the plaintifs were asking?  We’re not disputing we signed a note, we just want to make sure that the proper procedures were followed and that the agency claiming to be able to collect is in fact authorized by the person or entity holding our legal tender note.

Did you know when you satisfy your promissory note, the original is to be returned to you as evidence of debt satisfaction?  Among other things, returning it to the originator means no one else can come forward with it and demand payment.

Just for fun, let’s create a scenario: 

  • Joe Snow takes out a loan and signs a promissory note with 32nd National Bank. 
  • 32nd National Bank bundles it with some other notes and sells it to C’est La Vie Hedge Fund, a division of Ponzi Schemes International. 
  • C’est La Vie authorizes 32nd National Bank to service Joe’s loan and they do so, collecting the checks each month, keeping a service fee, and then sending the rest to C’est La Vie, who put the profit on the books. 
  • Turns out Ponzi Schemes International is headed by a less than reputable board of directors including one Mernie Badoff who is cooking the books. 
  • The Feds find out about it and close down Ponzi Schemes International (and C’est La Vie Hedge Fund by extension). 
  • 32nd National Bank continues to tell Joe he needs to pay on his loan. 
  •  Joe does, sending them a check in a timely manner, because that is what good upstanding citizens do. 
  • 32nd NB is now in a quandry.  They are collecting on the loan and doing all the good bookeeping showing the principal and interest paid, the property taxes satisfied and the homeowners insurance in good standing, but C’est La Vie Hedge Fund is no longer a valid address to send the checks to.  Oh me oh my, what to do?  Well, it is possible that 32nd National Bank could hold it for them until C’est La Vie get that pesky PO Box situation figured out.
  • Joe continues paying until 32nd National Bank shows the loan fully paid off.  In a non-judicial state, they notify I’ve got your Deed of Trust Trustee services, who issue a full reconveyance and Joe is happy because he’s paid his loan in full.  He and his wife have  a party and begin to plan their Alaskan cruise.
  • On a sad note, 32nd National Bank is seized by the Feds for being undercapitalized and its assets are sold to Bank of Chasing America.
  • Meryl Streepenheimer, a former investor with C’est La Vie Hedge Fund, in her efforts to get some of her life savings back, finds a storage unit containing the MBS’s.  On top is the Promissory Note for one Joe Snow.  As the Note is legal tender, and she figures she is owed, she contacts Joe and let’s him know he needs to pay her. 
  • A whole terrible legal mess ensues because 32nd National Bank cannot show payment to C’est La Vie, they did not fulfill the contractual obligation. 
  • Joe is still on the hook for the note because although he paid 32nd National Bank, the money did not reach the Note holders; his debt is not paid.
  • Bank of Chasing America cannot be held responsible for not having paid C’est La Vie; they’re just the new management.

Und so weiter, as they say in German, which means, and so on.

Is it fanciful?  Maybe about 20%.  The rapidity with which notes have been bundled and sold, servicing agencies assigned and transferred, there is good reason to wonder whether the organization collecting that mortgage has dotted all the i’s and crossed the t’s.  There is reason to wonder and under the Fair Credit Reporting Act, there are legal grounds to ask.

BIG OL FAT-BUTT DISCLAIMER – I am not an attorney.  I am not giving you legal advice.  I am explaining what potentially could happen or have happened.  If you think something like this might have happened to you and you want more information or advice, contact a reputable attorney.

If you don’t like my disclaimer picture, at least it got your attention — it’s a Picasso by the way.  I bought the poster many years ago.  It always amazed me that you could take a stick of charcoal, make 4 lines, sign your name and it would be worth 6 figures.  I’m in the wrong business!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s