Let’s say you are US Bancorp and you find yourself with a mortgage whose chain of title is incomplete. You took the mortgage from a now bankrupt subsidiary of the now bankrupt Lehman Brothers. Getting someone at Lehman to go through the process of executing the assignment is going to be very difficult. It’s not even clear if anyone at Lehman Brothers has the legal authority to execute an assignment now, while Lehman is bankrupt.
In any case, getting the assignment from Lehman wouldn’t really help you. You’d still have a gap in the chain from Option One to Lehman. It’s probably best to skip over Lehman all together and go directly to Option One to ask for the assignment.
But you have a bit of a problem. You didn’t buy the mortgage from Option One. They aren’t under any contractual obligation to you to execute any documents. So when you call, here’s how the conversation goes.
US Bank dude: “Hey, can I speak to whoever it is who is handling the Ibanez mortgage?”
Option One guy (after some delay): “No one handles that mortgage. We sold it five years ago to Lehman and closed the file.”
US Bank: “Right. Okay. Well, I need you to find someone who will execute an assignment of the mortgage to me.”
Option One: “First of all, no one who handled that mortgage still works here. You might have heard about the mortgage meltdown, right? Second, we sold it to Lehman, according to the file.”
US Bank: “Right. But I bought it from Lehman.”
Option One: “So get the assignment from Lehman.”
US Bank: “They’re an empty company that is in bankruptcy.”
Option One: “I’ve heard about that. Thanks for the news.”
US Bank: “So I need you to execute the assignment.”
Option One: “First of all, you’re going to have to show me that you bought the loan from Lehman. Second, I need to talk to legal to make sure I can assign a mortgage to someone we never dealt with. Third, how much are you willing to pay me to do all this?”
US Bank: “Pay you? I already own the mortgage.”
Option One: “The mortgage we sold to Lehman. If Lehman asks for the assignment, we’ll do it as part of that deal. But, as far as I can tell, I don’t owe you anything. If you want an assignment, you’re going to at least be paying the legal bills for the legal opinion that says it’s okay for us to do this.”
US Bank: "You don't have to be an [expletive deleted] about this."
Option One: "I also don't have to give you an assignment."
Carney goes on to say:
By the way, if you do get Option One to assign it to Lehman, you might find yourself trapped. In that case, the mortgage arguably becomes part of the estate of Lehman—subject to the jurisdiction of the bankruptcy court. Sure, eventually, you may be able to prove that you are entitled to the assignment from Lehman. But you’ll be fighting the other creditors, who will argue that you are just one more unsecured creditor in a long line of people who say that Lehman owes them something.At the 4closurefraud blog, ForensicMortgageExaminers points out:
While this example might be specific to loans that went through Lehman, these kind of problems are not likely to be confined to the sizable part of the mortgage market that went through Lehman at one time or another. A great many of the companies involved have entered bankruptcy or changed ownership. When these companies appear in the ownership chain, “re-documenting” the assignments may be all but impossible.
One small problem with this guy’s article… Option One has gone bye-bye. They were sold to AHMSI. Of course, AHMSI will probably be willing to play ball with US Bank since they are just about as corrupt as anyone can imagine! They’ll charge a price, but, hey, crime has to pay, right?rational, commenting at Zero Hedge observes that US Bank even managed to do this, but the problem was that it failed to do so before it foreclosed:
The irony of this example is that just this kind of assignment was successfully achieved in Ibanez. The trustee obtained a "confirmatory assignment" from the holder of record, bypassing the intermediate chain of title. The SJC affirmed this is acceptable, what was NOT acceptable was that this assignment was obtained months AFTER the foreclosure. The irony is that after all the heavy breathing about Lehman in the example, the assignment came not from Option One, which is DEFUNCT - but from American Home Mortgage, Option One's successor in interest. Now while these facts (all documented in the SJC decision) would seem to put the FUBAR scenario to rest, it is noteworthy that the confirmatory assignment was produced so late in the game. But we don't know when the trustee asked for it, so its hard to tell how easily AHM produced it.At activerain, Synergy observes
The issues are much more complex than you make them out to be. The Lehman MBS that was sold was actually repackaged several times into CLOs, held by hedge funds, investors and securities dealers. To strip the one loan out of the bundle and track it through time is only one part of the nightmare.And at Business Insider, black swan asks
The recent Supreme Judicial Court's ruling which upheld the Land Court's reversal of the non-judicial foreclosure has monumental impact on the marketability of these homes. Lenders will not finance without clean title and the title insurers will not lend with possible clouds caused by lack of proper registration of the note during the foreclosure process.
For those who already own a foreclosed home; what are the chances that the asset manager who bought the property at auction and then sold it to an investor who flipped it to a new homeowner - did not have legal title to sell the property because the non-judicial foreclosure was not followed to the letter of the law. Not only are you exposed to the original owner staking a claim of redemption - but what about all the improvements that you made when the original owner brings his moving truck into the driveway to take the home back?
And what about the "representations" of many real estate agents who put their clients into these foreclosed homes? Our E&O company issued new requirements and upped premiums today.
What title company will put its neck on the chopping block to insure these mortgages with their broken chains of title? What buyers will take a chance on buying the homes collateralizing these robo-signed mortgages, if there is no title insurance? If banks couldn't afford to hire enough workers to properly execute the transfer of these mortgages in the first place, where will these banks get enough money to hire enough skilled people to fix this mess? Ultimately, mortgage bondholders are in for some serious haircuts. These MBS make junk bonds look like AAA+.(Links for information on some of the above alphabet soup: SJC, AHM, AHMSI, MBS, CDO, E&O.)