The Foreclosure Contradiction – The Foreclosing Party May Not Be Lender

April 22nd, 2008

It is a uphill task to try and find out the lender because in many cases the contradiction is that the foreclosing party may not be the lender! The puzzle is that although the original lender might have been known to the borrower, the entity pursuing the foreclosure might be different.

The case of Wells Fargo can be cited as an instance. It filed 3,600 foreclosure suits in Iowa for three full years from January 2005 but it could not take legal action. This was because it acted as trustee on behalf of other investors and only processed payments. In other words it was not the original lender. Wells Fargo is a name to contend with – no other company has filed so many foreclosure suits. Two other companies confusing the borrowers are Deutsche Bank and Mortgage Electronic Registration System (MRES).

The story is that the loan ends up as a mortgage backed security after it is sold by the original lender. The investment bank pools all the loans together and then sells bits and pieces as securities to mutual funds, pension funds and other insurance companies. MERS however is neither the servicer nor the lender. The related companies pay this firm to represent them and keep track of the loans that are forever changing hands. Thus MERS should be able to point to the correct contact to the borrowers. But Deutsche Bank wants borrowers to set up contact with the loan servicers. From the melee the tip to be gained is that the borrower should make sure that the entity pursuing the foreclosure has the legal green signal to go ahead with it.

Katherine Porter of Iowa University conducted a national study of foreclosures and found that 40% (1,733 foreclosures) filing suits did not have proof of ownership. It puts additional pressure on the pauperized borrower to track down the facts. However other states have woken up to this danger and more state courts like North Carolina, are insisting on ownership proof before allowing proceedings. Till the last five or six months judges have not asked for this ownership proof. Last year MERS and Deutsche Bank were challenged. The results were mixed but a beginning was made. In Florida the ruling was in favour of MERS but in Ohio it went against Deutsche Bank. The Ohio attorney general has failed to make state judges toe this line of approach.