Real Party in Interest

Posted by kevin on March 15, 2010 under Foreclosure Blog | Comments are off for this article

This was never an issue in the  old days. Banks lent you money, and put the Note in their vault until you either paid off the mortgage or sold the property.  Nowadays, banks sell your note and mortgage.  Many times, the note and mortgage wind up in what is called a securitized trust.

What is a securitized trust?  In simple terms, it is a financial product dreamed up by Wall St. to make lots of money.  And for awhile, Wall St. did makes lots of money selling interests in trusts.  How did it work?  An investment company (either by itself or through subsidiaries) buy up hundreds or thousands of mortgage loans.  The loans wind up in a trust.  The investment firm or subsidiary files papers with the Securities and Exchange Commission stating that they are going to sell to the public interests in the trust.  This is generally called an offering.  The investment company sells the interests and takes out its money.

Investors do not buy the notes and mortgages, however.  The notes are figuratively  ripped apart into various pieces of interest and principal.  The investors are sold revenue streams of principal, interest or some combination of principal and interest from numerous mortgage notes which were grouped together according to risk.  The investment company picks a servicer which collects the mortgage payments.  The servicer then sends the money to a trustee who pays the investors based on a formula set forth in the offering papers.  Both the servicer and the trustee get paid a fee from the mortgage payments made by borrowers.

Well, Wall St. loved this idea.  They were making profits in the range of 20%.  So if a trust had a billion dollars worth of mortgage loans, then the investment company walked out with $200 million.  They wanted to set up more of these deals.  But that meant that more and more people had to buy or refinance their homes.  After awhile, all the borrowers with 700+ credit scores were gone, so the mortgages had to be offered to people with lower credit scores.  To get those people into loans, ARMS with teaser rates were offered, income did not need to be verified or even looked at, appraisals were fudged.  So a lot of people were put into mortgages that they could not afford, and a lot of investors were being sold investments that were less than safe.

You know what happened next.  Rates adjusted.  People could not afford their mortgages.  The real estate market tanked, and the banks needed to be bailed out.  Foreclosures have increased by tenfold in some areas.  In fact, it s like an assembly line.  But the law is the law and lenders still have to prove that they are the rightful owners of the mortgage note.  Guess what, some of the trusts can t.  And the courts are starting to hold the lenders feet to the fire on this issue.  Cases are being tossed by the courts.  This means that either the lender finds the proper documentation, walks away from the foreclosure or sits down with the lender and makes a real, meaningful modification.

What we do is make the lender prove that it is the real party in interest.  We hold their feet to the fire.  And we do that so that you can negotiate a mortgage that you and your family can live with.