There were two "complimentary" articles yesterday - one in American Banker, entitled "MBS Trustees Push JPMorgan Chase for Access to Loan Files", the other from RealtyTrac's Agent Advocate newsletter announcing, "Record 2.9 million U.S. Properties Receive Foreclosure Filings in 2010...". It seems that the Trustees of the Mortgage-Backed Securities ("MBS") are demanding loan files from servicers, looking for bad underwriting, false documents, missing documents, but most importantly trying to force the MBS servicers/originators to "repurchase" or "buy-back" bad loans in the varying securitization pools that comprise the MBS. It is all too common at this time to see a mortgage loan owned by "Deutsche Bank as Trustee for the ABC Mortgage Funding Trust Series 2005-34", with the loan serviced by some other company, like Saxon, or OCWEN, or AHMSI (America Home Mortgage Sevicing Inc), or JPMorgan Chase or....
What does this mean? Maybe the right to get a loan modification!!! The details are a bit confusing, but bear with me please.
Jeff Horwitz in his article in the American Banker states "They've (the Trustees) been called "braindead", "negligent", and "otiose"" (this rather obscure word simply means ineffective, worthless, or superfluous). He goes on however to state that it might be the Trustees which have the ability to force Servicers to repurchase the bad loans.
In an unusual legal twist, because of Washington Mutual Bank's ("WAMU") insolvency and momentary receivership (federal control during paper signing), Deutsche Bank as the Trustee, assumed the responsibilities of the Servicer, WAMU, which had breached the 30o+ page contract, detailing who does what and how much everyone is paid. The agreement is called the "Pooling and Servicing Agreement" or "PSA". In another case, Wells Fargo has sued EMC Mortgage, another servicer, for failing to turnover documents.
For homeowners, with a mortgage from WAMU or where they serviced a loan which was part of an MBS, this may give them a party to sue to get a loan modification. In short, the Making Home Affordable Program and HAMP do not give mortgagors/homeowners a right to sue. Now however, with Deutsche Bank taking the dual role of Trustee and Servicer and getting all of the responsibilities that goes along with both positions, it is quite possible that Courts will recognize the borrowers right to sue under what is called a "Third-Party Beneficiary" theory.
This theory states that if two parties make a contract to benefit a third party, that third party has a right to sue to enforce the contract, even though the third party did not sign the contract. Here, while HAMP may not give that status to homeowners, it does allow the parties to sue each other. When one of the parties to the contract takes on multiple roles, the protections that each party has may disappear. Basically, you cannot indemnify yourself or get insurance for your own actions.
Perhaps, even more direct would be the right to sue Deutsche Bank, in its capacity as Trustee and Servicer, under the premise that it now, due to its servicing role and assumption of liabilities, has a duty to the borrower, that it is acting for the Investors and the Borrowers.
The other article, from RealtyTrac which tracks foreclosures throughout the country, discusses the record number of foreclosures; 2.9 million!! Many of these foreclosure filings could have been avoided if modifications were granted. Remember, individual homeowners have not had a right to sue to enforce the HAMP modification program, and HSBC/Household/Beneficial does not participate at all. Just think about the situation if 15% of the 2.9 million foreclosures were modified loans instead - that would have been 435,000 non-foreclosures (almost 2 months worth of filings).
Hopefully, the information above is understandable and of use. Please contact us if you have questions -e-mail is best.
Author's Copyright by Richard I. Isacoff, Esq, February 2011
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