One of the sorry reminders of the decline of the rule of law in the United States is the frequency with which incidents of what look like document forgeries take place in foreclosure cases. The fact that a now-shuttered subsidiary of Lender Processing Services, a vendor to the servicing industry, had a price list for creating mortgage-related documents out of whole cloth attests to the long-standing demand for this sort of product.
The reason for this activity is simple. As we’ve stressed in various posts, in so-called private label securitizations (the non-Fannie/Freddie type), a great deal of evidence indicates that the originators and packagers of these deals did not bother complying with the contracts they created to govern these transactions on a widespread, perhaps pervasive basis sometime after 2003. And their shortcomings only come to light in foreclosures, and then (possibly) if the foreclosure is contested. Given how low foreclosure rates were historically, this was a risk the securitization industry seemed willing to take, and it is now reaping the fruit of this short-sighted bet.
The big problem for servicers and trustees (the parties that are responsible for the trust that holds the assets of the securitization) is that the pooling and servicing agreement which governs the securitization required that the note (the borrower’s IOU) be transferred though a specific set of parties by a specified time not all that long after the deal closed. Increasingly savvy anti-foreclosure lawyers recognize that the party attempting to foreclose may not have the legal standing to do so.
A new development is that the US Bankruptcy Trustee, which is part of the Department of Justice, has started poking around the nether world of slipshod and possible made-up documents, and is asking banks to explain what they are up to. These inquiries may be paving the ground for broader-based action.
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