The report goes through the fact that the land recording system that was set up in this country in the colonial age has only recently been disrupted by the advent of MERS, the electronic registry which short-circuited that process and substituted themselves as the mortgagee on official documents, with the constant trading of mortgages happening on their database. “The use of MERS raises a number of legal questions,” the report says, “such as whether MERS has the legal standing to initiate foreclosures in its own name and to what extent recording MERS as mortgagee or assignee provides sufficient notice to subsequent purchasers under state recording statutes, which are currently being litigated in many jurisdictions.”
It also covers the chain of title issues with the servicers and the trustees in securitization. Basically, both the servicers and the trustees are supposed to act as agents for the mortgage holders, in this case the investors in the mortgage-backed securities. However, the report admits that “engaging in loss mitigation efforts usually is more expensive and time consuming for servicers than initiating foreclosure,” which is at direct odds with the financial incentive of the mortgage holder. In addition, “Although servicers of securitized mortgages are supposed to act as agents on behalf of the MBS investors, one of the servicer’s affiliates may have an interest in the underlying mortgages, which some have argued creates a conflict of interest.”
The report also looks at the judicial and non-judicial foreclosure process in the states, which they agree is a state matter. This is why a solution from Congress will be so impossible to manage, as the states have their own particular laws around these issues. The report discusses the legal standing to foreclose in judicial states, the issue at the heart of foreclosure fraud, and what prompted the robo-signing, some theorize.
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