MERS - Posted by Lynn

Real Estate Investing Notes
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Posted by David Butler on January 09, 2010 at 15:09:54:

Yes. And many related variations over the past 20 years.

Most of these have some validity one way or another - but like all things we discuss here… which approach to use, if any, depends on the individual’s proclivities, overall objectives for all three time-horizons (short/intermediate/long term), and CAPABILITIES - financial, risk-tolerance level, and knowledge-skill set.

Traditionally, real estate (and more particularly, residential real estate) has offered some of the most attractive forms of institutional financing available. This is especially so during the unprecedented extended period of low rates that have occurred in the market over the past seven years.

At present, we are still enjoying rates that are running more than a full 2.50% UNDER the historical average of the rate history I shared here back in February 2008 in the report “Priced to Own-Probabilities Producing Profits” at:
http://www.creonline.com/articles/art-334.html

“…the FHLMA average for 30-year fixed mortgages over the past 440 months (4/01/71–12/31/07) was 9.18%. Eliminating the 72 months (11/01/79-10/31/85) of rates 12% and higher, drops the historical average to 8.17%.”

Combined with the buying opportunities going forward over the next several years, investors who intend to stay in the game - and particularly those still in the wealth-building mode - would most likely be better served by CAREFULLY managing their use of leverage to fully maximize the benefits of these historically low mortgage rates, rather than paying them down. The critical trick to this approach is also discussed extensively in the above report link, so far is what and when to purchase income property.

For individual homeowners, and again depending on the the above factors, a turning point would be their current overall debt structure - especially with regard to their mortgage. If I have a currently attractive residential mortgage (any fixed rate positively amortizing, or fully-indexed ARM that are at less than 8.5%), I would certainly look at paying down any other higher cost credit I presently have first.

In such a case, I am effectively buying dollars from my mortgage lender at 8.5% or less (at U.S. Rule non-compounding rates), and selling them to my credit card lenders for more than 8.5% (at high cost daily compounding rates, which are significantly higher, and grow exponentially the higher the card rate is).

That’s a nice bit of arbitrage in any economic climate. More importantly, it is ABSOLUTELY a 100% risk-free investment, fully under the control of the debtor… regardless of any external economic or third-party influences.

Hope that helps, and Many Happy Returns either way!

David P. Butler
Nascent Equity &
Hotspur Investment Group

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MERS - Posted by Lynn

Posted by Lynn on December 18, 2009 at 07:31:46:

I have been hearing about LFC Mortgage Elimination Program. It has something to do with all the foreclosures, and the electronic recording system the courts are not recognizing. If the note holder does not have the original note, they are saying the home owner owes nothing. Is this for real. If so, how do banks sell their non performing notes?

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Re: MERS & Produce The Note - Posted by David Butler

Posted by David Butler on December 18, 2009 at 14:26:03:

Hello Lynn,

There is a lot of misinformation floating around on this topic, no question about that. But at the root is some validity to the various “produce the note” discussions. Some points of clarity here:

Generally, it is not the electronic recording system the courts are not recognizing. Rather, it whether or not MERS, or any other third-party securitization Trustees or servicing firms have standing to sue for foreclosure, as opposed to other legal action. This standing has its foundation in several principles:

  1. Is the plaintiff the noteholder, or a bona fide agent of the noteholder, proceeding through foreclosure under the terms of the note AND the security agreement (mortgage, deed of trust) on which the foreclosure of the collateral property is based?

  2. Does the plaintiff have the actual ORIGINAL note (not a copy)in hand ; or alternatively acceptable certified copy of the note, or legally sufficient Lost Note Affidavit, to serve as evidence of the debt)?;

  3. If the note is in the hands of a third-part holder, other than the original beneficiary, has the note been properly endorsed; and more importantly, has the assignment of the security instrument (mortgage) tied to the note been properly drawn and recorded?

The failure of any of the above elements can be expected to cause the foreclosure process to be stopped, as it should.

A note is evidence of the debt. No note, no debt. Here are some previous helpful discussions on the related topics to start with:

A Note On Notes
http://www.creonline.com/cashflow/wwwboard3/messages/16676.html

Re: How do you perfect a lien?
http://www.creonline.com/cashflow/wwwboard3/messages/7116.html

Post a Bond or try some alternatives
http://www.creonline.com/cashflow/wwwboard3/messages/15094.html

There are provisions in negotiable instruments law to file an affidavit of lost note, that can be used in the alternative. But those present a lot of problems, particularly in how the institutional lenders and servicers have been handling them. Here’s a very good article on the topic from three years ago, that really covers a broad range in excellent balance discussion on all sides of the problems in play.

Lost Note Affidavits & Skeletons in the Closet

Judges throwing out bad foreclosure cases are rarely throwing out the note balance. In the few cases where I have seen the balances eradicated, it was generally tied to punishment for plaintiff’s egregious conduct somewhere in the mix.

Otherwise, the courts are generally dismissing the foreclosure action for lack of standing, lack of acceptable evidence, or failure to follow the state’s mortgage laws somewhere along the line. In such cases, the lender or servicer can always start over, and do it right the next time.

One problematic area, even if the original note can be produced… is that where the note has been legally separated from the security instrument by failure to properly assign the mortgage with the note when the note was transferred to another party, as appears to be the case with many of the MERS accounts.

In such cases, the foreclosure also risks being dismissed, as the note is no longer secured by the property, even though the security instrument itself is still on record. At that point, the security instrument is now nothing more than a cloud on title than can be removed when necessary, through a quiet-title action. There are reasons for this too, and mainly for the general protection of the public at large.

But the now unsecured note can be proceeded on by an action for recovery of a debt, and would become a general lien against the Payor once a judgment is issued and properly recorded. However, you still have to have the note, or an court accepted affidavit of lost note, in order to provide evidence of the debt.

The problem of course is that the note is likely impaired at that point, so far as any collateral is concerned. And you still have the time and trouble of file a subsequent collection action, to enforce the judgment.

BTW… as seen in the three year old article above, there are a lot of problems out there these days with buying institutional notes. The reality is, these deals have always required extra due diligence, as we have reviewed in our Workshops over the years.

Now we’ve been walking through many more of those land mines on our deals for at least two years now - both from the the perspective of the note validity issues; as well as the growing impediments being legislated to delay foreclosure, or extend tenant rights on defaulted properties.

We support the policies… but we don’t want to lose money as a result. So, we pay much less for the nonperforming paper, than the 55% ITV (based on lower of property value or note balance) top dollar we used to pay on the best of it. That’s the only really sure way to reduce the associated risks.

Hope that helps, and Many Happy Returns…

David P. Butler
Nascent Equity
Hotspur Investment Group

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Re: MERS & Produce The Note - Posted by Marc Faulkner

Posted by Marc Faulkner on January 04, 2010 at 19:56:33:

David,
Have you heard anything about the living free and clear program?