Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
5Activity
0 of .
Results for:
No results containing your search query
P. 1
LOSING THE PAPER –MORTGAGE

LOSING THE PAPER –MORTGAGE

Ratings: (0)|Views: 680|Likes:
Published by DinSFLA

More info:

Published by: DinSFLA on Jun 12, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

05/13/2014

pdf

text

original

 
White Article (Do Not Delete) 5/4/2012
 
1:47
 
PM
468
L
OSING THE
P
APER
 
M
ORTGAGE
A
SSIGNMENTS
,
 
N
OTE
T
RANSFERS AND
C
ONSUMER
P
ROTECTION
 
 Alan M. White
*
 
A
BSTRACT
 
n this article, I survey the state of the mortgage loan transfersystem, the legal rules that govern it, and the widening gapbetween those rules and the practices in the secondary mortgagemarket just prior to the 2008 crisis. The review includes someempirical assessment of the extent of errors and execution problems;the damage done by “robo-signing;” the Mortgage ElectronicRegistration System (“MERS”) and note delivery practices; and theextent to which courts will prevent or reverse foreclosure sales basedon those errors and problems. I then examine why existing legalstructures, for both paper-based and electronic transfers, are notworking, and the extent to which they have failed, I also identify thekey consumer and investor protection values and interests (finality,transparency, fraud protection, and so forth) that must be addressedby the law governing secondary market transfers of home loans. Iconclude by outlining options for reforming the mortgage loantransfer system, including the use of a single document merging thenote and mortgage, and a structure for the registration of a singleauthoritative electronic version of the mortgage/note and of allchanges in parties to, and terms of, the transaction.
*
Professor of Law, Valparaiso Law School. Special thanks to WhitneyDickison, Christopher Erickson and Anne Zygaldo for their invaluable assistancewith the MERS foreclosure record survey and with additional legal research.
I
 
White Article (Do Not Delete) 5/4/2012
 
1:47
 
PM
2012]
 Losing the Paper 
469
I
NTRODUCTION
 
Five years into the subprime mortgage crisis,
1
the foreclosuremachinery has slowed to a crawl.
2
Historically high levels of mortgage defaults continue to overwhelm the foreclosure system.
3
Atthe same time, 2010 and 2011 saw a second wave of the foreclosurecrisis, brought on in part by relatively obscure legal rules that governthe transfer of mortgage loans from one lender to another and theshortcuts to circumvent those rules. Those shortcuts have come to beknown as the “robo-signing” scandal.
4
Robo-signing describes
1
Also termed the global financial crisis (“GFC”), or the Great Recession, thefinancial collapse of 2008 was precipitated by rapidly escalating defaults andforeclosures on subprime mortgage loans in the United States, and by the resultinglosses experienced by investors in those mortgages and mortgage-backed securities.
See generally
K
ATHLEEN
C.
 
E
NGEL
&
 
P
ATRICIA
A.
 
M
C
C
OY
,
 
T
HE
S
UBPRIME
V
IRUS
:
 
R
ECKLESS
C
REDIT
,
 
R
EGULATORY
F
AILURE
,
AND
N
EXT
S
TEPS
(2011) (delving intothe history and causes of the global financial crisis); R
OBERT
J.
 
S
CHILLER
,
 
T
HE
S
UBPRIME
S
OLUTION
:
 
H
OW
T
ODAY
S
G
LOBAL
F
INANCIAL
C
RISIS
H
APPENED
,
AND
W
HAT TO
D
O
A
BOUT
I
T
(2008) (providing similar analysis as to the background of the global financial).
2
See 2011 Year-End Foreclosure Report: Foreclosures on the Retreat 
,R
EALTY
T
RAC
(Jan. 9, 2012), http://www.realtytrac.com/content/foreclosure-market-report/2011-year-end-foreclosure-market-report-6984 (reporting that theaverage foreclosure in 2011 took 348 days to complete, and more than 1,000 daysto complete in New York).
3
See
Mary Ellen Podmolik,
Foreclosure Process Caught in State Bottleneck,
C
HI
.
 
T
RIB
.,
 
Sep. 22,
 
2011,
 
available at 
http://articles.chicagotribune.com/2011-09-22/business/ct-biz-0922-foreclose-20110922_1_foreclosure-auctions-foreclosure-case-foreclosure-filings.
4
See
 
U.S.
 
G
OV
T
A
CCOUNTABILITY
O
FFICE
,
 
GAO-11-433,
 
M
ORTGAGE
F
ORECLOSURES
D
OCUMENTATION
P
ROBLEMS
R
EVEAL
N
EED FOR
O
NGOING
R
EGULATORY
O
VERSIGHT
(May 2011),
available at 
 http://www.gao.gov/assets/320/317923.pdf; C
ONG
.
 
O
VERSIGHT
P
ANEL
,
 
E
XAMININGTHE
C
ONSEQUENCES OF
M
ORTGAGE
I
RREGULARITIES
 
FOR
F
INANCIAL
S
TABILITY
 
AND
F
ORECLOSURE
M
ITIGATION
(Nov.16, 2010),
available at 
http://www.gpo.gov/fdsys/pkg/CPRT-111JPRT61835/pdf/CPRT-111JPRT61835.pdf; F
ED
.
 
R
ESERVE
S
YS
.,
 
O
FFICE OF
C
OMPTROLLER OF THE
C
URRENCY
,
 
O
FFICE OF
T
HRIFT
S
UPERVISION
,
 
I
NTERAGENCY
R
EVIEW OF
F
ORECLOSURE
P
OLICIES AND
P
RACTICES
(2011) [hereinafter“I
NTERAGENCY
R
EVIEW
”],
available at 
 http://www.federalreserve.gov/boarddocs/rptcongress/interagency_review_foreclosures_20110413.pdf. The interagency review focused primarily on robo-signing of affidavits submitted in judicial foreclosures, as well as on problems with theMortgage Electronic Registration System (MERS). Robo-signing also refers tohigh-volume signing of mortgage assignments and note endorsements, sometimesyears after the intended secondary market transfer of the mortgage loan, in
 
White Article (Do Not Delete) 5/4/2012
 
1:47
 
PM
470
 Loyola Consumer Law Review
[Vol. 24:4mortgage servicers’ response to the tremendous volume of mortgagedefaults and foreclosures after 2007: assembly-line signing andnotarizing of affidavits for foreclosure cases, mortgage assignments,note allonges and related documents, all filed in courts and deedrecorders in counties across the United States. In early 2012, the stateattorneys general, together with the Federal Department of Housingand Urban Development and other agencies, announced a settlementwith five major banks and mortgage servicers of robo-signing relatedclaims.
5
Many hope that this settlement would not only resolve someof the liabilities arising from robo-signing but also somehow resolvelegal questions about a variety of mortgage industry practices,allowing the foreclosure process and housing markets to return tonormal.
6
 Lying at the intersection of contract assignment and propertytransfer law, the structures and practices governing mortgage loantransfers find themselves in a state of confusion. While the recordingand transfer of corporate debt and stock securities successfullyshifted to an electronic system in the 1970’s, with legal support fromArticle 8 of the Uniform Commercial Code and relevant Securitiesand Exchange Commission rules,
7
the law and practice of electronictransfers of the largest individual credit obligations, home mortgageloans, have not yet converged. On the practice side, the MortgageElectronic Registration System (“MERS”) came about in the 1990’son the basis of a legal opinion letter, completely devoid of anystatutory or regulatory authority.
8
On the legal side, the Federal E-Sign statute, providing for electronic Note negotiation,
9
as well as the
preparation for an impending foreclosure.
5
See
Jim Puzzanghera & Alejandro Lazo,
 Mortgage settlement is also housingrelief package,
L.A.
 
T
IMES
,
 
Feb. 10, 2012,
available at 
http://articles.latimes.com/2012/feb/10/business/la-fi-mortgage-settlement-20120210.
6
See
Derek Kravitz,
Questions and answers about what the foreclosure-abusedeal will and won’t do
, S
TAR
T
RIB
., Feb. 9, 2012,
available at 
 http://www.startribune.com/business/139048784.html.
7
See generally
Richard A. Hakes,
UCC Article 8: Will the Indirect Holding of Securities Survive the Light of Day?
,
 
35 L
OY
.
 
L.A.
 
L.
 
R
EV
. 661 (2002) (detailingboth the history and subsequent evolution of Article 8 of the Uniform CommercialCode).
8
Christopher Peterson,
Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory
, 53 W
M
&
 
M
ARY
L.
 
R
EV
. 111, 116-17(2011).
9
15 U.S.C.A § 7021 (West 2012) (defining “transferable records” andauthorizing electronic equivalent to a paper negotiable instrument);
see also
Jane K.Winn,
What Is a Transferable Record and Who Cares?
7 B.U.
 
J.
 
S
CI
.
 
&
 
T
ECH
.
 
L.

Activity (5)

You've already reviewed this. Edit your review.
1 thousand reads
1 hundred reads
Gervais R. Brand liked this
SLAVEFATHER liked this

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->