A review of recent examples shows that many originators or other holders of mortgage loans that have pooled loans into securitized trusts, which are then resold to investors, may not have properly transferred or assigned ownership of the original loans to the trust. This means that if and when it comes time to foreclose on the properties involved in the original loans, the documentation may not be in place to prove that the loan-holder has the right to foreclose.
In one recent case, a lender had pooled loans into securitized packages, retaining servicing rights and indirect ownership in the lowest tranche of loans through an affiliated company. Upon discovery of the Pooling Agreement, it became clear that the Plaintiff/Lender had unconditionally sold the loans and while the lender retained "servicing and administration" rights, the right to sue for losses on the loan was reserved to the Trustee, not the lender or its affiliated company.
Similar issues have occurred in connection with tax foreclosures of real property, which may become more common in the current economic environment. If a mortgage has been assigned to a trust, the banks often may neglect to file the assignment of record. Thus, the taxing authority has no responsibility to notify the new bank of the impending foreclosure. This may cause an unpleasant redemption issue for the bank, or a complete loss of the property/security.
These are only two examples of myriad problems that are arising in the wake of unusually high default and foreclosure rates in the sub-prime arena, and one can expect similar issues as prime and commercial real estate loans are foreclosed. All parties involved, be they buyers, sellers, or servicers, should be diligent in assessing ownership rights before purchasing, assigning or seeking to foreclose on loans in securitized pools.
If you have questions about this topic or would like further information, please contact Glen Boudreaux at 713.752.4404 or gboudreaux@jw.com or Maryellen Shea at 713.752.4449 or mshea@jw.com.
If you wish to be added to this e-Alert listing, please
CLICK HERE
to sign up. If you wish to be removed, please reply to this e-mail with REMOVE in the subject line and include your first and last name.
