Wisconsin Lawyer
Vol. 84, No. 4, April 2011

Lawyers must understand a few basic terms and some fundamentals of secured transactions to understand the current legal status of foreclosure proceedings.

Robo-signing

The term robo-signing describes the robotic process of the mass production of false and forged execution of mortgage assignments, satisfactions, affidavits, and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of notary fraud wherein the notaries notarize the affidavits and signatures of so-called robo-signers before or after the robo-signers actually submit affidavits and sign documents.

The terms robo-signing and predatory mortgage servicing are widely credited to Nye Lavalle, an American sports marketing executive and social scientist turned consumer and investor advocate and activist. In recent years, Lavalle has focused on advocacy and activism for consumer and investor issues, primarily on fraud in mortgage servicing and securitization. He is credited with discovering and documenting foreclosure fraud and robo-signing in the mid to late 1990s.

MERS

Mortgage Electronic Registration System Inc. (MERS) is a Delaware corporation formed in 1998 to act as nominee to hold mortgages to allow the transfer of mortgage-backed securities into investment trusts and to commence foreclosures without naming the real party in interest.

Loan Servicers

Loan servicers are often the new plaintiffs replacing MERS in actions to foreclose and collect payment for the investment trusts. (Banks and trustees of investment trusts also appear as plaintiffs but are usually also loan servicers.)

Investment Trusts

Investment trusts are entities that sell to investors beneficial interests in mortgage-backed securities, also known as collateralized debt obligations.

Collateralized Debt Obligations (CDOs)

CDOs are securities, sometimes registered, sometimes not registered or actually deregistered with the SEC, that have been sold to investors throughout the world on the basis of promissory notes and mortgages signed and entered into by United States homeowners.

Original Lender

This entity is also known as the “table funder” and appears at the closing as the originator of the funds. It usually nominated MERS as its nominee to pursue foreclosure on the face of the mortgage.

Security Interests

To claim a security interest, a single party must own the promissory note and the mortgage.

“The security is virtually inseparable from the obligation unless the parties to the transfer expressly agree to separate them. The reason is that the security is worthless in the hands of anyone except a person who has the right to enforce the obligation; it cannot be foreclosed or otherwise enforced. Hence, separating the security and the obligation is ordinarily foolish, since it will leave one person with an unsecured debt and the other with a security instrument that cannot be enforced.”⁷

The transfer itself also must meet certain requirements to be legally valid: “The transfer may still fail for want of efficacy for any one of three reasons, namely, (1) failure to record, (2) failure to notify the mortgagor or his successor in interest of the fact of the assignment, or (3) failure of the transferee to take physical possession of the original instrument, creating the obligation.”⁸

Other concepts and entities with which lawyers might need to familiarize themselves are mortgage-backed securities, real estate investment trusts, and credit-default swaps.

Wisconsin Lawyer