How Does Insurance Payee Match Up with Claims of Ownership of the Loan?

by Neil Garfield

There have been many admissions by government officials and even parties to the litigation over mortgage Foreclosures to the effect that at this point the ownership of most loans is in doubt. Even President Obama said it, reflecting the views and advice of the senior advisors at the White House. On appeal, recently in California, BOTH sides admitted they had no way of identifying the true creditor --- and that is why we have all this litigation, why we have gridlock on modifications and settlements. So what do we do?

One insurance expert I interviewed suggested that his industry might solve the problem, but I think his points raise more questions than answers. Nonetheless, to prove the question, and overcome certain presumptions that are legally applied, examining the insurance policies and the changes that occur in forced placed insurance might reveal the issues and even illuminate the potential solution.

Bank of America is an example of a bank that rushes to take any excuse to place insurance from their own carrier BalBOA, naming BOA as the loss payee on liability policies. The usual previous loss payee was someone else --- perhaps the originator or some alleged assignee. The procedure of forced placed insurance creates both additional income to the bank and skips over the question of who owns the loan. When the insurance is reinstated or shown to have never lapsed in the the first place, it often names BOA thus lending support to the bank's position that it is the owner of the loan.

Looking at the title insurance, who is the loss payee? Besides the owner's policy there is a rider for the mortgagee named in the mortgage. Of course that party may not be a mortgagee when the mortgage is examined carefully. But changes in loss payees under title insurance usually requires notice and consent of the owner of the property.

Thus the question could be asked in Discovery about who was responsible for tracking title insurance, liability insurance and PMI, why does the policy name a loss payee other than the bank claiming ownership and what efforts were made by the bank to correct the identity of the creditor?

The same thing applies to PMI. If the payee is somebody different than the Forecloser you will notice that none of the banks allege that this is a breach of the mortgage contract. Why not? I think it is because the insurer would demand more proof than what is offered in court as to ownership and that the bank would not be able to satisfy the insurer that it had an insurable interest in the property.

Powers of Attorney: A Potential For Fraud

Consider this. You walk in off the street and apply for a loan. The Bank confirms the loan and a closing date and place is set up --- usually at a closing agent or title agent (who is also a closing agent). But your friend shows up and wants the loan and says he is willing to sign the papers. What do you think the Bank would do? What do you think the closing agent would do? It's obvious. The closing is cancelled and the loan never happens.

But suppose your friend has a friend in the bank and that person is in charge of preparing the papers for closing. The friendly bank person switches out the name of the borrower from you to your friend. The closing agent collects the money from the bank and gives your friend the loan. When the loan goes into default the bank finds that it loaned the money to the wrong person. Having no rights against you they are limited to pursuing your friend who by now is long gone. Unless they prove you had something to do with it, they have nothing on you.

Next, assume your friend goes to the closing for you and he has a power of attorney from you, saying you are out of town or whatever excuse he can think of. The closing agent will most likely not accept the power of attorney unless told to do so by the Bank. The Bank will most likely refuse because powers of attorney are subject to cancellation by death or disability.

If your friend adds that he is your successor because you died and he is the personal representative of your estate, there are even more problems and fewer chances that the bank will accept the successor argument or the power of attorney. The assumption would be that something screwy is going on and the Bank wants no part of it. Suppose the power of attorney is a forgery? What if you are not really dead?

But in the modern era of foreclosures the very same succession and powers of attorney are accepted without question FROM the same banks who would turn it down if it were offered TO them. THIS is why you need forensic auditors to give you a report on where the weaknesses are in the chain of title and the money trail. The best way to determine if an assignment is actually valid is to look at the consideration. Who paid how much to whom? And that is the heart of aggressive discovery. The Banks don't want to get into that because they would be shown to be strangers to the transaction and that the assignment or transfer never actually occurred.

When you went to your loan closing or your client went to their loan closing, there was an assumption that was not true in most cases ---- that the payee on the note and the mortgagee on the mortgage was giving the borrower a loan of money. But they didn't. The money came from investors rather directly through the investment bank that acted as a depository for the funds until they withdrawn for their own fees or to fund mortgages like yours. The party that SHOULD have been on the documents was the actual lender --- i.e., the investor or a group of investors in a REMIC trust if indeed the trust was ever funded, which we are finding is increasingly unlikely.

Now the Banks are saying that just because they had their own reasons not to write the right parties and terms on the loan in violation of their duties to the investors, that the Bank is entitled to foreclose! AND if you look closely you see all the succession language and powers of attorney, endorsements, and mergers, all of which lack consideration for any transfer of any loan because the loan was funded from the beginning by the investors who were forced out of the room.

In Court when the judge enters a final judgment of foreclosure or allows the sale to proceed the Judge is unintentionally stripping the investors of their security rights and stripping the investors of any claim for payment against the borrower --- which was the ONLY reason they advanced money in the first place. This in turn gives the borrower nobody to talk to to find out the real balance of the account receivable, or to address issues of modification.

If the Judiciary wants to see this bulge of foreclosure cases go away, then enforce the mortgages the same you did when there was no securitization. They will vanish in a flash.

Powers of Attorney: A Potential For Fraud
http://realtytimes.com/rtpages/20130828-powersofattorney.htm