By: Lance T. Denha, Esq.
To understand the process associated with certain types of mortgages, one must have a knowledge base of the Securitization process. Securitization is a complex series of financial transactions designed to maximize cash flow and reduce risk for debt originators. This is typically achieved when assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third party investment.
A typical Securitization process goes as follows. A borrower goes to a mortgage lender. The lender then finances the purchase of real estate. The borrower signs the note and mortgage or deed of trust. The original lender sells the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors as bonds. The mortgage payments are those received by an agent called a servicing company.
To give you an idea, the total mortgage debt in the U.S is roughly around 14.6 trillion. There are approximately $8.9 trillion in mortgage related securities. The vast flow of Notes into the securitization industry meant many mistakes were made. When a borrower defaults, the party seeking to enforce the obligation and foreclosure on the underlying collateral sometimes cannot find the note. It has been said by sophisticated attorneys in the industry that a third of the notes securitized have been lost or destroyed. There is not sufficient empirical evidence to back this percentage however the evidence does suggest that about 40% of notes are missing.
In an era where a very large portion of mortgage obligations have been securitized, foreclosure becomes an intriguing process for close examination by securitization reporters, legal counsel and related parties, especially when the judicial process is involved rather than the non judicial process reason being many defenses can be made by the defendant in a foreclosure defense cases in court because at times it can be very difficult to determine the name of the holder of the note, the assignee of the mortgage, and the parties with both the legal right and standing under the Constitution to enforce notes, whether in state or federal court. These cases can be highly defensible if not winnable.
In Michigan, most foreclosures are often referred as Non-Judicial foreclosures whereby foreclosures are processed without court intervention. These types of foreclosures simply require certain types of notifications be sent to the homeowner and publication of the foreclosure sale date according to state statutory law. Borrowers should note that they have the opportunity to convert these types of foreclosure into potential wrongful foreclosure actions within the court system should they discover wrongdoing associated with their mortgage. It is highly advisable to seek legal expertise to determine the best course of action moving forward in order to gain an understanding of the particular direction best suited for the client, whether it be challenging the foreclosure, negotiating the deficiency, seeking out alternatives to foreclosure or other bankruptcy options.