Banks May Not Have the Legal Authority to Foreclose

In the hearing of the Senate Banking Committee last week, a surprising revelation was exposed by several testifiers. A law professor, a state judge, and a number of consumer attorneys revealed a systemic dilemma. According to them, in numerous instances, mortgage lenders that attempt to foreclose properties do not have the legal authority to do so.

Law professor Christopher Peterson from the University of Utah testified that the Mortgage Electronic Registration Systems or MERS usually authorizes employees of mortgage banks and servicers to sign foreclosure documents in behalf of the real and appropriate signatories. MERS is a company that is commissioned by most lenders to electronically record every mortgage assignment.

Professor Peterson said the inappropriate practice leads to confusion about loan ownership. The same practice, he added, makes it unclear to numerous homeowners who they should contact and talk to if they want to enter into negotiation settlements to avoid actual foreclosure. Consumers are often left clueless on where to proceed to get information. They also find it harder to distinguish legitimate representatives of real owners of debt from numerous mortgage affiliated hustlers, even con artists.

New York State Supreme Court Justice Dana Winslow, for her part, testified that there is uncertainty on whether MERS truly has the right and legal authority to actually foreclose properties. The state judge also raised questions on the legal rights trusts hold in foreclosing homes. Trusts are often used as the holding ground where mortgage loans are confined following trading and pooling.

As to what should be done to clean up the foreclosure mess, Professor Peterson recommended that the US Congress prohibit the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) from buying loans with documentations that were electronically recorded through MERS. This is because according to him, the system used by MERS also undermines recording laws in many states.

Meanwhile, a MERS spokesperson has justified its electronic recording methods. The spokesperson emphasized that the company’s functions and actions have been strongly upheld in numerous and previous court cases.

The Senate Banking Committee, last week, started hearing testimonies from involved parties over an alleged foreclosure malpractice of several mortgage providers. The hearing focused on the so-called ‘robo-signers’ that allegedly help banks to process thousands of foreclosures in a day even without the required legal review.

For more news, visit ForeclosureConnections.com.