REQUIRED READING: Discrepancies between information contained in county records and information in servicers' files or imaging systems; flimsy placeholders that vaguely indicate a mystery assignee exists; last beneficiaries of record that are no longer in business, let alone easy to locate and persuade to execute a document – these are only a handful of the considerations with which servicers must contend when trying to perfect their collateral files.
Although providing a clear chain of title has seemingly relinquished its position as servicers' main document-management concern for the moment, remedying missing mortgage assignments remains a tedious aspect of the business. The number of missing assignments is huge, according to vendors that handle documents, and it is the result of rapidly changing loan ownership and lackluster due diligence.
"The loan volume was so big and so strong in "07 and "08, and everybody was too busy to keep up with the process," says Tina Lindsey, vice president of sales for Rekon Technologies. "They were maybe keeping track of the fact that documents hadn't been received yet, but they weren't actively procuring them to ensure they were received."
Nowadays, servicers are forced to confront errors caused by shortcuts of the past. Some shops are, whether to raise capital or simply tidy up their portfolio, selling off their distressed assets – transactions in which buying entities are being more demanding about clear title. In other cases, companies that bought loans are using missing assignments to support repurchase requests.
Not least among the reasons for servicers to perfect collateral is the growing judicial requirement for files to be airtight.
"What's becoming more and more prevalent is, when you go into a courtroom, it's [the judge's] courtroom, and they make rules on their interpretation and their personal opinion," says Mike Wileman, president and CEO of Orion Financial. "We've seen it for years in bankruptcy. Anytime they're holding the lender's or servicer's feet to the fire to get their documents in order, I think they're justified, and there's not much you can do."
Increasingly, the note and the recorded deed are being viewed as a single legal instrument, despite the fact they are two separate documents, Wileman says. When failing to match for the judiciary the chain of title on the note with the chain of title on the land record, lenders run the risk of having their liens stripped.
Jeremy Pomerantz, senior vice president of Nationwide Title Clearing (NTC), says that, as pervasive as the mentality has become that the note and deed must be in sync, its basis is impractical.
"The assignment used to be on record, in effect, [to indicate the entities that are] supposed to receive notice if anything happened on the land record with the mortgage," he says, alluding to items such as tax-default notices. "The owner of the note may want nothing to do with the day-to-day operations and maintenance of that mortgage."
Thus, servicers are typically the parties listed on assignments.
Perfecting the chain of title can be a tedious process. Vendors tasked with preparing missing assignments often have to turn to lender-tracing, which, as the name suggests, involves finding the last lender on record and getting an officer who has signing authority to execute the document. Because the mortgage and banking industries have seen massive consolidation and a spree of closings in recent years, such officers can be hard to come by. Lost assignment affidavits might suffice in some counties, but the acceptance of such affidavits varies from jurisdiction to jurisdiction. Moreover, their rigor might be put to the test should a loan enter litigation.
As made clear by the ongoing foreclosure affidavit scare, it benefits servicers to ensure their outsource companies and legal counsel execute documents with precision. Wileman notes that Orion Financial has had to kick back to foreclosure attorneys lost assignment affidavit requests where firsthand knowledge of a loan transfer is referenced. Occasionally, attorneys resend the documents but remove language that implies firsthand knowledge. Other times, the request for execution simply goes away.
Complicating matters further, servicers' own imaging systems can produce a different chain of title than what appears at the county level. If a client of NTC requests that the company prepare an assignment based on the lineage found in the client's system, NTC protects itself with an indemnification clause, Pomerantz explains.
"They're not asking us to make up a beneficiary – they have someone on record in their images or in the file," he says. "We can't force them to do a $50 or $100 title search on every loan when they believe what they have is correct, so we have review processes and contract language to ensure all the bases are covered.’
Assignment work has drawn the ire of at least one state attorney general – Florida's Bill McCollum. Earlier this year, McCollum's office launched an investigation into Docx LLC, a now-defunct subsidiary of Lender Processing Services (LPS), for using documents that "appear to be forged, incorrectly and illegally executed, false and misleading." According to a statement issued by LPS at the time, the documents used terms "Bogus Assignee" and "Bad Bene" in place of actual assignees.
"These placeholders were used to flag the document to prevent further processing," LPS said. "Unfortunately, on occasion, incomplete documents were inadvertently recorded before the missing information was obtained."
According to professionals in the doc management world, such placeholders are not altogether uncommon, although controls should not allow such identifiers to be printed and processed. In a statement released in early October, LPS noted that servicers and attorneys provided Docx with the information used to prepare assignments and that Docx was not involved in determining whether the assignments would be used in court proceedings.
In bulk loan deals, buyers and sellers were provided leverage to complete transactions quickly, "but years down the road, your options have all washed away," says Rekon's Lindsey.
"That's why it behooves the industry to make sure they're carrying the documentation sooner rather than later," she says. "It's one of those things where, the older it gets, the messier and uglier and more expensive it gets" to cure.
McCollum's office additionally chided LPS for preparing assignments that "to even the untrained eye, appear to be forged and/or fabricated, as the signatures of the same individual vary wildly from document to document." In its statement from October, LPS explained the cause of the varying signature styles, saying the manager of Docx allowed an employee to sign an authorized employee's name with his or her express written consent.
"LPS was unaware of this practice," the company said, adding that upon learning of it, "LPS immediately took remedial actions to correct all assignments of mortgage signed in this manner."
Florida Default Law Group – one of the law firms being targeted by McCollum's investigations – was described in a notice on the attorney general's website as a client of Docx. The economic-crimes division of McCollum's office is investigating Florida Default Law Group for allegedly presenting false documents in foreclosure cases.
As of press time, Florida Default Law Group had not responded to inquiries from SM.Â McCollum's office declined to comment on the basis that the investigations are active and ongoing.
Further, law firms have been accused of backdating assignments and committing notary fraud. In some instances, law firms are accused of notarizing documents on dates that occurred before the notary had even obtained its license.
Going forward, best practices require servicers to have a follow-up mechanism that verifies assignments are recorded or, if an assignment is rejected at the county level, verifies that the relevant information is corrected and the document ultimately recorded, says Wileman.
"That chain, that proper ownership, has to be made clear at the county, or else [servicers] are not going to be able to do anything with it down the road," Wilemen warns.