Many homeowners are surprised to learn that their monthly mortgage checks are not sent to the owner of the mortgage note. The company that receives your payments is likely the servicer of the loan, and not the legal note holder. This distinction is important when you need to modify or change the terms of your loan, or file a bankruptcy case.
A loan servicer is a company that collects and processes monthly payments for a percentage of the interest payment. While a mortgage note’s owner may change, the loan servicer may not change, or vice-versa.
Buying and selling mortgage notes is common, and sometimes a mortgage note is bought and sold in rapid succession making it difficult to determine the current owner. So how can you discover the current owner of your home’s mortgage? Though MERS.
MERS, (or Mortgage Electronic Registration Systems) tracks the identity of servicers that registered loans on its system. You can search their registry for your current loan servicer at www.mersinc.org/homeowners/. Once you have called your loan servicer, follow up by contacting the mortgage company and request verification that it holds your mortgage note.
If your loan is guaranteed by Fannie Mae or Freddie Mac, you can search for the note holder via the Internet. It’s a little known fact that statistically, approximately 50 percent of U.S. mortgages are currently held by Fannie Mae and Freddie Mac, and approximately 30 percent are guaranteed by FHA.
These programs offer on-line search tools to discover the holder of your note.
Since the loan servicer is the owner’s agent for handling the day-to-day tasks associated with managing your loan, a quick way to discover the identity of your mortgage holder is to contact the servicer. There are two laws that are helpful to a consumer inquiring about the note owner: the Real Estate Settlement Procedures Act (RESPA) and the Truth-in-Lending Act (TILA).
RESPA requires servicers to respond to “Qualified Written Requests,” or QWR’s, seeking information relating to the servicing of a mortgage loan. See 12 USC §2605(e). Many servicers provide a different address for mailing a QWR, which should be sent by certified mail. The servicer must provide information under RESPA, including:
Many servicers believe that the duty to respond to a QWR only arises in the context of an account dispute. It is recommended to reference a dispute when sending a QWR, such as an uncertainty of the identity of the mortgage holder.
TILA provides that “upon written request by the obligor, the servicer shall provide the name, address, and telephone number of the owner or the master servicer of the obligation.” See 15 USC §1641(f)(2).
One letter citing both RESPA and TILA is sufficient to invoke both statutes. Note that this provision in TILA applies only to loans secured by the borrower’s principal residence, while RESPA’s QWR rules apply to practically any loan secured by a one-to-four family residential structure, regardless of who occupies it.
A servicer must submit a response to a QWR under RESPA within 20 business days, but is given an additional 40 business days to send the requested information. There is no specified time for a servicer response under TILA. However, the Dodd-Frank Financial Reform Act, Public Law 111-203, Section 1463 reduces a servicer’s initial response time to a QWR to five business days, and the 30 business days to supply information (with a possible 15 day extension if the servicer sends notice and reasonable explanation of the delay).
Dodd-Frank adds that it is a violation of TILA if a servicer fails to identify the “owner or assignee” of a loan secured by the borrowers principal dwelling within 10 business days following a written request.
A violation of TILA makes the “creditor” liable for statutory damages up to $4,000, plus actual damages and attorney fees. See 15 U.S.C. §1640. RESPA violations make the “servicer” liable for statutory damages of $1,000 ($2,000 under Dodd-Frank changes) if there is a “pattern or practice” of non-compliance.
The real issue in mortgage ownership matters is whether the company that claims that it is the owner of your mortgage note was legally assigned (transferred) ownership, and whether it actually has physical possession of the note.
Consequently, every debtor in bankruptcy should require its servicer/lender/mortgage holder to “show me the note” whenever the company asserts standing (as in an objection to confirmation, motion to lift stay, etc.). A copy of the mortgage note is not sufficient. Failure to provide the note means that the mortgage is “naked” and the company has no standing to participate in your bankruptcy case. This is especially important during lien stripping cases or objecting to a proof of claim.
Unfortunately, the “show me the note” defense is not universally applied. Some states, notably Arizona, Washington, and Nevada, have rejected this defense altogether. In 2012, the Arizona State Supreme Court flatly rejected a challenge to the trustee’s standing during a foreclosure sale. The issue before the Court in Hogan v. Washington Mutual Bank, N.A. was whether Arizona law permits a trustee to foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed of trust secures.
The Arizona Supreme Court stated that Arizona is not a “show me the note” state and that nothing in Arizona’s non-judicial foreclosure statutes mandates that a beneficiary of the deed of trust must show possession of, or otherwise document its right to enforce, the underlying note prior to the trustee’s exercise of the power of sale.
It said that the “only proof of authority the trustee’s sale statutes require is a statement indicating the basis for the trustee’s authority.” The court noted that “[r]equiring the beneficiary to prove ownership of a note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the mortgage foreclosure process … time-consuming and expensive, and re-inject litigation, with its attendant cost and delay, into the process.”