Foreign Visitors Buy Lawsuits at Foreclosure Sales

The players:

The immigrants. Hundreds of foreign visitors to the U.S. are coming via tours organized by real estate brokers, hoping to buy properties for pennies on the dollar at foreclosure auctions. Foreclosures were 1/3 of total home sales in June 2009, and many of these were sold to visiting Chinese, where real estate purchasing tours are among the most popular tour packages in China.

MERS (Mortgage Electronic Registration System). MERS is a “servicing agent” that was created by a consortium of lenders. It merely tracks the ownership liens on properties, and is paid for its services through membership fees charged to its members, the lenders. MERS comes between the borrower and the lender, making it difficult for borrowers to know who is holding their mortgage at the moment. Over half of the mortgages in the U.S. and are now held by MERS. This amounts to over 60 million people who may have no idea who holds their mortgage.

The rules:

Foreclosure. State law governs foreclosure. Most states require proof from the foreclosing party that it has an enforceable interest. In other words, the foreclosing party must have standing in order to foreclose.

Assignment. A proper assignment of an interest in property will create standing. In order to have a proper assignment, both the promissory note and the deed of trust must have been properly transferred. A proper transfer of the promissory note consists of ownership of a note that has a “wet signature”, i.e., the actual, original signed document from the debtor confirming agreement to be bound by the terms of the loan. A proper transfer of the deed of trust consists of an unbroken chain of assignments from the originating lender to the party seeking to foreclose. Both are needed in order to establish standing to foreclose.

The problem:

MERS abrogates state law by purporting to eliminate the need to prepare and record assignments when trading residential and commercial mortgage loans. MERS asserts the rights of the holder of the loan to foreclose, even though it is only a “nominee” (as opposed to an “agent”) for the holder of the loan. An appeals court in Kansas recently described MERS’ “nominee” status as being more akin to a “straw man” than a party possessing all the rights given the holder of a loan. MERS has argued in other forums that (1) it is not authorized to engage in practices that would make it a party to either the enforcement of a mortgage or the transfer of a mortgage, and (2) it is not a mortgage bank subject to license and registration requirements. Yet, MERS asserts a property right over mortgages for which it has neither the promissory note nor the authority to assign the note. Without a separate agency contract with the latest principal, MERS has no tangible interest in the mortgage, and cannot foreclose. Nevertheless, MERS has been foreclosing.

MERS has been fortunate in Florida, for instance, where many judges have allowed MERS to foreclosure despite a lack of an actual chain of assignment and/or “wet signature” on the promissory note. However, judges in other states have actually enforced the laws as written. In these jurisdictions, if the courts decide that MERS was not the proper party to foreclose and/or misrepresented in its pleadings and affidavits that it was, title to properties purchased at foreclosure sales would be clouded. Foreigners coming to the U.S. on tours to purchase property may be obligated to return to defend title or rescind their land sales contracts.


About the author: Kathleen Lord-Black is an immigration and foreclosure defense attorney whose offices are located in downtown San Francisco and in Santa Cruz, CA. She has served as Immigration Consultant for the San Francisco Public Defenders Office, 2005 Chair of the Immigration Section of the Barristers Club of the Bar Association of San Francisco, and former Congressional liaison for U.S. Representative Farr. Ms. Lord-Black is an active member of the Center for California Homeowner Association Law in Oakland and the American Civil Liberties Union. Her articles regularly appear in the Bay Area Arabic-language newspaper, Alra’i Alarabi. Ms. Lord-Black can be reached via email at kathleen@kathleenlord.com; and by telephone at (415) 205-5601 and (831) 332-7515. Her web address is www.kathleenlord.com.