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Collection Actions: 4.2.4.6 Consumer Authentication of Creditor’s Business Records

At trial, the collector may seek to avoid bringing in a witness to authenticate business records by trying to have the consumer do so. This can be avoided if the consumer is not in court and has not been timely subpoenaed to attend. Even if consumers are in court, the consumers should state that they are not familiar with how the records were created, do not have their own copies of records in their possession, and do not recall whether any copies they did receive are exact copies of the records the collector is asking them to authenticate.

Consumer Banking and Payments Law: Amendment History

[53 Fed. Reg. 19,433 (May 27, 1988), as amended at 53 Fed. Reg. 31,293 (Aug. 18, 1988); Reg. CC, 55 Fed. Reg. 21,855 (May 30, 1990); 55 Fed. Reg. 50,818 (Dec. 11, 1990); 56 Fed. Reg. 7802 (Feb. 26, 1991); 57 Fed. Reg. 3280 (Jan. 29, 1992); 60 Fed. Reg. 51,671 (Oct. 3, 1995); 62 Fed. Reg. 13,811 (Mar. 24, 1997); 62 Fed. Reg. 48,752 (Sept. 17, 1997); 69 Fed. Reg. 47,315, 47,316 (Aug. 4, 2004)]

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Home Foreclosures: 8.8.1 Introduction

Mandatory arbitration clauses are less pervasive in mortgage loans than in other consumer transactions, but they may still be found in certain older mortgage loans or related documents. For example, arbitration clauses were common in mortgage loans consummated before 2004—Freddie Mac stopped purchasing mortgages subject to mandatory arbitration as of August 1, 2004, and Fannie Mae stopped purchasing such mortgages effective October 1, 2004.

Home Foreclosures: 4.2.1 The Servicer Foreclosing As Agent for the Owner or Holder of the Loan

When a servicer seeks to foreclose as the agent for the owner or holder of the loan, the servicer must meet two basic tests. First, the servicer must act on behalf of a principal that has the right to enforce the obligation.3 Second, the principal must have delegated authority to the servicer to perform the particular activity in question.4 Servicers may fall short on either count.

Home Foreclosures: 4.2.2 The Servicer Foreclosing As the Holder of the Loan

A number of factors affect whether a mortgage servicer may foreclose or conduct certain foreclosure-related activities in its own name. In judicial proceedings, the concepts of standing and real party in interest, discussed above in relation to foreclosures generally, apply to the servicer acting as the foreclosing party.14

Home Foreclosures: 4.3.1 Introduction

As noted in § 4.2, supra, the right of servicers to foreclose on behalf of lenders may be governed by state statutes, including the Uniform Commercial Code, agency law, and the contracts between the servicers and the parties possessing the right to foreclose.

Home Foreclosures: 4.3.2.1 Generally

If Fannie Mae commences a foreclosure in its name, it must meet the same standing requirements as other parties in judicial foreclosure states. These requirements are discussed in §§ 2.2 and 3.3, supra.

Home Foreclosures: 4.3.3.1 Generally

If Freddie Mac commences a foreclosure in its name, it must meet the same standing requirements as other parties in judicial foreclosure states. These requirements are discussed in §§ 2.2 and 3.3, supra.

Home Foreclosures: 4.3.3.2 Freddie Mac’s Version of Fannie Mae’s “Phantom Transfer” Provisions

Since April 24, 2014, Freddie Mac’s Seller/Servicer Guide includes a version of Fannie Mae’s phantom transfer of the notes from the custodian to the servicer. Freddie Mac, however, uses the phrase “constructive possession.”120 In Freddie Mac’s case, the servicer may request either “actual or constructive possession” of the note by completing and signing Form 1036.121 If the servicer requests actual possession, the custodian must promptly deliver the note.

Home Foreclosures: 4.4.2 The Unreliability of MERS Records

Consumers contacting MERS’s toll-free telephone number or utilizing its public website will only learn the name of their mortgage servicer.173 To the extent that MERS provides information about the owner of a loan, the information is dependent on servicer input, and often unreliable.

Home Foreclosures: 4.4.3 MERS Holds No Right to Payment

In discussing MERS role in foreclosures one cardinal point cannot be emphasized enough. MERS has no right to payment of the amounts due under a note. What is typically understood to be the “beneficial” interest in a mortgage, the right to collect payments and enforce the obligation—is exactly the interest MERS consistently disavows. Much of the confusion over MERS role has arisen from the boilerplate language in MERS’s security instruments, particularly deeds of trust. These define MERS as the “beneficiary” under the deed of trust.

Home Foreclosures: 4.4.4 MERS Prohibits Conduct of Foreclosures in Its Name

Prior to 2011, MERS member entities often conducted foreclosures in the name of MERS. In non-judicial foreclosures it was a common practice for the foreclosing party to serve and record documents listing MERS as the foreclosing entity and to conduct the foreclosure sale in the name of MERS. In judicial foreclosures, MERS would be named as the plaintiff party. The case caption might designate MERS as acting on behalf of the beneficiary of the loan. However, in many instances the pleadings and related documents identified only MERS as the foreclosing party.

Home Foreclosures: 4.5.1 Court Decisions Barring MERS from Foreclosing

MERS’s 2011 change in policy did not occur in vacuum. MERS was reacting to an increasing number of court decisions holding that valid foreclosures could not take place in MERS’s name. Particular state statutes and court rules often played a critical role in these decisions. The courts focused on two points regarding MERS’s role. One was MERS’s status as solely a nominee without any interest in the underlying debt obligation. The other was MERS’s purported role as a common agent designated to act on behalf of all MERS members.

Home Foreclosures: 4.5.3 Decisions Allowing MERS to Foreclose

In a few states courts have interpreted their non-judicial foreclosure statutes to permit a party with no interest in the promissory note to foreclose.216 Courts in Idaho, Minnesota, and Georgia have adopted this view, while courts in California and Texas have rendered inconsistent rulings on the question.217 Courts that reject the application of the UCC provisions governing negotiable instruments to foreclosures have ruled that parties acting under the MERS’s signing authority could engage in a

Home Foreclosures: 4.5.4.2 Evidence From an Alleged Agent Alone Cannot Establish the Facts of Agency

The standard MERS mortgage purports to bind the borrower, the original lender, and unknown future successors and assigns of the original lender to an agreement to participate in the MERS nominee system. The future successors and assigns are not parties to the mortgage contract. Nor are the future successors and assigns referenced in the note. The MERS model attempts to involve unknown parties in a common agency arrangement. This concept presents practical problems for future parties who claim to be affiliated in some way with the common agency structure.

Home Foreclosures: 4.6.1 MERS’s Assignments of Mortgages and Deeds of Trust

In a number of decisions, courts considered the validity of assignments of mortgages and deeds of trust executed by MERS’s signing officers. Courts have expressed concerns about the practice whereby individuals who are not employees of MERS but act in MERS’s name wear various hats to sign documents as assignor and assignee, or as trustee and agent, in connection with the same loan.

Home Foreclosures: 4.6.2 Transfers of Notes by MERS

MERS’s rules prohibit its members from referring to MERS as a “note-owner” in foreclosure proceedings.253 MERS Terms and Conditions provide that “MERS shall have no rights whatsoever to any payments made on account of such mortgage loans.”254 Individuals purporting to act as MERS’s representatives have no authority to transfer notes.255 This fact has not hindered servicers’ attorneys from arguing to the contrary.