If you're facing foreclosure in the District, help might be on the way

By Benny L. Kass
Friday, November 5, 2010; 8:02 AM

Do you live in the District and are facing foreclosure action? If so, and depending on the details of your original mortgage transaction, you might be able to get relief from the D.C. attorney general's office.

On Oct. 27, Attorney General Peter Nickels issued an enforcement statement on foreclosures conducted on District properties. According to Nickels, "a foreclosure may not be commenced against a D.C. homeowner unless the security interest of the current noteholder is properly supported by public filings with the District's Recorder of Deeds."

While at first glance that appears to reflect nothing but common sense, the issue of whether security interests have been properly recorded with local governments is at the heart of the current foreclosure crisis.

Let's start by examining how mortgage transactions usually work. You obtain a mortgage from a local lender. In the District - and in most jurisdictions throughout the United States - lenders use deeds of trusts instead of mortgage documents. For this column, the word "mortgage" is synonymous with a deed of trust.

When you buy your house (or condominium unit), you get a deed from the seller. That deed is recorded among the land records with the District's Recorder of Deeds. You then sign a promissory note, which is anIOU to the lender. You also sign a deed of trust, which is a security instrument and is also filed with the Recorder of Deeds.

What is a deed of trust? Oversimplified, it's a tool you use to hand over title to the property that you just bought to a trustee - a person or company selected by the lender. If you pay off your mortgage loan in full, the trustee will release the deed, again by filing a certificate of satisfaction with the Recorder of Deeds. However, if you do not make your monthly payments and go into default, the trustee has the power to sell your house at a public auction.

Unfortunately, although legislation to protect homeowners is before the D.C. Council, there is currently no required judicial review of foreclosure actions in the District. If you, as a homeowner, believe the foreclosure was wrong, the burden is on you to institute a lawsuit against the lender and the trustee.

The way mortgages are securitized is also a key part of the foreclosure crisis. Securitization is a process whereby lenders package up many of their loans and sell them to investors around the world. Many economists and public officials blame the securitization system for a large part of the financial mess we are in.

Furthermore, back in 1995, The real estate finance industry created a company known as Mortgage Electronic Registration System (MERS) . Reston-based MERS runs a computer system that allows lenders to electronically track ownership of loans as the debts are bundled into securities and sold to investors. According to the company's Web site , it is an "innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. . . .Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans."

However, Nickels' enforcement statement says District law requires that the holder of a mortgage interest must be reflected in the District's public records, and not merely in the computers of a private company such as MERS.

Why is this significant? Because of securitization, the original lender may no longer be the owner of the promissory note you signed. When a lender forecloses, it must send the delinquent homeowner a form called the "notice of foreclosure sale." The actual sale cannot take place until a minimum of 30 days from the time the homeowner - and the recorder of deeds -received the notice.

The information contained in the form notice must be accurate. For example, it advises the homeowner of the date, time and place where the foreclosure sale will take place. It indicates the amount owed on the loan, as well as the minimum balance required to cure the default and stop the foreclosure.

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