Uh, smaller words this time?
So, if your mortgage company bundled your loan and sold it as a CDO, does that mean that the loan has been paid off as far as the mortgage company is concerned? But they’re still collecting payments from you? I’m confused.
First things first. According to the article, this is a Kansas thing right now. Also, I can only really discuss things as they apply to accounting/finance/economics. Understanding legalese is not one of my skills (though I keep a legal dictionary and a few law school textbooks handy so that I can play pretend from time to time).
There are two things that go along with a home loan, both of which involve the homeowner. The first is the promissory note and the second is the deed of trust. The promissory note is the payment obligation. The deed of trust is the interest in the property and the ability to foreclose. Apparently, a bank can sell their claim on the title (the deed of trust) in some instances, but not others. If they screw up, they become an unsecured creditor (so they can still go after you like a credit card company, but they lack the ability to foreclose). In this case, they tried to sell the claim to the CDO investors and the ability to foreclose to MERS. MERS acted as a front to shield the CDO investors (by design). The judge took issue with that.
The judge also didn’t like the split between the promissory note and the deed of trust. Whoever still holds the promissory note still has the right to collect payments, but they don’t have the right to foreclose. If they bought back the deed of trust, they would be back to good.
That’s where I added my complication. It’s possible that the bank can’t buy back the deed of trust because the person holding it has no financial incentive to let it go.
FYI, deeds of trust often have three parties: the party that owes, the party that collects, and the party with the right to foreclose. It’s not clear to me that the judge has an explicit problem with this idea or not. The judge may have only had issues with the specific arrangements in the case. Remember that this is my interpretation of the article’s interpretation of two other articles’ interpretations of the judge’s interpretation of the law.
