Fannie Mae, Freddie Mac and Government Sponsored/Owned Entities in the Title Chain?

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

EDITOR’S COMMENT: The piece below is a cut and paste from the FNMA site without any editing. The latest round of finger pointing has put Fannie and Freddie in the path raising even more obstacles to identifying the creditor, and the holder of any right to foreclose on a home mortgage. So I thought it would be helpful if you knew what these entities are and what they are not. First and foremost they are NOT LENDERS. They never were and they never will be. Nobody ever applied to Fannie for a mortgage and Fannie never gave them funding or documentation for a loan.

The problem that keeps coming up is that FANNIE, although never the foreclosing entity that I have seen, is showing loans in its portfolio on its website while at the same time some private entity is doing the foreclosure. And some private entity, frequently new to the party is submitting a “credit bid” at the auction. And some private entity, frequently a third player new to the party is getting title to the property at the auction. Go to any title examiner and ask him or her what they make of that and they will have no answers — but they WILL have a bunch of questions, which is why I keep saying that there are questions of material fact that are being ignored by the courts in their rush to get their dockets cleared.

The mere fact that a title examiner would not have any answers and would have questions is enough to say by definition that title is clouded and probably unmarketable. Any in-depth analysis would lead to the conclusion that the situation is worse — that title is defective and digging deeper, that title is fatally defective. What this all means is that each foreclosure judgment and each foreclosure auction sale whether in a judicial or non-judicial sale is probably corrupting the chain of title — in the absence of a court order declaring the status of title and encumbrances (i.e., a Quiet Title Action).

Amazingly, the situation might be worse than that: digging still deeper, one finds that the mortgagee (or beneficiary) under the deed of trust is frequently defined as something different than the lender and that the lender is not the creditor because the money came from an undisclosed third party.

So the inescapable question is whether the note is indeed “evidence of the obligation” as was presumed before the era of securitization, and therefore whether the mortgage was a valid or perfected encumbrance since it refers to the note, when the obligation both in its terms and the parties is different than what was described in the note.

Back to Fannie. Did they fund the mortgage? Probably not as we have seen no cases in which a wire transfer or check came from Fannie to fund any mortgage loan. Even if they guaranteed the receivable are they a secured party? I’ve asked that question to quite a number of very smart lawyers and professors and they have no simple answer. May third parties act for Fannie in foreclosures? Perhaps, but not without saying so and proving their authority.

So if Wells Fargo or some other entity says they are the owner and holder of the note, that might mean something and it might not. Because if the note is invalid and not a description of the obligation from the borrower it doesn’t matter who owns the note. And if the note is valid, the same robo-signing questions come up as to delivery of the original note, endorsement and assignment. Either way you have a question of fact that would-be foreclosers are presently using great skills to finesse the evidentiary questions presented here. And if Fannie is showing ownership on its site, the question is ownership of what?

There is a big difference: On one hand you have the multiple receivables created by the origination of a loan and the attempted securitization of the receivables from that loan, as additional parties are added as co-obligors, guarantors and insurers, mostly with an express waiver of subrogation — meaning that damages might be mitigated but there is no transfer of the right to enforce or foreclose (thus the collateral source rule would allow set-off). On the other hand you have partially completed, undelivered documents with no indorsements or assignments sitting somewhere, lost or destroyed.

Thus the inevitable question is “what do you do with an obligation that has no valid documentation when the original intent was clearly a mortgage loan?” Is the obligation unsecured? How should it be listed in a bankruptcy petition? Who, if anyone, has the right to file a motion to lift stay? The second question is “how do you value an obligation when loss mitigation payments were received by a presumed creditor with an express waiver of subrogation?”

And the third question, which is the subject of this article is “how do you identify the creditor when Fannie has the loan on its website?” Who can make a credit bid without cash? To whom should title be transferred?

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About Fannie Mae — see FNMA Description of Itself

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