Servicer & Trustees - Alleged Errors
#1: Alleged Errors by Servicers: REO Liquidations still sitting in your deals
Explanation: Sold REOs (deed transferred from trustee to another party) where the liquidation proceeds and loss have not been remitted to the trust. These loans continue to appear in the trust with a positive UPB as a REO.
Typical Language in a Pooling & Servicing Agreement: “The Servicer shall withdraw or shall cause to be withdrawn from the related Servicing Account and shall immediately remit or cause to be remitted to the Trustee for deposit into the Distribution Account, amounts representing the following collections and payments … (ii) Principal Prepayments in full and any Liquidation Proceeds received by the Servicer with respect to such Mortgage Loans in the related Prepayment.”
Which Servicers? Most of the loans we discovered are serviced by Ocwen, but other servicers are guilty as well. Oddly, Ocwen makes it easy by providing an internal and external status field on REALPortal, that we can compare. Although the REALPortal data is not 100% accurate, it does point us to quite a number of sold REOs still sitting in the trusts. Unfortunately, we cannot quantify this problem. The good news is that servicers generally remit liquidation proceeds in a timely manner. Even more good news is that as we report these errors and investors pass on our results, the servicers have been fixing the problem. We still don’t know why this happens. Back in December 2015, we reported a $3,000,000 loan (#0018936724) serviced by Nationstar sitting in TMST 2006-6 which sold in a homesearch.com auction in August 2014 for $590,000 (Original Appraisal $4,009,000). This was a huge loss that wasn’t fully passed through to investors until the September 2016 remittance.
What to do? We don’t have any good call into servicers. Investors should call the Trustee.
#2: Alleged Errors by Trustees: Default judgments resulting in cancellation of mortgage debt
Explanation: Lawsuits brought against Trustees alleging that the six-year statute of limitations for bringing action to foreclose on the mortgage has expired and requesting the Court to cancel and discharge the said mortgage. The Trustee does not respond and the Court grants the Plaintiff’s motion upon the Trustee’s failure to respond to the summons and/or failure to appear in court. By issuing a Default Judgment, the Court orders that the mortgage encumbering the property is discharged of record. The Trustee does not attempt to vacate the order (has one year in NY). The loan continues to sit in the trust as a REO with a positive balance and no loss passed through.
Which Trustees? So far we discovered Bank of New York Mellon, HSBC and Deutsche Bank. This is a very difficult error to quantify.
What to do? Investors should call the trustee.
We are always available to answer questions and investigate anything that disturbs you. Feel free to suggest a topic that we should look into. We are pretty good at matching addresses to delinquent loans using the public records. Even better is the availability of updated valuations (40% of all seriously delinquent loans). We are your research team. Please call/email.
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