"During the housing boom, new loans were supposed to change hands several times as Wall Street firms bundled them into debt pools and sold them to investors. But the documents and contracts between borrowers and lenders often weren't altered to show changes in ownership."

Don't confuse your loan servicer with your loan owner.  A change in loan servicers does not mean that the loan itself has been sold.  95% of mortgages were intended to be pooled into mortgage trusts. 95% of mortgages were intended to be sold multiple times until ending up in a trust along with up to 5,000 other mortgages.  Bond investors then buy into the mortgage pool in exchange fo the right to receive future payments from the entire pool.

The mortgage backed securities business model contemplates multiple transfers of loan ownership from loan originator, to depositor, to underwriter and finally to the trust with a few month period after the loan is executed.  However, these transfers are expensive, time consuming and involve dealing with the real estate laws of 50 states and countless county record keepers.  Rather than ensure that the notes have been properly transferred into the mortgage trusts, lenders often skipped this process to save money.

As long as loans are performing, ignoring the property transfer protocols is not a problem for lenders.  However, once defaults rise, it becomes necessary for lenders to "create" a paper trail that shows that the notes are properly held by the foreclosing party, the Trust.  

This article details the extent that lenders will go to cover their tracks and attempt to avoid lawsuits from the bond investors.  The lenders hire law firms and document preparation service companies to fabricate the note transfer documents need to file a foreclosure lawsuit, notice of default or to ask a bankruptcy court to grant relief of the automatic stay.

Sadly, for the lenders, the document fabricators aren't too smart.  They frequently file documents that grant loan ownership directly from the originators to the trusts...ignoring the middleman parties that are required by the trust disclosures.  Instead of fabricating loan docs to show a chain of title that moves from A to B to C to D....the fabricators create a "deed of trust assignment" that purports to move the loan ownership from A to D, skipping B and C.  This is a sure sign of fraud.  Finally, the assignments themselves are not legally effective.  Mortgage notes are negotiable instruments like checks.  In California, notes are transferred by "endorsement and delivery", not assignment.  Assignments of deeds of trust without a transfer of the note itself is a legal nullity.

We are seeing this type of fraud DAILY in the bankruptcy courts as lenders try to secure relief of stay.  We are hopeful that judges will begin to understand the scope of the deception.

By AMIR EFRATI

The Florida attorney general's office is investigating possible misconduct by a large law firm that files foreclosures for banks, according to a posting on its Web site.

The Web site said the office is looking at whether Florida Default Law Group, based in Tampa, was involved in "fabricating and/or presenting false and misleading documents in foreclosure cases." Mortgage documents that are used to prove a bank has a right to foreclose "have later been shown to be legally inadequate and/or insufficient," the Web site said.

A spokeswoman for Florida Default declined to comment. Ryan Wiggins, a spokeswoman for Attorney General Bill McCollum, said the investigation began last fall.

The civil probe comes as some judges and federal prosecutors in Florida are paying close attention to how banks--and so-called foreclosure-mill law firms that work for banks--are attempting to take control of homes from borrowers in default. Judges across the country have chastised banks and their attorneys for attempting to seize properties they can't prove they own.

Last month, a Florida judge said that a mortgage document filed by a bank in a foreclosure case was part of an "intentional effort to mislead" the court.

The attorney general's office said on its Web site that Florida Default "appears to be" a client of Lender Processing Services Inc., a Jacksonville company that has said it is being investigated by the federal criminal prosecutors.

LPS, which processes and sometimes produces documents needed by banks to prove they own the mortgages, has acknowledged errors with documents they processed that were filed in foreclosure cases and said they have been fixed. An LPS spokeswoman said on Thursday the company is "willing to cooperate with any regulatory body that contacts us."

Ms. Wiggins said the attorney general's office recently began investigating conduct by LPS in foreclosures.

Faulty bank paperwork has been an issue in foreclosure proceedings across the U.S. since the housing crisis took hold a few years ago. It is sometimes difficult for banks, which act on behalf of mortgage-securities investors in most foreclosure cases, to prove they own the loans.

During the housing boom, new loans were supposed to change hands several times as Wall Street firms bundled them into debt pools and sold them to investors. But the documents and contracts between borrowers and lenders often weren't altered to show changes in ownership, judges have found.

http://online.wsj.com/article/SB10001424052748704302304575214523297904834.html