Seller's last assignment on 1st position note not recorded?

20 Replies

I'm working with a seller on FCI Exchange who has not recorded his assignment and says: "We don't record our position until it is under contract. FCI can record our assignment at time of close." This does not seem right, shouldn't the assignment, made earlier this year be recorded for this seller to have the right to sell the note? What am I missing?

Well, of course the note and the mortgage are two different instruments. When the mortgage is assigned shouldn't affect any rights, as it all reverts back to date of origination. @Dion DePaoli will know.

If there is no legal action in the file, they can simply hold the AOM in file. Not uncommon in history, less common in recent practice. Not a favorite practice for me to see but not a deal breaker. The rights were passed at the point of sale. As long as they have an original to record, not too much to make a fuss about, just condition the contract for it to be recorded.

I've had to record a previous owner's assignment before. It wasn't an issue aside from aggravation and an extra expense. It shouldn't be a deal breaker but I'd call the county clerk and see if they have a problem with you registering both assignments.

Originally posted by @Account Closed :
It shouldn't be a deal breaker but I'd call the county clerk and see if they have a problem with you registering both assignments.

Patrick, have you experienced this, where you send your AOM plus an additional intervening assignment and they did not record it under the idea that you sent in too many?

Did you send in the proper amount of fees with them?

What did they do, if this did happen to you?

Originally posted by @Dion DePaoli :
Originally posted by @Patrick D.:
It shouldn't be a deal breaker but I'd call the county clerk and see if they have a problem with you registering both assignments.

Patrick, have you experienced this, where you send your AOM plus an additional intervening assignment and they did not record it under the idea that you sent in too many?

Did you send in the proper amount of fees with them?

What did they do, if this did happen to you?

They had an online system where you prepared the assignments with cover letter etc. I prepared two separate ones, one for each company, with the appropriate fees, then they recorded them.

As I mentioned I don't know if this is typical or not, but that's what happened in this case.

This was a year ago so I don't remember specifically but if memory serves, they almost recorded them out of order so I had to fix something.

I don't think it's a big deal. However, you might feel better by paying a title company to given you an Endorsement of the Lender's Policy.

FCI services paper from several of my portfolios. If they're handling the note sale, for a fee, I'd have no issue with assignment.

If this were one of the Fast Freddie Hedgehogs, I think you'd be lucky if the chain of note ownership ever connected.

I see, so it's not that you sent in too many, it is that you were concerned about priority. Note AOM's do not have a priority function like the actual security instrument.

Some general ideas for the readers. An Assignment (AOM) is not the same as a Security Instrument (Mortgage/DOT) in body of law. In most cases, ownership is perfected upon actual possession of the instrument (Promissory Note in our case). Priority of ownership of the same instrument is established upon possession, sometimes referred to as Automatic (what happens at point of sale). Once you hold the actual promissory note, you "Automatically" have priority to all other claims. Ergo, priority by possession.

Note, point of sale happens when both sides deliver their perspective item. Funds or file.

The recording, sometimes referred to as Filing as contrast to Automatic, on an AOM helps to defend against other 'potential or previous' Assignees claims to the instrument. However, we still can fall back on possession as giving priority. And in most cases, that is where the argument ends. Even if you have an AOM recorded before me giving you priority in Filing, I have Automatic priority by possession and trump your claim.

And if that wasn't confusing for the kids at home. To say it another way, there 'can' be a total to two pieces which affect ownership and priority. Having actual possession of the note is the piece with the most power. This is what makes Lost Notes briefly concerning, amongst some other ideas. Just because you have an assignment does not necessarily mean you have priority in rights. With an assignment in addition to possession, you sit with both pieces in a strong place that can survive most (if not all [I don't know of any]) challenges.

None of that is an effort to say, do not worry about intervening assignments. Since a True Sale can be treated differently than a mere Assignment for Security (like if I used the note as collateral for other financing), they do both bare importance.

That said, what this does do is help keep our heads straight when it comes to time to cure any intervening assignment. Recording several intervening assignments at the same time is less of a worry if you have possession. This is important to understand, because if you happen to purchase a loan with some broken chains of assignments or perhaps assignments held in file not of record, while it is important to always be systematic when possible, sometimes that may be impossible. Where AOM 1 is of record, AOM 2 is in file and AOM 3 is of record. You will not go back and do any type of correcting for AOM 2 to be before AOM 3. Generally speaking, there should be no need. As such, we can apply the same idea to pulling your hair out over priority of filing like in the case above. Even if the clerk recorded #2 AOM before AOM #1, it would have meant much, provided the note was held in possession.

In the event you actually did need to establish this, you would simply note on the assignment itself the desired affects of the instrument. This takes the priority given explicitly by the recorder's time stamp to be that of what is contained in the instrument while perfecting the same.

Originally posted by @Rick H. :
I don't think it's a big deal. However, you might feel better by paying a title company to given you an Endorsement of the Lender's Policy.

FCI services paper from several of my portfolios. If they're handling the note sale, for a fee, I'd have no issue with assignment.

If this were one of the Fast Freddie Hedgehogs, I think you'd be lucky if the chain of note ownership ever connected.

FCI makes no Warranty, that I know of, as to soundness of chain of ownership for an asset they list on their site. You should always care. This file could have just as easily had dual interested parties. Not uncommon in some of the institutional notes they market which were subject to being used as collateral for other financing.

Broken chains are not uncommon but as stated above understanding how it all works resolves the workload. Chains which can not be cured by either of the two methods above are fairly uncommon. The amount of work to cure would be the defining difference.

You can ask for a title insurance company to insure your priority, you can also carry two spare tires in your care. Not going to hurt you per se, will cost you and may be unessicary from a cost perspective.

No argument here. Since I don't buy paper from FCI, I don't read their "featured note offerings" and treat as spam. The last one I did look at was a second on an 11,000 sq ft home that a friend built in my neighborhood back in the early 80's.

Since I knew the backstory and saw the news about the police raiding the house used for birthing babies by pregnant Chinese Women, I don't like their (FCI's) products.

Title company can escrow a note sale, too.

I don't have two spare tires in my cars but I do carry cans of Spare Tire in a Can.

Might be said easier saying the are brokering, skipping their assignment from the last holder to a buyer. They take care of the settlement statements and hold an assignment in blank. Didn't read all of the above, but here's just one Reader's Digest version and I don't know FCI. :)

If you want to over pay for notes without complete paperwork, then you need to buy from FCI.


Joe Gore

Originally posted by @Rick H. :

..... birthing babies by pregnant Chinese Women...

Comical, folks some of this stuff really can't be made up!

Escrows in note trades have issues since often times the contracts used do not properly address the concept of an escrow. Many folks who have tried to get in the game have attempted to use escrows and in my experience not for above board reasons. Since many loan sales are bid subject to due diligence or simply a final bid, escrows are at best, awkward to work with.

If a newbie comes across a request for escrow monies my simple suggestion is move on to another trade. Loans are not like properties. Due diligence on property is really available during the entire term of the contract. That is, the Buyer has an opportunity to inspect, review and analyse the asset for the most part at will. In a note trade, your capacity to do the same is dependent upon the Seller or their agent providing the proper items to do the same inspection, review and analysis. A poorly written escrow agreement or clause could mean a Seller provides 90% of the documents, which prevents full due diligence and the escrow could be challenged if the Buyer fails to close on time since they did not finish due diligence. It really just makes a mess of something that is fairly straight forward.

In my opinion, it takes away from the point of the whole engagement which is to trade the loan. You will end up, more than likely, spending more time hashing out terms of escrow rather than terms of sale and reviewing the asset. Most seasoned and institutional buyers do not ask for escrows nor will they ever participate in one. For instance, I have never entered into one and will likely never think twice about the same.

Originally posted by @Joe Gore:
If you want to over pay for notes without complete paperwork, then you need to buy from FCI.


Joe Gore

Oh Joe, I enjoy your brash commentary.

Seems like a broad and unquantifiable statement for the most part. The burden of complete paperwork is not on FCI, it is on the Seller (and the Buyer), since they are the owner of the asset and the contract is entered into by the owner of the asset and the buyer of the asset. FCI does not take on the reps and warrants of a Seller or a Buyer in a trade that I know of, they merely collect a fee for using their website.

It seems logical that some Sellers will always ask for more than the market will bare regardless of whether the asset is found on FCI or some other location.

I have been in the note business over 20 years and never used an escrow.


Joe Gore

I think Joe is really in the insurance department of an institution that buys paper, at best, just my guess as we will never really know, what we do know is the lack of attention to details, but, in time, he does grow on you and certainly adds flavor to any note discussion. This was complimentary Joe, no dig there. :)

Dion, again, I missed much of the above, escrows, on the sale I totally agree, escrows of taxes and insurance can be another matter as to how escrow accounts may be disbursed under servicing. :)

@Bill Gulley,

Thanks for all the kind words I am like you. I have been around the block.


Joe Gore

@Dion DePaoli,

I should have explained because most people would not understand. The notes are placed on FCI website, and the seller and buyer get together, and the seller supposed to provide the complete paperwork on the note, but most brokers or resellers don't have all the paperwork. Randy at FCI said all sellers of notes must have complete paperwork before selling a note on FCI.


Joe Gore

That has been my experience with FCI as well. Most of the notes are overpriced but there are a few that I've found at a good value with a credible seller. The one cited in this post is most likely someone brokering the note which would explain why he has not recorded his assignment.

Originally posted by @Bob Malecki :
That has been my experience with FCI as well. Most of the notes are overpriced but there are a few that I've found at a good value with a credible seller.

My question is, if this has been your experience with FCI, and most are overpriced... why not just buy from a reputable company / broker?

Maybe you'll find a diamond in the rough but it sounds like a major hassle.

When you buy from a handful of people / companies repeatedly, you mostly know what you're going to get, what the process is, what due diligence is going to be needed, what the turnaround time is etc.

Just my opinion, of course!

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