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[Ed. note: You can check out more coverage of the foreclosure fraud and mortgage crisis at this link.]
Irony abounds!
In a recent article published by Yves Smith has up at Naked Capitalism, the recent foreclosure tsunami is leaving behind a mine field for future home buyers.
It’s based on an analysis done by AFX Title, posted at 4closure Fraud blog. Basically the analysis tells us the same lack of documentation (about which I have ranted for months) that should prevent some banks from having "standing" to foreclose causes something called a "break in the chain of title."
In an uncontested foreclosure, which most are, this standing issue remains dormant and can be brought up at a later date to invalidate the foreclosure, as happened in U.S. Bank v. Ibanez.
So, the home buyer may find that they have bought a previously foreclosed house from a bank which did not have standing to foreclose upon it and therefore, no right to sell it. Title insurance policies are being written with all kinds of nasty exceptions for this contingency.
A wise prospective homebuyer would be leery of buying a previously foreclosed house, wouldn’t they? Which means — wait for it — these greedy banks, who refused to do meaningful mortgage modifications that would have kept people in their homes and still provided a profit to the investors, may be stuck with unmarketable housing inventory.
Ah, delicious irony! Karmic justice! . . .
The bad news for neighborhoods, will be the blight of these empty houses which will continue to depress the housing market.
Somebody, anybody, should listen to Al Franken and put in a monitor to oversee mortgage modifications.
15 Comments
Ouch!
There’s very little that I know about the banking industry but it makes no sense to me for the banks to foreclose on a home and let it sit there empty, inviting all sorts of problems. Why don’t they rent the homes back to the homeowners and at least be getting something back?
Love the irony, given the idiocy and greed of the banks; hate the thought of the result.
Bad enough now, with homelessness increasng while houses in foreclosure sit empty and abandoned.
For Twain:
For the same reasons they insisted on foreclosing instead of accepting a loss on the value of the house and working out a deal with the original borrower/resident.
I keep thinking that somehow that is how Christine O’Donnell managed to skip on her mortgage, and I wonder if the $90,421.31 mortgage even tho she got $135K for the house just a month before the foreclosure sale. Here’s the paragraph from my post on Christine:
Could that stay have been a “get out of jail free” card for both O’Donnell and her attorney/boyfriend buyer because MERS filed it and they had no standing? So does that mean that nobody has standing to initialize any legal recourse against either the buyer nor the seller, if they played their cards right?
I think the answer is Yes.
There’s got to be a way to make money on this MERS thing.
So, more banks will be biting the dust after their ill-advised hand-biting? Won’t the courts have to step in and resolve the status of this inventory so this time-bomb is defused for future buyers? Inquiring minds want to know!
Great post, Cynthia. Memorized. Recommended.
Can someone explain the role of “torrens” in all this?
Torrens is not available in evey, or even most, states. And to take advantage of it, you most register the title with government land office.
Banks using MERS have opted out of that system and so are dependant on showing an unbroken chain of title. Which is hard, sometimes impossible, to do b/c MERS appears to have done a lousey job of record keeping. ACtually, that’s not fair, MERS itself doesn’t do the record keeping, they let their clients do their own record keeping.
So, you end up with a “too many cooks spoils the broth” situation with different banks doing the record keeping in different ways, so it all ends up a big mess as the loan gets assigned from one bank to another.
I think this is part of why Obama has done very little so far. There really is a big mess ahead. Thousands of homes were sold in foreclosure due to fraud and many with completely messed up accounting. Where are the real bottom lines?? We don’t know. As someone watching GMAC continue it’s fraudulent accounting…I know it’s still going on. This is a bigger mess than most folks realize and the over mortgaged homeowner was more of a distraction than truth. The truth?? Fraud…and so much of it, that it cannot easily be sorted.
In reply to Cynthia @9:
I get the impression that no records were kept at all, because it was understood that documents would be created and backdated whenever needed for court appearances. It was assumed that the judges would always rule for the banks, not paying close attention to the forged documents, and that the homeowners, being destitute, would not be able to hire lawyers capable of detecting the scams.
This is why we read of banks whose only claim to a house is the fact that their subsidiary was the servicer, are foreclosing on homes whose mortgages are owned by FNMA. They just make it all up in order to ‘earn’ money for their balance sheet any way they can. (And the GSEs are letting them do this, at taxpayer expense?)
I have little faith that a solution to the problem of broken chains of title will result, due to the political power wielded by the banks. Haven’t the banks already been compensated by the taxpayers for much of their losses, or traded their junk mortgages to the FED for cash, or sold them to the GSEs? I’ve never understood how the banks can still force defaulting borrowers to pay up after they’ve already been compensated by the taxpayers, in effect getting paid twice.
What further discourages me is that it is clearly the policy of Treasury for the banks to ‘earn their way’ out of their insolvency by sticking it to US consumers/borrowers with outrageous interest and fees. So it’s not likely that there will be any resolution that favors keeping people in their homes. Since the stats on applications for mortgages are sinking like a stone now, and eligible borrowers are diminishing, there doesn’t seem to be a reasonable expectation that average folks would be in a position to be scammed by the scenario outlined in Yves’ post.
One thing left out of that discussion: where are the prospective new buyers of the foreclosed properties with clouded titles getting their financing? Wouldn’t it seem odd that Wells wouldn’t be financing the sales of their own REOs? And why would another bank fail to do proper title searches, and then refuse to grant mortgages on these clouded properties? Is it only cash buyers who are going to be buying these homes? Who might these cash buyers be? Former house-flippers looking to make a killing? In this market? How much of a market is left in real estate at this point anyway? People I’ve talked to who’ve been burned already would rather rent.
Thanks for the update Cynthia. This train wreck just keeps looking uglier.
Bankers are probably busy buying up as many judges as possible to “help” sort out this mess. Either way, the big banks are all hopelessly insolvant. Thier only lifeline is in thier stranglehold on DC politics.
The only way to fix this mess is to kick the Wallstreet Dems out of office. Find some good progressive Dems… or at least ones without Wallstreet ties. Failing that, 3rd party here I come.
wavpeac
I thought of you when I read this–aren’t you in one of the states listed in the linked story? Does this mean GMAC may not have had the paperwork for your mortgage?
wavpeac@10
I too thought of you when I just saw Yves’ latest which links to this Bloomberg article: Ally’s GMAC Mortgage Halts Home Foreclosures in 23 States. Here’s the part Yves quoted:
This issue isn’t quite as severe or all-enocompassing as suggested here, and there’s no indication banks will be “stuck with unmarketable houses” as a result.
The “break in the chain” the other source is talking about is the failure to record individual assignments of mortgage, which is now generally done through the MERS clearinghouse, which predates the mortgage crisis by quite a bit
The MERS process is sloppy, and some lenders and law firms are getting in trouble for the way they “produce” the “missing” assignments for trial, but the Mass. case referenced is dependent on the nature of the non-judicial foreclosure process in that state. And realize that the mortgage itself was not being invalidated, so generally, the most that the bank would have to do would be to re-foreclose. In states using a full judicial foreclosure process, standing is effectively determined at trial and therefore generally cannot be challenged later.
In short, while the MERS security clearinghouse model is indeed aquestionable practice that can muddle the chain of title, foreclosures are not being invalidated all over America on this basis, nor are purchasers with foreclosures in the chain of title likely to face a title issue based on lack of recorded assignments to the foreclosing lender.
This attorney has a good explanation of the situation:
http://www.calculatedriskblog.com/2009/10/us-bank-v-ibanez-more-fun-with.html