When you thought you’d seen every possible stuff-up in mortgage land, a new one comes to light.
When the housing market correction started, most savvy observers pointed out that prices needed to revert to long-term relationships with rentals and income levels. And many have also pointed out that it is reasonable to expect prices to overshoot on the downside.
The powers that be have been trying to forestall the inevitable that by using super low interest rates and purchases of mortgage backed securities to keep mortgage borrowing rates low, making housing more affordable. It isn’t clear how productive that massive effort has been. Not only have banks have tightened up on lending standards (which was warranted) but smart buyers might be worried about financing homes when rates are artificially low. When intervention ceases as inflation picks up and the Fed starts to mop up liquidity, the rise in mortgage rates may prove to be disproportionate to the increase in inflation, dampening appreciation.
But with these ongoing large-scale subsidies, and the almost certain prospect of banks pressing for continuing favored treatment (recall, for instance, the “securitization market is TBTF” argument by American Securitization Forum president Tom Deutsch), it’s disturbing to see members of the financial services industry continue, through incompetence and an undue focus on cost containment, take actions that are detrimental to the housing market.
Evidence of the latest self-inflicted wound comes via e-mail from Lisa Epstein of ForeclosureHamlet.org, namely that some lenders, such as Fannie Mae, had not obtained title to foreclosed properties before selling them out of foreclosures. There’s already been a hue and cry over possible clouded title due to the discovery of errors and corners-cutting, particularly the electronic mortgage registry MERS producing an inability to verify the chain of title (and MERS being so loosely run as to raise questions about the integrity of its data). In classic “shoot the messenger” behavior, people who have pointed out these issue have been criticized for publicizing these failings and arguably hurting the housing market. But this is tantamount to arguing that the media should hide information about serious auto defects because it might hurt GM.
While the latest fiasco has been reported in Orlando, it isn’t hard to believe that the same problems exist in other parts of the US, since Fannie, Freddie, and outsourced servicer process managers like LPS worked to implement standardized processes to the extent state real estate laws permitted.
From the Orlando Sentinel:
A funny thing happened to DeBary resident Russ Vas Dais as he was about to buy a foreclosed home: He learned the bank selling him the house didn’t actually own it.
Fannie Mae had foreclosed on the property but, in an apparent paperwork problem, never took ownership.
“It was quite shocking to learn the bank didn’t have title to it,” said Vas Dais, who had worked in the real-estate sales and appraisal business for 18 years. “I just felt that there are a lot of incompetent professionals who aren’t paying much attention. …
Another emerging obstacle that could further complicate the foreclosure process: legal appeals that can reverse judicial foreclosures and can put a property’s ownership into deeper doubt.
Christopher Hunt, senior attorney with the Orlando law firm KEL, said the firm has beefed up its appeals staff and plans to start filing 20 foreclosure appeals a week. The firm In July persuaded the 5th District Court of Appeal to overturn state Circuit Judge William Law’s foreclosure against Stephanie and John Crown of Lake County. The bank that took ownership, Chase Mortgage, never put the house on the market, and the Crowns have been able to continue living in it.
Buyers of foreclosed properties could find themselves caught up in such litigation if the foreclosure is overturned in the courts, Hunt said.
“I think that is actually going to happen,” he added. “We’re not going to be able to prevent that in every instance. When that does happen, it’s bad for everyone. It’s a disaster in the making.”
Even in commercial real estate, foreclosure sales have proven so problematic that one Orlando broker likens them to “catching a falling knife.”
And a mere two days ago, the Sun-Sentinel reported that a foreclosed home was sold twice, meaning two buyers closed on and paid for the same property.
As we’ve indicated repeatedly, foreclosure sales are final; the risk is not so much to the home buyer, as the article implies, but the lender that foreclosed. As Bob Lawless wrote:
…most every (or maybe even every–I’ll let someone else do the 50-state survey) state provides the strongest possible finality protections for deeds obtained through foreclosure sales. We also see similar rules for other judicially supervised sales in other contexts such as sales of personal property subject to a security interest or bankruptcy sales….
Suppose Henry and Helen Homeowner lost their home in foreclosure proceeding, and it has since been purchased by Bill and Betty Buyer. Now, Henry and Helen discover the affidavits in their foreclosure proceeding had some of the very same apparently fraudulent signatures reported in the media. When Henry and Helen complain to the court, the answer should be: “Your complaint is against Deutsche Bank (or whoever foreclosed) and not against Bill and Betty. You can recover damages from Deutsche Bank but not eject Henry and Helen from possession.” In turn, this will mean that that Bill and Betty (or their lender) will not have to look to the title insurer for recovery.
However, as one might infer, Bill and Betty Buyer may still be the initial target of litigation, and could thus wind up spending time and money in getting the wronged seller off their back and on to suing the right party.
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But this is tantamount to arguing that the media should hide information about serious auto defects because it might hurt GM.
That’s already being done. BP openly argued that the secrecy clampdown in the Gulf was necessary for the health of its stock price. The US government tacitly agreed, as proven by its actions.
(Too bad we didn’t have a rapid-response Wikileaks operating there. We still need a Wikileak-type delivery for the Gulf Oil Eruption.)
So we’ve had the same premise and course of action throughout the Bailout, and as long as people let themselves be intimidated by the false notion that we need to have big banks or a finance sector at all in order to have a healthy economy (when the truth has already been proven to be the exact opposite), they’ll continue to do it and continue to get away with it.
I don’t know if any of you follow my inconsistent commenting but I have recently both bought and sold my home in this market, in Portland, OR, for strategic reasons in my life.
I sold a two-out-of-three floor remodel fixer in a higher end neighborhood at the very low end in that area ($240K) and purchased another fixer at the edge of the airport and industrial world that was not encumbered by the banksters in any way ($167.5K) Since moving in two weeks ago I have replaced (hired) the furnace that had a screaming fan and scary ignition whoooshes, fixed multiple wiring problems and installed an attic ladder to provide access to 300 sq. ft. of storage area that previously was only accessible through a 12X20 inch kitchen cabinet…..never seemingly used as a grow room as the price has softened. Further move in will be easier now but the next challenge is putting framing (yes, framing) in a 1925 garage with barn boards vertical and old lap siding affixed horizontal with a 2X4 top and 4X4 bottom. It will keep me busy as I watch the world collapse.
Another personal note in light of the economic bent of this site is that my recent purchase was partially funded by the profit I made from moving my IRA from T-bills to GLD after protesting with my NO BAILOUT sign over Interstate 5 in 2008 and seeing the result.
We really are living in very interesting times. Please keep your anger focused on the ultra rich of the world that seemingly want the rest of us to socially evolve this way. As a old fart it will have some impact on my remaining years but our children’s children will suffer our collective lack of action. HERE IS TO HOPE that our blessed BlogMaster will have some effect on the tide of our times.
Still available as cannon fodder for the right evolution.
Warning about your attic/insulation. You should consider checking to make sure there’s no Zonolite insulation. This goes for everyone. Please read Andrew Schneider’s recent series at AOL News:
http://www.aolnews.com/killer-in-the-attic/article/us-government-refuses-to-act-on-cancer-causing-zonolite-insulation/19731468
Amen AR, 2 out of 3 homes in Portland have the bad asbestos from places like Libby Montana in the blown in insulation. A single day in the attack can result in mesothelioma as seen on 60 minutes.
As Foghorn Leghorn would say…[after being blown to bits in a failed prank] (insert concussed southern drawl)
I say…I say…I keep my feathers numbered for just such an occasion…
dang nab-it…I out sourced that responsibility (arms length legal arb)…for insurance remoteness, tax evasion purposes and superior cash flow…
You know…my constituents (investors) and market demanded it…cough bonus…the demands of my position necessitates accouterments above and beyond the norm…like multiple hen houses…and such.
Well looks like I’ll have to go about it_one by one_…all whilst that weasel and chicken hawk stare me down (my nakedness seems to be a major distraction)…that four eyed boy ain’t helping much either…I say.
Skippy…when life seems more like a cartoon…comedy…when it all seems like this…http://www.youtube.com/watch?v=GeI5ke0BENw…yet those that would speak_as if_it was_calculus…to confuse and redirect the sheeple…too engage in pitch fork ARB…you know the underlining is bad…
I think you are so right on that Voltran….I would say there will be some new laws pushed through, sadly as it sounds, in order to protect the banks and servicers.
If I had a mortgage, I would not have a lot of confidence that when I paid it off in 2025, I would have clear title to the property especially if I refinanced. This debacle is really going to gum up the works for a long time.
It seems clear the banks are going to get away with whatever they can push through the courts. I can’t believe what they are getting away with though. I don’t see how they can sell a home without the title or how they could get title insurance on the new home. I am sure the title company would not leave themselves open to that nightmare by offering title insurance before they knew where the title chain had been broken.
I also think it could be just part of the scam and they all are in on it……The title insurers, the banks, and servicers working with hush hush government backing. Would not surprise me knowing that they banks really run the government.
The one question I have is about the foreclosed home purchase being seen as so much more important than any other method of acquisition ( Sounds again like another “Bank” influenced rule, bought and paid for by the bank lobby)
….
How can the foreclosure sale be final if the previous owner could not have transferred the title? This really is a massive problem for the country. If the truth ever gets out to the MSM and people actually start to see the reality it will be impossible to every trust in any real estate transaction again.
We will all live with the knowledge that anyone could claim ownership of our property and if we don’t hire a very good lawyer, we might not be able to stop them. Everyday I think I have seen the worst of this and think wow this is crazy, then the next day another story comes out that makes more messed up. This could drag the economy down for years.
You are doing a great job staying on top of this Yves!
You might consider paying cash for your next home, and buy only from someone who had paid cash, back to before securitization of mortgages.
My neighbors bought their farm 15 years ago for cash, from the heir of the family that had owned the farm for three generations, and with the stipulation that the spinster heir be able to live out her life in the family house. The new owners built themselves a new home on the other side of the barn.
But the interesting part of this is where they got the cash for this: When they sold their old farm, which had been encroached on by urban sprawl, thus impelling them to move to this more isolated area, thankfully given a reprieve from threatening sprawl (three nearby farms were about to be developed but are now back to farming, Whew!)….at settlement, their buyer entered the room with several pieces of soft luggage. It took several hours of counting, and the buyer had to cough up another $4,000 to close the deal.
Paying “cash” is fine but I still think I’d consider using a cashiers check or some such just so I’d have proof that the cash I’d paid had been recieved/deposited and by whom.
In lieu of what’s happening nationwide, it might not be enough to claim ownership to simply exchange money for a deed. A paper trail (albeit a short one!) might come in very useful down the line.
Just musing her but if a buyer intended to purchase a property outright from a seller who owned their property outright, would s/he and the seller need to involve anyone else in the transaction other than perhaps attorneys for each party to review the proper handling of the documents (i.e. deed research and recordation)?
Sorry, I meant to say in “light” of what’s happening.
Chris,
Title insurers are being indemnified by the banks. It’s one orgy-fest and yet the ones being screwed are the homeowners. I don’t know how this continues…..
When are people going to get mad enough to come and protest with me???
“As we’ve indicated repeatedly, foreclosure sales are final”
What’s to stop the borrower from suing the new “owner”? Hey, it’s a free-for all-these days in the USA, and we’re still more then a few years away from bullets flying, so borrowers should play capitalism as long as possible.
The new owner is not responsible for the screw up. The seller is.
But you can’t prevent people from suing. So the way it probably would go is person who disputes foreclosure mistakenly sues new buyer, new buyer files motion for summary judgment (a legal way to say “judge, there is nothing here, dismiss this case”) and the judge dismisses it, pointing out, per Bob Lawless, that they need to go after someone else.
The owner that was previously the new owner (the bank) should be sued, not Ma and Pa Kettle. What, no caveat emptor to the newest owner? (‘innocence’ because they gots the money?) :
“Buyers of foreclosed properties could find themselves caught up in such litigation if the foreclosure is overturned in the courts, Hunt said.”
The “finality” of foreclosure sales will be tested. Defects known or knowable to a buyer may be able to overcome protection that real estate law gives bona fide purchasers for value WITHOUT notice. But, as a general rule, it will be an uphill climb to undo sales, but it won’t be impossible and Bill and Betty will get sued and the title insurer will have to either deny the claim, pay to defend the claim successfully or pay out on the policy.
“I also think it could be just part of the scam and they all are in on it.”
There’s a nuance here – usually not all are in on it, but all think they are, or at least want to be. Title insurers are not in on it so much as they have no place else to go. REO sales are a huge percentage of the current market, and they’re trying mightily to make this pay and not get killed on claims.
The story above has too many missing facts to determine what the transaction is supposed to look like, but supplying my own gap-fillers, this is not a new problem. The sale/purchase contract names the seller and the buyer, and in this case, the seller is not the record title owner, yet. 18 years in the biz and never saw that? Probably means you never heard of Bankers’ Trust, either.
do cash buyers typically purchase title insurance? if not… sounds like they should.
This isn’t incompetence or sloppy paperwork… this is theft, plain and simple. Banksters created loans they KNEW would fail so they could securitize them as AAA and reap the rewards… The initial loans were fraud… the sale of the securities was fraud… the foreclosure actions have been fraud… and re-selling the homes is fraud. Why the excuses???
Why shouldn’t Henry and Helen Homeowner get their home back? If someone steals my car, then sells it to someone, does that person get to keep it? No. In fact, they can be charged with receiving stolen property — unless they can prove that they had no knowledge the car might be stolen. Of course, as long as the ptb keep this quiet, the new homeowners probably won’t know. But that doesn’t mean they get to keep the stolen property; that just means they have to sue the people who fraudulently sold them the home and other parties involved who should have known better.
The banksters are stealing our homes and property. EVERYONE involved knows this. How long are we going to keep making excuses for them? How many times are we going to reward these thieves? As long as it doesn’t affect us? As long as we can keep buying cheap houses? As long as we can keep telling ourselves THEY deserved to lose their house?
First they came for the Jews…
These questions may be painfully obvious to folks here but for some reason I can’t quite get my head around a few things with regards to CDOs.
I understand what was supposed to have occurred in the securitization of home mortgages (that the mortgage paperwork and indorsed notes for each home were to be conveyed to a trust within usually 90 days, that these trusts issued bonds/became MBSs and these were bundled into CDOs and sold to investors).
I’m wondering though (with what we know about the paperwork failing to make it into the trusts) how it was possible for the money paid by the homeowner to get to the correct investor(s)? Does this failure to convey the paperwork to the trust also mean that bond certificates may have been issued on essentially empty MBSs which were then packaged and sold, still essentially empty, as CDO’s?
By “empty” I mean that whatever it is these trusts/MBSs/CDOs may (or may not) contain it is essentially unspecified with no way of becoming specified.
This begs the question of the banks/fund managers intent at the outset when they created and sold CDOs. If they didn’t have the paperwork to bundle then what did they in fact have to sell? How could earnings ever be conveyed properly to investors? With some(many? all?)of the equity level/sub-prime investments failing within as little as 6 months time, it would seem that perhaps there wasn’t ever any intention to pay investors but rather an interest in taking their money and charging them fees for “managing” it.
The investment banks certainly did take the precaution to insure themselves against any losses with CDSs and perhaps that answers my question.
Lastly, was there ever a time during the housing bubble that the paperwork was properly conveyed and are there any CDOs that continue to provide returns to their investors?
If not, I just got a lot madder about the money paid as bonuses and through the AIG/Fed bailout that’s currently sitting on the books at the big investment banks.
In real estate saless the seller pays for the title policy. The buyer’s mortgage lender insists on having a mortgagee title policy to protect itself. This policy can cost several thousand dollars.
The property buyer can choose to buy a title policy if she or he wants to do so. Mine cost me maybe $150 (Texas – each state has its own rules on title policies and in Texas rates are regulated.) The reason mine was so cheap was that the title company had already done all the research at the county records office and had already analyzed all the documents recorded, so there was no additional work that needed to be done to sell me an owner’s title policy.
JInx – do NOT use a cashier’s check – only a wire transfer. True story, a friend of mine in the late 1980’s accepted a cashier’s check at a Friday afternoon closing and locked it up in his desk at work for the weekend.
On Saturday he picked up his morning paper and saw the bank who issued it had failed. He and his attorney went to the bank and visited with an FDIC person who told them they could get the insured amount ($100,000) and then just wait to see what became unavailable to “unsecured creditors” as the bank receivership was managed going forward.
As to your later question. In commercial securitizations the loan originators and others were prettycareful with the documents. In the residential mortgage market, the individual mortgage amounts were relatively small so the originators EVIDENTLY endorsed them in black, threw them in a file, and then just sent data filed with borrower names, principal amounts, interest rates, etc. to whoever was aggregating the loans for securitization. It appears that once the aggregators had enough to securitize, they just passed on that data to the REMIC (the entity that supposedly owns the loans and holds both notes and mortgages).
In all of this the loan servicers likely also just worked off the data “tapes” in order to send bills, accept payments and forward them on, send late notices, pay tax and insurance out of escrow, etc.
fyi – In the securitization business, it’s Excel files that transfer, not “tapes”, but many people in the business still refer to the “datatape.”
Thanks for the info. I really couldn’t tell if the securities would have any info on the collateral if the paperwork associated with the mortgages was never forwarded to the trusts. That answers my question.
they really use excel? not like Comma Separated Value files or whatever?
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People that are purchasing foreclosures are getting what is called a Bargain and Sale Deed…..and here is what they are facing:
A bargain and sale deed does not warrant against any encumbrances. It does imply that the grantor holds title to the property. Since it does not warrant good title from the grantor, the grantee could be in trouble if title defects appear at a later date. This type of deed is used frequently in tax sales and for foreclosure actions. As with the special warranty deed, other warranties can be conveyed in a bargain and sale deed if they are specifically stated.
karen1p – that type of deed would be okay if the buyer also got a clean title policy.
Why is Fannie Mae referred to as the lender? Is that correct?
Isn’t underwriter technically correct?
The servicer (Bank) initiates foreclosure proceedings with Fannie’s debt collectors.
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